Making Road User Charging work in the UK: Part One - it's got a problem

Nothing to see here! This is the response you might give to the Chancellor of the Exchequer (UK)’s latest budget (PDF) in terms of the future of revenue from UK road users. Well not strictly true. For the twelve year in a row, the Government has frozen fuel duty (it officially is meant to inflation adjust it, but this has not happened now except once, under the Conservative/Liberal Democrat coalition in the Government’s first term). This is estimated by Treasury to cost £1.51 billion (US$2.05 billion) in 2022/23 alone, but the net impact over that time has been to erode the value of the £0.5795 per litre (US$2.99 per gallon) fuel duty significantly. If it had been adjusted it would be £0.78 per litre (US$4.01 per gallon), meaning it has already lost almost 26% of its value, although arguably if it had been inflation adjusted there would be slightly reduce demand, so the revenue loss is far from linear (and indeed it is a gain in the hands of households and businesses).

So this is quite some problem. It's not quite the US scenario, which has seen the US Federal Gas Tax not increased since 1993, at US$0.187 per gallon, which translates into a mere £0.035 per litre. Even California, which has the highest state gas tax, only adds £0.129 per litre.  So even around £0.16 per litre in the US isn't anywhere near £0.5795 per litre in the UK.  What it means though, is that fuel tax in the UK is much much more important than in the US, and the key reason being, it isn't about paying for roads, it's just another tax.

What do existing motoring taxes raise?

Fuel duty does raise £28 billion (US$37.9 billion) per annum as it stands. 

Related, but much simpler to resolve, is declining revenue from Vehicle Tax (formerly known as Vehicle Excise Duty (VED)), which is basically registration fees. The decline is purely due to the zero rating for new electric vehicles, which could easily be addressed by introducing fees for such vehicles. VED raises £7 billion (US$9.5 billion) a year. There might be a case for shifting away from a fixed fee to pay for roads to a usage-based fee, to encourage change in behaviour, and better reflect externalities, but that’s another story. 

The real issue is that the UK Government has a whole series of policies that result in declining fuel tax revenue. The main one being the prohibition on the sale of new petrol and diesel light vehicles from 2030, supported by £620 million (US$840 million) in public spending to fund plug-in charging points for electric vehicles. Of course, all of this is driven by UK Government commitments on climate change, so the issue arises as to whether the UK can manage with fuel duty revenue declining or if it will want to replace it, and if so with what?

Road user charging (RUC) is an obvious answer, but unlike in the United States, the revenue collected from fuel duty is many times the spending on roads in the UK. The latest budget (which only reflects England), seeks the Department for Transport spending £6.4 billion on roads, £5.6 billion which comes from VED (the remainder of VED is allocated to Scotland, Wales and Northern Ireland as devolved administrations). Adding fuel duty and VED revenue sees £35 billion raised almost entirely from road transport, even though spending on the sector is a fraction of that. A shift towards RUC to replace revenue becomes qualitatively and politically challenging if it is revenue, not only to pay for roads, and even public transport, but for general spending purposes. RUC, after all, is much closer to a fee set to recover costs, not a general tax. Nowhere has RUC been introduced just as a tax to raise revenue for general government spending (although Singapore’s Electronic Road Pricing (ERP) system, which is a congestion pricing scheme, sees all net revenues treated exactly like that – but its objective is not to generate revenue).

UK history of RUC

The history of attempts to introduce RUC in the UK matter as well. Let's also NOT muddy the waters with related, but fundamentally different policies. For a start, tolls are insignificant ( a full list here) in their role in paying for roads in the UK. Beyond a few bridges and tunnels, and one motorway near Birmingham (M6 toll), they have not been widely used. Similarly, congestion charges are not really relevant here. There are two in the UK, London and Durham, and both are in place to manage traffic, not raise revenue. 

From 2001 until 2010 there were three connected but separate attempt to introduce road pricing, which varied on scale, scope and to some extent, objectives.

First, the Lorry Road User Charging (LRUC) project, from 2001-2005, which was both to recover revenue from foreign lorries, but also to become a first step in introducing national road pricing. It would have priced all UK roads by vehicle weight, but also a broad-based time of day (night/day) and location (cheaper on motorways), using the now widely applied GNSS telematics technology. It folded for several reasons, not least being cost and the low level of expected new revenue generation. It was led by Her Majesty’s Revenue and Customs (HMRC), which raised questions about the incentives around governance for a project requiring high levels of customer service, user acceptability and ultimately application of transport economics. (More recently, the UK introduced the HGV Road User Levy to raise revenue from foreign trucks, essentially implementing a European-style vignette scheme)

In 2005 it was replaced by the National Road Pricing project, which sought to reduce congestion and emissions by implementing full scale time of day, distance and place (TDP) road pricing for all vehicles on all roads.  It was meant to be a 15 year programme, but it collapsed in 2007 due to public opposition, and was folded into the Transport Innovation Fund (TIF) programme to support proposals from local authorities for congestion charging. No actual congestion charging schemes resulted (although Manchester came close, until local politicians decided a referendum was necessary to obtain support to proceed), and with the change of government in 2010 that was the end of further measure by the British Government to promote road pricing.

How hard is this?

The politics around this are brutal. Over 1.7 million people signed a petition opposed the National Road Pricing project, and polling has regularly indicated large majorities opposed to the idea. In 2010, a paper written for the RAC Foundation by Dr John Walker included a poll indicating that a majority would support reforming how roads were paid for, but was not supportive of congestion pricing. Bear in mind that the MAIN objective for all of the previous attempts has been to reduce congestion, which at the time required all vehicles to be equipped with GNSS based telematics systems. Headlines about “tracking your movements” scared many about government interference in privacy. Even more critical, given the previous Labour Government had a policy of increasing fuel duty higher than inflation, year after year, few would believe that same Government would actually cut a tax to introduce road pricing, so on average, people wouldn’t pay more.

So introducing road pricing/RUC in the UK to manage congestion is unlikely to gain much support, but what about introducing RUC simply as a replacement of fuel duty?

The House of Commons Transport Committee recently held an inquiry into both electric vehicles and road pricing, and has yet to issue its report on the inquiry (it most recently heard oral evidence in mid October). However, from the evidence seen so far there is every risk that the UK will repeat some of the previous mistakes. This includes:

· Treating the whole exercise as being mostly if not entirely about revenue-raising, which is understandable if it is led by HM Treasury and HMRC, but does not encourage public support and is unlikely to be seen as acceptable politically.

· Turning only to European experience as particularly relevant, when in the past decade it has been the United States that has moved much more rapidly and, in some cases, nimbly, to test and implement small-scale RUC systems designed to replace fuel tax revenue. Australia also has some lessons that may be drawn upon as it considers whether to replace fuel tax and registration fee revenue from heavy vehicles, and some states introduce RUC for light electric vehicles.

It’s worth reminding those from countries where hypothecating fuel tax for road funding is standard practice that this is NOT what happens in the UK, this is treated as “just another tax”, with no link whatsoever to any spending. This is a position held firmly by HM Treasury, because of fear about what would happen if there was “too much revenue raised” or indeed “too little”, which reflects a position whereby governance, funding decisions and the structure of the highways sector is largely unchanged. Bear in mind, that the creation of Highways England (now National Highways) as a company, with a five-year funding settlement, drawn from VED has already broken away from this model.

Clearly the number one barrier to implementing RUC in the UK is public acceptability and the politics around this, but to address that there needs to be a significant change in the mindset around how motor vehicles are taxed/charged, how the revenue is used and what governance arrangements need to be put in place to support that.

Even if there were to be growth in the scale of spending on roads in the UK, and indeed that might be justified given the backlog of maintenance particularly on local roads (and in some cases, the paucity of local authority interest in capital spending due to funding constraints), it is not going to be anywhere near the scale of £35 billion per annum. The “right” amount is unknown because the lack of price signals and useful data on revenue raised doesn’t indicate what should be spent on the network, but given that motor vehicle owners and users are clearly willing to pay £35 billion a year to own and operate their vehicles, it is likely to be higher than at present. However, the question may well be reasonably asked as to whether the road networks, in their entirety, shouldn’t be generating returns on capital, that could then, reasonably, be treated as dividends able to be applied to other public spending. A return on capital and a carbon tax might be ways to address the revenue gap between road spending and current revenues from motoring taxes, but all of that needs some more revolutionary thinking that has largely been absent from the debate to date.

So what could the UK do? That’s the subject for a future post.

It's not a congestion charge if its purpose is to reduce emissions

According to the Norwich Evening News, Norfolk (UK) County Council, in its Proposed Transport for Norwich Strategy has suggested congestion charging as part of its strategy to improve air quality. I used to live in Norwich, so I have a particular interest in this, so reviewing the Proposed Transport for Norwich Strategy does reveal that congestion charging is mentioned four times.  Three times in the context of improving air quality and once to 

The second part of its "vision" is "improving the quality of our air" and this includes "road charging/congestion charge" presumably as a tool to achieve this.  This is far from helpful, because a congestion charge by definition is established to ease congestion.  Yes it should also reduce emissions, but because it should only operate at the times and locations of congestion it isn't a scheme to comprehensively address emissions, like the London Ultra Low Emission Zone. 

This is where confusion appears, because if you sell a congestion charge as a public policy measure based on it actually being a low emission zone, then it isn't a congestion charge.  

A low emission zone operates much longer hours (indeed up to 24/7) because its purpose is to exclude higher polluting vehicles from the zone.  It isn't to collect revenue (the only revenue are effectively fines or permits to drive in the zone for such vehicles).  A congestion charge shouldn't operate at times of low or zero congestion, because then it would be overpricing the road.

There is some hope that the Norfolk County Council does actually mean congestion charging for the sake of improving trip reliability, for under the statement of policy "Journey times and reliability", the strategy states:

Journey times and reliability will be improved on the local highway network with particular emphasis to support fast and frequent bus services

We will ensure that journeys by bus are consistent and journey times are reduced where possible and consider the feasibility of demand management approaches such as congestion charging and workplace parking levies to facilitate traffic reduction to free up road space for essential travel.

THIS is a reason to introduce congestion charging, to actually reduce congestion.  However, this can't just be for buses, it needs to improve journey times for the vehicles that are being charged, otherwise it is simply a tax to punish driving.

If local authorities WANT to improve journey times and trip reliability, then sure introduce a congestion charge, and it will happen to reduce emissions as well, because there should be less traffic and the traffic that remains will flow more efficiently, wasting less fuel. Then those paying are getting a benefit from improved travelling conditions, and it happens to reduce pollution too.

HOWEVER, if your objective is to reduce emissions first and foremost, then a congestion charge on peak traffic isn't the tool for the job.  The related tool is a low-emission zone, that penalises vehicles that are not rated as having low emissions, and it should operate at all times there are issues around pollution.  It isn't priced to optimise traffic flow, but rather operates to improve air quality.

I THINK Norfolk County Council actually wants a low emission zone, but is calling it a congestion charge.  

US Federal Government looks to fund more state pilots and a Federal RUC pilot : Part Two - A National RUC pilot for the USA

Following on from proposed additional funding for state led RUC pilots is the proposal for what is called the National Motor Vehicle Per-Mile User Fee Pilot (NMVPMUFP!). It is always intriguing how Americans can generate new terms for what could just be called a National Road Usage Charge Pilot (although I’ve also heard that officials in one state didn’t like the acronym RUC because it rhymed with a well-known pejorative). 

Objectives

The Infrastructure Investment and Jobs Act would establish a pilot program to demonstrate a national RUC system. The objectives of RUC are stated as being:

· To restore and maintain the long-term solvency of the Highway Trust Fund; and

· To improve and maintain the surface transportation system.

This is all very well, but there is no way it can restore the solvency of the Highway Trust Fund without setting fees that are substantially higher than what is paid now with the Federal Gas Tax, because it hasn’t been increased since 1993. To make the Highway Trust Fund solvent, it will need to be increased by more than inflation over the next decade or so. It seems unlikely there is much political will for that. To improve and maintain the surface transportation system is laudable, and presumably means raising enough funds to spend on the network. However, it could also improve it by subtly using tools around pricing, particularly around heavy vehicles and configurations, by encouraging more road-friendly configurations. It seems highly unlikely that location and time of day pricing would be explored (which would really make a difference).

The objectives of the national pilot are stated as:

(A) to test the design, acceptance, implementation and financial sustainability of a national motor vehicle per-mile user fee;

(B) to address the need for additional revenue for surface transportation infrastructure and a national motor vehicle per-mile user fee; and

(C) to provide recommendations relating to the adoption and implementation of a national motor vehicle per-mile user fee.

Elements

This largely parallels other programmes, which is fine, although the second objective is somewhat tautological. Other interesting elements of the proposal are:

· Multiple methods of measuring miles travelled will be tested.

· Volunteer participants will be sought from ALL states and DC, and even Puerto Rico;

· The distribution of participants will be an equitable geographic distribution (although it is unclear how this will factor in population size);

· Both “commercial vehicles” and “passenger motor vehicles” will be included, so not just light vehicles, but also trucks and potentially buses.

· The pilot will co-ordinate with states pursuing pilots, to consider using the components of their systems or pilots.

All of this seems largely sensible, although one unanswered question is the scale of the proposed pilot program, which seems likely to be in the thousands of vehicles.

It’s unclear whether the pilot will collect money (either from those that pay no gas tax or by crediting gas tax paid), or will just generate mock invoices, but the Bill states that the Secretary of Transportation will set rates for the pilot and the amounts may vary between vehicle types and weight classes (which is dead right for heavy vehicles) to reflect estimated impacts on infrastructure, safety, congestion, the environment, or other related social impacts.

Infrastructure is obvious, but safety seems odd, as nowhere charges differentially based on safety ratings of vehicles. Congestion is only possible if there is location and time of day measurement as well as distance, which limits technical solutions (but is likely to generate huge benefits if feasible). Environment could be reflected in different rates for levels of emissions. Related social impacts is unclear but would need to be explored further. Let’s be clear though, the gas tax does none of this well.

Technology

Tools for measuring distance are mentioned in the Bill, specifically:

· Third-party OBD-II devices (plug-in devices, suitable for most light vehicles up to a certain age);

· Smart phone applications;

· Automaker installed telematics;

· Data collected by car insurance companies;

· Data from States that have piloted RUC under the FAST Act;

· Data obtained from fuelling stations; and

· Any other method considered appropriate by the Secretary.

Interestingly this does NOT include commercial vehicle telematics, widely used for truck fleet management. It also doesn’t include more manual options, but of course there is scope to include these obviously. 

A Federal System Funding Advisory Board will be set up to develop recommendations related to the structure, scope and methodology for developing and implementing the pilot programme, carrying out the public awareness campaign and developing a report to Congress. That report will be on whether the pilot has achieved its objectives, how protections for participants were complied with and some estimate of administrative costs and equity impacts.

Members of the advisory board will include representatives of:

• State Departments of Transportation
• Entities that led pilots under the FAST Act
• Representatives of the trucking industry (note, these have been vehemently opposed to RUC for many years)
• Data security experts with expertise in personal privacy (though I would have thought it needed legal expertise as well)
• Academic experts on surface transportation systems
• Consumer advocates, including privacy experts
• Advocacy groups focused on equity
• Owners of motor vehicle fleets
• Owners and operators of toll facilities
• Tribal groups or representatives
• Anyone else deemed appropriate by the Secretary

This is potentially recipe for an utter mess, but is demonstrative of the US approach to public policy, which is to consult with whatever interests are seen to be relevant (interestingly it doesn't include railroads, doesn't include automotive manufacturers, doesn't include telematics system suppliers, doesn't include customers of transportation systems, doesn't include bus or coach operators, doesn't include agriculture or business).  

Conclusion

This is potentially a BIG deal, and has the potential to be quite some success, but also the potential to fail spectacularly due to complexity, scale and overlapping objectives. It seems likely to be much more appropriate to first undertake a desktop study of options for RUC and to then consider why a pilot is a good idea. There are really only two main reasons in this case, given pilots are underway at the state level:

• To build public acceptability by demonstrating that RUC would be unobtrusive and not cost more than the Federal gas tax;
• To test how a Federal system might interact with State ones.

US$10 million per annum is being proposed to fund this pilot, which is a great deal of money, but likely to be necessary.  However it begs a lot of questions particularly around scale, duration and how a wide range of participation will be enabled and ensured. What matters most of all is ensuring that a national pilot can avoid being dominated by negative publicity and negative narratives, which requires a lot of work to be done around communicating objectives to a public that is highly sceptical.

The US needs more rational debate and discussion about how roads are paid for and are managed, and this ought to help. It just needs to be done with a great deal of thought and care, because the world is littered with countries that have tried to advance road user charging on a wide scale (see the Netherlands, UK and Finland) and have failed, due to public backlash.

US Federal Government looks to fund more state pilots and a Federal RUC pilot : Part One - More state and local RUC pilots to be funded

The Infrastructure Investment and Jobs Act, currently before the US Federal Congress, would “establish a pilot program to demonstrate a national motor vehicle per-mile user fee to restore and maintain the long-term solvency of the Highway Trust Fund and achieve and maintain a state of good repair in the surface transportation system”.

It is also continuing the successful partnership between state and Federal Governments to fund investigations into RUC.

So this is big news in the world of road pricing.  It effectively means that there could be a National US RUC pilot, but it also supports the continuation of the past few years of funding state based RUC pilots.

So what does this mean?

That first is a continuation of the FAST Act programme by which the Federal Government funded States investigating “user-based alternative revenue mechanisms” which includes RUC.  That programme has been funding pilots in the US since 2015 and most recently announced funding in March for California, Delaware, the Eastern Corridor Coalition (seven states), Hawaii, Kansas/Minnesota, Ohio, Oregon (for RUC West), Texas and Utah to progress a range of projects.

The Act would provide additional funding so States, local government or metropolitan planning agencies can pilot RUC, with some specific objectives:

• To test the design, acceptance, equity, and implementation of user-based alternative revenue mechanisms, including among--

                            (i) differing income groups; and

                            (ii) rural and urban drivers, as applicable.

• To provide recommendations regarding adoption and implementation of user-based alternative revenue mechanisms.

• To quantify and minimize the administrative costs of any potential user-based alternative revenue mechanisms.

• To test a variety of solutions, including the use of independent and private third-party vendors, for the collection of data and fees from user-based alternative revenue mechanisms, including the reliability and security of those solutions and vendors.

• To test solutions to ensure the privacy and security of data collected for the purpose of implementing a user-based alternative revenue mechanism.

• To conduct public education and outreach to increase public awareness regarding the need for user- based alternative revenue mechanisms for surface transportation programs.

• To evaluate the ease of compliance and enforcement of a variety of implementation approaches for different users of the surface transportation system.

• To ensure, to the greatest extent practicable, the use of innovation.

• To consider, to the greatest extent practicable, the potential for revenue collection along a network of alternative fueling stations.

• To evaluate the impacts of the imposition of a user-based alternative revenue mechanism on—

(i) transportation revenues

(ii) personal mobility, driving patterns, congestion, and transportation costs; and

(iii) freight movement and costs.

• To evaluate options for the integration of a user-based alternative revenue mechanism with-

(i) nationwide transportation revenue collections and regulations;

(ii) toll revenue collection platforms;

(iii) transportation network company fees; and

(iv) any other relevant transportation revenue mechanisms.

This is quite a list of objectives, indicating exactly the issues around RUC that exercise politicians in the US.  Concerns about whether RUC might be less fair on people on low incomes (although this needs to be compared to the gas tax and paying for roads from general taxes such as sales taxes), and concern that paying by distance hurts rural communities ignores past work that indicates that this is largely not the case (and sometimes the contrary). 

Other issues around administrative costs, enforceability, privacy, use of the private sector to collect revenue. There is the odd case of a system based on paying through “alternative fueling stations” which appears to be code for taxing electricity charging stations, which is not a good idea at all.

One boost is the proposal that funding be 70% of the costs of a proposal put forward by an entity that has previously received funding, and 80% for a new one. This is clearly designed to incentivise states and other entities that have not pursued such studies in the past.  For each year from 2022-2026 US$15 million will be available to be spent on such studies or pilots. 

Expect more states to study and pilot RUC, but also expect more implementations.  

So far in the US, only Oregon and Utah have revenue-collecting operational RUC systems for light vehicles (Oregon, New Mexico, Kentucky and New York all have weight-mileage taxes for heavy vehicles), although there are mandates for RUC in Virginia and Connecticut as well.

The US Federal Highways Administration has a useful list of ALL of the grants given to states under the FAST Act so far. It has been for the following states:

California (US$6.68 million) 

Colorado (US$0.5 million)

Delaware/Eastern Transportation Coalition (Seven states plus DC) (US$13.513 million)

Hawaii (US$4.248 million)

Kansas (US$3.25 million with Minnesota)

Minnesota (excluding Kansas US$1.3 million)

Missouri (US$4.8 million)

New Hampshire (US$0.25 million)

Ohio (US$2 million)

Oregon (US$9.412 million)

Oregon for RUC West Consortium (US$5.42 million)

Texas (US$5 million)

Utah (US$3.245 million)

Washington (US$13.972 million)

Wyoming (US$0.25 million)

In my next article, I'll write about the prospective US National pilot

Road pricing is the answer, but it is best to start from first principles

The costs of maintaining and developing a road network are often not calculated on the same basis as other infrastructure or other assets. In many jurisdictions roads are not given a capital value, whether it be replacement cost or (more usefully) economic value as an asset generating wealth. The concept of depreciation is not applied, so there isn’t an economic basis to calculate the life-cycle costs of a road. Capital spending on roads is frequently just “written off” when it is spent, unless the road is debt funded and perhaps supported by tolls. 

Traditionally justifications for road funding have been based on engineering assessments alone, rather than looking at service to end users and optimisation of costs.  Cost optimisation would see depreciation taken into account, so that maintenance is undertaken on a long-term optimal basis, rather than just reactive to emergencies or to political demands. It’s grossly inefficient to take the latter approach, as it inflates costs over the long-run, offering few chances to spend more upfront on renewal of road sub-structures and surfaces for a longer life, and to manage the asset pro-actively.  Equally as important, reactive approaches are not conducive to quality of service. It is not often that politicians or civil servants talk of road users as “customers” or of providing a high standard of service to them, yet this is what they are.

So the primary objectives around spending on road maintenance and renewal should be about sustaining an appropriate level of service for those using it. Any additional capital should be about improving levels of service, whether it be improving safety, reducing congestion, allowing larger or heavier vehicles to use a corridor valuable for freight, reducing journey travel times etc. and should reflect some analysis as to whether it is both economically justifiable and if it addresses road users’ priorities.  

 Ideally, once there is a clear forward-looking strategy, with the right incentives to deliver improved levels of service to road users, then the question as to who pays and how much should be considered in some detail.  Who pays, by how much and by what means can follow on from that. 

So an article in CleanTechnica on 20 September 2021 titled “Is Road Pricing The Way To Equalize Electric- & Gas-Powered Vehicles?” asks some questions and presents some answers.

 The article correctly reflects the problem, which is that fuel taxes are not longer sustainable proxies for “user pays” to pay for roads in many jurisdictions.  In jurisdictions where fuel taxes bear no relationship to what is spent on roads (see the UK and most other European countries), it is a wider pressure, noting that taxes on fuel are used to bolster general government spending.

Plug In America, a lobby group for electric vehicles, not surprisingly argues that road user charging on EVs would both hinder the transition to such vehicles and not raise enough money.  Both of those claims need further scrutiny at a later date.  

 Another claim is that EV owners already pay enough taxes for road maintenance through other means, like general sales taxes on new vehicles. It quotes a questionable report from Arcadia Center in 2018 that this indicates that such owners pay more than owners of vehicles with internal combustion engines. The only basis by which this makes any sense is for Massachusetts which hypothecates sales taxes for new motor vehicles into the Commonwealth Transportation Fund.  So this is not applicable for jurisdictions that do not do this, but it is also worth noting what a bizarre policy that is. Imagine if sales taxes on electrical appliances were used to fund maintenance of the electricity distribution network, or sales taxes on mobile phones to pay for cellular networks.  The tax is legally avoidable by buying a vehicle out of state and registering it there, and it is inequitable as it bears zero relationship to how much of the road network is used. Sure this applies to ALL types of vehicles, but it is hardly a solution that is efficient or equitable.

The CleanTechnica article proposes several solutions:

Increasing the gas tax is an option, but is dismissed rightly because although it would accelerate a transition to electric vehicles, it would be unfair to those who cannot afford them. Increasing the gas tax is only appropriate if it is part of equalising across what all vehicles pay, not just those paying the gas tax.

Fixed fees for EV owners: This is dismissed as being higher than what some owners of other vehicles pay in gas taxes, which will be true for some, albeit that any fixed fee is good for those who drive a lot, and is not good for those driving a little. In any case, although there is a case for recovering some road costs from fixed fees (because of the proportion of road maintenance costs that are fixed), there is a better case to recover more from usage-based fees in order to recover the most from those that use the network the most (and to help address externalities).

Taxing the electricity EVs use: The Arcadia Center article proposes this, but it lack merits. The CleanTechnica article notes it is technically difficult and could hinder take up of EVs. Technical difficulty (and difficulty to enforce in some cases) is entirely valid, although the idea it might hinder take up of EVs seems no more valid than applying it to other types of fee. If the problem is paying for the roads, then objecting to any measures because they may put off purchases of EVs, means a balance has to be struck. Regardless, surveys indicate for most people one of the main reasons not to buy an EV is upfront cost, which suggests that any tax breaks or subsidies are best placed at purchase. In other words, Massachusetts would encourage MORE EV sales if it exempted them from the sales tax, and implemented a distance-based road user charge, than trying to recover the same revenue from taxing the purchase of the vehicle.

Road pricing: Four types are listed:

·      Flat rate per-mile: This is the classic road user charge, but the article suggests it could vary by weight (yes for heavy vehicles), fuel consumption (why?), emissions (yes, this can be done) and damage done to the road network (well that’s weight really).

·      Geographic/toll-based charging:  This really isn’t a solution to replace the gas tax for EVs, as it is route or location specific.  The description is more like a congestion charge, which is fine, although that has a different purpose and shouldn’t be confused with RUC.

·      Time-based rate:  The idea that you are charged a fee by minute has never been implemented anywhere.  It has one major negative externality, it rewards excessive speeding and running through red-lights.  It’s not a good idea.

·      Dynamic rate:  Dynamic rate of what?  This could just be a dynamic distance-based rate, which is basically applying congestion charging to RUC.  It is described like using a toll tag, which wouldn’t be useful on a network wide basis.  So this isn’t really useful to replace the gas tax, unless it is just a further evolution of RUC.

Now this article is positive, as it advances the value of road pricing and suggests a whole set of principles which are largely worthwhile and agreeable, but I want to suggest that the problem (not enough money to pay for the roads) should start with identifying exactly what it is money is needed for, how that is assessed and then to work out who should pay what.  

This means having asset-management systems for roads, it means accounting for roads in the same way as other assets, and developing a cost-responsibility approach to work out who should pay for what costs (and there are multiple options to address that), alongside the means to recover those costs. Fuel taxes have been easy for a long time, but their time is running out.  Fees based on distance, vehicle characteristics, and some element of location are likely to be better, but any such system should seek to balance the need for price signals vs. the need for a relatively simple way to charge user fees.  One reason for this is simply to gain acceptability from road users.  It isn’t just about raising money, it should be about delivering better outcomes for those who pay.

Tel Aviv to introduce congestion charging

After New York (crossing fingers), Tel Aviv looks like being the next city to introduce congestion pricing after the Israeli Government seems to have agreed, notwithstanding opposition from the Transport Minister and tepid support from the Finance Minister, to a plan for a triple cordon around the city. 

Why?  

To raise money AND reduce congestion. The scheme is motivated by the usual combination of a desire to significantly reduce traffic, but also raise a lot of money. It seems the latter is very important, although the indicative concept is definitely intended (due to the geography and the time of operation) to make a sizeable dent on congestion (although no data on what impact it will have has been released). 

What sort of scheme? 

A triple cordon. I haven’t been able to source maps of where the zones MIGHT be (yet), but basically it is described as an inner city ring, a second ring 3-7km from the inner ring and a third ring 7-12 km from the inner ring, all bounded by a series of major roads. Ben Gurion Airport will be within the outer ring.  I've never had the good fortune to visit Tel Aviv so my geographical knowledge is very limited.

These ring locations are yet to be finalised, but have been described as follows:

The inner ring will include central and south Tel Aviv. The middle ring will include Ramat Gan, Givatayim, Bnei Brak, Holon and Bat Yam and Azur. The outer ring will include Herzliya, Petah Tikva, Kiryat Ono, Givat Shmuel, Ganei Tikva, Yehud Monoson, Or Yehuda, Rishon Lezion and Beit Dagan. 

This appears to be quite a large scheme in terms of physical scale, covering vast areas of Tel Aviv, so it will have quite a significant impact.

When will it operate and what types of vehicles will it apply to?

It is intended to operate weekday peak times from 0630-1000 and 1500-1900 and will apply to cars, trucks and motorcycles. Buses, taxis, emergency vehicles and cars with disabled parking badges will be exempt. Trucks will be charged twice the fee of cars. No discount or exemption for residents living within any of the cordons has been announced.

This is largely sensible from a policy point of view, although exempting taxis may be more to avoid protests from that sector than any economic rationale. Taxis are, after all, cars that carry people for hire. Double the fee for trucks makes sense from a road space occupancy perspective, and having minimal exemptions is a good idea to minimise costs.

How much will the fees be?

Various reports have indicated that the fee schedule will see a maximum charge of NIS 37.50 per day (US$11.62), with the standard fees ranging from NIS 2.5 (US$0.77) for the outer ring, NIS 5 (US$1.55) for the middle ring and NIS 10 for the inner ring (US$3.10). These will be applied separately for inbound and outbound travel. 

What technology?

The primary technology to be used will be Automatic Number Plate Recognition, although one report indicated that drivers with accounts (and implicitly a toll tag) would be charged less (NIS 2, 3.5 and 7 respectively). 

How much revenue will it raise?

The proposal is expected to raise NIS 1.3 billion (US$400 million) after costs. Which is reasonable, although another report indicated it would raise NIS 2.7 billion (US$840 million), which surely can't mean it will cost NIS 1.4 billion to run (but may reflect a change of forecasts).

What will it be used for?

The net revenues are to be used to help fund the Tel Aviv metro project, which has a construction cost of NIS 150 billion (US$46.5 billion). However, the metro construction isn’t expected to start until 2025 and be completed in 2032, so it is will be interesting to see the public reaction to motorists paying for a project many wont be able to use for some time. 

What will be done in advance?

 This isn’t the only public transport project though, as by the time the congestion charge is live, significant improvements to bus services and at least one of three light rail lines will be open (two more are under construction) to help support modal shift. 

When will it be in operation?

2024.

Who will be responsible?

The Israel Tax Authority will be legally responsible for collecting the charge, but the actual management, operations and collection will lie with Netivei Ayalon, a company that operates under the auspices of the Transportation Ministry and which I believe is already responsible for managing highways around Tel Aviv include toll lanes. The role of the new company will be to plan, build, operate and maintain the necessary funds to charge the congestion charge.

What do the politics look like?

Weird.  The report from Globes says the following:

The charge will be introduced despite the opposition of Minister of Transport Meirav Michaeli, who sees it as a regressive tax, which will hurt the less well off. In the end, senior Ministry of Finance budget division officials prevailed in their determination to include the congestion charge in the Economic Arrangements Bill. The officials prevailed even though Minister of Finance Avigdor Liberman himself said he was not prepared to fight for the charge.

It will take at least 30 months before the infrastructure will be in place to implement the charge. The Tel Aviv congestion charge will have to survive a Knesset vote and the long time until it comes into effect.

Two days later, the Jerusalem Post has reported that the Minister of Transport has "now embraced it as a quick short-term solution to Tel Aviv’s traffic problems, and as a source of funding for other transportation projects".

It looks almost like officials have said "you need to do this, you have no choice (fiscally)".  However, it makes perfect sense that this has been announced just after the new rotation government was formed on 13 June 2021, because the sooner this can be placed into law the better, given how fragile Israeli politics is.

Conclusion?

Good luck to Israel and Tel Aviv, it seems like a very bold proposal, but congestion in Tel Aviv is reportedly endemic and as we all know, simply building more transport supply is NEVER enough, whether roads or public transport. The world needs more good examples of congestion pricing.  Regardless of whatever happens around the details, I hope something happens. I fear three cordons may be going too far, but at least two are likely to be needed to have a meaningful impact, and half of that impact (given the experiences of Stockholm and Singapore) will be time of day shift not modal shift. There is a lot of work to do, but beyond congestion, it seems hard to see how fiscally the Tel Aviv metro can be afforded (or even attract enough patronage) without such a measure.

Can road user charging be used to tax carbon dioxide emission directly, if it replaces fuel taxes?

The rise of alternatively fuelled vehicles, such as electric vehicles, plug-in hybrid electric vehicles and perhaps hydrogen fuel cell technology has promoted exploration and implementation of road user charging (RUC) in jurisdictions across the world as a replacement of fuel tax for revenue from motor vehicles.

What this means is that motorists will more directly pay for their road use, they will see the cost of that use, and may change behaviour as a result. It is also a shift from taxing fuel to taxing distance. The taxation of fuel is largely invisible to motorists, as it is built into the cost at the pump, and although in most jurisdictions it changes from time to time, its effect is that motorists prepay for road use when they refuel.  Of course taxing fuel makes the fuel more expensive, and so adds to incentives to consider the cost of fuel when purchasing and using vehicles, and some environmentalists are concerned that by making petroleum and diesel cheaper it will reduce incentives to buy alternatively fuelled vehicles.

Replacing fuel tax with RUC and introducing a carbon tax

Associated with that is debate about how best to internalise the costs of emissions that contribute to climate change. Some jurisdictions have adopted an emissions trading scheme (e.g., New Zealand), which effectively means that businesses have to purchase the right to emit in order to produce their goods or services, which includes passing on those costs to their customers. Depending how widespread it is implemented, this is an economically efficient and rational approach towards internalising such costs, as the price gets built into the cost of goods, such as fuel. Others have considered taxing carbon dioxide production, through taxing fossil fuels. Carbon taxes can be implemented in a range of ways, with the least administratively burdensome being upstream taxes so that the cost is built into the price of fuels. Indeed the key to making such taxes work to reduce emissions is a combination of universality of application and the level they are applied at. Without universal application, activities are incentivised towards those that are not taxed.

In the field of road transport, an obvious option is to apply a tax on fuel so that motorists reflect the cost of carbon dioxide in that consumption. The one thing that fuel tax is optimal for is being a tax on consumption of that fuel and the resulting carbon dioxide emissions (it isn't necessarily that good for noxious emissions, which vary based on engine design, emissions controls and driver behaviour).  

However, if a jurisdiction's policy is to replace fuel taxes then if it doesn't already have a carbon tax, it may be politically difficult to justify retaining fuel taxes for emissions as well as adding RUC. After all, if the public has been convinced of the merits of RUC as a fair way of paying for the roads to replace fuel tax, it is also likely to be convinced that fuel taxes are to be abolished. Keeping or adapting fuel taxes to become a carbon tax is highly likely to be politically difficult.

There is an alternative, put forward by Jim Whitty, to have a downstream carbon tax as part of RUC, which could use technology to measure and charge actual emissions, along with distance, or average emissions. Revenue from such a carbon tax could also be recycled to further support emissions reduction or address distributional concerns about the effects of carbon tax on those with low incomes. 

Jim Whitty is best known for having been the Manager, Office of Innovative Partnerships and Alternative Funding at the Oregon Department of Transportation (USA) from 2004 until 2016, where he led three pilot programs for RUC for light vehicles.

The recently published paper he has led is titled "Consumer Participation in Transport Carbon Reduction Through Transparent Downstream Carbon Taxation and Spendable Carbon Mitigation Credits" (yes the title is far too unwieldy, but it basically is "Using RUC to implement a carbon tax and recycling the revenue".

The full paper is available to download and read here (PDF). It was written by Whitty, Travis Dunn, myself, Roshini Durand Mootoosamy and Jeff Doyle of the then Milestone Solutions LLP. 

The start of the Executive Summary is reproduced here (note it is written in American English):

Twenty years ago, economists described a carbon price directly charged on vehicle emissions and paid by emitters as a “purely downstream” approach as opposed to upstream or midstream along the supply chain. The vigorous research and development that made road usage charges viable for transportation funding over the past decade have now also made the purely downstream, or “transparent” approach to carbon taxation, feasible.

This paper shows how a carbon tax can be collected directly from light-duty vehicle owners as a policy to reduce greenhouse gas emissions, either alone or in combination with a road usage charge. By collecting a carbon tax via a road usage charge system, a governmental jurisdiction can collect a carbon tax directly from drivers, affordably and transparently, to encourage better energy consumption choices. A road usage charge system collects the same data required for calculation of a per-mile charge—distance traveled and fuel consumption—for calculation of a carbon tax charged directly to owner/operators of light-duty vehicles.

Under the concept introduced in this paper the bulk of dollar amounts paid on light duty vehicle emissions would create climate mitigation credits available for purchasing zero-emission vehicles (ZEVs). ZEVs purchased in this manner would replace vehicles that emit GHG from the tailpipe. A vehicle owner’s climate mitigation credits would accumulate over time, until applied to a ZEV purchase, and listed on a periodic carbon tax invoice.

The key potential here is that RUC need not undermine environmental policy around climate change, but rather complement it, if a jurisdiction has not implemented policies to internalise climate change costs from road users. Options to use the revenue are widespread and open for much more research.  

Denmark to introduce distance-based road user charging for trucks UPDATED

As part of climate change policy the Danish Government announced in December 2020 that it is introducing distance-based road user charging (RUC) for heavy goods vehicles (press release in Danish).  In Europe this is typically referred to as "truck tolling" although it is distance based charging and is applied across a wide network, not point based charging on a specific road (which is the traditional definition of tolls).  This is part of a national policy goal to reduce emissions by 70% by 2030.

The intention is to introduce the new system from 1 January 2025, which will replace Denmark's participation in the Eurovignette (time-based) RUC scheme.  The objective of the new RUC scheme is to improve incentives to change the heavy vehicle fleet towards lower emission vehicle, but will be designed to reflect:

• Infrastructure, road wear costs;
• Noxious emissions;
• Climate change impacts; and
• Noise.

As with the Eurovignette, it will apply to Danish and foreign registered trucks (apparently not buses) with a gross maximum laden weight of 12 tonnes or more. Eurovignette is estimated to generate DK0.5 billion (US$79.8 million) revenue from Denmark at present from such vehicles, of which 20% is from foreign vehicles.  The proposed new RUC system should generate the same amount of revenue in the years 2025-2027 and then increase to DK1 billion (US$159.6 million) from 2028 onwards (which assumes a sizeable increase in charges). 

Estimated costs for establishing the system are DK200 million (US$32 million), with ongoing operating costs of DK175 million (US$23 million), with depreciation at DK25 million p.a. (US$4 million).  Within those costs are enforcement, estimated to cost around DK10 million (US$1.6 million) p.a., which is expected to be fully recovered from fines.  

These forecast costs are a far cry from levels seen in previous estimates or from schemes introduced ten or more years ago.  This is due to significant drops in the cost of GNSS telematics OBUs, drops in the cost of mobile data communications thanks to 4G (and soon 5G) technology. reductions in the costs of enforcement equipment and systems (notably ANPR cameras) and the emergence of a competitive market in RUC service provision in Europe.  The latter is particularly notable, as early schemes (such as the German LKW-Maut) had a single provider of services, but in the past decade a more open market approach has emerged, putting pressure on both equipment and operating costs.  This was pioneered in New Zealand in 2011 with its introduction of eRUC, and the introduction of a certification system for service providers supporting the electronic option to charge RUC in that country (which now has three service providers), followed by Oregon which has done the same for heavy RUC and its light RUC pilot. In Europe it was pioneered in Hungary shortly thereafter.

I suspect the costs for enforcement are too low, unless the labour costs are seen as overlapping with safety enforcement activities (so the incremental cost of enforcing RUC is insignificant). 

Interestingly, the press release indicates there has been extensive dialogue with the Danish trucking industry and the introduction of RUC may parallel some liberalisation of rules around the use of double trailers and reform of the mass and dimensions rules around trucks. This could help with acceptability by enabling higher productivity vehicles (larger trucks) to operate on Danish roads, with greater capacity (and as a result using less fuel and producing less emissions to move the same freight). 

The project is being managed by Sund & Bælt. a Danish Government owned company that is responsible for several very large infrastructure projects (it is best known for being responsible for crossings such as Storebælt fixed link between Zealand and Sprogø, the Danish part of the Øresund fixed link and the under construction Fehmarnbelt fixed link between Germany and Lolland, Denmark).  It is to be responsible for implementation and operations, as well as enforcement. The reason for granting authority to Sund & Bælt is because it was assessed as having experience with similar tasks and having the necessary competencies, as it has over 20 years experience in operating tolling, it is believed to have some of the project and operational competencies around customer service, technical monitoring, charging systems, technical knowledge and communication. 

It's worth remembering that Denmark pursued heavy vehicle RUC before, which I wrote about in 2012 and 2013 when it was abandoned.  It appears the primary reason it was abandoned was cost, although Hungary and other European countries have subsequently been able to address this (suggesting that perhaps the concept of operations and the procurement approach taken at the time was not optimal).  

There are limited details of what the Danish scheme will look like, including its scope (both in terms of applicable vehicles and the network subject to RUC), but it could apply to all goods vehicles over 3.5 tonne and given experience of all European heavy RUC schemes (except Switzerland and Iceland) it will likely apply to motorways and national highways (although it could apply to all roads if desired).  There is also little indication of forecast revenues and costs, although EU Directive 1999/62 does set some clear rules around rate setting, so Denmark cannot over recover such costs.  

Denmark has had to its south the German LKW-Maut scheme, which charges all heavy goods vehicles over 7.5 tonnes on all German Federal Highways since 2005, and of course multiple other similar schemes in other European countries such as Belgium, Switzerland, Hungary and Slovakia.  The system is required to be interoperable, so it is possible that vehicles with accounts and devices for the German LKW-Maut scheme will be able to be used for the Danish system.  Denmark notes it needs to have dialogue with neighbouring EU Member States to ensure compliance with EU law.

The Eurovignette remains of course in Luxembourg and Sweden, given the Netherlands previously announced it is introducing a heavy vehicle RUC system (and Sweden continues to develop such a scheme).  Given these trends, will it be that Luxembourg has the rump of the Eurovignette, which once applied across central Europe (including Germany) or will Luxembourg introduce its own heavy RUC scheme, taking advantage of the fact that its neighbours (bar France) all have heavy RUC schemes?

UPDATE:  Hat Tip to Søren Have from Denmark who via Twitter directed me to additional sources of information on the project, in Danish.  Documentation in available here (in Danish), but through Google Translate I can add the following points (and have edited above).

The technical solution, unsurprisingly, is a GNSS telematics on-board unit, which is estimated to cost DKK1000 (US$160) including installation, with an option for cheaper self-installed units. Devices are not expected to be purchased, but rather supplied as part of service provider contracts. No manual option will be provided, reflecting the extent to which vehicles particularly from Germany are expected to be equipped (as well as those registered in Denmark that regularly travel to Germany). 

Project schedule appears to be as follows:

• Political clearance by mid 2021
• Establishment of project and organisation by mid 2021
• Legislation for implementation introduced mid 2021, passed mid 2022
• Procurement and delivery of solution from mid 2021 through to early 2024
• Negotiations with service providers early 2022- late 2024
• Preparation and operation of testing and commissioning early 2023 - early 2025

The scheme is forecast to reduce total truck traffic by 2-3% primarily by:

• Reducing demand for road freight;
• Productivity improvements in the road freight sector that are expected to parallel the move
• Modal shift (although this is questionable).

Certainly if the increase in revenue after 2027 is primarily due to significant increases in charges there would be expected to be a demand impact.

Utah enables in-vehicle telematics to be used for road user charging

In 2020, Utah became the second US state to implement an optional road user charging (RUC) scheme for certain light vehicles. Optional in the sense that such vehicles could choose either to pay a higher annual vehicle registration fee or pay RUC instead. 

Utah's scheme is only available to electric vehicles, plug-in hybrids and conventional (petrol powered) hybrid light vehicles.  They each face a choice as follows:

Electric:    (US) $120 a year registration fee or US$0.015 per mile (up to a cap of $120)

Plug-in Hybrid: $52 a year registration fee or $0.015 per mile (up to a cap of $52)

Conventional Hybrid: $20 a year registration fee or $0.015 per mile (up to a cap of $20)

The reason for the lower fees for plug-in hybrid and conventional hybrid vehicles is to acknowledge that they all pay state fuel taxes in addition to these fees, although of course, this means that conventionally hybrids that are driven more than 1334 miles per annum, pay nothing more than fuel taxes at that point.  

The main technology option available to motorists has been to acquire an On Board Diagnostics (OBD-II) plug-in device that is inserted into the OBD-II port on the vehicle, which receives data generated by the vehicle's on-board systems, includes a GPS receiver and transmits the trip data via the mobile telecommunications network. In addition, the vehicle owner must download an app and take a single image of the vehicle's odometer at the point of registration, and then an annual odometer image is taken and transmitted to verify distance travelled.

However this has is supplemented by another option, which in its own way, is quietly revolutionary in the world of RUC. Whether it is called embedded telematics or Original Equipment Manufacturer (OEM) telematics, it is the telematics system built into a vehicle at the time of production.

What this means is that for vehicles able to use this option, no additional equipment is required, with the vehicle already equipped to record trip data by distance, location and time of day.  Tesla Model 3 cars do not have OBD-II ports, so a smartphone is used to connect with the vehicle's telematics system to access the trip data and transmit it to the service provider.  An API is provided to enable access of that data by the smartphone using the relevant app (Smartcar).  Of course this relies on the driver bringing the phone with the relevant app, pairing it with the vehicle and ensuring the phone remains powered throughout the trip.  It's not clear whether forgetting to carry the phone becomes a problem, because next time the phone is connected to the vehicle it could access such data once more. 

The system is intended to be expanded to other Tesla models, but would be greatly improved if the telematics system connected directly to the service provider rather than simply paired with a phone. There are likely to be some key enforcement challenges if it becomes phone dependent, because the incentives to connect your phone to the car for the purposes of paying RUC are not good.  

However, this IS a significant step forward. Most vehicles nowadays are built with embedded telematics, but until Utah, none have been used for RUC. There are considerable barriers to making it work, not least consent from the vehicle manufacturer, and the diversity of such systems on-board vehicles (some will not be sufficiently reliable, some won't be sufficiently secure). However, if these issues can be addressed, RUC would simply be another application for such systems to record and report trip data.

Without the need for any additional equipment, the capital costs of RUC drop considerably, and the operating costs are mostly around managing customer service and communications.  Have no doubt, there is a long way to go to enable this, and there are considerable barriers, but Utah has pioneered RUC using technology built into cars.