First, the big-picture problem.
In principle, road users are meant to be covering the cost of the state highway network, with charges on road users and council contributions covering local roads. Maintenance should have first call on revenues collected from road users. If road users want upgrades like extra lanes or motorways, and there is not enough money left over after paying for maintenance, tolls or higher charges on road users should cover the cost.
Ideally, the system should not have cross-subsidies. Road users should pay for the roads; rail users should pay for the rail network. And people who use neither should not be paying much for either, with the exception being council rates that fund the roads and pavements that connect properties to transport.
Unfortunately, it has all gotten a bit messy.
The National Land Transport Fund became a catch-all for transport-related activities. Motoring charges, whether excise paid on each litre of petrol or road user charges paid by diesels and electric vehicles, go into a giant bucket, along with assorted Crown top-ups of the fund for capital investments and for other projects including rail and public transport. Money paid into the system by road users and by councils roughly matches money paid out for road projects, but the links are opaque.
Diversion of funding from maintenance to other projects over prior years meant that the most recent National Land Transport Programme had to set a specific pothole-prevention fund.
And road user funding of the roads became increasingly unsustainable with shifts to fuel-efficient hybrids. This last component probably needs more detailed explanation. It is also what Minister Bishop’s announcement last week targeted.
For ages, road users have funded the roads through petrol excise duties paid per litre of petrol purchased, and through road user charges (RUC) levied per-kilometre on diesels.
Why the two different systems? Most petrol is used to power vehicles that use the roads – recreational boats and lawnmowers being notable exceptions. But a lot of diesel is used off-road. Neither tractors out in the fields nor diesel generators on industrial sites impose any burden on the roads. Paying for the roads via excise on diesel would require complicated rebate schemes for off-road users.
And vehicles using petrol are, in a broad sense, pretty similar to each other in terms of size. Sure, an old Mini is much smaller than a petrol-powered SUV. But the burden a vehicle places on the road increases extra-proportionately with weight. Doubling the weight of a vehicle, per axle, imposes more than twice as much wear and tear on the road. And quadrupling the weight is much more than twice as bad as doubling the weight.
Diesel vehicles vary considerably by weight. I drive a diesel Mazda CX-8 and pay $76 per 1,000 kilometres in road user charges. Two-axle diesels weighing between 6,000 and 9,000 kg pay $167 per 1,000 km; those over 9000 kg pay $352. Higher per-km levies on heavier vehicles are possible with RUC. It would be hard to do that with excise.
Electric vehicles paid neither excise nor RUC for a long time, as a subsidy to encourage EV uptake. But EVs impose cost on the roads too and eventually were required to pay road user charges. Hybrids that combine electric and a smaller petrol engine get messy. What should their per-km charge be, considering that they have already paid some petrol excise? Shifting all vehicles onto RUC while abolishing petrol excise is the best way to ensure everyone using the roads pays their fair share of the cost.
You might worry that ditching petrol excise is bad for the climate response. But those really are separate things.
Currently, petrol and diesel vehicles pay their share for their carbon emissions through charges levied on fuel companies. When fuel goes out to petrol stations, fuel companies must surrender ETS credits both for diesel and for petrol. That will not change with the shift from petrol excise to RUC; petrol excise was always a charge for using the roads. It was never a charge for carbon emissions. The carbon charges are baked into the underlying cost of both petrol and diesel, because it is part of the cost the fuel companies have to pay to get fuel out to market.
If you want to reduce New Zealand’s net emissions, the best advice is the same as it always has been: reduce the number of units that the government issues and allocates while strengthening the ETS. Overcharging some petrol vehicles for the use of the roads is a poor way of trying to reduce emissions.
The shift from petrol excise to RUC is equitable. Petrol excise overcharges drivers of less fuel-efficient vehicles. Driving a hundred kilometres in an aged Toyota Estima van will impose about the same burden on the roads as driving a hundred kilometres in a newer hybrid Prius. It does not make a lot of sense to charge the former a lot more than the latter, but that is what petrol excise does. RUC would charge them both the same amount.
Shifting from excise to RUC on its own helps encourage greater sustainability of the road funding system, so shifts from petrol or diesel vehicles to undercharged hybrids would not undermine road funding. But that on its own would not be transformational.
But the shift to electronic road user charges could be transformational. It opens up possibilities.
Buying RUC permits currently requires pre-paying for at least a thousand kilometres of travel. It’s easy to do online, and the paper permit arrives in the mail within a couple of weeks. Large transport fleets contract with electronic RUC providers who handle the billing while providing additional services.
Minister Bishop signalled that an open system is in the offing. A broader range of electronic road user charging devices will be enabled, some of which are already built into newer vehicles. NZTA currently both regulates road user charges and sells per-km RUC licenses; those two roles would be split.
And that’s where innovation can come in.
The government could let people continue to purchase advance licenses, like how I currently purchase them for my diesel. Other providers could compete to provide the better overall system for road users. Some users might prefer to pay as they drive, rather than up-front. Others might prefer a monthly bill. But billing is the least of the potential innovations.
Congestion charges are coming for Auckland, and under consideration elsewhere. Those charges would aim not at penalising driving, but rather at improving the operation of the roading network. Some would pay to be able to drive at times of peak demand; others would shift to public or active transport; and, still others would decide to wait until the roads were less busy.
E-RUC providers could bundle payment of road user charges, congestion charges, and tolls on toll roads, all into the same system. Users could ask for routes that minimise all-up costs, considering fuel costs, tolls, and congestion charges; the system would give them options that avoid congested places. Or they could ask for the route that minimises travel time regardless of charges. Or they could compare different options and weigh up the timing and route for their travel against the cost.
Other opportunities also open up. Currently, ACC charges motorcyclists a lot for their registration, because motorcycles are very risky. A more innovative ACC could have a chat with e-RUC providers about ACC levies that could vary with the amount travelled, because risk will vary with the number of kilometres driven. Rather than charge a very high up-front fee, ACC could set a fixed levy on riskier transport plus a charge that varies with the amount of travel.
Privacy can and should be incorporated into system design. Anonymised data on overall traffic volumes on different roads at different times could be provided to NZTA to help them decide on transport investments without compromising driver privacy. Users could be given the option to delete their travel records as soon as they have confirmed that the billed routes are correct. They could also be given the option to encrypt their personal data with their own private key, so that even the e-RUC provider would not be able to decrypt it without permission. Different e-RUC providers could compete to cater to those with strong privacy preferences.
All of it together can help shift the transport system. Data from congestion charges would help to inform transport planning. If it takes a very high congestion charge to ensure that traffic moves, that would help to make the case for additional lanes on congested routes. If only a low charge is needed to clear congestion, that would help to make the case against wasting money on services that road users do not value highly. And money that should be spent on road maintenance would be less likely to be diverted to capital projects of dubious value.
Shifting from petrol excise to road user charges is only a small step. Plenty of small diesels are already on RUC. But the shift from there to electronic road user charges could the start of substantial improvements to the transport funding system.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was sourced HERE
Ideally, the system should not have cross-subsidies. Road users should pay for the roads; rail users should pay for the rail network. And people who use neither should not be paying much for either, with the exception being council rates that fund the roads and pavements that connect properties to transport.
Unfortunately, it has all gotten a bit messy.
The National Land Transport Fund became a catch-all for transport-related activities. Motoring charges, whether excise paid on each litre of petrol or road user charges paid by diesels and electric vehicles, go into a giant bucket, along with assorted Crown top-ups of the fund for capital investments and for other projects including rail and public transport. Money paid into the system by road users and by councils roughly matches money paid out for road projects, but the links are opaque.
Diversion of funding from maintenance to other projects over prior years meant that the most recent National Land Transport Programme had to set a specific pothole-prevention fund.
And road user funding of the roads became increasingly unsustainable with shifts to fuel-efficient hybrids. This last component probably needs more detailed explanation. It is also what Minister Bishop’s announcement last week targeted.
For ages, road users have funded the roads through petrol excise duties paid per litre of petrol purchased, and through road user charges (RUC) levied per-kilometre on diesels.
Why the two different systems? Most petrol is used to power vehicles that use the roads – recreational boats and lawnmowers being notable exceptions. But a lot of diesel is used off-road. Neither tractors out in the fields nor diesel generators on industrial sites impose any burden on the roads. Paying for the roads via excise on diesel would require complicated rebate schemes for off-road users.
And vehicles using petrol are, in a broad sense, pretty similar to each other in terms of size. Sure, an old Mini is much smaller than a petrol-powered SUV. But the burden a vehicle places on the road increases extra-proportionately with weight. Doubling the weight of a vehicle, per axle, imposes more than twice as much wear and tear on the road. And quadrupling the weight is much more than twice as bad as doubling the weight.
Diesel vehicles vary considerably by weight. I drive a diesel Mazda CX-8 and pay $76 per 1,000 kilometres in road user charges. Two-axle diesels weighing between 6,000 and 9,000 kg pay $167 per 1,000 km; those over 9000 kg pay $352. Higher per-km levies on heavier vehicles are possible with RUC. It would be hard to do that with excise.
Electric vehicles paid neither excise nor RUC for a long time, as a subsidy to encourage EV uptake. But EVs impose cost on the roads too and eventually were required to pay road user charges. Hybrids that combine electric and a smaller petrol engine get messy. What should their per-km charge be, considering that they have already paid some petrol excise? Shifting all vehicles onto RUC while abolishing petrol excise is the best way to ensure everyone using the roads pays their fair share of the cost.
You might worry that ditching petrol excise is bad for the climate response. But those really are separate things.
Currently, petrol and diesel vehicles pay their share for their carbon emissions through charges levied on fuel companies. When fuel goes out to petrol stations, fuel companies must surrender ETS credits both for diesel and for petrol. That will not change with the shift from petrol excise to RUC; petrol excise was always a charge for using the roads. It was never a charge for carbon emissions. The carbon charges are baked into the underlying cost of both petrol and diesel, because it is part of the cost the fuel companies have to pay to get fuel out to market.
If you want to reduce New Zealand’s net emissions, the best advice is the same as it always has been: reduce the number of units that the government issues and allocates while strengthening the ETS. Overcharging some petrol vehicles for the use of the roads is a poor way of trying to reduce emissions.
The shift from petrol excise to RUC is equitable. Petrol excise overcharges drivers of less fuel-efficient vehicles. Driving a hundred kilometres in an aged Toyota Estima van will impose about the same burden on the roads as driving a hundred kilometres in a newer hybrid Prius. It does not make a lot of sense to charge the former a lot more than the latter, but that is what petrol excise does. RUC would charge them both the same amount.
Shifting from excise to RUC on its own helps encourage greater sustainability of the road funding system, so shifts from petrol or diesel vehicles to undercharged hybrids would not undermine road funding. But that on its own would not be transformational.
But the shift to electronic road user charges could be transformational. It opens up possibilities.
Buying RUC permits currently requires pre-paying for at least a thousand kilometres of travel. It’s easy to do online, and the paper permit arrives in the mail within a couple of weeks. Large transport fleets contract with electronic RUC providers who handle the billing while providing additional services.
Minister Bishop signalled that an open system is in the offing. A broader range of electronic road user charging devices will be enabled, some of which are already built into newer vehicles. NZTA currently both regulates road user charges and sells per-km RUC licenses; those two roles would be split.
And that’s where innovation can come in.
The government could let people continue to purchase advance licenses, like how I currently purchase them for my diesel. Other providers could compete to provide the better overall system for road users. Some users might prefer to pay as they drive, rather than up-front. Others might prefer a monthly bill. But billing is the least of the potential innovations.
Congestion charges are coming for Auckland, and under consideration elsewhere. Those charges would aim not at penalising driving, but rather at improving the operation of the roading network. Some would pay to be able to drive at times of peak demand; others would shift to public or active transport; and, still others would decide to wait until the roads were less busy.
E-RUC providers could bundle payment of road user charges, congestion charges, and tolls on toll roads, all into the same system. Users could ask for routes that minimise all-up costs, considering fuel costs, tolls, and congestion charges; the system would give them options that avoid congested places. Or they could ask for the route that minimises travel time regardless of charges. Or they could compare different options and weigh up the timing and route for their travel against the cost.
Other opportunities also open up. Currently, ACC charges motorcyclists a lot for their registration, because motorcycles are very risky. A more innovative ACC could have a chat with e-RUC providers about ACC levies that could vary with the amount travelled, because risk will vary with the number of kilometres driven. Rather than charge a very high up-front fee, ACC could set a fixed levy on riskier transport plus a charge that varies with the amount of travel.
Privacy can and should be incorporated into system design. Anonymised data on overall traffic volumes on different roads at different times could be provided to NZTA to help them decide on transport investments without compromising driver privacy. Users could be given the option to delete their travel records as soon as they have confirmed that the billed routes are correct. They could also be given the option to encrypt their personal data with their own private key, so that even the e-RUC provider would not be able to decrypt it without permission. Different e-RUC providers could compete to cater to those with strong privacy preferences.
All of it together can help shift the transport system. Data from congestion charges would help to inform transport planning. If it takes a very high congestion charge to ensure that traffic moves, that would help to make the case for additional lanes on congested routes. If only a low charge is needed to clear congestion, that would help to make the case against wasting money on services that road users do not value highly. And money that should be spent on road maintenance would be less likely to be diverted to capital projects of dubious value.
Shifting from petrol excise to road user charges is only a small step. Plenty of small diesels are already on RUC. But the shift from there to electronic road user charges could the start of substantial improvements to the transport funding system.
Dr Eric Crampton is Chief Economist at the New Zealand Initiative. This article was sourced HERE
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