Australia and road user charging

It's pleasing to see Australian Federal Treasurer, Hon. Dr Jim Chalmers, be upfront about the need for Australia to introduce a road user charge (RUC) for electric vehicles as a "priority" tax reform, at a recent business dinner according to the Australian Financial Review.

None of this is new, as Australia has been down quite a tortuous stumbling path on reforming how motor vehicles are charged to use the country's roads for over a decade, depending on how you look at it.

This is distinct from tolling, which is used in three States for specific projects. It is NOT about that, but rather how roads are charged for across the entire network

Very brief history

Australia has been on a long, slow path to investigating and piloting RUC for heavy vehicles (defined in Australia as any vehicles with a GVM of 4.5 tonnes and above) for over a decade. The main reason being that the current system, of fuel tax (with a proportion deducted so that the remainder is a fuel based "road user charge" based purportedly on a cost allocation calculation), collected Federally with steeply escalating motor vehicle registration charges based on weight and configuration to attempt to make up the shortfall that fuel tax can't recover (and collected at State and Territory level), is less than optimal.  

The latest step in this policy process has been the National Heavy Vehicle Charging Pilot, which had its genesis multiple Ministers (and Prime Ministers) ago, under the Turnbull Government with Minister Paul Fletcher. That pilot has concluded and the results of the evaluation of the pilot have yet to be published, but there is little political focus on this, mainly because the issue it is trying to address is not a loss of revenue, but rather a poor link between what is paid to use the roads and the supply of roads.

That is addressed through a programme called Heavy Vehicle Road Reform, which has been moving glacially for some years.  Heavy Vehicle Road Reform contains all of the elements for a fundamental reform of how roads are charged for, funded and managed in Australia, but does require consensus between Federal and State/Territory Governments. It could be combined with agreement to progress road user charging for EVs, but they have generally been on a different track.

At least four Australian states advanced RUC for EVs to some level. South Australia, New South Wales and Western Australia all passed legislation to introduce it in a future year, but the South Australia legislation was repealed by a change in Government at the previous election. The New South Wales and Western Australia legislation remain intact for EVs to pay by distance from 2027.  Victoria introduced such a charge in 2021 only to have it overturned by a court decision ruling it unconstitutional in 2023, which raises big questions about whether the other states could implement such a charge themselves. 

That's the nexus of the current policy question is about what the Federal Government does to enable the implementation of RUC for EVs. It has choices ranging from implementing a Federal RUC to simply empowering the States and Territories to implement their own systems within a regulatory framework designed by the Federal Government.

The latter makes sense, but also presents a range of options around having a integrated set of incentives around implementing RUC, so that the Federal Government isn't simply handing over a revenue source (fuel tax for petrol and diesel vehicles at present, EV RUC for the future) to States and Territories unencumbered. 

I've already written about some of the issues that need to be thought about, and I think it requires a reset of the relationship between the Federal and State/Territory Governments on road funding, which can include heavy vehicles. That would mean the States and Territories accepting that they will not be responsible for collecting and spending all revenue from a future RUC, but also the Federal Government accepting some form of hypothecation for that revenue (which doesn't currently apply to fuel excise).

Every year RUC for EVs is delayed, it gets a little harder to implement because the constituency for it grows.  A Federal election is due in Australia no later than 17 May 2025. Hopefully, whichever party (or parties) forms the next Government will move quickly to establish a policy platform for RUC that should incentivise acceptance by States and Territories and enable progress for both light and heavy vehicles in the coming years.

Bearing in mind that in the US, there is considerable progress by many States and now the Federal Government in considering how to fairly charge for EVs and the transition away from fuel tax.  Meanwhile, New Zealand has had a RUC for over 40 years, recently extended to EVs and PHEVs (it has applied to light diesel vehicles for decades) covering over 1m vehicles all up, it should be possible for Australia to introduce, at least in the first instance, a basic national RUC charge equivalent to fuel duty (or better yet, based on a cost allocation approach), collected at State/Territory level.  

Does road user charging harm electric vehicle sales?

RUC makes little difference to EV sales.

Under a year ago I wrote this piece Would RUC for EVs harm sales? largely in reference to concerns in Australia from the Electric Vehicle sales lobby that Australian states investigating road user charging (RUC) based on distance, for light vehicles; would significantly reduce consumers' propensity to buy such vehicles. 

Dr Jake Whitehead from the University of Queensland apparently conducted a study which was cited in an article in Driven that claimed it would hurt sales by 25%, claiming that it would be perceived by drivers as adding $4,000 on the cost of owning and operating an electric vehicle. I demonstrated in my previous article that this was highly questionable, because no purchasers of petrol powered cars estimate the fuel tax they would pay on top of the cost of owning and operating the car. If they did, it might be around A$367 a year for a new petrol Hyundai Kona driving the average annual 13,838km of a car in Victoria. This compared to around A$346 for an equivalent EV paying the Victoria state RUC. Sure I understand Whitehead's estimate, but it simply isn't a valid comparison to think anyone buys a car thinking about the lifecycle costs of charges associated with using the road (although buyers of many commercial vehicles do make such estimates). 

However, there is now some actual evidence, with the latest sales data on electric vehicles in Australia.  You see Victoria introduced RUC (known as the ZLEV road-user charge) at A$0.025 per km for battery-electric EVs (BEVs) and A$0.02 per km for plug-in hybrid vehicles (PHEVs). Both also obtain a registration fee discount of A$100 a year. 

The data for 2021 indicates that 6,396 EVs were sold in Victoria, with 7,430 sold in NSW and 5,342 in Queensland. Given RUC was introduced in July 2021 if Dr. Whitehead's assessment were valid you would expect a significant decline in EV sales relative to other states, but that isn't what happened.

You see the 7,430 sold in NSW compared to the total passenger vehicle fleet in NSW is around 0.17% of all vehicles. Whereas the 6,396 sold in Victoria, compared to the total passenger vehicle fleet in Victoria is around 0.16% of all vehicles.  If it made a difference it was barely discernible, and undoubtedly less relevant than other factors.

In the ACT, the number of EVs sold comprised 0.37% of all passenger vehicles registered in the territory, the highest of any state and territory, but that's not so surprising. The ACT has relatively high affluence, motor vehicle registration is free for two years for EVs, with a 20% ongoing reduction.  

Queensland has a slightly higher number of EVs as a proportion of all passenger vehicles at 0.18%, but that's close enough to NSW and Victoria to suggest that there isn't a significant difference in policy impacts.

Western Australia, Tasmania, South Australia and Northern Territory all have much lower sales, as a proportion of the total passenger vehicle fleet, than the other states, ranging from 0.1% to 0.05%.  In shortsthere is a great deal of reluctance to buy EVs in Australia, but the wealthiest eastern states/territory have better sales.  Note that both NSW and South Australia announced they would introduce RUC from 2027.

So from that I conclude that RUC in Victoria has made virtually zero difference to EV sales in the state. 

That's with a RUC rate of A$0.025 which is equivalent to US$0.029 per mile or £0.02 per mile or €0.016 per kilometre. That is higher than some US states have implemented or are proposing, but much lower than would be a replacement rate for fuel taxes in any European countries.

A higher rate might make a difference to sales. Certainly New Zealand has maintained an exemption from its RUC system for EVs, which would have resulted in them being charged NZ$0.076 per km (A$0.071 per km, €0.045 per km, US$0.08 per mile or £0.06 per mile). Exemption EVs from RUC has undoubtedly contributed to greater sales per capita than in Australia, but I suspect other factors, including price of electricity and the network of charging points matter as well (plus less range anxiety in a smaller jurisdiction).

What it means is that RUC, as a policy tool, needs to be considered within the context of a wide range of pull and push factors for jurisdictions that want to encourage sales of EVs. 

Victorian Government "Supports in Principle" replacing registration fees with distance, time and location based road user charges

What was proposed?

Victoria, Australia, Infrastructure Victoria (an independent government advisory body on funding, regulation and governance of infrastructure) put out a series of recommendations for the next thirty years as a draft strategy for the state. That draft is available here (PDF).  It made several recommendations regarding road pricing notably the following (there are several on parking pricing which I will NOT cover here, but are adjacent to the road pricing proposals:

48. Remove annual charges while introducing distance-based pricing for electric vehicles

Remove annual up-front charges, such as registration fees, while introducing a distance-based road user charge for electric vehicles in the next two years. Consider extending this to other types of vehicles on an opt-in basis, allowing for expansion over time.

This was implemented earlier this year.

also

49. Appoint an independent transport pricing adviser

Immediately appoint an independent body to advise on and monitor transport prices.

This isn't just tolls/road pricing, but also public transport fares, but it is interesting to want more transparency and objective advice on pricing

51. Incorporate congestion pricing for all new metropolitan freeways

Apply congestion reducing tolls to all new metropolitan freeways, including the North East Link.

This is fair enough too to help spread demand, with lower tolls off-peak and higher during the peak, with a commitment to use such tolls to manage demand permanently.

52. Trial full-scale congestion pricing in inner Melbourne

In the next five years, trial full-scale congestion pricing in inner Melbourne.

This also seems reasonable, the presumption being it is some sort of cordon, but given the intensity of public transport and active mode provision, it also seems worthwhile.

and finally

55. Phase out fixed road user charges and introduce user pays charging

In the next 10 years, replace fixed road user charges with variable distance-based and congestion charges. Ensure user pays charging reflects the relative costs of providing roads, and encourages drivers to change their behaviour.

This is a much bigger deal, because it means replacing annual registration fees with distance, time and location based road user charging, reflecting both the costs of infrastructure and congestion.

The Victorian Government response

The Victorian Infrastructure Plan, is the State Government's response to Infrastructure Victoria's proposal. So what did it think of these road pricing proposals?

Number 48 is already implemented, so was obviously accepted..

49 (Independent pricing advisor) was not supported because "current legislation and procedures provide sufficient scope to review and set transport pricing to ensure positive community outcomes". It's effectively not wanting oversight of existing processes and political direction over pricing, which is disappointing. The National Road Transport Association (NatRoad) supports such oversight.

51 (Congestion pricing for all new metropolitan freeways) was not supported because "This recommendation does not align with existing government policy. Each new tolling project in Victoria currently requires its own project-specific legislation to establish a legal basis to facilitate the operation and tolling powers involved in the project. These tolls are set at rates that aim to achieve balance for a number of movement, revenue and contractual objectives. The North East Link motorway will be tolled, but rates have not yet been set. This legislative requirement means that significant lead time is required for each new tolling project to ensure that it has the required rights and powers to charge tolls and enforce their collection."

Victoria COULD move from project-specific legislation to general empowerment legislation for tolling, and this could then allow for this. Project-specific legislation is desired by concessionaires who want certainty over the regulatory environment, but this is not essential. The reason the proposal has been rejected is not about the merits of the policy. 

52 (Trial congestion pricing in inner Melbourne) was not supported because "This recommendation does not align with existing government policy, however the Government is continually monitoring the balance of public versus private vehicle use and congestion on inner-city roads. Impacts of management of the COVID-19 pandemic have significantly changed travel patterns particularly into Melbourne CBD and this has increased uncertainty about future demand, particularly in central Melbourne."

Again, there isn't a claim about the merits of the policy, it isn't either a concern that Covid means that there is concern congestion pricing might go too far (which is a function of the scheme design, not the concept). If there isn't congestion, then it isn't worth implementing. Again there is no real criticism of the proposal on merit.

BUT there is hope...

55 (Phase out fixed road user charges and introduce user pays charging) is supported in principle.

This has much more potential that congestion pricing on new freeways or in central Melbourne, as it involves drastically cutting registration fees and replacing with distance based RUC with charges varying by time of day and location (congestion pricing).

The official response is: 

The Government supports the intent of this recommendation and is considering the long-term effects of the erosion of revenue from the fuel levy as more vehicles move to non-fossil fuels and electric propulsion. The introduction of distance-based charging for zero and low-emission vehicles in Victoria is a first step in ensuring the long-term sustainability of the transport network by making sure everyone pays their fair share to build and maintain our roads.

The Victorian Government is also currently working with its state and Commonwealth counterparts to enhance the manner in which heavy vehicles (those over 4.5 tonnes) are charged for their road use. The Government will continue to work with the Commonwealth Government on heavy vehicle road reform to develop a future model that is fair for all users of the transport network while funding maintenance and development of infrastructure and services that provide the best value to Victorians. The Government will continue to monitor the policy settings associated with road charges.

Victoria starts the journey towards expanding RUC

The simple fact remains that Victoria is the fourth jurisdiction in the world to introduce a road user charge based on distance for at least part of the light vehicle fleet (the others are New Zealand, Oregon and Utah).  Victoria recognising that it will need to transition other vehicles to RUC eventually.  It is working with the Commonwealth Government on Heavy Vehicle Road Reform (which includes a trial of heavy vehicle RUC).  

However, although it supports it "in principle" it is, technically, a huge deal to think about implementing RUC by location and time of day not just distance, across the State.  It requires all vehicles to have the necessary technology to distinguish distance by location and time of day, such as on-board telematics (mobile phones aren't up to it for multiple reasons).  However, it COULD be that if confined to Melbourne, that a backup system could be in place for unequipped vehicles (particularly out-of-state vehicles) to pay based on location and time-of-day.

Let's not get too excited, but it is a positive step forward and it is about a ten year transition.

Worth noting the responses to date:

The Australian Logistics Council is supportive but wants it to be nationally co-ordinated (which makes some sense, as there will need to be some interoperability and common approaches to dealing with vehicles from one state measuring distance travelled in another and being billed for it). 

Opposition MP Roma Bricknell (Liberal) is opposed, adopting the commonly held opinion that it would mean people in regional areas paying more, even though there is no evidence at all that people in rural areas drive more distance on average than people in cities.  Research in the United States indicates that it varies considerably, largely because people in cities tend to do many more driving trips (there is more to visit, more places to go), but shorter trips. So on average, people in rural areas may drive on average more or less the same as people in cities. However, what also matters is the fuel efficiency of the vehicles people drive, and if you cut registration fees significantly, people with multiple vehicles will pay less, because it is based on usage. 

Update:  

Victoria to be the first Australian state to introduce RUC for light vehicles

The Australian State of Victoria looks set to be the first Australian jurisdiction to introduce road user charging (RUC), albeit for light zero-emissions vehicles (ZEV), from 1 July 2021.  Legislation has been introduced to the Victorian Parliament to put this policy into effects which sees the following introduced:

A$0.025  per kilometre (US$0.03 per mile) RUC for zero-emissions vehicles, specifically pure electric and hydrogen powered (and any other zero emission vehicle).  

A$0.02 per kilometre (US$0.024 per mile) RUC for plug-in hybrid vehicles.  Presumably the lower rate for plug-in hybrids acknowledges that they also use petrol (and pay the fuel tax on that, albeit all of that money is collected by the Commonwealth Government, not the Victorian state Government).

The RUC wont apply to conventional hybrid vehicles (those essentially petrol or diesel-electric hybrids fuelled by petrol or diesel).  

The charges will be collected at the time of registration fee collection with vehicle owners asked to supply odometer readings. This represents a very simple approach to collecting this data, and has some parallels with the first RUC pilot operated in the US State of Hawaii, which used odometer data collected at annual vehicle safety inspections to generate mock invoices comparing a RUC with what is paid now with fuel tax (Hawaii is investigating the merits of RUC to apply not only to electric and hybrid vehicles, but all light vehicles).

The revenue collected from the new RUC will be initially dedicated to funding infrastructure to support electric vehicle growth.  Specifically:

This will include new electric vehicle charging infrastructure and reforms to enable electric vehicle ready new buildings.

It is important to note it is LIGHT vehicles only (heavy vehicles are subject to a different pilot programme for RUC being led by the Commonwealth Government in Canberra).  The Victorian Government estimates that these charges are still substantially lower than what petrol or diesel powered light vehicles pay in fuel duty to use the roads.  They are estimated to pay around A$600 a year in fuel duty, on average, whereas RUC should generate around half that.  In other words, ZEVs will still be driving at a discount to use the roads in Victoria compared to conventionally powered vehicles.

What will vehicle owners need to do?

From 1 July 2021, existing ZEV owners have 14 days to lodge an initial odometer reading with VicRoads, and then the distance is reported when the owner updates the vehicle's registration (which can be done annually, half-yearly or quarterly). Odometer declarations need to be supported by "evidence" which is yet to be defined by registration. In US jurisdictions with this system, there is a specific app (VehCon's OdoPhoto for example) to record images on a smartphone and "fingerprint" a vehicle's dashboard to reduce the scope for fraud.  Maybe this will be required? An alternative could be for the telematics system built into the vehicle is used as a platform for an application to transmit such data, but that would require both an application to be developed and installed, and for VicRoads to have a contract with the telematics systems supplier for such a service, which seems unlikely between now and July.  Third-party devices could also be installed to report such data, although again it is unlikely this will be available in the timeframe. Given distance reporting is at the most, quarterly, the need to constantly report trip data doesn't exist. However, some questions remain.

What about distance travelled out of state? Well Victoria will tax you for that, as without any means to identify location along with distance yet specified (although it could be), all distance means ALL distance, including drives to and within other states. This presents an obvious issue if a neighbouring state introduces a similar RUC system which limits distance charged to that within the state.  If a Victorian ZEV drove to South Australia it might face paying a South Australia RUC along with its own.

What about distance travelled off-road? Realistically there wont be much of that, but longer term it will be an issue for vehicles in rural areas on large farm properties or privately owned roads. 

How will enforcement be carried out? Depending on the evidential requirements, there will still be a need to check that odometer reading data is correct, which is not just about fraud, but also inaccuracy (simply misreading the number and reporting it incorrectly).  It is far from clear whether Police might check on odometer readings, but it will depend on the concept of operations developed for reporting readings and verifying them.

What happens when vehicles are sold?  The issue being that if you sell the vehicle and haven't reported distance correctly, who is responsible? The easy answer is caveat emptor, which will require some education of those buying ZEVs to want evidence that RUC is up to date.

What about out of state vehicles? On the face of it, none of it applies to them, so if you have a second address that you can register your ZEV at, outside Victoria, then you might see some advantage in this, but for the sake of a few hundred dollars a year it might not be worth it.  It's not clear how many out of state ZEVs enter Victoria regularly, but it is unlikely to be very low.  Still, you would expect any policy to be able to be future-proofed against the growth of such vehicles over time, and it is not quite clear that it is yet.

Conclusion

Victoria is clearly pre-empting a longer term trend for ZEVs to progressively displace conventionally powered light vehicles, and so it is setting up a new source of revenue from those vehicles.  It wont earn much money, but in ten to fifteen years if the vehicle fleet has 15-20% ZEVs, it will be a sizeable sum that Victoria can use to contribute directly towards road infrastructure costs (and this is money that otherwise might have been collected by the Commonwealth if the vehicles were powered by petrol or diesel). There are questions around implementation, but as the first mover on this, Victoria is starting to shape policy.  It doesn't need to focus on any of the issues above, except enforcement, in the short term, but it seems difficult to sustain a system that charges for all distance travelled by Victorian registered ZEVs, but none for out of state vehicles.  Current rates of ZEV ownership in Australia are so low that this is not likely to present a short-term challenge, especially as distances and infrastructure make interstate driving of ZEVs challenging (although plug-in hybrids are fine), but it starts to look like there needs to be at least some co-ordination between states and territories on this issue in advance of obvious issues such as interoperability, enforcement and out-of-state travel.

Arguments against EV road user charging in Australia refuted

Should Australian states introduce a EV tax - a road user charge based on distance for electric vehicles?

Over the past couple of weeks a coalition of the Australian electric vehicle industry and the leftwing/progressive think tank The Australia Institute have been waging a campaign (actual campaign) against the introduction of road user charging (RUC) for electric vehicles in South Australia, Victoria and New South Wales.  It went so far as The Australia Institute hosting a nearly one hour long webinar (see bottom of the page if you have the time to spend on it) that made a whole series of points which ranged from a whole set of ideas for promoting electric vehicle sales in Australia to opposing RUC not only for electric vehicles. It goes so far as justifying road funding being completely disconnected from how road vehicles are charged, but then arguing for road user charging and including some red herrings, so I thought it would be worth responding to.

Bear in mind that there have been some clear blunders in the design and communication of the “EV tax” announcements to date, but I’ll come to those later.

Behyad Jafari, as CEO, has led the criticism from the Australian Electric Vehicles Council of the proposals for charging electric vehicles by distance.  His claims need to be refuted and the Electric Vehicles Council ought to be engaged to take a far more constructive approach to improving conditions for electric vehicle owners and the road transport sector more generally.  Not only because failing to do so will harm efforts by States to establish RUC, but because if the States fail to do this now, it will come at a much higher price at a later date, for Australia and for electric vehicle owners.

• There are insufficient incentives to encourage sales of EVs in Australia:  This may be true. Certainly the Luxury Car Tax shouldn’t apply to them, and there are multiple policy initiatives that could be taken to incentivise sales of lower emission vehicles. The purpose of this blog is not to discuss these, but arguments around the absence of sufficient measures to encourage electric vehicle sales should not be an argument against charging such vehicles for the use of the roads.

• RUC for EVs would be a significant disincentive to sales: On the face of it, charging EVs for road use should have an impact on sales, but it is more likely to have an impact on usage. The only state to discuss a rate for EV tax so far is Victoria, at A$0.025 per kilometre.  Given average distance driven by a vehicle in Victoria per annum is around 12,000km that is around A$300 a year to pay to use the roads. It’s difficult to see how this will discourage purchasing electric vehicles except at the bare margins.  Indeed, the idea that someone should buy a car because it costs nothing to use the roads, is negative, because the car still takes up road space (which is scarce in cities and on busy roads) and still benefits from the capital tied up in the network. Bear in mind that most Australians don’t buy new cars (there are roughly three times as many used car as new car sales in Australia each year), indicating those that do tend to be on higher incomes, so are unlikely to see a small per kilometre charge as being a significant disincentive to buying an electric vehicle.

• Fuel excise isn’t hypothecated so a loss in revenue doesn’t affect road funding:  This is true, but the analogy to tobacco tax (that if revenue drops governments don’t go looking for new revenue) is a poor one. For heavy vehicles at least, fuel excise is not charged on off-public road use, and there has never been an explicit policy to treat fuel excise as a disincentive to using the roads (unlike tobacco tax which exists, in part, to reduce demand for smoking). If fuel duty erodes, it will affect the capacity of the Commonwealth to fund multiple activities, but there would be merit in it being hypothecated for road spending, at least in part, at the same rate for heavy vehicles and light vehicles. Heavy Vehicle Road Reform proposals have included the concept of hypothecation, in part because a shift towards more direct user charging would establish a relationship between road users and the provision of roads. It is true that, for now and for some years, there is unlikely to be serious erosion of fuel duty revenue in Australia from electric vehicles, but that erosion will become an issue.  

• Reform of charging for road use should start with heavy vehicles:  There is a lot of merit in this, but this is already happening. There has been a small-scale trial of RUC for heavy vehicles in Australia already, and work underway on developing a larger trial of distance, mass and location based heavy vehicle RUC, alongside supply side reforms. Richard Denniss from the Australia Institute claims in The Guardian that “undercharging of heavy vehicles” has seen a loss in mode share for freight from rail, which is highly debatable.  Railways since the 1980s have moved away from a model of handling wagon loads of goods to small stations (which are not economic to handle or competitive in price and time with road transport), to focusing on bulk goods and line-haul containerised freight.  The same has happened in New Zealand over that period which has had RUC for heavy vehicles since 1978.  The claim that heavy vehicles in Australia only pay 12.5% of land transport taxes is simply wrong, because it ignores what is spent on registration fees, which for heavy vehicles can reach over $10,000 a year. Undercharging may be true in the current year, based on the NTC’s Cost Allocation Model, although the road freight peak bodies note that for several years the amount charged by the fuel-excise based RUC was higher than the model stated should be recovered from heavy vehicles. In other words, the populist belief that trucks are always underpaying is not true. However, the system does need reform, and Heavy Vehicle Road Reform could result in this and this does not reduce the arguments for RUC for light vehicles including electric vehicles.  

So, should electric vehicles get to use the roads for free?  

The argument suggested by some that “we don’t charge people to use public parks” implying that roads are the same doesn’t bear close scrutiny.  Roads are not public parks, as their scarce capacity is much more readily reached in cities and unlike public parks (except at very rare extremes), roads beyond a set capacity becomes congested and their utility is significantly diminished. Congested roads also increase fuel consumption for all vehicles, increasing emissions for non-zero emissions vehicles, but also increasing energy costs for electric vehicles. I doubt the Australia Institute would argue against congestion pricing, but in the absence of congestion pricing, allowing a category of private vehicles to use city roads for free will exacerbate congestion, discourage use of public transport. There IS a legitimate question as to whether electric vehicles pay a discounted rate or even for free when numbers of electric vehicles are extremely low, but that is different from claiming that they shouldn’t pay for road use at all, or that a small per kilometre charge is devastating.

Electric Vehicle supporters should advocate for the interests of Electric vehicle owners in reforming how roads are charged for and funded.

There is virtually no relationship between what motorists pay to use the roads today and what they get, except for toll roads.  A shift towards RUC develops that relationship, and RUC with a hypothecated roads fund, with RUC rates directly related to the costs of spending on the roads attributable to different types of vehicles, WOULD see such a relationship and mean motorists move from being taxpayers to being consumers of a service – roads.  This would mean more emphasis on consistent levels of maintenance, in improving the network in ways that best support the safety and efficiency of road use, rather than political calculations around popular, but low value large projects.

This has the potential to change how roads are charged for, so that users pay for what they use, but also how money raised from that is spent. A shift towards longer-term guarantees of maintenance funding and a more commercial approach to road management and funding, that sees funding based on long-term revenue forecasts and demand, so that capital spending on roads is user driven, rather than politically driven.  Highway England is an example of how that is done, with a five year funding settlement, from a hypothecated roads fund (from registration fees), it has to deliver set service outputs around maintenance, safety and new projects to enhance safety and reduce congestion. 

Are there enough incentives to buy Electric Vehicles in Australia? Probably not, but that’s a different argument from saying they should get free use of a capital intensive resource that excludes the use by others.  More electric vehicles will reduce CO2 emissions and noxious emissions, but it will not reduce congestion and a transition towards direct road user charging for all vehicles needs to include light vehicles and light vehicles that don’t pay fuel duty are an easy and simple place to start, before developing options for those that do.  This is what has happened in Utah and Oregon, and is being developed in other US states.  It is exactly what should happen in Australia, it is just a shame that the Commonwealth Government has been silent on this, because it will need some co-ordination and common policies. 

Given jurisdictions as diverse as Oregon, Hawaii, California, Washington State, Utah and New Zealand are all on pathways (or already are) charging electric vehicles by distance, some of the hysterical responses in Australia to the concept need to be dismissed, including the bizarre non-sequitur that a state-run odometer reporting system for reporting distance is about "privatisation".

How states should respond to critics of Australian state EV tax proposals

You couldn't be blamed for looking at the media coverage of the proposal to introduce distance based road user charging (RUC) on electric vehicles in three Australian states and think it was a crazy idea.  There is far more attention been paid to the utterances of the Electric Vehicle Council and a number of motoring related publications, compared to what has been said by Ministers or the relevant Departments.

There is a pretty clear reason for that.

Neither the Ministers nor the departments responsible for leading the communications on the proposals have done enough to follow the number one lesson in advancing road pricing, road user charging or indeed any proposal to introduce direct user charging on existing roads - dominate the narrative.

This lesson was learned in a different, but related endeavour in this field. London Congestion Charging.  Sure, Australia isn't London, and charging EVs for all road use is not the same as congestion charging in a small inner city area.  It's MUCH harder.

Only 55% of households in London have a car (or access to someone else's car).  In Australia it is 91%.  Yes the number of EVs is very small, but charging for all road distance 24/7 is quite different from charging to use a small area of roads at specific times. Moreover, Ken Livingstone got elected on a manifesto that included congestion charging, none of the State Governments proposed RUC for EVs. That doesn't mean everything a government does needs to be in a manifesto, but it certainly makes it easier, and even though <1% of car trips in London enter the congestion charging zone, it was still a proposal that barely got majority support.  

Charging EVs in Australia is much more difficult if you don't take the lesson from London Congestion Charging - lead the narrative. At the moment the narrative is being led by a lobby that regards the proposal as an attack on its constituency and by populist fear of the unknown, and that's because, with the exception of Victoria, the proposals have been too vague and the purpose poorly construed. That's because the introduction of RUC for EVs is a long-term strategic move to avoid the "sinking ship" of fuel excise revenues over time and for the states to get revenue from EVs that would otherwise be collected by the Commonwealth (if EVs were petrol or diesel powered vehicles). 

Yet unsurprisingly, the lesson time and time again from the experience of US states that have introduced RUC (Oregon, Utah) and those that have trialled it (Hawaii, California, Washington State) is that the public simply doesn't care about government revenues. Most people see incomes tax, GST, local authority rates, stamp duty occasionally and other taxes as just being there and given most aspects of government tend to work from time to time (and government is often reported as having wasted money or mismanaged it), there is a great deal of cynicism about higher taxes or new taxes. Right from the start, the idea that electric vehicles should pay a "tax" is the wrong idea.

A "tax" is just a way of penalising an activity that collects money for government.  It isn't seen as a "user charge" or "fee" for a service given.  As fuel excise is exactly that, and none of the money is hypothecated, it is even more difficult to sell the idea of an EV tax based on distance. So it SHOULD be called a user charge, and although critics would call it a tax, the reason to call it a user charge is to differentiate it, and to show it is a start of a wider reform, designed to benefit road users.

A road user charge could be defined as changing that relationship between road users and road providers, and as a first step towards including hybrid vehicles as well, so that over time decisions on spending on roads within states are more controlled by states (and territories).

The narrative should not be about a revenue problem, but about moving away from a model whereby there is no transparency in money going from road users to the roads, to one that has a closer relationship.  This is already the narrative around supply-side reforms for heavy vehicles in Heavy Vehicle Road Reform at the Commonwealth level. These reforms have widespread support in the heavy vehicle user sector, and there would be considerable advantages in bringing this together with electric and hybrid light vehicles as well, so that rate setting, use of revenues and planning for investment are linked with user preferences.

Moreover, don't let opponents and the less well informed lead the narrative. If you don't fill the gaps in information, they will, and you will lose the argument.  This already looks like what has started to happen in South Australia.

New South Wales and Victoria to follow South Australia in introducing RUC for electric vehicles

Following on from the announcement by the Treasurer of South Australia that the state wished to introduce legislation to charge EVs for road use by distance, two other states have announced intentions to pursue a similar policy,

New South Wales Treasurer Dominic Perrottet announced last week that the state is to consider introducing RUC for electric vehicles, although it was not included in his budget last week.  This had been flagged as being of interest in the state's Federal Financial Relations Review published earlier this year.

Now the Victorian Treasurer Tim Pallas announced on Saturday, in advance of the state budget, that he intended to introduce RUC on EVs. The specifics include a A$0.025 a km charge on zero-emission vehicles (electric and hydrogen) and A$0.02 a km on plug-in hybrid electric vehicles, with the intention that it should be in place in mid-2021. It will raise A$30m over four years, which is much more promising than South Australia which looks like raising less than A$1m per year.  As reported by The Age, the state intends to spend A$45m on electric vehicle charging infrastructure during that period, but the revenue is not to be hypothecated for that purpose (fortunately, because ultimately it would become far too much for that purpose), but rather indicatively to pay for a "share of road maintenance costs".  

All three proposals are very similar, although South Australia's proposal has already generated opposition from the Labor Opposition, it is a Labor Government in Victoria implementing a similar policy.  The Australian Trucking Association is strongly in favour of RUC for electric vehicles, but the loudest opposition has come from the Electric Vehicle Council. 

I'll get to that opposition in another post, but what all of this news represents is a giant leap forward in advancing RUC in Australia. It make sense for all three states to adopt RUC on electric vehicles in a similar timescale, given their proximity to one another (a similar point might be made about Queensland).  Of course there is a serious strategic move by all three states in advancing this policy:

1. Take charge of the narrative around RUC for electric vehicles: Being slow on this policy will mean policy design, technology and interoperability across state boundaries will be led by the first movers. All three states clearly want to be ahead, rather than have to be reactive.  There will inevitably have to be some common standards and policies to cross-border distance travelled.
2. Build a new stream of revenue:  None of the states get revenue from fuel duty, which is collected by the Commonwealth and is not hypothecated (although the rate of fuel duty (after refunds) paid by heavy vehicles reflects historic spending on the road network attributable to heavy vehicles).  To set up RUC for electric vehicles (which pay no taxes to the Commonwealth for using roads), gives states revenue), provides a long-term strategic opportunity to develop an independent revenue stream from the use of light electric vehicles, which will grow over time as the fleet changes. As the fleet changes, fuel tax revenue will erode (although not so much from heavy vehicles) and states that adopt RUC will be increasingly able to pay for their roads with less Commonwealth funding (and the consequence of this may be less Commonwealth funding over time).

So why does it make sense to introduce RUC for EVs now?

• Unlike all other vehicles, EVs pay nothing to use the roads now, which sends a signal that EV road use is entirely benign and does not generate any external costs. This isn't true, as not only do they share in contributing to network depreciation, but also contribute to congestion, including the time and emissions costs this imposes on other vehicles.  Roads are a scarce resource, so their use should not come for free.
• Electric vehicles are small in number, but also do not need to receive credits for fuel duty paid to avoid double charging. This makes introducing RUC on EVs easy and a low risk step towards wider reform.
• It does not make sense to have two systems for paying for road use in the long-run, but a shift towards road user charging needs to start with the lowest risk part of the fleet. This can evolve to include plug-in hybrids (Victoria already intends to do this, at a lower rate to recognise that plug-in hybrids pay fuel duty already) and conventional hybrids, although ultimately both will need a system that credits fuel excise duty to the RUC account holder - which will need agreement and legislation supporting this by the Commonwealth Government. 

There should be other reforms as well.  Hypothecation of RUC and registration fees for road maintenance and capital spending at the state level should follow, along with independent rate setting reflecting a common approach to cost allocation.  These policy elements parallel what has been considered as part of Heavy Vehicle Road Reform led by the Commonwealth with State and Territory participation.  

What do all states need to consider?

• Concept of Operations: How will RUC for EVs work?  Will distance be charged after it is travelled or be prepaid in advance? How will off-road and out-of-state distance be treated? Will location identification be mandatory or optional, and what are the consequences for users choosing each model?
• Delivery model: Will the state collect the money? Will it be provided by a single private contractor or will there be an open market set up to establish accounts and provide customer service? How will private suppliers be paid?
• Enforcement approach: How will the state verify EVs pay RUC or even have RUC accounts? How will it address fraud?
• Rate setting: How will rates be set and regularly reviewed (and calibrated against how other light vehicles are charged, or the infrastructure costs attributable to such vehicles)?
• Revenue management: Will hypothecated roads funds be set up, if so, how will they be managed and how will they have funding allocated from them? How will this use of revenue be used to inform rate setting?

If any or all of these states proceed, they will catalyse the ACT and Queensland at least to progress as well, but they need to address some serious lobbying by the Electric Vehicle Council, which is trying ever so hard to portray RUC for electric vehicles as a special group deserving of others paying for their road use (for up to twenty years)!  This deserves a response, which I will write later this week.  Electric vehicle ownership will not be dented by electric vehicle owners paying to use the roads.