Oregon inches forward with RUC for EVs from 2031 mandated (sort of)

The Oregon Senate has finally passed a transportation funding bill that at last extends the scope of Oregon’s light vehicle road usage charging (RUC) system around 10 years after MYOREGO was launched in 2015.

From 2031, electric vehicle owners in Oregon will be required to be on RUC (it is currently an “opt-in” system) or pay an annual fee of US$340 (which means it isn’t a requirement). RUC for light EVs will be charged at US$0.02/mile (US$0.032/km).

The bill also includes:

• Increasing state gas tax from US$0.40 to US$0.46 per gallon (US$0.106 to   US$0.122 per litre

• Increasing annual registration fees by between 66 and 90% (e.g. from US$43 to US$85 for cars)

• Increasing title fees (change of ownership tax) for car from US$77 to US$216

• Increasing registration surcharges for EVs and highly fuel efficient vehicles (intended to offset their lower gas tax consumption) from US$115 to US$145 per annum for EVs, and US$35 to US$65 per annum for cars with a higher than 40+ mpg rating (essentially hybrids).

• Doubles payroll tax used to fund public transport subsidies, for one year, from 0.1% to 0.2%.

It’s worth remembering Oregon has long has a weight-mileage tax – RUC for heavy vehicles, which also exempts those vehicles paying it from paying tax on diesel. This exemption is implemented by providing fuel retail outlets with proof of enrolment in the weight mileage tax programme. However, this is entirely separate from the RUC system for light vehicles.

Oregon was a pioneer for RUC in the US, running the first major studies and pilots from 2001 till 2013 and implementing the first revenue generating system on 1 July 2015. MyOReGO has been capped at 5,000 participants, but has been languishing in recent years with only 800 enrolled this year.  In the meantime, Utah, Virginia and Hawaii have overtaken Oregon in the scale of their light vehicle RUC programmes in the US.

MyOReGO charges participants US$0.019 per mile instead of the registration surcharge, but has not been extensively promoted for some time. Now it will come into its own, but Oregon Department of Transportation will need to review the current system as it moves to mandate it for EVs. Fo

Around 2% of light vehicles in Oregon are EVs.

For Oregon, this transportation bill is one of despration as it struggles to fund essential road maintenance and operations such as snow removal and graffiti cleanup along highways. Half of the revenue will go to the state budget with 30% to countries and 20% to cities.

Opposition to RUC comes from the “Move Oregon Forward” group which advocates for “climate and equity” claiming it “unfairly penalises” EV drivers, although it is unclear quite the basis for this.

The Bill is seen by some as being a temporary fix, it is clearly not going to be enough, but is a start. 

All in all, this is a positive move, although it is going to take some years before it is implemented and appears very unambitious compared to the likes of Hawaii which is mandating RUC for EVs from 2028. Given the many many times there have been attempts to advance RUC in Oregon over the past decade, it is clearly a significant step. Let's hope there is no further backsliding.

Would RUC for EVs harm sales?

With the State of Victoria's announcement of road user charging (RUC) for electric (EV) and plug-in hybrid vehicles (PHEV) there have been quite some claims from various circles about how allegedly damaging RUC could be for sales of such vehicles. 

According to The Guardian:

A coalition of car manufacturers, industry groups, infrastructure companies and environmentalists have branded the Victorian government’s proposed electric vehicle tax the “worst electric vehicle policy in the world”.

The more recent announcement about incentives to purchase EVs should help ameliorate this concern, but it remains a moot point as to whether RUC actually disincentivises purchases of EVs.

The incentives package is as follows:

• Subsidies for 20,000 EVs to be purchased, of up to A$3,000 per vehicle for vehicles priced under A$69,000;
• A$19m to be spent on EV charging infrastructure across regional Victoria;
• A$20m for a zero-emissions bus trial;
• A$10m to purchase 400 new ZEVs for the State's own fleet;
• A$5m for a Commercial Sector ZEV Innovation Fund; and
• A$298k for a study on "EV-readiness" in new buildings.

A report by the ABC (Australia) noted that there are only 7,000 EVs registered in the State of Victoria and 20,000 across Australia (for comparison this is about the same number as New Zealand, which has one-fifth of the population of Australia).

The criticism about the RUC came from an advertisement placed by a group consisting of Hyundai, Volkswagen, Uber, Jetcharge, the Clean Energy Council, Solar Citizens, Doctors for the Environment Australia and the Australia Institute.  

There may be legitimate concern about a lack of adequate incentives to purchase EVs in Australia, and that point is worthy of debate. Luxury car tax imposes a 33% penalty on "fuel-efficient vehicles" with a retail price of A$77,565, and could well be waived for such vehicles as it effectively penalises the mid to larger size EVs.  However, can a RUC of only A$0.025 per km really harm sales of EVs?

The Driven reports on a "preliminary study" from the University of Queensland that claims just that, claiming that it could hit sales by 25%. This report deserves some critical scrutiny. After all, when New Zealand RUC exemption for EVs ends (currently scheduled on 31/12/2021, but it may be extended), NZ (light) EVs will be paying the RUC of NZ$0.076 per km (about A$0.07). In Utah such vehicles are charged US$0.015 per mile (A$0.012 per km) up to an annual cap of US$120 (about A$155). In Oregon they are charged US$0.02 per mile. Hawaii, California, Washington State, Colorado, Minnesota, Delaware and Pennsylvania have all piloted (or are currently piloting) such charges, are they all about to do something that could dramatically undermine EV sales? 

Is RUC factored into the purchase price of a vehicle by consumers?

Jake Whitehead "an electric vehicle research at the University of Queensland who also works on the global stage with the International Panel on Climate Change (IPCC) and the International Electric Vehicle Policy Council" is cited as claiming that Victoria's EV RUC will be "perceived" as a A$4,000 disincentive to buying an EV.  This claim is highly questionable.  The report claims:

It would mean that, for example in the case of the petrol Hyundai Kona which costs $24,300 before on-road costs, the all-electric version would in effect cost $63,990 instead of its manufacturer recommended $59,990 price.

At a rate of A$0.025 per km, it is taking the cost of the RUC over 160,000km as a factor that vehicle purchasers take into account when buying a vehicle.  There is no evidence that this happens anywhere where RUC exists for EVs (or indeed any other vehicles now).  A parallel to this would be that purchasers of petrol powered vehicles make the same comparison when purchasing the car, based on the next 160,000km they drive based on fuel tax alone and the vehicle's average fuel efficiency.  So looking at a new petrol Hyundai Kona (which is actually listed at A$28,990)  its combined fuel efficiency is listed as 6.2l/100 (I'll assume the Smartstream G2.0 Atkinson engine not the Smartstream G1.6 T-GDi).  So for 160,000km it will use on average 9920 litres. At A$0.427 a litre, that means the price of the petrol Kona is "perceived by consumers" at around $4,235 more than the retail price (A$4658 if you include the GST on fuel duty). Who does this? I'd wager that next to no consumers do any sort of calculation like this, based on what taxes they pay on using the roads. Besides, the average car in the state of Victoria travels about 13,838km per annum according to Budget Direct.  So what this really means is that RUC on EVs will be a cost of around A$346 in a year (and for the sake of argument, for the petrol Kona it is A$367).  So the net impact is that the EV is still cheaper to own from a user tax basis.

At best this claim is only half-valid when it isn't compared to the fuel tax paid by other vehicles, but at worst it demonstrates that the real impact is a tiny increment, and certainly much less than the depreciation from simply purchasing the vehicle in the first place.  Note that Whitehead is quoted in the AFR as noting the average annual distance driven is around 13,000, so he is not unaware of this statistic.

Will EV RUC reduce the supply of EVs?

The report claims that a whole host of incentives would increase EV sales, mainly subsidies on electricity, exemptions from other taxes and tolls. However, the report has a series of claims that without seeing the actual paper itself are difficult to completely assess. One is that RUC would effectively mean that manufacturers would "withhold supply" of EVs to the Australian market because they would be "difficult to sell".  The evidence for this is unclear, but there is little sense from EV suppliers that would pull out of NZ when its RUC exemption lapses (and results in EVs in NZ being charged three times what they wil lbe in Victoria).  There is a disincentive for EU manufacturers selling outside the EU when they face penalties for selling internal combustion engine (ICE) powered vehicles (and get credits for selling ZEVs), outlined in this article by the ABC, but it seems unlikely Australia could fully offset this without parallel subsidies. In effect, Australia's market is fighting against governments with deep pockets, and that is a wholly different political issue.

The report claims that "EV owners already pay a significant amount in road taxes under the current model" which for an academic paper is really only a value judgment when it is clear that this "significant amount" is a fraction of what other vehicles are charged. A petrol Hyundai Kona will be charged A$834.80 in registration fees in Victoria, but an electric one will be charged A$100 less.  What the report claims is that they then pay a "significant" amount, when they pay nothing in fuel duty, whereas the petrol Kona will be around A$367 per annum based on average usage.  

What is the basis of this research?

The report from The Driven doesn't contain details of the methodology of the University of Queensland paper.  However, The Guardian in November 2020 did reveal that:  

Whitehead’s study, which has not yet been peer-reviewed and has been released earlier than planned in the wake of the state government announcements, included a survey of 500 Queensland households on their preferences on road pricing.

They found a 2.5c/km tax was seen as being equivalent to a $4,500 increase in a vehicle’s purchase price. By comparison, a $5 congestion tax charged on driving in inner-city areas, capped at $15 a day, was seen as equivalent to adding $2,800.

So the basis for the modelling in this report is a stated-preference survey (which has not been revealed) which has somehow led those surveyed to conclude that they would perceive EV RUC as being around the same as driving 156,000.  This is equal to 11.5 years of vehicle ownership. Do consumers also look at registration fees over that period?  Do they look at maintenance costs or indeed more important than all of these the relative fuel costs vs. electricity costs of a petrol vs. an electric vehicle, over this period?  Sure they will consider it in a shorter term, but over 11.5 years?

Even more absurd is the idea that the study could model a stated preference survey for congestion charging.  If this is seen as $2,800, assuming this is based on a similar period as the A$0.025 of RUC (11.5 years) then it is assumed the average driver enters the congestion zone, 49 times a year.  This is an odd figure, as a regular commuter to such a zone might be assumed to enter around 200 times a year, whereas most other drivers might enter it rarely (in London around half of all vehicles entering its congestion charge zone only do so once every 6 months).  The point then being "so what"? Why would it be a GOOD thing for EVs to be exempt from driving into downtown Brisbane or Melbourne?  They cause congestion, that congestion increases emissions for other vehicles (including commercial vehicles with fewer choices), and Australia's major cities are heavily focused on encouraging public transport and active modes for travel downtown, not cars?  London has announced that the ZEV 100% discount for its congestion charge will be abolished in the end of 2025. Cars generate congestion after all.

In short, the basis for the study that claims that Victoria's A$0.025 RUC would somehow devastate EV sales and emissions targets appears to be flimsy.  It isn't necessarily surprising that automotive companies are happy to go along with these claims, but for a "think tank" to align itself with such research is disappointing.

Conclusion

There is a valid debate to be had about how Australia at state/territory and Federal levels about incentives for purchasing EVs. Victoria's recent announcement seems to clearly indicate that its RUC for EVs and PHEVs is only part of its policy package, and should ameliorate concerns.  However, the case for RUC for EVs is clear, in that it is easier to introduce such a policy when vehicle numbers are low, so that the message that EVs do not get to use the roads for free is clear.  There are obvious benefits for replacing petrol and diesel vehicles with EVs and PHEVs, in terms of improving local air quality and reducing greenhouse gas emissions from vehicle use, but there are also benefits in sending direct road use cost signals to road users in the form of RUC.  This can be lower than fuel duty, and it is a step in the right direction for hypothecate such revenue initially to support capital spending on EV infrastructure and then the road network. Longer term such vehicles can reasonably be expected to be paying their fair share of the total costs of maintaining and developing the road network, and as such not to be cross subsidised by others, nor to have inappropriate signals sent about driving in an urban environment, such as having an exemption from any future congestion charges.

Congestion pricing - the United States awakens

Singapore pioneered a basic form of urban congestion pricing in 1975, and introduced what is still the most sophisticated, economically rational and effective congestion pricing in the world in 1998, called ERP (Electronic Road Pricing).  In 2020 it is transitioning its operating technology to GNSS On Board Units (albeit to initially apply the same mix of corridor and cordon charging as applies today, but with the focus on delivering more information about pricing, traffic, parking and alternative modes through the system).

However, if you've been following the recent very public debates and commentaries about congestion pricing in the USA you'd be excused for thinking it is new and innovative.  Innovative it is, it is just that the US has come a bit late to the concept, but what is driving it is not so much congestion, but the desire to use congestion pricing to raise revenue - typically not for roads.

For many years congestion pricing in the USA has largely been referred to in the context of express/HOT/toll lanes. Although such lanes offer options to pay to bypass congestion on some highways, they are not "comprehensive" in addressing congestion and more importantly are not technically able to be implementing except on roads with limited access. In most cases they have been implemented by converting high occupancy vehicle lanes to HOT/toll lanes. It is rarely economic to build new lanes and charge just for them (because there is insufficient willingness to pay for the capital costs of new capacity, particularly when such capacity may only be utilised for short periods during weekdays), so HOT/toll lanes are rarely seen outside the USA.

The positive example of toll lanes is that they demonstrate that the instrument of price is effective in managing demand so that a road can operate in free flow conditions, but of course such lanes are not practical on most roads and they always have an unpriced alternative.  At best they offer an option in some cases, and demonstrate the concept.

So full congestion pricing has not been seen in the US to date. By that I don't mean having peak pricing on an existing toll road to spread demand on that road (this is seen on many crossings, such as the Golden Gate Bridge, E-407 Toronto and the Sydney Harbour Crossings), but rather pricing of a network or placing a cordon (either on its own or as an area charge) on a zone, with priced access at set times/days.

This isn't common as all. Although there are many low emission zones in European cities (which prohibit or heavily charge vehicles that don't meet low or ultra-low emission standards) and restricted access zones to cities (this is seen in many Italian cities, keen to preserve historic centres of cities ill suited to large volumes of vehicle traffic), the only cities that charge a network or a zone for access on a significant scale are:

- Singapore

- London

- Stockholm

- Gothenburg

- Milan

- Dubai

- Tehran.

There are a handful of smaller examples, Oslo transitioned from a cordon set up for revenue raising to one that has a congestion management purpose now, but by and large congestion pricing is hard to implement.  It's been investigated in multiple cities in the UK (Bristol, Cambridge, Leeds, Manchester, Edinburgh) and elsewhere in Europe (Dublin, Amsterdam, Copenhagen, Helsinki), but has always come up against one major issue - public opposition.


What has woken up the US?

How about the US then? Suddenly cities, states and the media have discovered congestion pricing because of one simple reason - New York is going to do it. This follows previous attempts to introduce it, most notably by former Mayor Michael Bloomberg, who had his proposal for a cordon on lower Manhattan vetoed by the State Legislature.

The New York Senate and Assembly have approved it, along with the State Governor. The details are to be worked out by a new Traffic Mobility Review Board, but it is essentially a cordon that starts at 60th St, excluding FDR Drive and the West Side Highway. All of the net revenue is to spent on the public transport network, specifically the subway, bus network, the Long Island RailRoad and Metro-North. Private cars are only to be charged once a day, whereas ridehailing/sharing and taxi services are already subject to a surcharge of between US$0.75-US$2.75 per trip, depending on the service since 2 February 2019.  Although Charles Komanoff indicates that the effects will be much less than promised (still a 2.5% increase in average traffic speeds is worthwhile).

Some of the details to be worked out include:

· Charge rates (will they vary by vehicle type)

· Area charge (will vehicles be charged for circulating within the cordon as well as or separately from crossing the cordon)

· Direction of charge (will there be a charge for entering AND exiting the cordon)

· Time of operation

· Variation of charge by time of day

· Discounts and exemptions (it might be fair to assume that emergency vehicles and NYC transit vehicles might be exempt, but will the ride hail/share surcharge liable vehicles be exempt too)

· How those entering lower Manhattan on tolled crossings will be treated

New York is basically implementing a simple charge, primarily to raise revenue for other modes, so it will be interesting to see what impact it has and whether it is designed to spread demand by time of day, as much as it is to raise revenue. It will clearly be a trailblazer, although it is unlikely that other US city has either the density of public transport or geography to lend itself to a relatively simple cordon as the solution.

What about the rest of the US?

San Francisco has studied charging before, and looks like pursuing it again. The San Francisco County Transportation Board Authority voted earlier this year to spend US$0.5m on a study of downtown congestion pricing, suggesting that it has already decided that a downtown cordon is worth pursuing. It will be interesting to see what impacts that might have, and particularly how boundary issues are addressed. The San Francisco Mobility Trends report indicated that "vehicular traffic entering San Francisco grew 27% since 2010, although public transport use also rose 5% and cycling by 6%, on a 9% population increase (indicating that the growth in population is pushing a big increase in driving), with a decrease in private car travel speeds by 23%. It's hardly surprising that pricing access to downtown is a priority, although hopefully it will mean pricing that varies by time of day.

Los Angeles has already had a study released by Southern California Association of Governments (SCAG) which proposed a pilot cordon at Westside LA, for a number of reasons (see page 94 of the below report).

Proposed Westside LA cordon from SCAG study

 The Mobility Go Zone and Pricing Feasibility Study indicated that it could result in a 19% drop in private cars entering charged zones, and a 9% mode shift to public transit, with 7% each to walking and cycling. Whilst this might be a good place to start, LA is going to need a much more comprehensive solution to address congestion across the region. LA Metro is about to launch a study that looks more widely at options, with the intention that pricing would support a package of improvements to public transport and active modes.

Boston, Portland, Seattle and Washington DC are all considering congestion pricing, which has to be welcome. The US has gone through a couple of eras in urban transport policy, from the 1940s to the 1970s the focus was almost entirely on building roads to meet demand. That has tailed off, with a focus from the 1970s of building (mostly rail-based) public transport infrastructure to try to attract motorists from their cars, in other words supplying alternatives. More recently, cycling has had a boost in some cities, but the primary argument in all cities is one of what to supply, rather than how to manage existing demand and supply.

Oregon Road Usage Charge - some background

Often ignored in Europe and elsewhere, is the admirable progress made in the state of Oregon towards rolling out road user charging (called "road usage charging" to add to the lexicon of road pricing).  Oregon is, now, charging (some) cars, for using all of the roads across the state, by distance.  Only New Zealand, with the application of its weight and distance based Road User Charge has a parallel (as all diesel powered vehicles, including cars, prepay blocks of distance to use public roads there).  However, unlike New Zealand, which is a charge focused on heavy vehicles, which also captures light ones (because of the absence of diesel tax), Oregon is focused on light vehicles that have very high levels of fuel efficiency (including no consumption of fossil fuels).   It has its eyes very much on the future, as it sees this as replacing fuel tax.

The Mileage Based User Fee Alliance (MBUFA - yes "mileage based user fee" adds to the lexicon, unfortunately) has released its latest newsletter, which handily outlines what it calls the "myths" of the Oregon scheme.

Those on the mailing list for MBUFA got this, but it is unfortunately not accessible on MBUFA's website.   So I have replicated it below, in full (emphasis added where relevant).  Apologies for the US English, commentary follows.

BUSTING MYTHS ABOUT OREGON'S ROAD USAGE CHARGE PROGRAM

The Oregon Department of Transportation is first in the nation to create a per-mile charging system (thanks to Oregon's 2013 Senate Bill 810) that will help fill the widening gap in transportation funding anticipated with declining fuel taxes and rising construction costs. The Road Usage Charge Program will assess a charge of 1.5 cents per mile for up to 5,000 cars and light commercial vehicles and issue a gas tax credit to those who volunteer to participate.

Opinions on this funding model vary, from generally positive to vehemently opposed. And there are many misperceptions about what the program will do. Reactions like these were considered carefully by ODOT and the Oregon Legislature before deciding to implement the program. Next time you come up against a myth about Oregon's Road Usage Charge Program, consider the following.

Myth: It's a new tax, on top of everything else the government charges.

Fact: The road charge works as a replacement for the gas tax, not an additional tax.

Participants in the Road Usage Charge Program will receive a credit of gas tax paid while they are in the program. The system will calculate gas consumed and gas tax paid as it also calculates the per-mile charge. If the two are equal, the motorist pays nothing. If the gas tax paid exceeds road charges billed, the driver will be eligible for a refund. And if the road charge exceeds what was paid in gas tax, the balance will be due from the motorist.

As it stands, the gas tax is becoming obsolete as vehicles consume less fuel. Over time, older vehicles will phase out and the entire fleet of vehicles will become highly fuel efficient, vaporizing the gas tax. Oregon's Road Usage Charge Program is a fair and sustainable funding model that will ensure our roads are maintained safely for every motorist well into the future.

Myth: State government will now track your whereabouts with GPS.

Fact: GPS is not required to participate in the program.

Senate Bill 810, which created the Road Usage Charge Program, does not require GPS. In fact, it demands that at least one mileage reporting option not use GPS, and that motorists be given choices for the devices and reporting services they will use.

With the advent of the smartphone in 2007, many consumers have become more comfortable with GPS technology because it gives them immediate information and services at their fingertips. They may like the convenience that a GPS-enabled device offers for road usage charging-no need to switch "on" or "off" when traveling out of state or on private roads; miles are automatically recognized as billable or not. Other folks are not as comfortable, and they will exercise their choice to not use location-determination technology. Whatever their choice, having options empowers participants to select the plan that best fits their lifestyle and driving habits.

Myth: It is a disincentive to owners of fuel-efficient vehicles.

Fact: These drivers favor the fairness of road use charging.

In ODOT's focus group research (2012-13), electric vehicle owners tended to be in favor of road use charging. They appreciated the fairness of the model as they voiced their concern for maintaining our roads (on which to drive their new vehicles). They agreed that motorists should fairly pay for the roads they use.

While a road charge would be a new bill for them to pay (instead of paying tax at the pump, as they did with their old car), savings in fuel consumption far outweighed the prospect of a road charge. They were just thrilled to not have to visit the pump anymore! Also, multiple incentives were known to be available for purchasing fuel-efficient vehicles, state and federal, which added up to thousands of dollars against the purchase price.

When faced with the realization that the gas tax places greater financial burden for maintaining our roads upon less affluent drivers who purchase vehicles in the secondary market (less fuel-efficient), the logic of a per-mile charge became clear. Some said, "I want to do my part."

Turns out, every driver wants good and safe roads to drive on, no matter what car they drive.

Myth: It's unfair to rural Oregonians who drive longer distances.

Fact: Every driver is different, with no significant net difference between rural and urban.

Some say it would be unfair for rural drivers to pay a road usage charge because they must drive longer distances to do basic things such as go to work, school, medical appointments and the grocery store. While this may be true for some rural drivers, nearly all Oregon motorists already pay a distance-based tax-the fuel tax.

But the fuel tax is not a perfect proxy for road use because it imposes a higher cost per mile on people who drive less fuel-efficient vehicles. Some drivers-for example, those with working vehicles such as pickup trucks-pay much more per mile than others. Someone driving a Ford F250 15,000 miles a year pays $410 in Oregon fuel taxes whereas a Toyota Prius driver pays $90 for traveling the same total distance.

Recent ODOT surveys found no consistent theme for rural driving. Rural drivers are actually quite diverse and have many travel behaviors. Some live in towns or close to them while others live far away on working properties. Some drive short distances and less than urban drivers while others drive longer distances and more than urban drivers.

Bottom line, extremely rural Oregonians reported driving much longer distances for medical appointments and shopping, but that was offset by less frequent trips than their urban counterparts. The net difference? Not much. 

                        

Myth: A government-run system is certain to be problematic and cost a lot of money.

Fact: The program uses private sector vendors to provide high performance at low cost in a competitive, open-market system.

It's true that the cost to collect Oregon fuel taxes averages about 0.5% of revenue-a real bargain! That figure reflects a fully operational, mature program with three million vehicles. And it excludes capital costs associated with establishing the system back in 1919 (Oregon was the first in the country to implement the gas tax, too.)

Operating costs for the Road Usage Charge Program will start out high but using private vendors to manage collection will reduce system costs over time. ODOT expects vendors will use the per-mile charging system as a platform for marketing other products and services, such as pay-as-you-drive insurance, tolling, and travel concierge-or perhaps those services would serve as a platform for the road charge. Many of the costs of system implementation and operation would be borne by the industry, and their customers could benefit from value-added services, discounts, and open-market innovation and upgrades.

It's worth the investment. As the number of program participants grows and the market for value-added services expands, costs will decline substantially. ODOT estimates when the number of road usage charge payers reaches one million, operating costs will drop to below five percent of gross revenues per month.

What's more, by enlisting private sector companies to provide technology and billing service options, program participants will benefit from innovation that is naturally driven by the open market (versus a "closed" system entirely run by the government).

The "connected car" is becoming reality. Many vehicles already have factory-installed telematics systems that could be used to wirelessly report miles driven. In time, motorists may be able to simply drive and receive a bill by email that is bundled with other services, such as insurance, cable, parking or mobile phone charges. They would pay online via smartphone and roll on!

Looking Ahead

Years from now, the road usage charge model could transform the way Oregon drivers pay for the roads they use every day. It offers a way to equitably assess fees based on the value a motorist gets from the public infrastructure. And because technology is advancing so quickly, the system can maintain privacy even while delivering higher levels of service and more seamless ease of use.

No solution, not even Oregon's, can address every set of circumstances. Still, Oregonians are proud to be blazing a new trail-high-tech, responsive and practical-keeping alive our tradition of innovation that stretches back to the days of sputtering Model-Ts, roads of mud, and the nation's first gasoline tax.

My commentary

Let's be clear about what Oregon is not.   It is not a congestion charge and there is no sense that this will be a precursor to charging by time of day or location (although in the long term it is possible to conceive of pathways towards that).   What it is doing is shifting from payment of roads through fuel tax to paying for them directly, by actual use.  It demonstrates a path forward for jurisdictions that wish to transition from fuel tax (or indeed could do so with vehicle ownership/licensing taxes) to usage based charging.

Yes the Oregon scheme has a limitation, with a cap of 5,000 vehicles allowed to move onto this system.  Hopefully, the politics behind this will mean that the cap can be removed in due course, and there can be some expansion of the programme further.

Washington State and California are both watching Oregon closely, and have been undertaking their own work to develop charging programmes.  It is far from inconceivable that both will move forward in broadly similar ways, and if the entire Pacific seaboard of the United States is starting to charge cars by their actual use of the roads, maybe it will be time for other countries to catch up?

A small step for Oregon, a giant leap for the United States

The Oregon State Legislature has now passed the first legislation to allow for the implementation of a distance based road user charging system for cars on existing roads, in the United States.

Extensive background about the Oregon system was written and linked to in these articles:

Advocates of distance based road pricing look to Oregon in the coming months

Oregon progresses pilot of vehicle mileage tax

The SB810 Road Usage Charging Bill passed the Oregon State Senate by 24 to 6.

It passed the Oregon State House of Representatives by 48 to 12.

It now awaits the signature of Governor John Kitzhaber, who is understood to be fully supportive.

What it means is that Oregon will be implementing distance based charging for ultra fuel-efficient vehicles (those with greater than 55 MPG fuel consumption).

This provides a benchmark approach that some other states are likely to follow, whereby a small number of road users - those which pay little to no fuel tax - will be paying to use the roads directly.   It offers a long term path to shift vehicles from taxing energy use, to taxing road use.   Most Oregonians will notice nothing, unless they purchase such fuel efficient vehicles, and over the next decade or two, more and more will.

I don't have to explain to readers what a significant evolutionary step this is, and how long term the policy is.  A stark contrast to the approach of some states and countries.

I will be open, that I played a very small part in this project a couple of years ago, assisting the team at D'Artagnan Consulting LLP, which has been one of the key firms advising and developing the system architecture for the Oregon Department of Transportation.

However, those who know this project understand that it is, in particular, through the efforts of Jim Whitty - Office of Innovative Partnerships and Alternative Funding Manager at Oregon Department of Transportation - who over some years, with his team, have taken the best experience from across the US and across the world (dare I say that sometimes Americans can be accused of minimising the relevance of experience from other countries, Whitty did not), to develop a solution for Oregon.

I congratulate Jim his team, both within ODOT and his advisors and consultants, on this landmark success.

ODOT Road User Charging website

Advocates of distance based road pricing look to Oregon in the coming months

I've written before about Oregon's efforts to develop a Vehicle Mileage Tax intended for the most fuel efficient vehicles to replace its fuel tax.  It has successfully run a pilot of various technologies and systems, with the intention being that it become a mandatory requirement for all vehicles with a fuel efficiency above the threshold of 55 Miles per Gallon (5.1 litres per 100km).   Key is choice, with there being technology and non-technology options, with both private and public sector provided options.

It is expected that there will be vote this week in the Oregon House of Representatives for House Bill (HB) 2354B in the House Revenue Committee.  The expectation is that it will be passed onto the Joint House-Senate Ways and Means Committee.  HB2354B identifies all vehicles that get an estimated 55 MPG or better being subject to distance based tax.

In the Senate, there is a Bill (810A) that provides for a volunteer programme of 5,000 to choose to pay on a distance basis in the state.  

It may be that the Bills will merge meaning that (guess) all vehicle 55MPG or better get taxed up to the first 5,000 that want to volunteer (although I'm unsure quite why many would do so).   If it were up to me, I'd start off with all newly registered vehicles (there are hardly any in that category now anyway).

The House Bill needs a 60% majority because it is a new, mandatory, tax measure. The Senate Bill, because it authorises a voluntary measure, only needs a simple majority to pass.

Whatever happens, one of the bills or a merged one may go for a vote in the next month or so.  That would authorise the implementation of the first VMT/distance based road usage charging system in the USA for cars.

It would be a huge step in policy, albeit a small impact on almost all Oregonians. However, it would provide a basis to protect future revenues for highways in the state.  As vehicles become more and more fuel efficient, more will shift from paying by fuel tax to paying by distance.

If Oregon demonstrates that this can be done, in a way that largely has public acceptability, that doesn't threaten privacy or mean people are paying more than they should for roads, then it opens the door for other US states (and other countries) to start making this transition. 

Mileage Based User Fees - what's going on in the US?

Mileage Based User Fees (MBUF), Vehicle Mileage Taxation (VMT), distance based charging, distance based road user/usage charges, these are all different terms for essentially the same thing, which to me is simply road pricing with the base chargeable event being distance.

I attended and spoke at the IBTTA's Transportation Finance and Mileage-Based User Fee Symposium in Philadelphia a week ago (which explains the gap in blogging). Whilst the presentations from that Symposium will shortly be available here, I thought I'd give a quick summary on some of the interesting points I picked up from the occasion.

It's worth noting that the Mileage Based User Fees Alliance (MBUFA) has a new website with some useful content including "five myths".  It should be a useful platform for updates on the development of distance based road pricing in the United States, as various states pursue different approaches to this solution for raising revenue to pay for roads.  I met Barb Rohde, Executive Director, who is enthusiastic about MBUFA, and I sincerely hope it shows the baton of developing such systems is moving more clearly from Europe to the United States, which faces some different challenges (as in Europe many such systems have been in addition to existing charges and have only been applied to heavy vehicles).

I obviously did not go to every session, so my summary really only notes a few points I wasn't previously aware of.  As usual, if anyone has a different recollection or believes the statements below are not true, I'd appreciate any comments:

30 June 2013 is key for Oregon, as it will be the point by which the state legislature ought to have passed the bill to authorise the introduction of distance based charges for ultra-fuel efficient vehicles (all vehicles with fuel efficiency of greater than 55MPG).  If it does, then Oregon is on the way to being the first state in the US to introduce distance based taxes for cars.  If not, then it is expected that further work will be done on the proposal (as it is not significantly controversial at present).

More people are killed in road accidents in California due to poor road maintenance, than from alcohol or drug use while driving combined (not directly a fault of road pricing, but ought to cause some serious rethoughts of the state's governance of highways).

Pennsylvania is increasing fuel tax by 5c/gallon (1.3c/litre) per year for the next five years, all of which is to be dedicated to transport funding.  78% to roads, the rest to public transport.  This in itself wont be enough, and will be supplemented by tolls where feasible.

The Pennsylvania Secretary of Transportation, Barry Schoch, said that he would surrender 12c/gallon in gas tax if he could be allowed to toll the interstate highways in the state.

Former Governor of Puerto Rico, Luis Fortuno, said that the territory did not look to the United States to provide a model of PPP type funding for highways, but rather Canada, the UK and Australia provided the most relevant and useful experiences.  I've written previously about Puerto Rico's radical approach to privatisation of its tolled highway network.

Sweden is currently looking at using existing interoperable DSRC toll tags in foreign vehicles travelling in the country to apply the congestion taxes of both Stockholm and Gothenburg to foreign vehicles.  In both cities, foreign registered vehicles are exempt.  Many Norwegian registered cars have toll tags (given Norway's extensive toll road network).

Conclusion

Overall, a lot is riding on Oregon, with Washington State following close behind and increasing interest from the likes of California.  Whilst work has been done in Minnesota and Colorado, it doesn't appear that either state is very close to making progress in distance based charging.   The biggest conclusion I derived from the event was that quite a lot of states are interested and following what is happening, but few are willing to do more than investigate options at this stage.  Certainly one trick few have noticed is that distance based charging could be lucrative in charging transit traffic.

A few states have moved on increasing "gas tax" or using other taxes to help plug the gap, but the bigger trend does appear to be more use of what I would call "conventional" tolling - using tolls to help fund new infrastructure by tolling the new infrastructure itself.  There is also interest in using existing toll facilities to cross subsidies adjacent roads.

If Oregon presses forward, I expect momentum to come from Washington state and possibly California (although it is far more difficult there).  I also expect other states to start to show serious interest in distance based charging as an option.  If it stalls, the problem of revenue will remain, but I still expect many states to expand the use of tolling regardless.  That remains an option for many (and most states still have more scope to use tolls) and states such as Texas and Florida remain at the forefront of expanding tolls.

What is sadly lacking in all of the debates around revenue for roads in the US is discussion about governance, delivering better value for money in road maintenance and construction programmes and moving to distance based pricing because it is fairer and will result in more efficient economic outcomes (even ignoring charging by time and place).

Moving to charging motorists directly according to usage and away from proxies like fuel tax means some serious additional questions need to be asked:

1.  What should be the basis for the level and schedule of charges?  The default has been to match existing gas tax levels, but it would make far more sense to understand what levels of revenue are needed to maintain and improve highway networks, and how to allocate the cost of doing this amongst groups of road users.  That debate simply doesn't happen, and currently means significant transfers between different taxpayers/road users on grounds that are far from efficient.

2.  What should decide on what such revenue should be spent on?  The default has been to assume that the predominantly engineering based assessments of what is needed is an efficient and appropriate measure of future spending.  This seems difficult to sustain given that these assessments are not based on market or commercial measures of optimising expenditure, returns or costs, but rather bureaucratic/political measures which in most other sectors it would be recognised as being inferior.   Giving motorists confidence that they are getting value for money is critical to building support for user charges, and to do that there needs to be greater involvement of the private sector, more commercial imperatives in decision making and a withdrawal of politics from decisions on specific projects.  Longer programmes of expenditure, dedicated budgets over multiple years and performance based contracting and asset management systems (all of which are the norm in some other developed countries) could save up to 20% of the costs of maintenance.  Motorists and taxpayers are right to ask if money is well spent, I'd be astonished if a serious investigation into applying global best practice didn't show scope for significant savings in spending on US highways.

3.  What sort of entities should be operationally responsible for US highways in the future?  This follows the previous question, but comes about when there is a new relationship between road users and road providers.  When people are charged directly for road use, they will expect customer service, they will make queries and complaints.  They will want a better service than they currently get for licensing vehicles and drivers, and it is an opportunity to use the feedback from that relationship to improve how roads are managed.  I doubt very much whether traditional DoT structures are the best way to achieve that, and that the possible options include looking at establishing separate stand alone agencies, with independent boards supervised by DoTs, as a first step to developing fully professional providers of highway services.

Meanwhile, there is plenty of cause for the US to be proud that it is having this debate.  There remains a climate of denial over declining fuel tax revenues in Europe.  In Australia the debate has emerged, but hasn't quite progressed as far (although Australia's governance of highways and system of setting charges is more sophisticated than what is seen in most US states).

May the debate continue, may Oregon progress and may more US states start to ask the hard questions about revenue options, but also the more difficult questions I have listed above.  You cannot separate revenue raising, from charge setting, expenditure management and highway governance and expect to make transformational changes.

Oregon progresses pilot of vehicle mileage tax

The State of Oregon has long been seen to be the US leader in distance based road usage charging, also seen by others in North America as VMT (Vehicle Mileage Tax) or MBUF (Mileage Based User Fees).  

TV station KMTR reports on its website (with TV footage) about the Oregon Department of Transportation (ODOT) pilot programme involving 50 people paying per mile.  

It is part of its efforts to develop a system so that vehicles not powered by fossil fuels or that are, but are very fuel- efficient (e.g. hybrids) pay a fair share of the costs of using the roads.  The concern is that the US$0.30/gallon (US$0.079/litre) gas tax (state not federal gas tax), which is mostly hypothecated to road spending, is unsustainable as the vehicle fleet transitions away from conventional engines.  The fear is a 25-60% reduction in revenue over 25 years.

Oregon projections of eroding fuel tax revenue

The pilot involve the 50 participants being billed US$0.0156 c/mile (US$0.009 c/km) based on their mileage being measured by different means.

The options available include:

- A state provided option of a mileage measurement device (could be odometer) that measures all distance regardless of location (including out of state);

- A state provided option of flat pre-payment of US$45 a month (equal to over 2,500 miles a month);

- A private service provider option of paying miles accumulated per month as measured by basic means (i.e. odometer), but with more payment options than the state option.

- A private service provider offered option with an onboard unit incorporating GPS, to identify when a vehicle is out of state or driving off of public roads (and so not liable for VMT);

- A private service provider offered option with a smartphone based application, providing a similar service.

If successful, and the legislature agrees, then from 2015 all new vehicles in Oregon with an Environmental Protection Agency estimated  fuel efficiency of 55m/gallon or higher will be required to pay the VMT.

Those vehicles that get an estimated 55mpg or higher that do use fossil fuels, would still pay the gas tax when filling up, but would get a refund based on their mileage driven and the vehicle efficiency rating, which is interesting, but presumably is a way of not over-refunding.  Bear in mind that the VMT tax rate for the pilot is very low, and will need to be higher over time to be commensurate in value to the gas tax.

The pilot ends in February 2013, so it will be interesting to see what the conclusions will be.  A report to the legislature is due out in February, and a complete evaluation report will be released later this year.

ODOT has a website about the pilot project outlining the details and reports behind the programme.  There is even a blog set up so participants can write about their experiences.

The excellent frequently asked questions section includes comments that ODOT has been replying to.

Comment

Oregon remains at the forefront of developing a future source of revenue from road vehicles in the US. The efforts are focused on the most fuel efficient vehicles (and those that don't use taxed fuels), and are based on the philosophy of choice, with both state and privately provided options to pay.  Having no compulsory GPS unit, and not state provided GPS unit are both important for privacy, with the option to simply pay a flat fee every month or to pay for mileage recorded by means that do not include GPS.  The concept is one of “User Choice” to select the means to report the mileage and the agency the user trusts to do so. Certified Service Agents are part of the overall system concept to help provide privacy protection and lower operating costs.  That is a testament to Jim Whitty, the Office of Innovative Partnerships and Alternative Funding Manager, who has been leading these efforts for some years.

Disclaimer - I worked on this project for D'Artagnan Consulting.

Distance charging replacing fuel tax?

Only six years ago talk of road pricing in the US was rare beyond conventional tolls and HOT lanes. Now the big talk is about replacing fuel tax with some form of road pricing and today it is Oregon that has so far led progress on that front with its trials of a system that would charge per mile, and refund fuel tax at the petrol pump.  Such a system would be ideal in principle for a transition away from fuel taxes.

Oregon is progressing investigation of the introduction of a distance tax on electric cars, as a first step toward dealing with the long run erosion of fuel tax revenues because of the growing efficiencies of the vehicle fleet. Oregon sees the obvious first place to start being vehicles that don’t pay fuel tax now, followed by those that pay much less than others (i.e. plug-in hybrid vehicles).  The other point being that it need not worry about the complication of introducing a refund for fuel tax for vehicles that either don't or hardly pay any fuel tax now.   Office of Innovative Partnerships and Alternative Funding Manager Jim Whitty of Oregon Department of Transportation is now recognised in the US as being one of the leading officials in driving this programme at the state level, and the efforts there are being keenly watched by states as far apart as California, Minnesota, Texas, Florida and New York

What is driving this? Quite simply a combination of the political unacceptability of continually raising fuel taxes, and chronic levels of underinvestment in much of the US road infrastructure. Maintenance, let alone major capital works are becoming more difficult for many states as they face declining fuel tax revenues, not just because of the economic situation, but because the vehicle fleet is getting more fuel efficient.

You might think the obvious response is to increase fuel tax, but this does not provide a fair answer for electric vehicles or hybrids, which use the road network but may pay half as much as conventional vehicles. It also doesn’t take into account the level of antipathy towards raising fuel taxes in a country where a significant proportion of voters do not trust politicians to spend such taxation wisely.

Yet distance charging obviously provides a platform with the potential to do more than just charge a flat rate for road use. It also would allow variation of charges by time and place, ultimately meaning congestion pricing could be introduced where viable. However, no US state is talking that far ahead. The acknowledgement is that while the potential is there to do truly efficient road pricing, for now the interest is in replacing fuel tax. The question I have is not why the US is having this debate, but why the idea of replacing fuel tax remains alien to Europe (where road user charging to date has always been in addition to fuel taxes), when it faces the same challenges of declining revenues due to vehicle efficiency. Is it just that European motorists tolerate very high fuel taxes more than Americans?

Australia is starting to have the same debate as the USA, and it is not driven by revenue problems per se, but the distortions inherent in raising more revenue from fuel tax.  Australia has barely noticed the global financial crisis as its economy has been buoyed by high demand for minerals from China, it has low public debt and its infrastructure is in good condition.  However, urban congestion in major cities has been getting more serious and whilst its three largest cities all have several toll roads (mostly using electronic free flow technology) that serve as major arterials, and extensive rail, bus (and in Melbourne tram) public transport networks, it is becoming clear that future revenues may be better obtained by a transition to network based distance charging.

Why?  Well besides the slow decline in revenues from fuel tax due to growing vehicle efficiency, it is a recognition that introducing congestion charging in new world cities the London, Singapore or Stockholm way is likely to be very limited in scope.  The reason being that travel and commuting patterns are not dominated by suburb-CBD movements, but by a massive cross cutting series of trips around, within and across the metropolitan areas.  A downtown congestion charge in central Melbourne would relieve traffic congestion in central Melbourne and on its approaches, but do precious little for most of the city.   To deal with wider congestion will require a network approach whereby all vehicles in a city pay according to the roads they use, not just for crossing an engineering driven cordon.  The key risk with cordons being the distortion they present for those making a short trip across them.

Furthermore, Australia recognises the value of shifting from fuel tax to distance charging for trucks, given the heavy loads and vast distances travelled on a network that, outside the cities has relatively low densities of usage. 

The most recent tax discussion paper from the Australian Federal Government raises both congestion charging and heavy vehicle road user charging.  I expect the Australian Federal Government to leave congestion pricing to the states, and hope they make the first move on doing what they can there, but for a bigger push to come on heavy vehicles across the country.   It is only the heavy vehicle angle that offers a chance to extend into light vehicles including cars in due course.  The appetite for localised congestion pricing schemes in major cities is not high, and if done would likely require a multi-zonal approach to try to avoid the distortions inherent in a single cordon type system.

Still, the important thing is that Australia is recognising fuel tax is achieving diminishing returns from road vehicles, and so the need to have a long term sustainable revenue source from road users is starting to come together with the long recognised economic arguments in favour of road pricing to ensure all heavy vehicle users pay their fair share of road infrastructure costs, and to help manage congestion.  Hopefully they will also understand the other half of the benefit of road pricing - better signals towards where investments in roads should go.

Fear that tolling Columbia River Crossing will result in excessive diversion

CRC in blue adjacent to I-5, I-205 is upstream on the right

The news of the 50% reduction in traffic expected on SR 520 in Seattle from tolls has caused concerns in Oregon that the proposed tolled Columbia River Crossing project (which will replace the current over 95 year old "bridge lift" equipped bridge that forms Interstate 5 connecting Oregon with Washington) will suffer a major diversion of traffic to Interstate 205's Glenn L. Jackson Memorial Bridge some 6 miles upstream. 

The Columbian reports some concerns that estimates of toll revenue (neither route is currently tolled) are excessive and cites the expected 50% diversion in Seattle as likely for Oregon.   It claims the 2009 toll study only predicted diversion of less than 10% by 2030.

The bridge is estimated to cost between US$3.1 and $3.5 billion (including a light rail extension), with about a third coming from tolls, a third from the Federal Government and the rest from both Washington and Oregon State Governments.

Tolls are to be electronic free flow using DSRC and ANPR, with peak congestion based charges.  Curiously it has a break down of revenue and expenditure (although toll rates are not defined yet) of:

91% revenue from tolls, 9% from surcharges on ANPR based transactions.

69% of expenditure is to be available to service debt on the bridge, 23% pays for toll collection costs and systems maintenance, 5% are "uncollectable tolls" (written off), 3% paying credit card fees and 1% for operations and maintenance of the bridge.

It appears to be a very high cost of collection, something that ought to be seriously reduced over time. I'd hope that 26% toll collection costs should easily be half that within 3-5 years.

However, it will be fair to assume that there will be substantial diversion in the initial years.   What it will take to minimise this is for tolls to be at lower prices initially whilst accounts are opened up and people get used to free flow tolling when neither state has much experience of it (and people in Portland are to be expected to become familiar with it).  The effort taken on the customer service end for the first year will be well worthwhile.