Finland's path to road pricing raises some big questions

I wrote on 27 March that the a Finnish Government Working Group had recommended that the country move away from fixed taxation of motor vehicles towards a distance based approach.  I've now had a chance to read the full report (in English) of the Working Group and to digest its analysis and approach, and it demonstrates the one rule of thumb I've often seen in road pricing studies across the world - every country has considerably different contexts, but many common issues.

To read the report yourself, it is available here as a pdf.   

For those who don't want to dive into the detail, I'll summarise my key thoughts and views first, and then put down some more detailed reflections afterwards.  It's particularly pertinent given the upcoming ITS Europe Congress in June, being held in Helsinki.

Finland, most of the population is along the southern coast

On 3 February 2012 a working group was established to explore how Finland could move towards "fairer and smarter transport systems and study long term strategies to introduce road pricing systems, with a specific mandate to assess the feasibility of GPS road pricing".   The focus was on looking at global experience, what objectives road pricing could serve, what technical solutions could be viable, what impacts would arise and how and over what timescale it could be introduced.  The working group was also to look at privacy and whether any other services could be provided using the GPS platform.

This follows previous investigations into congestion pricing for Helsinki alone, which came to the conclusion that the best approach would be some form of distance based charging that varies by time and place.

Summary

The key points from the study are as follows:

- Existing fixed taxes for cars should be replaced with a distance based tax.  Those taxes include car tax (paid on first registration of vehicles in Finland) and annual vehicle tax and vehicle motive force tax.

- The tax considered for the purposes of the study would be €0.033/km (US$0.074/mile) on all cars with another €0.02/km (US$0.045/mile) for non-petrol cars to offset the lower diesel tax.   Some variants on this were tested based on a regional differentiation.

- The distance tax would not replace fuel tax.  Finland's fuel tax rates are €0.6729/l (US$3.52/gallon) for petrol and €0.4966/l (US$2.60/gallon) for diesel, compared to the EU legal minimum rates of €0.359/l for petrol (about US$1.89/gallon) and €0.33 (US$1.72/gallon) for diesel.  (note these are US Gallons for the sake of comparison, not imperial).

- Motoring taxes in Finland already recover more than five times the state spending on road maintenance, with none of the money hypothecated for roads, so the argument for distance tax was not based on revenue generation or protection,  but rather dynamic improvements in economic and environmental outcomes.  By law, such a charge can currently only be a tax in Finland.

- Shifting from fixed taxes to fuel taxes was considered, but ruled out because it would not offer the potential to target congestion and environmental impacts by location and time of day.

-  The distance tax would not apply to buses and coaches because no fixed taxes apply to them.

-  The distance tax would also not apply to HGVs because the fixed taxes that apply to them could not be reduced sufficiently to make the tax work, as the rates are not far above EU minimum rates.

- The net impact of a shift to distance tax by 2025 is estimated as being a 30 million reduction in annual car trips, with a 4% drop in CO2 emissions from cars and around the same proportionate drop in serious car accidents.

Change in passenger km estimated in 2025 from introducing distance charging in Finland

- Most car users would pay less, with commuters in cities and high usage rural users paying more.  The net effect is to reduce barriers to car ownership, but encourage car usage when and where alternatives are not available.

- The estimated capital costs for such a system, for 3.5 million cars, were €89m-133m (US$123m-US$183m) (which I believe to be far too low), but operating costs were estimated at between €116m-133m (US$161m-US$183m) per annum.  The report indicated more scrutiny is needed over these costs.

- However, these higher costs compared to the current tax system would be recovered by the reduced costs to the economy of fewer accidents and emissions.  The savings from reduced congestion were not calculated, but given evidence from previous studies ought to deliver substantially higher economic gains, even if charges did not vary by time of day or location.

- It was considered that the primary benefit from the change would be to allow for charging by specific road and time of day, so congestion charging could be introduced equitably, targeting congestion and locations where there are reasonable public transport alternatives.

- It was strongly recommended that any distance tax have strong privacy protection, so that all data on specific trips be kept with the on board unit and in the possession of the vehicle owner, with only charging data released.  Other data could only be accessed if the owner wished to query the tax calculation or if there is suspicion of systematic fraud.

- There could be industry development potential in allowing such a system, as it would encourage local business to develop complementary systems and potential applications to use alongside the distance tax.

So, Finland is considering a car only based distance tax to replace taxes on owning cars.  That's interesting and revolutionary, but I also think it is missing some key points, which I come to below.  These are:

- Fuel tax ought to be included down to EU minimum rates;

- By including fuel tax, all other vehicles should be taxed by distance and mass;

- The rates of distance tax should reflect, at a minimum, infrastructure costs;

- By shifting to distance tax Finland cannot evade a strong case for partial hypothecation of revenues, in which case it may be wise to consider part of the charge not being a tax, legally speaking;

- The capital and operating costs need far closer scrutiny;

-  The benefits of shifting to distance based charging may be overstated around accidents, due to technology around automation, but understated by excluding the deadweight costs of existing taxes.

Florida advisory panel proposes distance based road pricing

Columnist Kingsley Guy in the South Florida Sun Sentinel has commented on the proposal from the Florida Metropolitan Planning Organization Advisory Council (take a breath) that the state introduce a 2/c mile tax on road use.

The proposal comes simply from concerns that fuel taxation is becoming increasingly less reliable as a source of revenue to fund the state's transportation expenditure.

The state has 12 different fuel/vehicle ownership taxes (plus two Federal fuel taxes), two of these taxes haven't been increased since 1941 and 1943 respectively (meaning they are now worth 7-8% of what they originally were set at).  3 are inflation adjusted.

Sources of Florida state transportation trust fund revenues

Black line shows where revenues have to be to remain constant in real terms

FMPOAC concludes that six options should be looked at.  These are:

- Index all fuel taxes to inflation;
- 1c optional Municipal sales tax;
- Increase State Highways fuel tax by 2c a year, above inflation;
- Vehicle Mileage Tax;
- 5c local Diesel tax for counties;
- Redirect part of fees that were shifted from transport funding to the State Transportation Trust Fund.

On VMT it said:


This recommendation is to have the Legislature commission and fund an extensive effort to deal with the systemic issues of fuel taxes becoming less sustainable as a primary surrogate for a transportation user fee. While fuel taxes served as an adequate substitute for a true user fee for decades, significant increases in mandated vehicle fuel efficiency and the introduction of all electric and plug‐in hybrid vehicles are eroding transportation revenues. It is recognized that there are significant concerns over the concept of charging users of the highway system based on each mile traveled. These include privacy of citizens, the cost of implementing such a system, and institutional issues associated with revenue sharing. This effort is intended to address these issues at a minimum, deploy a demonstration of the concept and develop a business plan and implementation roadmap to move Florida to a VMT‐based system.

Guy rightly rejects Virginia's bizarre hypothecation of a new sales tax to pay for transport, as if people who rarely drive should pay more for potholes (through their shopping) than a trucking firm does.  May as well pay for electricity through general taxation, or telecommunications.   

He notes that tolling in Florida has had a distance dimension to it, and that is widely accepted.

However, he also notes some important concerns:

- Privacy.  Suggesting an odometer only option.  Which is fair enough, as long as it cannot be defrauded.  However, privacy does need to be respected, not dismissed.  Too many wingnuts think distance based road pricing is part of a conspiracy  (one that would be far better implemented if done in cahoots with mobile phone operators!);

- Fraud.  He expresses concern about people cheating a distance based system, which is fair enough, but this can be addressed and has been elsewhere.  Enforcement is a key part to any such system;

- Visitors.  A big issue for any state only system is covering those from out of state quickly and efficiently.  I'd suggest some sort of vignette (time based charge), but there are other options too.

- Heavy vehicles.  He notes that fuel tax charges heavier vehicles more, and that there needs to be a reflection of weight as well.  He's right, and fuel tax does this very poorly, as it tends to charge the smaller trucks too much, and the heaviest ones not enough.  Notice that the trucking sector can often be very unhappy about better pricing of roads, partly for this reason.

- Transition.  He wonders if there may still be a fuel tax as well as distance charging.

He also notes that there remains an issue of poorly spent money, which is separate from that.

I'm encouraged that Florida is starting to look at this issue more seriously.  The state has done well to use tolls to a wide extent, which has helped it a great deal and will help it with any transition to more direct user charging.  However, it could do worse than look at progress in Oregon, and the lessons learned from distance charging in other countries as well.

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. 

One way of incentivising a shift towards distance based congestion charging

The very name "congestion charge" (or tax or fee) turns many people off, and introducing any form of additional charge will automatically generate opposition.

So what's one way of both moving towards better pricing that isn't just about a shift from ownership fees to paying for usage, but also charging according to time and location?

David Hensher, Director of the Institute of Transport and Logistics Studies at the University of Sydney proposes one way on the website The Conversation.

He suggests not just introducing a new charge, but by lowering vehicle registration fees in exchange for paying for distance for motorists in Sydney (with a charge only at peak times for driving in Sydney).  He proposes a 50% cut in vehicle registration fees in exchange for this new charge.

He claims it would reduce peak kilometres driven by 4.7%, but more importantly by offering choice it makes road pricing far more acceptable as an alternative to the status quo.

He continues:

This road pricing reform plan would require drivers to purchase an on-board unit (approximately $50 one-off cost), that will record the kilometres by time of day. The off-peak kilometres are not charged, but peak kilometres will be charged at the agreed rate.

This scenario implies that if a unit is not installed, all kilometres will be charged as peak kilometres. So there is an incentive to install a meter (with the expectation that all motorists will do so), just like households have had with off-peak electricity meters or with water meters when they were first introduced.

Of course to charge all kilometres there would have to be a reliable way to charge them without the on-board unit, as odometer tampering would be encouraged.  An alternative would be simply to hike up the vehicle registration fee as the alternative.  

The on board units would also need to identify location, because peak driving in rural New South Wales is meaningless, so I'd suggest a broad cordon that started at the metropolitan edge of Sydney, and maybe one or two other cities like Newcastle and Wollongong.  It would be better to be more refined than that of course.   Of course if it applied across the whole state, then there would have to be an off peak charge (and there would be merits in reducing vehicle registration fees to simply administrative charges) related to infrastructure costs. 

Such an approach could attract a lot of interest, and lay a platform for a longer term shift from fuel taxation.

His suggestion got 80 comments on the website, some complimentary, others sceptical, but overall it is a good contribution to the debate about how to move towards distance based charging, by offering savings on ownership taxes in exchange for some form of peak charging.

This is, of course, only an option in jurisdictions with quite high ownership taxes, but it is promising to see that the debate is happening in Australia on this.

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.

News briefs - Australia, China, Indonesia, North Carolina, Ontario, South Africa

Australia - Chair of Australian Competition and Consumer Commission advocates congestion tax

According to the Herald Sun, chair of the Australian Competition and Consumer Commission (ACCC), Rod Sims, says that congestion charging, carefully managed, with some money used to support public transport, would make a meaningful impact on congestion and help provide funding to support infrastructure development.  He was making this point at a speech at the John Curtin Institute of Public Policy in Western Australia.

The ACCC is Australia's competition and consumer law enforcement body.  Although it has no specific role in its area, to have a highly placed officer of this body, responsible for consumer advocacy, raising this point adds to the growing number of views expressed in Australia supporting congestion pricing.

China - government declares certain public holidays to be toll free

China's introduction of toll free public holidays has had a mixed response according to state newspaper Global Times.

The report said:

The State Council approved a plan on August 3 to lift toll fees on passenger cars with no more than seven seats during four national holidays of Spring Festival, Tomb-sweeping Day, Labor Day and National Day.

This year's National Day holiday coincidently comes the day after Mid-Autumn Festival, which is governed by the lunar calendar, creating an eight-day national holiday. The State Council has ordered that passenger cars be allowed to travel free on the country's toll roads from September 30 to October 7.

Given China's toll roads are mostly privately owned, the issue has been whether the law has been consistently followed by the private road owners.  People were sceptical that the toll free period would come into effect, and the key reason it was introduced appears to be populism.

The toll free period started at midnight, resulting in large volumes of traffic travelling after that time.  It is not entirely clear from the reports, but it appears that few measures were adopted for traffic management at toll plazas, as the tolls still applied to vehicles with more than 7 occupants.  So vehicles would queue at toll plazas to be quickly flagged on.  One wonders why it would not have been easier to make all vehicles exempt and to have confined the traffic lanes at plazas to a number that avoided the use of plazas to cascade and then merge traffic flows.

Indonesian Government to create new toll road concession company

The Jakarta Globe reports that Indonesia's State Enterprises Minister, Dahlan Iskan, wants state construction company, Hutama Kurya, to become a toll concessionaire.

This would duplicate Jasa Marga, Indonesia's existing state-owned concessionaire, which reportedly has welcomed the move (presumably because it isn't about competition, but about capacity) and will help the company enter the sector.  The report claims that Hutama Kurya will be pursuing new toll roads in Sumatra

Meanwhile, another report notes that Jakarta TollRoad Development, a consortium that includes Hutama Kurya, has raised additional capital from PT Jaya Real Property (JRPT) and PT Jaya Konstruksi Manggala Pratama (JKON), which are part of the Pembangunan Jaya Group, the operator of Ancol Dreamland amusement park in North Jakarta.

JTD is a consortium of PT Hutama Karya, PT Pembangunan Perumahan (PP), PT Wijaya Karya (WIKA), PT Adhi Karya (ADHI) and PT Citra Marga Nusaphala Persada (CMNP).

One project that the firm plans to bid on is a 67-kilometer-long toll road that will connect all five of Jakarta’s municipalities. Based on previous reports, the project will require a total investment of Rp 40 trillion (US$4.19 billion).

North Carolina looking beyond fuel taxes

Business Journal reports that North Carolina Secretary of Transportation Gene Conti has said that the future of highway funding for the state is likely to be tolls and vehicle mileage tax, rather than fuel tax.  A key reason appears to be that the state has one of the highest fuel taxes in the US.  

Ontario to help build toll road for access to mining region

In some countries, developers ask the government to pay for and build the roads to gain access to land they want to develop.  In Ontario, the provincial government has said it will help do that, but will charge all road users to use it according to Wawatay News Online.  The project is intended to be a 300km new road to access an area called the "Ring of Fire" which is rich in mineral deposits.  It is not intended to be a public road, but a road purely for shifting cargo and for access to the mining developments, but is intended to be fully self funding by providing access to all of the adjacent mining claims.

South Africa - Cape Town and SANRAL disagree on tolls for new road proposal

IOL news reports on how a proposed new road in Cape Town, the R300, is showing up the split in policy on tolling in the country.  On the one hand, the City is promoting the road, but not as a tolled route. The City of Cape Town is against tolling on principle and is seeking a "new model" for funding major road plans.  However, national highways company, SANRAL is proposing that it be a toll road.  In any case, there isn't funding for the project at present.

Atlantic Cities considers VMT, but doesn't look beyond the Atlantic

Eric Jaffe at Atlantic Cities concludes that Vehicle Mileage Tax (distance based road user charging or mileage based usage fees depending on your preferred choice of terminology) is a good idea which is technically viable, which surprises me, although he got there after making a bunch of mistakes and also did the usual “if it didn’t happen here it doesn’t count” narrow-mindedness of thinking no one else in the world has thought of it before Americans have. Yes, even ignoring the truck weight/distance taxes already in four states, the Swiss has been doing this electronically since 2000. At some point American journalists might notice.

So what was his train of thought?

The article says that a field study by the University of Iowa showed it could work. Perhaps fair enough (although the distance measurement is arguably not the biggest issue), but there are real operational systems in the world today in several countries, which is probably a better indicator that something works than a university field study. 

He also claims that “Mileage data can be captured via GPS”, which would be a surprise to any engineer who worked on GPS. GPS is a system that purely takes signals from satellites to measure the co-ordinates of a specific device. No GPS satellite captures anything, at all. However, GPS devices can be adapted to record and measure distance, but let’s not keep making the tired mistake of thinking GPS satellites pick up anything from people’s handsets on the ground. The “Spy in the Sky” myth keeps needing to be swatted. 

He rightly points out that a system can be integrated with fuel purchases so that payment of VMT can offset payments of gas tax (Oregon’s trials proved that), although the accounting involved is a little more complex than that. 

The article then highlights how VMT is likely to reduce driving, largely because motorists become acutely aware of the cost of each trip as it is taken. This is intensified if pricing varies by time of day and location. Fairly basic acceptance of the pricing principle of course, but it also should recognise that at some times and places it could be cheaper than paying a gas tax.  I suspect that it isn't what he has in mind, but it's important to give both sides of this.

However, he concludes with some concerns, such as how VMT “does nothing to encourage green cars”. Yet again, the Atlantic Ocean remains a psychological barrier to understanding reality. In Germany, its “VMT” type truck tolling system does just that, by having differential pricing according to the emissions rating of vehicles. It is entirely possible to do that for cars, and in Germany it has incentivised changes in the truck fleet towards lower emission vehicles. 

Another concern raised is VMT “creates a rate-equity debate with rural and possibly even suburban drivers who lack reliable transit options”. A debate yes, but who argues that fuel taxation is unfair to those in rural areas or without other modal choices? Shouldn’t the argument be about paying for what you use, not relating to extraneous factors? How prices are set needs to be based on economics. 

Finally he says “any mileage system would also need to consider how much of its intake should go toward public transportation”. Yes, what is done with revenue is critically important, but that is a wider debate. Better road pricing could conceivably abolish the need to subsidise public transport altogether, but this article wasn’t really about economics.

In conclusion, the article is positive as it throws into the mix of public discourse support for an idea that is highly controversial and seen by many as “just another tax” due to the high level of distrust of government in the US. However, it would be helpful if it had been able to address some key myths around privacy and promoted a shift towards more equitable and efficient pricing of roads – linking what is charged to what is used and spent on them. For now, I fear it will polarise those who argue for less tax against those who simply want to restrain car use for environmental reasons – with little or nothing about economics.

The only way there will be public support for such a major change in how people pay for roads is if they can be convinced that they will be better off with a change, and it will be fairer overall.  This article didn't make that case, it made the case that it can be done, not enough for the case that it should be done.

Russian truck tolls: World's largest distance based road user charging system?

Whilst European countries continue to roll out new distance based truck toll systems (with 3 under development and 6 in operation), and US states progressing at various paces VMT, the announcement that Russia will be introducing a distance based toll system on federal highways changes the entire scale of heavy vehicle road pricing.

According to ITS International, the Russian Ministry of Transport has prepared a draft law to require all commercial vehicles over 12 tons to pay for the use of Federal Highways on a per km basis.  The report indicates that a single operator will be set up, it will ensure all vehicles are equipped with the necessary On Board Unit (OBU) and will use the Russian GLONASS GNSS system (originally the Soviet response to GPS, but now getting substantial investment as an alternative by the Russian Government).   The report suggests that the price per km would be at least US$0.11.   This is cheap compared to the minimum rate charged in Germany of around US$0.17 per km and New Zealand of US$0.20.  Still, there is plenty of scope to have a wider range of charges.

Another report suggests that net income (after capital and operating costs) will be about US$12.77 billion per annum.  The assumption appears to be that the charge is additional, and wont replace any existing taxes.   This is substantial, but without immediate access to figures of annual vehicle kms, the picture is not entirely clear as of yet.

It appears Siemens is in partnership with NIS GLONASS to progress the project (although this report misconstrues it completely).  The long term goal is for all main roads to be charged and all vehicles to be subject to the charge.   When you consider the scale of this, it is seriously ambitious.   There are over 5 million trucks registered in Russia, but only a fraction of those are over 12 tons.  Around 200 billion ton/km of freight are moved by road in Russia every year.   About 72% of trucks sold in Russia are Russian made.

Comment

It is fairly obvious that distances in Russia are on a scale and extent that beats any other country, but also that highway maintenance can be extremely expensive, particularly when traffic densities are low and so fixed costs are a high proportion of all costs.  

The logistics of getting vehicles installed will be enormous, and I would suggest that requiring it of newly registered vehicles first would be a good start, with existing registrations required to be installed as registration dates come due.

Undoubtedly if Siemens is responsible for this, it will be one of the grandest projects of its kind in the world.   If this is extended to all main roads, as is the intention (and will be necessary in cities to avoid traffic diversion) then it will be a grand scale operation.  The payment systems and the communications systems needed (given the dearth of mobile phone coverage in parts of the country) will be interesting.  It will be evene more interesting if the talk of it being extended to ALL vehicles happens, although I suspect issues of privacy will come to the fore for fairly obvious reasons.

Australian positions on road pricing are polar between east and west

New South Wales:  "Let's look into it"

On the one hand, in Sydney, New South Wales, on the east coast, Roads Minister Duncan Gay has said, according to the Australian, that one of the options being looked at by the government is the introduction of distance based tolling.

State agency Infrastructure NSW is investigating a range of options to secure revenue sources for future land transport projects. Congestion charging has specifically been ruled out by the Minister.

 However, it remains distinctly unclear about what is meant by all of this. Distance based tolls could simply be a conversion of existing tolling (which is extensive across most of Sydney’s major highways) into a pricing framework that reflect distance between charging points and with more charging points. This is hardly revolutionary. The alternative is to consider distance based charging across the state, this could apply to just heavy vehicles or all vehicles, but this would need to involve some form of certified on board distance measurement. 

At its most basic level it could parallel the electronic Road User Charges system in New Zealand, with variations based on weight.

However, the greatest opportunities for productivity gains would come by having variations based on location (to reflect some differentiations in infrastructure costs) and of course, congestion. If all vehicles in New South Wales had a distance based charging unit on board, which could vary by time and location, why not charge motorists in Sydney at peak times more on the busiest routes? 

Given that economic analysis on the merits of road pricing compared to motor vehicle ownership taxes in New South Wales is light years ahead of that in other countries, I have some modest hope that there might be some progress here.

Western Australia:  "How dare anyone even suggest it"

However, don't suggest anything of the sort to the Lord Mayor of Perth, Lisa Scaffidi.  She was downright rude about economists from outside the city "from the east" suggesting the idea of congestion pricing for Perth.  A report on Yahoo from the West Australian said:

Yesterday, Ms Scaffidi criticised CEDA economists responsible for the paper, arguing they had an "out-of-town" perspective and "little understanding" of Perth's traffic issues. "I am actually quite shocked. This kind of commentary shows no thinking and I feel they have tanked with this one," she said.. "Perth no longer needs wise men from the east suggesting they know what is best for our city.

Yes, because Perth, WA, has a very different economy, different society from other parts of the world.  The laws of economics do not apply.  Applying the price principle to road use "shows no thinking".

Nothing quite playing the parochial almost xenophobic "you don't understand us, we're different" card rather than having a single constructive argument to rebut road pricing.   Particularly ironic when the chief economist of the firm that conducted the study spent five years of his life living in the city.   Of course Perth itself is far closer to the birthplace of modern urban road pricing - Singapore - than Sydney is.

Policy challenges of VMT in the USA

Dr. Travis Dunn of D’Artagnan Consulting* has prepared an interesting presentation (that he gave at the recent IBTTA Symposium on Mileage-Based  User Fees and Transportation Finance) on some of the challenges US policy makers when considering a shift from fuel excise taxes to distance based charging for road use (commonly referred to as VMT or Vehicle Mileage Tax**) .

He makes some fascinating points (sources in his presentation): 

- From 1994 to 2010, the real value of the Federal gas tax has declined by over 40% compared to the Highway Purchasing Price Index (the cost of paying to maintain and build roads). It has not increased in nominal terms since 1994. It is US$0.04/litre (US$0.184/gallon);

- At the state level, 18 states have also not increased their State gas taxes in nominal terms since 1994, 2 have reduced them (Connecticut and New Mexico) others have increased them. The average across all states is an increase of 2.8c/gallon since 1994. This roughly equates to a decline of around 25% in real terms, but obviously some states have seen far higher declines, and a few (notably North Carolina and Washington) have kept up pace with inflation and some. 8 states index their own gas taxes to inflation;

- Vehicle fuel efficiency has improved by around 15% in terms of gallons per mile since 1994, although it had declined between 1994 and 2004 by around 7%, this has been more than reversed from 2004 onwards. 

From this, he concludes that the timing for VMT to replace gas tax has been since that rise in efficiency, as it is a combination of inertia in indexing gas tax to inflation and the increased fuel efficiency of the fleet that is putting pressure on state and federal budgets dependent on these hypothecated taxes. 

He concludes there are a few more fundamental policy points: 

- Whilst VMT protects revenue from erosion due to reductions in fuel consumption per vehicle mile, it does not protect it from inflation. VMT will still need to be increased to offset that;

- Federal gas tax already means a complex set of cross subsidies between states. Four states get less than 90% of what they contribute in Federal gas tax (Texas, South Carolina, Utah and New Jersey), whilst 17 states get more than 110% of what they contribute (DC gets nearly five times what it pays, Alaska gets nearly four times). VMT may mean states are likely to want to keep the revenue they generate, and perhaps it means rates might vary from state to state;

Yet if VMT was introduced to replace gas tax, the picture would change, assuming funding stayed the same. Texas would gain by paying $411 million less than it does now (reflecting its fuel consumption is high relative to distance travelled). Florida would lose by paying $510 million more than it does now (reflecting the opposite). 

Obviously there are other dimensions that Travis doesn’t take into account, which could help mitigate this, primarily because discussion of VMT has been as a straight replacement for gas tax.   However, as a tool it can be used to significantly improve pricing, after all vehicles already pay differently according to fuel consumption, which reflects weight, topography, road network and demand conditions.

I'd argue some of the minimum components of VMT should be:

-    VMT shouldn’t be a flat rate for all vehicles, because gas tax isn’t. It would be highly preferable to match VMT to also reflect weight, so that whilst cars pay a common rate, trucks and buses would pay more to reflect the greater wear and tear they impose on roads, and the capital requirements for highway structures to be built to cope with such weights.   Other taxes (such as tyre taxes and registration fees) that may be proxies to reflect this would need to be taken into account, and adjusted downwards if desirable;

-   VMT should reflect geographic variations in cost.  Even if there is a federal VMT, it seems reasonable to be cost oriented by having VMT rates that could vary from state to state because costs vary.  As long as this is oriented towards cost recovery, it should be less controversial, but it ought to also mean revenue raised in one state is spent in that state (or on routes approaching it). 

-  VMT at the interstate level can be varied to reflect recovery of the costs of major new capital works, replacing conventional tolls.

His whole presentation is here (PDF), it's worth a look through.  If you have any questions, his contact details are at the end.

Obviously it is a long way to go before VMT will be rolled out on a wide scale replacing existing taxes, but the challenges driving the concept are here now and unless some of the key dimensions of the current system and what VMT will bring are understood, it will difficult to move forward and the current problems will simply get worse.   Travis's presentation raises just some of those issues, which highlight the obvious but often ignored point that the existing system produces "winners and losers", another system will change who they are - the bigger challenge is making sure whatever comes ahead, that VMT can be seen as being fair.

France's Ecotaxe - national truck tolling, distance based

More information has been published about the French nationwide heavy vehicle road user charge system now under development, thanks to the "Ecomouv" consortium producing a website in multiple languages.  

 Given interest in vehicle mileage taxation in the United States and heavy vehicle distance based charging in Australia, it will be notable for both France and Germany to be blanketed by such charges on major highways across their territories.

It's worth noting this tax is in addition to existing taxes in France, including diesel tax up to* EUR0.4284 per litre (US$0.525).

Ecomouv is a subsidiary of Italian toll road operator Autostrade, which is partnered with mobile phone network operator SFR, state owned railway operator SNCF, IT services company Steria, and French electronics company Thales.

Some key useful facts:

- The distance based tax will apply to all goods vehicles weighing over 3.5 tonnes, both French registered and foreign vehicles;

- The stated purpose is to encourage more environmentally friendly goods transport, in part by having pricing that differentiates by emission class and to discourage empty running;

- The Ecotaxe will also normalise demand between tolled motorways and untolled routes, promoting more optimal use of the entire national road network;

- The taxed network comprises 10,000 km of national highways and motorways that are not concessioned routes (many of those are tolled and will not be subject to this tax as well), and 5,000 km of secondary roads (largely to prevent "rat running" by truck drivers seeking to evade the tax);

- A 25% discount will apply for trips within three "peripheral regions", largely to promote regional development;

-  The system as described appears to be a "light client" form of GPS enabled distance measurement, whereby information about distance travelled on charged routes is calculated on board the vehicle, but then transmitted through mobile telecommunications networks to a back office system to calculate the tax liability;

- Exempt vehicles include all buses, some public vehicles (e.g. military) and vehicles used to transport agricultural goods;

- Options to pay include a prepay account, or a postpay account (the latter requiring a credit check);

- Enforcement is carried out using a network of gantries to take images of vehicles and their number plates if any are identified as not having a functioning on board unit;

- Mobile enforcement units will also roam the network to remotely check vehicles at random;

-  Revenue is estimated to be 1.24 billion Euro per annum (US$1.5 billion), of which 760 million (US$930 million) is to go to AFITF - "L’agence de financement des infrastructures de transport de France", a public body that is responsible for central government expenditure on railways, roads, inland waterways and ports. 160 million (US$196 million) to regional and local government.  

 - 250 million Euro (US$306 million) per annum consists of operating costs.

- The remainder will be to recover the 600 million Euro (US$735 million) capital costs over the period of the concession, which is 11.5 years.
-  About 550,000 French and 250,000 foreign trucks are expected to be users of the tolled network.
-  It is expected the tax will increase the cost per tonne of transporting freight in France by 2.9%.

A zoomable map of the taxed network is available here.

It is due to be operational as of mid 2013.

Actual tax charges are NOT published yet, but the range appears to be from (Euro) 0.025c/km (US$0.03) to 0.20c/km (US$0.25) according to a French presentation from the MEDDTL (government body responsible) with weight and emissions class being the key determinants.

Conclusion

The French Ecotax is essentially a way to make money from trucks using the government owned highway network, which are currently priced off of the private and publicly owned tolled motorways.  It is to generate new revenue, particularly from foreign lorries that enter France from Spain, Italy and Germany, some of which are avoiding the heavy vehicle distance charging systems in Germany and Switzerland as well as the French toll motorways.  It essentially "plugs the gap" in charging trucks to use France's highways.

The cost of collection, including the recovery of the cost of capital is 25.8% of the total revenue.  This is high, and this figure will do little to encourage take up of such systems elsewhere.  Given that technology has moved on substantially since the Swiss LSVA was introduced in 2001 and the Germany LKW-Maut in 2005, I'm surprised that costs are being claimed as so high.  A technologically robust path has been adopted, as it replicates much of what is done in Germany.  However, I'd be surprised if those costs are realistic after about 4-5 years of operation.  Costs may be closer to 50% of revenue in the first year and 30% in the second, but in the long run it should be closer to 10% (as users become familiar with the system and the initial installation, publicity and enforcement efforts are better matched to ongoing renewal rather than one off inauguration).

I have figures for other systems, and will endeavour to publish those in due course in order to get a better comparison of  relative costs.

Other ways of looking at the costs:
Average capital and operating costs of 355 Euro per truck per annum
EUR0.03 per km in capital and operating costs

*  Diesel tax in France is determined by regional governments which may vary it between EUR0.4284 and EUR0.4169 per litre, with a EUR0.0135 surcharge to fund certain projects being optional.

US House of Representatives rejects funding Vehicle Mileage Tax studies

The US Congress is currently in the process of seeking agreement for a new Bill to authorise transportation funding for the next six years.  It has been a fraught process, and not one I will discuss in detail here.  

The big news from a road pricing perspective is that the House of Representatives, which is Republican dominated, has agreed to an amendment that effectively ceases Federal funding into studies into Vehicle Mileage Tax (VMT) according to The Hill.

Now the issue isn't completely closed as a Bill needs to pass the Senate as well, but the likelihood is that the Democrats wont push it that much.  So what does it mean and what was the reason for the amendment?

What it means, if it passes like this, is that there will be no Federal funding from programmes to investigate new sources of revenue such as the Value Pricing Pilot Program from the Office of Innovative Program Delivery, in respect of VMT itself.  Presumably studies can continue on tolling, including HOT lanes, congestion pricing and even network wide tolling that isn't about VMT strictly speaking.   This will no doubt hinder progress in some states, but would mean a few years of investigating options to raise revenue that can't be efficiently implemented across entire road networks.   Information about some of the studies carried out so far is on the Federal DoT website here.

It may mean that states themselves take the initiative (much like Oregon has for some time) to do the hard work themselves to consider how to shift to alternatives to the "gas tax".  

However, it is worth considering why this amendment was put forward.

The blocking of further funding for this was proposed by Rep. Chip Cravaack (R-Minn.). He argued that it would “would hurt rural drivers, cost a lot to implement, since it would require devices in each car to track how many miles have been driven, and could impinge on privacy rights.”

Now I’m not one to argue whether or not the Federal Government ought to be responsible for funding such studies, as it really depends on whether it wants to supplement or replace its own Federal gas tax. However, I can question the view of Rep. Cravaack, which contains a range of misconceptions. 

I'll go through them point by point:

“Hurts rural drivers”: This is a question of equity, and whilst the issue of equity raises claims of winners and losers, the only sure way to ensure equity is to charge according to a fair allocation of costs. Charging by distance on the face of it, means you use the road network more so you pay more. However, does that mean rural users are likely to be overcharged? There is a paucity of accessible research on the revenue generated by different roads by location. However, what I have seen over the years indicates that rural roads get heavily cross subsidised simply because the fixed costs of those roads can’t be recovered easily from the very low volumes of traffic on them. So the question comes as to who should subsidise them or if there is a better way to take this into account. One way is to ask whether the access value of a road to a property might better be recovered from charging the property itself as well as the motorist. That could mean not charging rural trips as much, because property owners value others being able to get to their properties. My counter-argument to this one, is that vehicles visiting rural areas should also pay.  Besides, fuel taxes hurt people who can’t afford new fuel efficient vehicles.  There is a concern that is worthy of debate, but rural roads will equally benefit if heavy trucks pay for the long mileage they undertake on them.  My point is that what is charged (and how it is charged) should reflect cost.

“Cost a lot to implement”: Well I am sure if the US Federal Government was to implement it, it would do so. However, that argument is being eroded by the successful implementation of such systems in other countries and the work underway today in Oregon. Fuel taxes are always cheaper, but then it would probably be argued as being cheaper to collect money for food through an income tax and to have the government buy everyone rations, rather than have thousands of shops and businesses do it. It doesn’t mean it is better or results in more economically efficient outcomes.  Costs are relative to the benefits that are generated for them.  For now one of the big issues is how to efficiently minimise costs to unlock the benefits of VMT, especially over the longer term.   More studies could help better inform this debate.

“it would require devices in each car to track how many miles have been driven”: Maybe, maybe not. Many people carry devices that aren’t too far removed from that now. Cars are capable of having such equipment pre-installed anyway. The word “track” can be replaced with “record”, since there is no need to know every road everyone has gone down to charge distance.  Indeed, you can use more conventional tolling technology involving tags and beacons (DSRC) to do VMT on major highways, as is done today in Austria, the Czech Republic and Poland.  However, the presence of equipment to do more shouldn't be seen as necessarily an insurmountable or expensive problem.  In New Zealand, which has a nationwide VMT system for all heavy vehicles on all roads, commercial vehicle owners are choosing to pay for devices that measure distance more reliably than their hubodometers and provide other services. 

“Could impinge on privacy rights”: well yes it could, but it need not do so. Oregon is specifically including an option that is designed to do that. However, there are plenty of ways to protect privacy. The bogey that the government is tracking every movement is often cited, and it is encumbent upon those of us advocating VMT systems to explain why these fears can be easily addressed, plus pointing out that mobile phone companies can already effectively track people’s movements now. If road utility service providers offered the charging service, the effect on privacy would be no different.  After all, what matters is that people pay for what they use, and it is possible to separate the calculation of what to pay from the collection of payment (and the data needed to determine what to pay - e.g. roads could be classified by tariff categories A, B, C in a system, not with the names of the roads).

The Federal Government has a problem, its budget for expenditure on surface transportation is higher than the revenue it gets from road users. It can either cut the budget to match this or raise the existing taxes, or find a new source of revenue.

If it wishes to cut the budget, either because it wants to leave it to the states or there are sound reasons to presume there are significant efficiencies that can be extracted from current activities, then fine.

However, if it does want to address the issue of subsidising the Interstate highway network, it has to confront the declining yields of the “gas tax” either by raising it or replacing it.

By deciding explicitly to not investigate replacing it with the most economically efficient alternative, then it looks like the future involves more subsidies of highways or increases in gas tax. In an age when many people want better value for money, and there is a trend towards more user pays and more business-like ways of managing infrastructure, it seems strange to ignore one way forward in delivering that.

Meanwhile, I am sure the states will push forward, just more slowly this time.