Monday, 23 January 2017

London Assembly calls for congestion charge reform

The Greater London Assembly Transport Committee has released a report calling for both short term and long term measures to reform London's congestion charge, coming to the solid conclusion that the charge in its current form is not "fit for purpose".  The Committee has little actual power, as the matter is up to the Mayor (the Assembly is meant to hold the Mayor to account, but the Mayor has considerable Executive power).  The current congestion charge raises £168m net revenue a year.

London's congestion charge zone


Its report is available here (PDF) and makes a series of recommendations which I have listed below.  


1.  In the short-term, the Congestion Charge should be reformed, so the payments levied better reflect the impact of vehicles on congestion. The daily flat rate should be replaced with a charging structure that ensures vehicles in the zone at peak times, and spending longer in the zone, face the highest charges. 

For the longer-term, the Mayor needs to start to develop proposals now for replacing the Congestion Charge with a new citywide road pricing scheme, which charges vehicles according to the extent, location and timing of their road usage. Road pricing could also replace Vehicle Excise Duty, which should be devolved by the Government to the Mayor. There may be a case for the scheme to be wider than the existing Congestion Charge zone; discussions with all boroughs should take place to determine whether and how road pricing should cover their local road network. 

The Mayor’s forthcoming Transport Strategy should set out plans for both Congestion Charge reform and for the potential introduction of road pricing. The Mayor should also update the committee by the end of April 2017 about discussions with the government on the devolution of Vehicle Excise Duty.(which is not a London matter, but the Mayor wants devolved to London).  (this is what I will be focusing on in this blogpost)

2. TfL should ensure that new monitoring technology introduced to identify vehicles in the proposed Ultra Low Emissions Zone should be compatible with the future requirements of a road pricing scheme. TfL should confirm it will do this when responding to the recent consultation on ULEZ proposals. (i.e. ANPR, but by the time road pricing is introduced it may need renewed anyway)

3. TfL should take steps to encourage bids from boroughs interested in piloting a local Workplace Parking Levy. Provided the plans fit with any wider road pricing scheme, TfL should offer support to a WPL pilot programme if proposed by a borough. This should include offering additional funding to the borough(s) to initiate the scheme.  (I'm not a fan of taxing parking places for commuters, particularly in suburban centres, because the modal alternatives for commuters are often poor, so it can be a tax on small businesses seeking to attract labour, and there is little evidence they effectively address congestion).

4. The Mayor and TfL should take steps to encourage more delivery consolidation. This will involve working with those running large construction schemes and retailers, potentially through Business Improvement Districts. The new London Plan should promote consolidation for new developments. TfL should also work with London Councils to reduce restrictions on night-time deliveries.  (the latter is all about noise in residential or mixed use areas, although restrictions could be lifted if linked to more electric trucks.  Delivery consolidation will occur if roads are priced efficiently)

5. TfL should pilot a ban on personal deliveries for staff. Based on the findings, the Mayor should consider extending this to all GLA Group premises, and promote this change in practice to other large employers in London. (I'm not a fan of this heavy handed approach which was justified because people can "pick them up at tube stations".  This assumes people live near tube stations, over half of London doesn't.  Efficient road pricing would mean the price of such deliveries could vary to reflect such costs, obviating such an illiberal policy).

6. TfL should reconsider its approach to ‘click and collect’ at Tube and rail stations. Stations should be identified for a pilot programme in which multiple retailers and/or freight operators can deliver packages to a station for collection.(This should certainly be tried where it makes business sense and is practicable and safe).

7. he Mayor should set out how his new regulations for the private hire industry and the legislative changes he is advocating will affect congestion levels in London. He should also commit to assessing the impact of making private hire vehicles subject to a new road pricing regime, and different options for implementing this proposal. (rational to require private hire vehicles to pay any new road pricing scheme, but a similar case can be made for hackney carriages "black cabs" to do so as well).

8. TfL should conduct and publish an analysis of the impact of the Road and Transport Enforcement Team and, if it is proven to be cost-effective, set out plans to expand the size and coverage of the team. (this group focusing on breakdowns, stoppages, illegal stops and other activities that create congestion.  Logical). 

9. The Mayor and TfL should carry out an assessment of the effectiveness of the London Permit and Lane Rental schemes for roadworks. This should be aimed at ensuring the cost of delayed roadworks on London’s road users is reflected in the amount companies must pay. (Appropriate for a scheme that should be part of what any good road controlling authority does for utility access to its corridor).

10. TfL should continue to implement its Road Modernisation Plan schemes including the proposed network of safer cycling routes such as Cycle Superhighways and Quietways. It should report back to the committee by the end of April 2017 on how the construction of additional Superhighways and other major projects will be planned more effectively to minimise traffic congestion. (the "Road Modernisation Plan" needs some more economic rigour, taking into account impacts on congestion and modal shift.  It's not clear how these projects positively impact on traffic congestion, if at all. Theoretically there is plenty of scope for projects to improve the capacity of intersections, although road pricing revenue may be needed to fund those that need land acquisition).

11.  TfL should conduct and publish an analysis of the impact of the pilot scheme displaying traffic notices on buses and, if it is proven to be cost-effective, set out plans to roll out the programme more widely.  

Of Committee members, the UKIP Member disagrees with recommendations 2 and 3, and partly with 1 and 10.

Congestion isn't about growing private car use

The report says:

"The mode share of private vehicle transport has fallen in recent years, from 41 per cent in 2003 to 32 per cent in 2014"

"Londoners’ usage of cars has been falling for at least ten years. Between 2005 and 2014, all the key measures of car use – trips taken by Londoners as a car driver, the distance travelled and time spent driving – all fell by around 25 per cent"

In other words, public transport use has been growing significantly.  However there has been an 11% increase in light delivery vehicle kms in three years, which can put down to internet shopping.   There has also been a 70% increase in private hire vehicles in under four years.  Both can be seen as partly an effect of reduced car use.  If you don't have a car, it is difficult to go shopping for goods over a certain size to take them home, so deliveries grow.  Similarly, public transport doesn't take you everywhere you want to go, especially in evenings, or when carrying a lot of shopping or luggage, so booking a private hire vehicles makes sense.

Corresponding to this has been reductions in the capacity available to motor vehicles, with the advent of more cycling lanes and in a few cases, footpath capacity.

Cycling has been increasing in popularity, but it is likely this is mode shift from buses and the underground, not cars given the low mode share for cars in any case.  In short, London has successfully made commuting by private car uncompetitive in central London (although not outer London), and has not added significant road capacity for over 15 years, but non-car traffic has grown considerably.  The question is how to address this.  

Short term reform

The profile of traffic in the congestion charging zone by time of day doesn't match the AM peak inbound, PM peak outbound pattern seen in many cities.  In fact, there is more traffic around 0900-1000 than at 0700, because very few commuters into central London travel by car.   The congestion charge is an area charge.  So any vehicle (that isn't exempt) moving within the area is charged a flat fee for unlimited driving in the zone that day.  It would be possible to have a different rate for different times, but that could split the charge into period passes.  There could be a charge for driving in the AM and a separate one for the PM period, or a pass for a two hour period, although that adds complications to the system.  An alternative would be to actually trial distance charging, which simply measures distance on the charged roads and to hike the daily charge considerably (making that the capped rate for driving in the zone).

Truth be told, very little that can be done with the congestion charge would make much of a difference, except perhaps charging all private hire vehicles (and black cabs - as controversial as that will be, to them) by distance.  This might be possible as a part of their licences, and would be a good start (as it could encourage mode shift to public transport and reduce the number of empty touting trips by black cabs).   Another point would be to charge heavy vehicles on a PCU (passenger car unit) basis, so that they pay according to road space, although I doubt this would make much difference, it would be fairer. 

Long term reform

It's fairly obvious that charging all vehicles (except perhaps contracted bus services) by distance, vehicle size, location and time of day, could transform road traffic conditions in much of London. That's assuming such a system would price with a high degree of disaggregation by time of day and route.  No doubt, the idea of using it to replace Vehicle Excise Duty (the UK's annual registration fee) would make it more acceptable, although if it means transferring revenue from central government to the Mayor of London, it is more questionable unless the use of revenue is dedicated, first, to maintaining and upgrading the road network.   The obvious question would be about fleets and other road users who might register vehicles at London addresses and never pay VED and pay little "London road pricing" because they rarely enter London.  

A survey undertaken as part of the report (PDF) indicates a number of interesting statistics:

70% of those surveyed had not paid the congestion charge in the past year.
48% support the current congestion charge, 27% oppose it, 25% are neutral.
54% think the congestion charge is too high, 11% think it is too low, 27% think it is about right (interesting it is women, younger people and non-white Londoners who particularly think it is too high)
50% would prefer a distance (or time based) charge instead of the current flat charge, 20% oppose
47% support local congestion charge zones, 21% oppose
29% support expanding the existing congestion charge zone, 41% oppose
60% believe a distance charge would be fairer, 13% disagree
41% believe a distance or time based charged would be bad for business, 17% disagree
37% believe a distance or time based charged would make journey times quicker, 19% disagree, 44% neutral
27% believe they would be likely drive less if they faced a distance or time based charge, 15% disagree, 25% are neutral, 32% don't drive
55% believe net revenue from road pricing should be used for improved public transport, 21% believe it should be used to improve roads, 12% believe it should be used for cycling infrastructure (note a third of respondents don't drive but are included in this).
64% of those surveyed in employment don't drive to work.
30% support workplace parking levies, 39% oppose, 30% neutral

The three big questions to ask about a wide scale scheme as proposed are:

1.  What about visitors to London?  Any time/location/distance based system will need to involve either on board telematic or an installed on board unit to identify, measure and transmit charging information from vehicles.  For vehicles without such systems, an alternative will be needed, which inevitably will be much less disaggregated, blunter and more expensive.  For example, London could be blanketed with a patchwork of area charges that occasional users pay a charge to cross into. Otherwise, a single, expensive day pass could be offered for entering London, perhaps one for outer London and another for inner London.  In either case, the impacts of this need to be modelled and carefully considered.

2. What should be done with net revenues?  Road users should expect that if they pay a lot more, they get a good standard of service.  A lot of roads need serious capital renewal due to poor maintenance. Bridges with weight restrictions could be strengthened, but more importantly, bottlenecks that are worth improving should be.  The Mayor seems to have dropped planned for new east-west road tunnels, but there is much that can be done to improve some existing corridors with historic bottlenecks.  Road pricing can curtail induced demand and make such improvements sustainable, and those who pay should expect an ongoing programme of capital improvement.  

3. What about other charges?  The congestion charge would go of course, and it's unlikely Vehicle Excise Duty would be replaced, especially since it is government policy to hypothecate the revenue for the strategic road network (although I think it should be hypothecated for local roads only).  How about it being a pilot for partially replacing fuel duty?  Fuel duty revenue is in decline, not just because the government wont increase it to adjust for inflation, but fuel efficiency and the rise of electric/hybrid vehicles means it is becoming slowly obsolete.  Public acceptability would be much higher, and the impacts may be more dramatic if existing taxes are replaced by carefully targeting congestion.

Hopefully the Mayor will consider a study into how to take road pricing further in London.

Monday, 19 December 2016

Australia's Federal Government advances road pricing: Part One Heavy Vehicle Charging

Australia has for years been studying road user charging, but in the past year has been committed to what it calls "Heavy Vehicle Road Reform" which is about not just changing how heavy vehicles (both trucks and buses) are charged, but also how those charges are set, how revenue is used and the basis for planning how to spend that revenue.  It recognises that charging by registration fee and fuel tax is inefficient and results in significant infrastructure cost cross subsidies among heavy vehicle road users (the heaviest vehicles travelling the longest distances on secondary roads are subsidised by lighter vehicles operating shorter distances on freeways).  Mass, distance charging (that reflects the ESA impacts of vehicle configurations) provides a much closer link to actual costs that charging based on fuel consumption and static registration charges.  

Minister for Urban Infrastructure, Paul Fletcher announced on 25 November the Australian Government's response to the Infrastructure Australia 15 year infrastructure plan.  Infrastructure Australia is an independent statutory body with "a mandate to prioritise and progress nationally significant infrastructure" which undertakes its own research on the reforms needed to meet the country's infrastructure needs.  It published its report in February 2016, so the response is welcome.

On heavy vehicle charging Fletcher said the Australian Government will:

Progress next steps for heavy vehicle reform with states and territories through the development of a forward looking cost base, and a discussion paper to inform consultation on options for an independent price regulator.

Development of a forward looking cost base is about establishing the long run costs of the infrastructure that is being charged.  This looks at what the costs are to maintain the road network across the lifecycle of all the assets (e.g. pavement, bridges), both fixed costs (due to the effects of sun and rain) and marginal ( due to the effects of traffic volumes, mass and axle configuration), operating costs and then a rational capital renewal and improvement programme.

Independent Price Regulation takes power to set existing and future charges into the hands of an independent body, based on identifying the long run life cycle costs of road maintenance and capital spending programmes that are attributable to heavy vehicles, to establish charge rates.  Those charge rates would be based on forecasts of demand and a distribution of costs based on various factors (e.g. common costs, vehicle road space, equivalent standard axle mass loading).  

Earlier in November the Transport and Infrastructure Council, which brings together Federal and State Governments, released a communique indicating its ongoing commitment to reform(PDF):


The Council agreed to a number of actions to support the next phase of heavy vehicle road reform. The Australian Government will work with states and territories on the next steps to identify options for independent price regulation of heavy vehicle charges and to the trial of elements of heavy vehicle road reform. The Council noted that the current situation where charges related to revenue are disconnected from investment and maintenance decisions needs action. The National Transport Commission will provide technical advice to governments to conduct a review of the heavy vehicle cost base allocators, and develop a working prototype model for a forward looking life cycle cost base for heavy vehicle charges.


These steps are important in advancing heavy vehicle charging, as it sets up how charge setting is approached and the infrastructure cost data used to inform charge setting.

Actual implementation of heavy vehicle charging will require more of course, and a forward looking cost base and independent regulator would both add value to the current system of charging and funding (fuel tax and registration fees).  It will need states willing to pilot heavy vehicle charging, introducing it on a small scale, either geographically or by a small portion of the fleet or as a time limited trial.  

From that a state will have to make the transition (to a "RUC state"), but will need to reduce registration fees it collects and fuel tax collected federally for a new mass/distance charge it would collect.  It will need to take into account out of state heavy vehicles that do not pay a road user charge, without offering vehicles registered in the RUC state an opportunity to game the system.

There is no rush in Australia to have a federally mandated system, or interest in state systems emerging that are incompatible or are not within the overarching goals of heavy vehicle road reform. The question is what states are willing to move ahead and start progressing the steps necessary to introduce heavy vehicle charging.   It surely helps that the Australian Government is committed to the reform agenda, and as will be seen in the next post, is also interested in investigating further the merits of light vehicle charging.

Wednesday, 14 September 2016

Temporary stoppage

Apologies for the lack of posts, I wont be posting on this blog for the rest of September either, due to the unexpected passing of my Mum.

I will advise on my twitter account @roadpricing when service resumes.

Thursday, 18 August 2016

Australian Federal and State Government Ministers reconfirm commitment to heavy vehicle charging reform

Australia has a Federal system of Government, with fuel tax only collected at the Commonwealth (Federal) level, but registration fees collected by the States.  Transport policy between Commonwealth and State level has some co-ordination through the Transport and Infrastructure Council (TIC) which brings together Ministers of Transport/Infrastructure from states and the Commonwealth to decide on matters that need interstate/national co-ordination.  This is already done on registration fees on heavy vehicles.

With the Liberal/National Coalition reelected in July 2016, the latest TIC meeting was important, and  in terms of road user charging, it was notable that the TIC released its communique from that meeting (PDF) mentioning the importance of heavy vehicle road user charging reform for Australia.

The second item from that communique, which is on this specific matter,  is repeated in full below:

The Council noted the growing momentum for road charging and investment reform, including the Council of Australian Governments’ December 2015 directive that Council accelerate Heavy Vehicle Road Reform and investigate the benefits and costs of introducing user charging for all vehicles. A presentation was provided by the Commonwealth outlining pressures on the current model for funding and provision of road services, and the potential benefits of moving to market based provision of these services for all vehicles. Council noted that the immediate priority is further development of the heavy vehicle user charging system. Council will progress next steps, including further, more detailed consideration of potential costs and benefits of reform.

What this means is that there is broad agreement on reforming heavy vehicle charging in Australia, but the emphasis will be on getting a closer indication of the economic impact of such reforms.  Understanding costs means understanding how such a system or systems may work, including the impact different procurement and delivery models may have (e.g. single supplier PPPs vs open system approaches), and how the costs of both in vehicle and on road systems will be recovered.  The benefits of reform need to be calculated and discussed in the context of how they will affect different heavy vehicle user groups, by vehicle type, industry and location.

The existing system has considerable cross-subsidies, and although part of the reform process is going to make these transparent, it is unlikely that those who benefit from those cross-subsidies will support changes that suddenly mean they pay more.  Much more thought needs to be given as to how a transition towards weight/distance/location based charging can be implemented progressively, including the transition away from registration fees (although I'd suggest a portion be retained to recover the administrative costs of registration at least) and fuel tax.

However, the future is positive.  South Australia declared last year that it wants to be the first state to pilot heavy vehicle charging.  Western Australia also announced that as part of its Perth Freight Link project, it wants to introduce a heavy vehicle charge for the route, to help pay for the state's portion of the capital costs and the maintenance costs of the route (rather than a toll).  

The Heavy Vehicle Road Reform programme is well underway (covering much more than charging) going wider than charging, but also towards the use of revenue, the management of roads and how to address improving the productivity of the road freight sector (such as charging to address specific infrastructure deficiencies).  Hopefully, this commitment from TIC is followed by specific commitments at Commonwealth and State levels, and sees action on developing pilots and introducing heavy vehicle charging

Wednesday, 17 August 2016

Mayor of London proposals on emissions charging resemble expansion of congestion charge

London's new Mayor, Sadiq Khan, was elected on 9 May and although his manifesto showed no interest in changing the congestion charge, he has made one of his top priorities addressing air quality in the city. 

The Transport for London website claims that London breaches EU legal limits on Nitrogen Dioxide (which may not necessarily be a legal matter once the UK leaves the EU, but that doesn't mean there isn't a problem!), and that pollutants "cause" the equivalent of 9,400 deaths in London per annum.  I'm always a little wary of statistical correlations between alleged causes and effects when the actual affects are more likely to be discreet, cumulative and one of multiple factors in accelerating deaths.  It is always a good headline, but there is little sense of the historic state of air quality.  London has come a long way from pea-soup smog (it wasn't fog) due to coal being burnt to heat households, businesses and generate electricity in the 1950s, with gas heating, energy efficiency, the demise of steam locomotives, relocation of port activities to Tilbury and beyond.   Road vehicles are cleaner burning than they have ever have been, although the misguided fiscal encouragement towards purchases of light diesel vehicles in the 2000s (to reduce CO2 emissions) has not helped as low CO2 has come at the price of particulate emissions, which are one of the most serious contributors to respiratory diseases.  

London has severe congestion, which is a contributor to pollution, because the idling times and low traffic speeds mean emissions per vehicle mile are higher than they would be if congestion were lower.

The Mayor of London has decided to consult on using charging as part of a programme to reduce emissions.  

London's existing Low Emission Zone

London already has a Low Emission Zone (LEZ), which was introduced in 2008.   It applies to all roads in London, excluding the motorways (which of course only serve destinations that are on local roads).  It requires the following vehicle standards:

- All trucks, buses and coaches must meet at least the Euro IV standard for emissions;
- All larger vans and minibuses must meet at least the Euro III standard for emissions.

All of Greater London is the area of the Low Emission Zone
The LEZ does not apply to smaller vehicles.  Vehicles that do not meet those standards either must be retrofitted to do so, or be subject to a daily charge for driving in London of £100 or £200.  It is intended to ensure commercial vehicles in London meet fairly average emission standards.  Euro 3 came into force in 2000 and Euro 4 in 2005, so it is not a significant burden to expect most such vehicles to meet those standards.  It wouldn't be unreasonable to uplift that to Euro 4 for light commercial and Euro 5 for heavy vehicles by 2020.  

Yet there is no evidence that the LEZ has had any measurable impact.   According to Citylab, a study from two years ago indicates the LEZ has had NO impact.  There are some guesses made as to why, such as how newer vehicles may be reducing NOx by less than forecast (and one may also surmise that if there has been extensive fraud in emissions testing by manufacturers, that they are somewhat to blame.  Another is that the growth in the number of diesel cars has offset the improvements in heavy vehicles.  Of course the LEZ has no impact on that, and the UK Government has only reformed Vehicle Excise Duty (annual registration fees) to remove the advantage low CO2 (diesel) vehicles get from that tax. 

Mayor's proposals

  • bring the implementation of the central London Ultra Low Emission Zone (ULEZ) forward by one year to 2019;
  • expanding the ULEZ beyond central London in 2020;
  • introducing a new Emissions Surcharge from 2017 for the most polluting vehicles entering central London;
  • giving TfL the go-ahead to start looking at a diesel scrappage scheme as part of a wider national scheme run by the government;
  • keeping Londoners better informed and alerted when pollution is at its worst;
  • making sure TfL leads by example by cleaning up its bus fleet and buying only hybrid or zero emission double-decker buses from 2018.
The fourth, fifth and sixth proposals are nothing to do with road charging, but the other three are, and could have quite a significant impact on the cost of driving in London for vehicles that are not eligible.

Sunday, 7 August 2016

Connecticut a public relations nightmare on exploring road user charging

As I wrote last week, the FAST Act is providing Federal funding for states in the USA to pursue road user charging pilots.  Connecticut is one of four states in the I-95 Coalition (which comprises the states through which Interstate 95 passes) bidding for such funds, but is the state which has stirred up plenty of opposition to the idea of even studying road user charging.  So much so that I'd say that even if the pilot proceeds, the "cause" of better road charging in Connecticut has been set back years.

Both Republican and Democrat Senate Leaders oppose it, with opposition both to the state spending money studying a mileage tax (because the state cannot afford to “waste money” on investigating a way to raise revenue, presumably because charging an input barely related to the consumption of a service is undoubtedly superior). 

A Google search of media in Connecticut about the proposed pilot reveals the following:









I don’t believe there is a mileage tax in Connecticut’s near future, if for no other reason than that it’s a complicated and controversial undertaking, and, fortunately, no one seems to be even close to figuring out how to implement it.


Controversial it may be, but complicated and "no one seems to be even close to figuring out how to implement it"?

This is demonstrably untrue

The list of countries/states charging at least some vehicles by distance on at least main highways is as follows:

- Austria;
- Belgium;
- Czechia; 
- Germany;
- Hungary;
- Iceland;
- New Zealand;
- Poland;
- Russia;
- Slovakia;
- Switzerland.

With Bulgaria to come

Even in the USA, four states have weight/distance charges/taxes for trucks and of course Oregon has a voluntary distance charge for cars (which enables a refund in fuel tax for participants):

- Oregon;
- New Mexico (trucks);
- New York (trucks);
- Kentucky (trucks).

Meanwhile, California is embarking on a pilot.  The ignorance is astonishing, but it is an echo chamber.

I understand concern from some about not being aware of the pilot, but the knee-jerk reaction to it smells of remarkable ignorance.  It's cheap political point scoring by people who are uninterested in detail and substance, fearful that supporting a new form of charging will look like a tax rise.

The Governor has indicated that he supports investigating options for the future, because of the decline in revenues from gas tax.   Quite what's wrong with a study and a pilot is difficult to understand, because it looks like gathering information is a negative?

To achieve a balanced debate about road charging, it is critical that agencies communicate the advantages and disadvantages of various road-charging options with politicians and the public, including addressing the following messages:

1.  Charging by mile would replace fuel tax, not be an additional tax;

2. Charging by mile need not be administratively expensive and complicated, when costs of collection as low as 6% of revenues have been seen in established systems;

3. Charging by mile does not necessarily means the state tracking everyone’s movements, as charging can be done by competing private companies which can offer distance charging options that need not include location.

4.  Charging by mile is not unfair on people travelling longer distances, as they pay more now by using more gas, unless they have an electric or hybrid vehicle and so pay much less even though they benefit from money spent on roads.  

5.  The basis for charging should be have some link with a fair allocation of the costs of maintaining and upgrading roads, that means allocating fixed costs across all road users equitably, and allocating marginal costs according to the costs imposed by different road users.  That means moving beyond politics into economics.

Sadly the road charging debate in Connecticut has nothing to do with economics, with only the Governor showing any sign of courage and interest in even investigating reform.  The big lesson is that decisions on studying and pursuing a demonstration need to be made transparently and those in charge need to have a clear communications strategy to beat down the opposition.  

The messages should have been clear about:

- Declining yields from fuel tax will make it unsustainable and increasingly unfair;
- Charging by mile could replace fuel tax;
- Charging by mile is feasible, is done elsewhere, but the state needs to understand a lot more about it and how people would react to it, before considering it further;
- Any money from such charges would be dedicated to road maintenance and upgrades.

That hasn't happened, it is almost a case study in what not to do when a jurisdiction is considering even investigating how to reform the charging and funding of roads.


Friday, 5 August 2016

Australian toll road lawsuit successful

Some time ago I wrote about the Clem 7 toll road in Brisbane, Australia.  It provides a north-south tunnelled bypass of the Story Bridge and other roads approaching downtown Brisbane from the south and east.

It is a PPP toll road that went bankrupt as the demand for the road was little more than half that forecast.  In December 2013, the road was taken over by Queensland Motorways, which at the time was a company owned by the Queensland State Government, but has since been privatised and is now owned by Transurban. 

The road was acquired by Queensland Motorways for A$618 million (US$472 million), but cost A$3.2 billion (US$2.4 billion) to build.

Transurban's latest traffic data reports AADT of 27,000 on the road, which is notable when you consider the forecast was that up to 100,000 a day would be using it.   

However, what was significant about this case was that around 1000 investors who bought shares in the project engaged in a class action lawsuit (PDF detailed) against the demand/revenue forecasting consultants - AECOM - and the original Rivercity Motorway company.   The Sydney Morning Herald reports that they have won a settlement gaining a payout of A$121 million (US$92 million).   The allegation was that AECOM had made traffic forecasts without reasonable grounds, and specific information had been excluded from the product disclosure (prospectus) document for investors.  

Thursday, 4 August 2016

FAST Act funding assisting US states to develop road charging pilots

It has been remiss of me not to explain to those outside the USA what is the most groundbreaking initiative on road pricing at the Federal level that I am aware of.

Perhaps the most interesting transport policy development at the Federal level in the United States under the Obama Administration has been the FAST (Fixing America’s Surface Transportation) Act, which besides a great deal of taxpayers' money for road, railroad, public transit and other modes, has made special provision to support states that want to demonstrate what it calls “user-based alternative revenue mechanisms”.



Section 6020 of the new law provides US$95 million over five years (hidden in to help states interesting in progressing various forms of road charging, on a 50/50 basis. US$15 million is available in the first year (under the Research pool of funding in the pie chart above). States or group of states may apply for funding through a grant process administered by Federal Highways Administration (FHWA). Applications for funding are expected annually, with the deadline for the first tranch of applications having passed on 20th May, decisions from FHWA on which states have been granted funds are expected shortly.

The objectives are outlined below:
  • to test the design, acceptance, and implementation of two or more future user-based alternative mechanisms; 
  • to improve the functionality of the user-based alternative revenue mechanisms; 
  • to conduct outreach to increase public awareness regarding the need for alternative funding sources for surface transportation programs and to provide information on possible approaches;
  • to provide recommendations regarding adoption and implementation of user-based alternative revenue mechanisms; and 
  • to minimize the administrative cost of any potential user-based alternative revenue mechanisms.
According to FHWA, States receiving funds under this provision are required to address the following issues:
  • the implementation, interoperability, public acceptance, and other potential hurdles to the adoption of the user-based alternative revenue mechanism;
  • the protection of personal privacy;
  • the use of independent and private third-party vendors to collect fees and operate the user-based alternative revenue mechanism;
  • market-based congestion mitigation, if appropriate;
  • equity concerns, including the impacts of the user-based alternative revenue mechanism on differing income groups, various geographic areas, and the relative burdens on rural and urban drivers;
  • ease of compliance for different users of the transportation system; and
  • the reliability and security of technology used to implement the user-based alternative revenue mechanism. [FAST Act § 6020(d)(1)] 
Recipients may also address—

  • the flexibility and choices of user alternative revenue mechanisms, including the ability of users to select from various technology and payment options;
  • the cost of administering the user-based alternative revenue mechanism; and
  • the ability of the administering entity to audit and enforce user compliance. [FAST Act § 6020(d)(2)]

Network charging not HOT lanes

What this means is interest in finding new ways to raise revenue from using the roads, around replacing or augmenting fuel tax. I doubt if the popular trend for HOT lanes is innovative anymore, nor is simply the use of tolls for new or improved infrastructure, but rather it looks like interest in more network wide charging, whether it be tolls on all major highways, distance charging or time based charging (charging based on duration of network use or prepaid access like vignettes in Europe).

Private sector service provision

It outlines key obvious policy issues around acceptability and privacy, but also interestingly embraces "use of independent and private third-party vendors to collect fees and operate the user-based alternative revenue mechanism".  This implies using either the open system approach embraced in Oregon (and now California with its pilot), Hungary and New Zealand, or a full blown PPP, both of which are significant innovations in a country that has one of the lowest levels of private sector participation in the ownership, operation and funding of roads in the developed world.

Congestion pricing

The inclusion of "market-based congestion mitigation" is interesting too, which could range from peak time tolling, to cordons, to full network time/location based charging (the latter potentially presenting challenges on privacy). Market based mechanisms will need to have some direct link of charges to demand and supply, and arguably even infrastructure costs. Ensuring road users pay for the full cost of infrastructure would have an incremental impact on congestion for a start, but to have a time and location based element will be a challenge, although one that pilots should consider.

Equity concerns

It's obvious what this is meant to mean, which is concern that road charging will disproportionately impact those on low incomes or those who use the roads the most. Not sure anyone does equity impacts of the price of food or clothes or many other goods or services where people pay according to supply and demand, but still the impacts of major reforms are important to identify. Part of this should also identify:

- the absolute equity impacts of fuel tax (i.e. are those able to afford to buy expensive electric cars having the roads they use be subsidised by those who cannot?);

- the equity impacts of general taxation funding of roads (consider if telecommunications or electricity infrastructure were funded that way);

- the equity impacts relatively in the current charging system, who bear the greatest cross-subsidy cost and benefit?

Ease of compliance

This is critical, but also alongside ease of enforcement. Users should know what to do and for the compliance costs to be low, but also it should be easy to detect, identify and pursue those who deliberate fail to pay or seek to defraud any system.

User choice

Flexibility and choices for users sings like what has been done in Oregon and California. Users are expected to get more than one option to pay for road use, bearing in mind that the scope to do this is limited by the inevitable game playing of users to minimise charges. The obvious example is not to have both time and distance based charging, because the highest users will pay by time and be cross subsidised by the lowest users. Concerns about overcharging the highest users could be address by volume discounts (as in Slovakia). 

Administrative costs

One of the biggest criticisms of any form of road charging compared to fuel tax is that fuel tax is cheaper to collect. This is indeed true. Yet it ignores the deadweight economic impacts of not directly charging for a service, and the behavioural impacts that ensue. That's not to say that ensuring costs are minimised is not important, it absolutely is. However, I always recall a study in New South Wales Australia that estimated that the economic benefits of abolishing registration fees for vehicles, and replacing it with simple distance/time/location based charging (location being urban/rural, time being peak/offpeak in urban only) would far outweigh the collection costs. 

Who is going to get funding?

That's the US$15 million question. It is known that there are proposals in from at least California, Oregon, Minnesota, Washington, Hawaii, four states in the "I-95 Coalition" (Connecticut, Delaware, New Hampshire and Pennsylvania) and RUC West (a grouping of Western states formerly known as the Western Road Usage Charge Consortium). However, there may be others.

Wednesday, 20 July 2016

Germany's proposed introduction of road user charging for cars

Germany has had a distance-based road pricing scheme for heavy goods vehicles 12 tonne and over since 2005, initially for the autobahns, which has been expanded in scope to include vehicles down to 7.5 tonnes since 1 October 2015 and increasingly Federal highways (not just motorways).  Indeed, from 2018 all Federal Highways will be subject to the charge (known as LKW-Maut).  I've written more about the expansion here.  In time I'd expect the charge to cover all heavy vehicles down to 3.5 tonnes, as the logical next step.  Indeed, Federal Finance Minister,  Wolfgang Schäuble, has said that over time there will be road pricing on all public roads for all vehicles.  
Map of Federal Highways to be subject to heavy vehicle charge

A more controversial development has been the plan to expand charging to include light vehicles (up to 3.5 tonnes).   It was originally to come into force on 1 January 2016, but has been deferred because the European Commission (EC) believes it is illegal and there is some political controversy about it in Germany.  It is unclear when the car vignette (known as PKW-Maut) will be introduced.

German car vignette

The proposal is to introduce a time based charge, known throughout Europe as a vignette which is based on pre-purchasing access to the road network for a set number of days.  As it stands now, the proposal is as follows:

- All German licensed cars will be required to purchase a one-year vignette to use any public roads.  The rate be determined on environmental factors described as "will be calculated based on their engine capacity and environmental performance. For every 100 ccm increment of cylinder capacity up to a defined cap of 130 euros"

- All foreign licensed cars will choose from either a one-year, two-month or ten-day vignette only required to use the motorways.  Depending on the environmental category of the vehicle it ranges from €16 to €30 for a two-month vignette, or €5 to €15 for a ten-day vignette.

The days for a vignette are consecutive.  A one-day trip on the motorways requires a ten-day vignette, and it is valid for ten consecutive days, not ten separate one-day trips on different months.  

Vignettes will be fully electronic, meaning they are enforced by automatic number plate recognition. They will be able to be purchased online, or in registered retail outlets (filling stations).  

Gross annual revenue is estimated at €3.9 billion (in today's values presumably), comprising €3.2 billion from German drivers and €700 million from foreign ones.  Operating costs are estimated at €200 million per annum.  However, the countervailing reduction in the domestic vehicle tax will reduce revenue by over €2 billion per annum.   The estimated first year net revenue is €500 million, but this is expected to increase rapidly 

All revenue raised from the vignette will be hypothecated into the same transport fund as the heavy vehicle LKW Maut goes into, which is unlike existing motoring taxes.    The table below depicts the range of vignette prices. 

Level
Price of annual vignette
Price
10 days
Price
2 months
From
To
1
-
39
€5
€16
2
40
69
€10
€22
3
70
130
€15
€30

EC objections

The EC launched an infringement case against Germany (it said it would launch a similar one on the UK for its HGV Levy, but the Brexit vote has effectively stalled this).  The two reasons it regards Germany as infringing the EU Treaty are:

- German drivers effectively will not pay as they receive a commensurate discount in vehicle tax;
- The vignette prices for short term visitors are seen as being disproportionately high.

The German Government is convinced its proposal is legal and personally I do not agree with the first point.  Vehicle tax is a national matter and it is up to Member States as to the level they set it at.  If they want to shift taxation from owning a vehicle to operating it, then it is up to them.  The mandatory one-year vignette for German vehicles using all roads, may be seen as making the vignette different, but this is discriminatory in favour of foreign motorists.  Foreign motorists don't pay when using roads other than motorways, but Germans do.  It would be much more equitable to apply the vignette for Germans to motorways only, but I suspect this would result in significant traffic diversion.  Otherwise, the vignette for foreigners could be applied to all roads, although the EU may still regard this as "disproportionate".  No Member State applies vignettes to all roads, but that is not in itself a reason why they should not be so applied (particularly as, for light vehicles, the marginal costs of their use of motorways is lower than that for local roads, and negligible in any case).  

In short, as long as the same price applies to foreign as to German vehicles, for the vignette, then what is done with other taxes appears to me to be a national matter.  

On the relative prices,  the issue is more subtle.  A vignette, as a daily charge to use the network, seeks to recover costs that should be something akin to usage.  That doesn't mean that a rate for a year should be 36.5x the price for 10 days (or vice-versa), bearing in mind that a short-term user is likely, on average, use the roads much more in terms of time and distance than a long-term user.  Short term users may transit the entire country, or visit it to many places, long-term users may spend days without using their cars.  

I will just point to this report of which I was one of the authors.  The methodology we used to compare the prices of short and long term vignettes was to establish the average daily price and the ratio in daily price between the shortest and longest period products.  

This extract from the report outlines the findings (for prices in 2011):

EU vignette price ratios between longest and shortest term products
As you can see, at the time Slovenia charged by far the highest price for a short term product compared to a long term one, probably because it knew it could charge high prices for what is a two hour drive between Croatia and Italy or Austria.  Austria, by contrast, had the lowest ratio.  What about Germany?  

Applying the same methodology, to the middle environmental category, the ratio per day is:

€0.15 per day for an annual vignette in the mid-range of "Level 2".
€1 per day for a ten day vignette in Level 2.  So the ratio between the long and short term product is 6.7, putting it much closer to the high charge countries than the lower charge ones.

Bear in mind since that report, following representations from the European Commission, Slovenia has altered its vignette rates by increasing its annual charge, so it now charges:

€0.30 per day for an annual vignette for cars;
€2.14 per day for a one-week vignette for cars, with a ratio now of 7.1

It seems difficult for Germany to justify charging cars over 6x as much for a short term vignette than a long-term vignette, as this presumes the average distance or time spent on the network is 6x greater for a 10-day vignette user than an annual user.   There may be statistics to justify this from the BMVI (Federal Ministry of Transport and Digital Infrastructure), but I have not seen them.  I would suggest the Austrian and Hungarian ratios of 3-4x are more realistic.

Where to from here?

I suspect that whatever the findings of the infringement action against Germany, it will continue with the charge, if only because it is unlikely that any fines will significantly offset the €500 million net revenue it will receive.

However, for Germany the vignette should be an interim measure.  It makes some revenue from foreign cars, which is what it is designed to do, but it isn't much of a reform in terms of changing behaviour or in encouraging the more efficient management of roads.

As it expands the LKW Maut in 2018 to Federal Highways, the case for expanding the scope for all vehicles down to 3.5 tonnes must be high, given that neighbours Belgium, Switzerland, Austria, the Czech Republic and Poland all have heavy vehicle road user charging systems that apply to such vehicles.

For light vehicles, it could do with observing the pilots underway in Oregon and California, and looking at move from vignettes to distance charging, even if it is as simple as odometer reporting. Furthermore, it should do so not simply to rebalance charges from taxes on owning vehicles (which are regressive) but also from fuel taxes which are inevitably eroding in yield and fairness, due to the appearance of more fuel efficient and electric vehicles.  Such a shift would apply primarily to Germans, but could mean Germany charging much lower fuel prices than its neighbours (down closer to the EU legal minimum fuel tax rate), and for all road use to be charged by distance and vehicle size, emissions rating.   Foreign vehicles could simply be required to have distance charging accounts and have distance measured whilst in Germany (and have it apply to all roads at the same rate, unless users want to pay according to road type - with higher charges for local roads, lower for Federal Highways and the least for motorways).  

Those that do not pay by distance, would not be able to receive fuel tax refunds.

Of course there are a number of complications and issues around doing this, but the platform already exists to do this.  Moving the LKW-Maut down to 3.5 tonne vehicles has to be the first step, but the case for distance charging of cars exists now and Germany would be well placed to look at how it could progress this, to replace the vignette it is about to introduce.