Thursday, 9 July 2015

UK government freezes fuel duty again, establishes Roads Fund and fiddles with Vehicle Excise Duty

Since 1936, when the previous Road Fund was wound up, the UK Treasury has been vehemently opposed to any form of tax hypothecation (dedication of revenue for one purpose).  The primary argument against it is that it reduces the flexibility of government in the use of its revenue, and can result in the hypothecated fund having too much money, and so spending on that purpose ends up being wasted.  

It would appear that all of that has been pushed to one side with yesterday's budget by Chancellor of the Exchequer, George Osborne, who announced three measures relevant to the charging and management of roads:

- Reform of Vehicle Excise Duty for cars (the tax on owning cars);
- Establishment of a hypothecated Roads Fund in England with the revenue generated in England from VED;
- Another year of freezing fuel duty.

No, it doesn't mean that there is any move to road pricing soon.  However, the setting up of a Roads Fund in particular will establish a closer relationship between what is paid by motorists (for owning a vehicle if not using it) and what is spent on roads.

Monday, 15 June 2015

Australia: Interest grows in moving from fuel tax to distance charging

According to the Australian Financial Review, in a bold and brave step, the Australian Automobile Association (AAA) has declared that it supports a longer term shift from fuel taxes to charging road vehicles on a distance basis.  This comes on the occasion of the Australian Financial Review sponsored National Infrastructure Summit held in Sydney.

The AAA has 7.5 million members and represents eight subsidiary motoring associations in Australia's six states and two territories, and is essentially a lobby group for private car owners, but it has clearly thought much deeper about the how roads are charged and paid for than many such organisations elsewhere across the world.  It estimates that motoring taxes in Australia (including fuel and ownership/licensing taxes) collect around A$34 billion (US$26.2 billion) per annum, with spending on roads at around A$24.5 billion (US$18.9 billion). 

At present, there is no specific move from the Australian Federal Government to implement distance charging, but the debate has certainly livened up.  At present, the Federal Government is seeking to index fuel tax to inflation for the next two years, which the AAA supports as an interim measure, but AAA Chief Executive Michael Bradley wants the Government to think longer term.

Currently 47.4% of fuel tax collected in Australia is spent on roads (after rebates for major non-road users of petrol and diesel, specifically in agriculture, mining and fishing).  The AAA wants this increased to 50%, but its concern over fuel tax is one of equity.

Mr Bradley said:

"Fuel taxes disproportionately affect regional and poor people. It discriminates by geography and it's a blunt instrument that does not allow for time, distance, mass and location – any of these variables – to be taken into consideration"

It's concerned that fuel taxes fall heaviest on low-income households, particularly those in regional and rural areas with few or no alternatives but to drive. Not only do those motorists face, on average, further to drive than those in cities, but are also less likely to be able to afford the newest most fuel efficient vehicles.  

This begs the obvious question as to whether distance charging would exacerbate that, but the AAA wants such charges linked to providing a service, rather than being treated as just another tax.  It is also supporting the use of congestion charges as part of the system, which will mean lower costs for off peak and rural driving.

The report says:

In a submission to the government's tax white paper, the AAA said roads are the only remaining major public utility not subject to usage charges that can vary by time of day, as is the case for telecommunications, gas, water, electricity and other forms of transport.

Notwithstanding that time of day charging for water is not common, this is the key point.  The AAA is supporting a shift to direct charging that replaces existing taxes and the idea of a trial where users are charged by distance, and get a rebate in fuel tax when they fill their vehicles.

Federal Government has mixed views

According to the news website news.com.au, Assistant Infrastructure Minister Jamie Briggs is "interested" in the idea and seems to want further discussion of it.  His chief concern is around estimates that congestion costs could rise to A$31 billion per annum by 2031, and that building new roads and public transport wont adequately address this.  He said:

“In today’s world we generally accept that you pay for the service you receive. Road pricing remains the exception,” 

This implies a genuine interest in a more commercial, consumer based way of charging for and managing roads.  However, his more senior colleague, Deputy Prime Minister and Infrastructure Minister Warren Truss is much more sceptical claiming that distance based charging using satellites wouldn't pass the "pub test" and that the public wouldn't be ready for charging by time of day.  His quote was:

"I think people still like to be able to visit their girlfriends without the whole world knowing – or their wives knowing,"

This resurrects the widely held fear that such charging would mean an end to privacy as to vehicle trips, even though it is clear that options to preserve this can be maintained.  Still, when rejection is about public acceptability, it is much more intelligent than opposing it outright.

The Labor (opposition) Party's Infrastructure spokesman, Anthony Albanese said road charging would only work if "the right policies were implemented", which has to be the tautology of the National Infrastructure Summit. 

Greater state and private interest

Mike Baird, Premier of New South Wales said that government had to explain the benefits of tolling, and that the state government's priority was to make the wide range of tolls on roads in Sydney more "efficient"

Whereas the Chief Executive of toll road owner, Transurban, Scott Charlton argued that fuel tax income is "drying up" claiming that replacing a 20 year old car with a new one costs the Federal Government around A$350 (US$270) per annum in revenue.  He said:

"The driver of a late model fuel efficient car is paying far less in fuel excise than the driver of a less efficient car ... despite them having the exact same impact on congestion and on infrastructure"

Which is dead right, although some would argue there is benefit in lower environmental impacts, this doesn't address the infrastructure or congestion issues.  Transurban is to introduce a "pilot study" in Melbourne to test the impact of three versions of road pricing on motorists' behaviour.  These are:
- Price per trip/access charge;
- One off charge based on anticipated distance;
- Distance based charge.

Also included in the pilot are variations based on time of day and CBD based charging.  It is unclear how this pilot will work, particularly outside its own roads, but it is clear Transurban sees a business case for supporting wider road pricing in Melbourne.  

Wider issues

Charlton also indicated that mass adoption of driverless vehicles may be expected by 2030, which could change car use and reduce the incidence of second car ownership and traffic levels overall.  

John Daley from the Grattan Institute (a thinktank) has claimed that Austalia has stagnant car use, with statistics from the Bureau of Transport Infrastructure and Regional Economics claiming passenger kilometres by car are stable, which suggests the assumption of continuous growth in car use may be wrong (but also that increased road capacity will necessarily induce more traffic).  

In other words, assumptions about future endless growth in car traffic seem to no longer hold true, at least in the Australian context (although similar observations are being made in some other developed economies).

Studied to death

None of this should be that new, given that the Australian Productivity Commission and the Henry Tax Review have both recommended a shift away from fuel and ownership taxes to distance based charging.  The problem for Australia is jurisdictional.

Fuel tax is charged at the Federal level, so moves to replace that would have to come from that level of government, although the size of the country and the complications of having States with varying degrees of interest in distance charging means that there is some reluctance at the Federal level. However, vehicle ownership/licensing/registration taxes are charged by States, which suggests moving from those taxes to distance charging could happen at the state level.  Yet, it is far from clear that it would be worth it just to replace much of those taxes at the state level.

The suggestion of a pilot at the Federal level would make more sense, but what is needed is not just a strategy for charging, but what to do with the money, how charges will be set and how to transform roads into a service.  If one state can work with the Federal Government, and start a pilot which addresses both fuel and ownership taxes, it would suggest that there could be some way forward. However, Australian politics typically sees different parties governing at state and federal levels. 

The clear impression is that the Federal Government is waiting on a state pushing for distance charging, whereas states are more enthused about a Federal push.  For now, it appears more discussion is the future, with the hope that the more it is talked about, the more work might be done to make some progress, implement a pilot, and start a transition down a path of reform that can be largely agreed upon.

That would mean:
-  Option to replace most of ownership taxes with distance based charges;
-  Partial rebates of fuel taxes for those paying distance charges;
-  Creation of new structures to set charges, distribute revenues and for roads to be managed on a more commercial basis;
-  Options to move from pilot trials to full scale charging either by geography, vehicle type or some combination of both.


Tuesday, 9 June 2015

Dartford Crossing issues

I was invited by BBC Essex radio to be interviewed on the James Whale breakfast show this morning, specifically about the Dartford Crossing - the UK's busiest tolled crossing - because of a range of issues arising from its conversion to fully electronic free flow tolling.

A recording of the programme is here (and will remain for 30 days) and the segment I was in starts at 2:11 into the programme.

Regardless, I thought it might be useful to write a number of key facts about the Dartford Crossing given the debate in the county.  It is clear the toll remains highly unpopular, not least because it was original sold to road users on the basis that when the capital costs of the crossing were repaid, the toll would be removed.  The first single lane each way tunnel was opened in 1963, followed by a second tunnel in 1980, which was connected to the M25 on the northern side in 1982 and southern in 1986. Subsequently, the Queen Elizabeth II Bridge was completed in 1991.  



As effectively the only tolled section of London's only ring motorway - the M25 (although technically the crossing is not part of the motorway, in practice it works as part of it), it is controversial, because there are no alternative local crossings of the Thames by road for another 12-15 miles west, at the heavily congested (untolled) Blackwall Tunnels.  Local cross Thames traffic must use the tolled crossing, although a discount scheme means residents of the Dartford and Thurrock Boroughs can pay £20 a year to get unlimited use of the crossings.

Dartford Crossing charges with and without an account.


Dartford Crossing facts
  • The Dartford Crossing raised just over £80m in gross revenue in 2013.  This revenue is accounted for in Department for Transport accounts, but it not dedicated to any specific purpose.  Given around £40m is spent per annum on the Crossing and its associated approach roads, it is reasonable to assume it offsets this.
  • The Dartford Crossing design capacity is 135,000 vehicles per day, it currently just exceeds that;
  • It cost £384 million to design, build and operate the free flow tolling system for the next seven years, but it did cost around £26 million per annum to operate the previous system;
  • £42.5m was spent on the Dartford Crossing in 2013, of which £26.7m went to Connect Plus, the British/Swedish/French consortium that holds the PFI contract for the upgrade and maintenance of the entire M25 and the Crossing.  Another £15.8m was spent on capital improvements to the crossing  for fire safety and for the introduction of free flow tolling;
  • Connect Plus subcontracts management of toll collection of the Dartford Crossing to SANEF, a French company that owns and operates many motorways in the northeast of France;
  • There is currently a 10% non-compliance rate, but after one year this should be expected to come down. In the first year of the London Congestion Charge, just over 5% of chargeable events were violations.  Good practice at free flow tolling roads elsewhere is around 2-3% non-compliance rates;
  • Around 3% of vehicles using the Dartford Crossing are foreign registered vehicles;
  • 22% of foreign lorry trips, and 40% of foreign car trips currently do not pay, but around 18,716 vehicles are being pursued for unpaid tolls through a European debt collection company;
  • 10% of penalty charge notices were reported unpaid in December 2015;
  • The system of detection is purely using Automatic Number Plate Detection (ANPR) cameras, which now can achieve accuracy readings of over 90% (some of the latest systems achieve 98% accuracy), although the actual accuracy of the Dartford cameras is unreported;
  • According to DfT calculations, the benefit/cost ratio of converting to free flow tolls at the crossing is over 4:1. 84% of the benefits come from travel time savings;
  • Congestion costs at the Dartford Crossing are estimated to be around £15 million per annum
  • Proposals for a new crossing range in cost from £1.2 billion to £3.4 billion, and all options include full or partial funding from tolls.  At the current schedule for development, a new crossing will not be completed until 2025. A preferred option is expected to be announced later this year.
The options A and C in this map are now the ones under consideration for the new Lower Thames Crossing

Call for much wider road pricing in London

London's congestion charging scheme is world famous, in the esoteric world of road pricing, because it was the first major Western city, to adopt charging of existing roads.  Its success is such that it ceased to become a political issue after its implementation, (notwithstanding the poorly targeted Western extension of the original central charging zone, which was scrapped by the current Mayor Boris Johnson because of local unpopularity and modest traffic impacts). 

Discussion about expanding the scheme further has been largely limited to the Green Party, which as a vocal minority has keenly supported an ambitious concept of charging cars and trucks by distance largely to penalise such traffic to reduce congestion, and to raise revenue for its own preferred projects to favour cycling and public transport.  Whilst this would make a significant impact on the environmental impacts of road transport (and congestion), it would appear to reflect more of an ideological opposition to motorised road transport that involves private cars or lorries, rather than an interest in optimising the use of the network or an efficient level of pricing.   

Yet the merits of road pricing are widely acknowledged not only by some environmentalists and opponents of growth in motorised road transport on the political left, but also laissez-faire free-market proponents who are more neutral about growth in road transport on the political right, who believe in more efficient allocation of road space.

So it is interesting to see Baroness Jo Valentine, Chief Executive of lobby group London First, in the Guardian advocating a vastly expanded road pricing scheme for London

London First is described as:

representing the capital’s biggest employers in financial services, property, transport, hospitality and retail, along with its universities. Its stated aim is “to make London the best city in the world in which to do business.”

The article cuts across a number of major issues for London, such as housing and governance, but transport is always a big issue.  

Baroness Valentine proposes a radical expansion:

“You need pan-London road pricing,” she says. “Probably not right out to the M25, but to the north and south circular. The population’s growing, the roads are never going to keep up with the natural growth in demand, so you’ve got to ration it in some way. I would do more sophisticated road pricing than we have at present more widely. You’ll get a version of it with the new river crossings, if those are ever built.” Again, she thinks the sums would soon add up: “If you relieve congestion in London, that produces economic benefits and the Treasury benefits too.” 

How could you expand pricing to the A406/A205?

There could be a few different ways of doing this.  The existing zone is relatively tiny in the context of greater London, as seen below

Existing London congestion charge zone

Expanding out to the North Circular (A406) and South Circular (A205) roads would be a significant expansion of the charged area, as can be seen below. 

London congestion charge if expanded to the "circular" roads.

The most economically efficient way of doing this would be with distance based charging, that had a time and location element to it, but to do this would require the use of either dedicated on board equipment or the realisation of the concept of using a mobile phone app, securely linked to the vehicle, to enable such charging.  The potential to cleverly target congestion, discouraging "rat running" on local roads and maximising utilisation of the network is considerable.

The bigger problem is dealing with occasional drivers into the zone.  Having a single flat charge, as exists with the current congestion charge, to be effective would need to be high, and so excessively blunt for those crossing the outer cordon (or taking a single trip within the area).  An alternative would be to adopt an Italian style multiple zone scheme, splitting the area within the ring roads into multiple cordons, so that motorists pay to cross multiple zones.  Of course, any multiple zone system creates distortions at the boundaries of zones, so design would have to be careful to minimise these.

However, any options to create a new congestion charge based on existing ring roads have their own difficulties, because in all cases they involve compromises.

The first point to note is that at the eastern end, the two roads don't meet up over the Thames, but are connected by a free car ferry which is wholly unsatisfactory as a major arterial crossing in a major city.  However, one option could be to adapt the route to be bounded by the A12/Blackwall Tunnel or to build the proposed Thamesmead Crossing to bridge the gap.  Another point is that parts of the North Circular and all of the South Circular roads are far from being dual-carriageway grade separated main highway standard, but are actually residential streets in many cases indistinguishable from neighbouring ones.  Quite simply, if these roads are meant to carry traffic around a charging zone they are severely inadequate in some locations, as can be seen below.  The blue lines are where the roads are 2 or 3 lanes each way, grade separated, the red lines are where the roads are either not grade separated (and have significant bottlenecks) and between 1 and 3 lanes each way.  Note also the gap to the east.  

Gaps in London North and South Circular roads

A simple approach would be to create a second charging zone outside the existing one, but that would only penalise movements from outside the zone to inside it, not around it.  Of course the lack of any real differences between outside and inside the boundary in some locations would make such a charge quite arbitrary.  Look here at the suburban commercial district Forest Hill, which would be divided by a road that is indistinguishable.

Forest Hill, red line is the south circular road
Assuming that the billions of pounds needed to build serious orbital highways to fix this aren't going to come soon, if at all (given it would involve heroic levels of tunnelling), then it is difficult to envisage a congestion charge being introduced to the South Circular road without it causing serious disruption along that route.

Vignettes?

None of this is a reason not to consider various options, one floated is a "vignette" whereby motorists from outside London pay to cross the greater London boundary (which could mean most journeys within the M25 ring motorway), although the congestion reduction impact would not be significant beyond that point.  However, once again, it could be a start, charging both to use a vehicle within London and for entering London, although what is the value gained from such a blunt move?

Better deal for motorists?

What will be essential is to link any charge to delivering a better standard of service to motorists in London.  A lot of money is being spent on upgrading intersections in London, by and large to accommodate cyclists.  For safety reasons (and because of significant increases in cycling at peak times), some of these projects are justified, but in some cases they are increasing motorised traffic congestion.

Jo Valentine is a cyclist, but says that the current programme to reallocate road space on many routes to dedicated (and in some cases segregated) cycling lanes also imposes costs on other road traffic, in the form of congestion.  From 1996 to 2009, central London has seen approximately 25% of its road network capacity transferred to walkways, cycleways, bus lanes or public space (Source: Travel in London Report 4, 2011, Transport for London, Figure 4.12), although over than time demand for that road space has declined by about 12% (in significant part because of the congestion charge) (Source: Travel in London Report 4, 2011, Transport for London, Figure 4.13).  In effect, it means the congestion charge has meant reallocation of road space has been more tolerable than it would have been otherwise.  

I couldn't source readily the most up to date data on central London traffic figures, but extrapolating from 2007 data which indicated that 42% of motorised vehicle trips are chargeable, it appears that around 21% of vehicle trips into central London are by cars that are not exempt or 100% discounted from the congestion charge (because of disability or being ultra low emission vehicles).  So the scope for modal shift in central London appears to be low.  This is hardly surprising, as driving in central London is notably slower than using the Underground or cycling until after around 10pm and before 6am.

So if there are going to be more charges for motorised road users, there needs to be a consideration of using much of the new revenue either to offset other charges or to improve roads, either by addressing bottlenecks (the Bounds Green bottleneck on the A406 seems obvious), or by more tunnelled highways to take traffic away from pedestrians, cyclists and town centres.

The potential is there for traffic congestion to be significantly improved in London through charging, but the quid pro quo needs to be for the revenue from charging to be recycled either by reducing other taxes (e.g. the council tax contribution to road maintenance) or addressing the major shortfalls in the network.  The Greens understandably want to use congestion charging in London as a stick to relentlessly contain road traffic, but I believe most of their objectives can be achieved by taking a more consumer led approach.

It's time to talk about roads as a utility.

Tuesday, 26 May 2015

Long term trend towards less oil use - what does this mean for fuel tax?

An excellent article in Slate describes the long term trend in the use of transport fuels in the United States:

According to the EIA, the U.S. transport system required about 6 percent fewer BTUs of energy to function in 2014 than it did in 2007. And it used nearly 10 percent less oil than it did that year. In fact, oil consumption was lower in 2014 than it was in 2000. And as a proportion of transportation fuel, petroleum hasn’t been this low since 1954, when coal was still a significant transportation fuel. Petroleum’s market share has fallen from 96.5 percent in 2004 to 91.5 percent in 2014.


US transport sector energy consumption by fuel (Source: Slate)
So in proportionate AND absolute terms, there is less oil being used for transport in the US.  This is not because there is less tonnage being shipped (quite the opposite) or fewer people travelling, no it is because of fuel efficiency and the emergence of alternative fuels and motive power for road vehicles. Given that in 1954 the reason petroleum was a lower proportion was because railroads still used coal for steam locomotives (they virtually all use diesel now), the transformation today is considerable.  

4.7% of consumption is now alternative fuels including ethanol and biodiesel, 3.5% is now natural gas.  In 7.5 years the average fuel consumption of cars sold in the US has improved by 25%.

Although oil prices have dropped, there is little indication that this trend is about to be reversed, which poses an obvious question.  What is the future of fuel tax (or "gas tax" in the US)?

In the United States and a few other countries, fuel taxation is a direct source of revenue that is dedicated to government spending on roads and public transport subsidies.  However, in many other countries it is simply another form of taxation, although it tends to be acknowledged as a way of charging bluntly for the negative externalities generated by burning petroleum products.

Of course, lower consumption does mean some obvious benefits, from lower noxious emissions and contributions to CO2 emissions.  These benefits can be monetised, and there is an argument for maintaining this momentum, but it is unlikely that fuel taxes are the key driver for this, not least because they are so low in the United States compared to other markets (in some cases less than a tenth of the taxes in Europe).  

The growth of alternative fuels and greater fuel efficiency creates the obvious issue that revenue per vehicle mile is dropping, so what should be the response to this?  There are three broad paths that jurisdictions can go down:

1. Do nothing: This is, in effect, the default position of the US Federal Government, but also all those jurisdictions that do not increase such taxes.  The implication of this is that either funding for roads gets subsidised from non-usage based taxes (which is what the US Federal Government does), or funding gets cut, or those dependent on funding find alternatives (which in a federal-state relationship can mean greater use of tolls).  As easy as this option is, it lacks any strategic focus and is essentially an adhoc approach to charging road vehicles and raising revenue for highway infrastructure.  The mere fact that this has been the primary approach of most US state governments, as well as Federal, is a damning indictment on the political process to think strategically about the highway sector.  In Europe, given such revenues are rarely even partially dedicated to transport spending, it may be easier, although this simply means as a source of revenue, fuel taxes diminish over time.  It doesn't necessarily mean transport funding has to, but it does beg the long term question about reform of taxation.

2. Increase fuel taxes:  By increase, I mean go beyond inflation (which a few jurisdictions already so, such as New Zealand), and increase to take into account the real loss of revenue due to efficiency. This may have some initial appeal, as it is likely to encourage a more rapid shift to alternative fuels and more fuel efficient vehicles.  Yet the distributional impact of this is going to be more mixed.  It will impact those who are least able to afford new vehicles the most, and also those with fewer alternatives in terms of mode or trip consolidation (e.g. rural motorists).  On the other hand, it also means those driving alternatively fueled vehicles or highly fuel efficient vehicles are paying much less to use the roads, so the vague relationship between what is paid and the costs imposed upon the highway system (or capital consumed in using roads) reduces even further.

Of course, in many jurisdictions fuel tax isn't even nominally intended to be a way of recovering the infrastructure, let alone external costs, of highway use, although the economic case for doing so is clear.  When there are clear policy goals to avoid subsidising overuse of highway networks (because of congestion, pollution and lack of public funding for maintenance, renewals and network enhancements), it seems obvious that moving towards a user pays approach makes sense.  Fuel taxes may be a first, blunt, but low administrative cost way of doing this.  Yet, if the relationship between fuel consumption and road use widens more and more across the vehicle fleet, it simply means that some road users are paying much more than others, going above and beyond the pollution costs that may be fair to recover from those users.   Even if there were a hypothetical solar powered car, it consumes road space and road capital tied up in the infrastructure.  It should pay for using that infrastructure, even if the case to charge it for negative externalities is zero.

So, whilst increasing fuel taxes may be a short term palliative, it feeds the cycle of ever decreasing consumption of petroleum and inequities between those who pay more through such taxes, and those who avoid such taxes because they can afford to buy more fuel efficient vehicles.

3. Implement road usage charging:  In my view, the only solid case for fuel tax is as a carbon tax.  If it were set at an appropriate price to reflect this, it would easily be the most defensible way of recovering that cost.  It is, not, a good way of recovering the imputed costs of noxious pollution, because it isn't a tax on particulates or NOx or other emissions (as diesel vehicles emit more of these by-products that petrol vehicles, but emit less CO2 and use less fuel). Beyond that, it has long been established that the relationship between fuel consumption and infrastucture costs is very weak. One reason being that the greater stresses imposed on road infrastructure due to heavier vehicles is not reflected in proportionately higher fuel consumption to recover such costs.  Furthermore, it is clear that there is no relationship at all between the long run amortised capital costs of roads and the consumption of fuel of vehicles as they use them.

However, it is not the argument that charging vehicles through fuel taxes is inefficient and badly targeted that is driving investigation of options for distance based road usage charging in the USA, but rather concern about the sustainability and equity of continuing to do so.  Oregon is already well on the way to implementing such a system for the most fuel efficient cars, as an option. and other states are investigating how to move in that direction.  What it raises are a whole host of questions, not least how to transition from the current taxation of fuel to charging by road usage, and also whether there is a role for continuing to tax fuel (if only because of the environmental externalities).

 Conclusions

Many of the problems of highway management and infrastructure in the US today are due to a lack of funding, but also poor pricing and recovery of the costs of maintaining such infrastructure.  Looking at charging directly for use, rather than through the proxy of fuel taxes would help answer one element of this, and opens up wider questions of thinking of the links between using roads, paying for roads, spending money on roads and their management.  It isn't just an issue for the US, but in all jurisdictions where fuel taxes are a significant contribution to public funds.

Doing nothing may remain the easy option, particularly if the politics of raising fuel taxes are difficult, (and the politics of considering direct charging even more so), but what it ought to do is open up a dialogue and discussion about what roads are for, who should pay for them, how funding for them should be allocated, and where policy on highways should be heading.  I advocate an approach that more closely linked road users to decisions on funding, and how and by how much they are charged, because doing so has delivered greater benefits in other economic sectors.   It requires some strategic thinking that goes beyond how vehicles are taxed.




Thursday, 14 May 2015

Vancouver telephone debate indicates introducing sales tax would be unpopular

The Surrey Leader reports on a telephone town hall on the referendum for a proposed regional sales tax to pay for public transport improvements.  It reported on opposition to paying more, although a dial in poll indicated an almost even divide between confirmed opposition, and confirmed or indicative support for the sales tax.  However, one comment took my interest was the claim by Vancouver Board of Trade CEO Iain Black who is reported as saying that road pricing is proposed for the region and could reform the toll structure but said it isn't likely to come for 10 to 15 years.

Let's be clear, Vancouver could have road pricing in three years if it wanted to do so.  It could charge by a combination of distance, time and geography, with a back up of day passes for entry, if it wanted to.  It could combine this with reforming tolls on the Port Mann Bridge.   The issue is that the politics are seen to be too complicated.  It should be clear that the option of road pricing in Vancouver remains, but is not proceeding for political reasons, not technical reasons.  After all, Jakarta, Indonesia can roll out a pilot system in less than three years, Vancouver could certainly do the same.

Wednesday, 13 May 2015

Hong Kong to consult on congestion pricing, rejects raising fuel tax or promoting car-pooling

Hong Kong newspaper The Standard reports that the Hong Kong Transport Secretary, Anthony Cheung Bing-leung, has announced that there is to  be public consultation on the introduction of an electronic road pricing scheme on Hong Kong Island to combat congestion.

The reason for doing so is concern that the public "does not have a clear understanding" of the "proposed scheme", despite it being clear from past studies that there could be considerable merits from introducing congestion pricing for the city.

The Transport Secretary has already stated his support for the 12 proposed measures to relieve congestion from its Report on Study of Road Traffic Congestion in Hong Kong (PDF). These measures included short to medium term steps to:

- Manage the growth of the total motorised vehicle fleet size;
- Better manage efficient use of limited road space (including planning for a pilot congestion charging scheme, and increasing fees at metered kerbside parking places)
- Introduce stringent penalties and enforcement of traffic offences.

Long term measures proposed include:

- Review parking policies around planning (which appears to mean reducing minimum parking requirements);
- Introduce technology to provide real-time information about availability of off-street car parking places;
- Encourage on-street loading/unloading at off-peak times, considering options to use road pricing to incentivise this;
- Provide more park and ride facilities at new towns and developments further out of central Hong Kong.

It is notable what was not recommended such as:

- Introducing a Singapore style vehicle quota system for vehicle ownership;
- Vehicle rationing systems such as applies in Beijing (odd number/even number permits to use roads on certain days);
- Increasing fuel tax;
- Promoting car-pooling/sharing for cross-harbour tunnels;
- Contracting enforcement of traffic offences to the private sector.

There is little explanation as to why increasing fuel tax and encouraging car-pooling were rejected, except that the former has a blunt impact that affects the whole region, and isn't particular effective at targeting congestion, and that the latter is not expected to have much impact.  However, it is considered that once concessions expire for two of the tolled cross harbour tunnels, tolling may be varied between them to help manage demand across the three tunnels (the central one is typically the most congested).

The proposed zone for introduction of a scheme is similar to one investigated in the past, and comprises the area known as Central and Wan Chai, which will be bypassed by a new highway currently under construction.

Possible Hong Kong congestion charge zone

It is not clear what a pilot would look like. I'd say that some sort of trialling of variable peak tolls on the harbour tunnels would actually be a low-risk obvious start, although it would cost money to compensate and negotiate with the concessionaires that own the Western and Eastern crossings. However, the concession on the Eastern Harbour Crossing purportedly ends in 2016 (although the Western Harbour Crossing concession continues to 2023), so there may be some scope to vary tolls to increase utilisation of the Eastern Crossing compared to the Cross Harbour Tunnel.   However, such variations are likely to have to await completion of the Central-Wan Chai Bypass which can more readily distribute traffic on the island side.

Beyond the crossings, a pilot could operate in a small sub-set of central Hong Kong at peak times only, and would be easy to trial.  

Of course, Hong Kong has a history in studying this, having launched trials with GPS technology on vehicles at the closed Kai Tak Airport site over 17 years ago.  It would be a great leap forward for Hong Kong to finally move from that to a pilot.  I can only hope that the consultation and information provided in Hong Kong to the public can be positive, and perhaps it needs to answer one of the biggest questions asked when pricing is offered to the public - what is the money going to be used for?

The answer to that question is far from clear, but perhap therein, lies the scope for more work to be done and for options to be presented to motorists.

Friday, 24 April 2015

Norway reviewing future of fuel tax

Norway has started a review of motoring taxation and its support for subsidies for electric vehicles according to Reuters.

It had a target of having 50,000 electric vehicles registered in the country, and has reached that level, with a wide range of incentives including:
- Toll free use of roads;
- Zero charges for public car parks;
- Access to bus lanes;
- Free use of car ferries;
- Free use of public vehicle charge points.

Norway is well known as a major oil producer, but it is also geographically blessed with considerable hydro-electricity, which supplies nearly 99% of its electricity, so it can export the oil and use its own electricity from a source than is a very conventional renewable one (so there are no issues around the use of electricity increasing emissions).

20% of all vehicles sold last year were electric, with Norway alone representing one third of all such vehicles sold in Europe (Norway notably is outside the European Union, but has free trade with the EU through the European Free Trade Agreement).  According to InAutoNews, the subsidy scheme meant that purchasers of the Tesla Model S, a luxury sedan, were getting subsidised. 

The subsidy scheme is one thing.  I tend to think that policymakers need to be very careful not to make programmes to encourage purchases of electric vehicles subsidies to relatively well off individuals and businesses.  There is a case for taking into account the relatively lower environmental impact, but there is little evidence that most such schemes do that.

However, there is little indication of what is behind the review of fuel tax and other motoring taxes.

It's worth remembering that Norway has many toll roads, not just the relatively well known Oslo toll ring (which effectively operates as a congestion charging cordon), but on major highways across the country, with 40 currently listed (full list here).  I addition, it recently became compulsory for almost all heavy vehicles (those over 3.5 tonnes) to have a toll tag account.


Map of Norwegian toll roads from Norwegian Public Roads Administration

So tolls are a well established way of paying for major new highway infrastructure in Norway. However, fuel tax is important as well.  Fuel tax is US$3.87 per gallon (US$1.02 per litre) including a tax on CO2.  However, with such significant increases in the electric fleet, revenue from such tax will be dropping significantly.  Will Norway increase such taxes further (which is likely to particularly harm larger commercial vehicles with fewer viable options to switch to electric vehicles), or replace it with more tolls or a distance based charge?

I suspect the subsidy programme for electric vehicles will be significantly scaled back, bearing in mind Norway is significantly affected by the recent drop in oil prices, affecting state revenues.

However, the future of fuel tax will be more interesting.  Bear in mind that its neighbour Sweden has an influence, as having taxation significantly lower than Sweden will encourage some informal and illegal trade across the border (which itself has low levels of control because both countries have signed up to the Schengen Agreement).  So there may be limits as to what can be done quickly. However, with a culture used to tolling, is it too much to think that maybe Norway will be the first country in Europe to start a transition away from fuel tax and towards network wide road charging?

Wednesday, 25 February 2015

Talk of Beijing congestion charging creates opposition

Typically, narratives around government policies in China are dominated by the false belief that if a Chinese Government body says something is going to happen, then nothing can be done about it.  The truth is much more subtle, and besides indicating - in this case - that congestion charging needs to be considered carefully if it is to get public support - it also indicates that China has moved from the stereotype of the Maoist single-minded unity, to one where there is public discourse about policy.

The (Hong Kong based and owned) South China Morning Post reports on a delegate from the Beijing Municipal Commission of Transport saying that congestion charging was being considered for city.  However, the public response on weibo (Chinese equivalent of Twitter) was mostly negative. 

The report says:

Opinions posted on weibo accounts were almost one-sidedly negative, with some accusing the government of being "lazy", "brutal" and "greedy".

Nie Sheng, a resident of Daxing who drives to work in Haidian, said a congestion charge would not solve Beijing's traffic jams, judging by past experience.

"In recent years, the government has restricted sales of cars, raised parking fees in the city centre and banned non-local vehicles from the city, but the traffic has only got worse," he said.

Nie also worried that the charge would penalise low income and middle class drivers while sparing the rich and powerful, who could either afford the charge or used government cars.


It shows that if a charge is to be introduced, it needs to be part of a strategy that complements it, not just a tax.  One comment from a government body expresses concern that a congestion charge could affect retail sales, but professor of urban traffic management at Beijing Jiaotong Univeristy, Chen Xumei says one reason why so many use cars is the attitude to public transport:

Most people drive because they feel no dignity on public transport, which is inconvenient, congested, uncomfortable and dirty," she said. "The money collected from the congestion charge should be used to improve public transport"


Indeed, a package to make public transport more user friendly and able to meet a wider range of demand would also make a difference. 

Thursday, 19 February 2015

Hong Kong report proposes electronic road pricing

Congestion pricing in Hong Kong seems like a no-brainer, and the authorities in Hong Kong, both before and since the "hand-over" back to China, have acknowledged this formally and informally. Both the north side of Hong Kong Island and Kowloon (the parts of Hong Kong that weren't formally part of the lease from China, but were acquired by the UK effectively through conquest) have such high-densities of people (and public transport usage) that pricing those roads would appear to deliver enormous benefits from reduced congestion and pollution, with alternatives (certainly for people movement) obvious.  The added benefit in Hong Kong is that most public transport does not require subsidy, as the network of bus and mini-bus services operates commercially, all with integrated smartcard ticketing, so growth in demand is met by operators investing themselves.  Even the metro system pays for itself, and there has been ongoing investment to expand it, supported by revenue from the property development at station sites.

Options for road pricing in Hong Kong were comprehensively considered in the late 1990s, to the point that the closed Kai Tak Airport site was used for technology trials including GPS for distance, time and location based road pricing.  Options were revisited twice since then, but on both occasions the Hong Kong Government has rejected the idea for political reasons.  New roads and metro lines have continued to be built, but a report in December 2014 from the Transport Advisory Committee recommends that road pricing be looked at again.

The full report is available here (PDF) and states that average road traffic speeds have fallen by 11% in 10 years and air quality has worsened, which is partly attributable to congestion.

The report concluded that traffic congestion has five recurrent causes in Hong Kong:

- Physical and spatial constraints to expanding road infrastructure make it impossible to add capacity to meet demand, with scope for additional capacity becoming severely limited (expecting around 0.4% per annum expansion in road length by 2020);

- Size of the vehicle fleet continues to grow, at a rate of around 3.4% per annum in recent years;

- Competing use of road space generates network delays, such as the loading/unloading of trucks, pick up/set down of buses, taxis and cars, and vehicles circulating for kerbside parking.  All of these activities interfere with smooth traffic flow;

- Illegal parking and stopping, exacerbated by parking fine penalties not increasing by inflation;

- Road works, whether to maintain the highway or in relation to infrastructure underneath the highway.

Measures proposed to address it run across the whole range of road pricing measures, including ownership taxes, fuel tax, parking charges and road pricing itself:

- Increase the First Registration Tax (for all newly registered vehicles) and Annual Licence Fee, including for "Environmentally Friendly Petrol Private Cars"(which have a concession) to reduce the growth in vehicle ownership.

- Tighten up the category for "Environmentally Friendly Petrol Private Cars" reflecting that they still contribute to congestion (this can be done by continually lifting the standard to reflect the latest technology);

- Fuel tax on diesel should be reintroduced, as diesel is tax free, but petrol taxed at HK$6.06 per litre (US$0.78 per litre).   This incentivises a shift to diesel, which should be removed.

- Increased parking meter charges (as these have not increased in 20 years, but inflation in that time would have added 40% to them) as they are significantly underpriced compared to commercial parking facilities, and encourage circulation of vehicles seeking for parks.  

- Central District of Hong Kong should be a pilot site for a congestion charge pilot scheme, following completion of the Central-Wan Chai Bypass, with early public engagement on how it should be implemented.