As you read this I’ll probably be sitting on a flight from Brisbane to Auckland that cost me $750. Sounds like a lot of money, and it is, but I’m happy nonetheless.
Why? Well, at late notice I had the opportunity of working for 2 months in Brisbane. This presented something of a conundrum, because I wanted to be home in NZ to spend the holidays with my Mum and a whole bunch of my favourite people. I therefore had to weigh up the price of the ticket against the benefits of what I could achieve while here (both in terms of financial and professional returns).
Obviously plane tickets around Christmas are expensive because many other want to travel at the same time, which signals to the airlines that they should put their prices up. This ensures 1) the airlines make more money and 2) there are seats available for people who really need them, like me. So despite the high price I’m more thankful I had the opportunity to both get to Brisbane and get back to NZ for holidays.
This got me wondering about what would happen if airfares were not priced this way; that is if the price of the ticket was set at the average price needed for the airline to do business. In this situation one would expect many planes to fly empty during off-peak times and sell-out over Christmas. There’d usually be either too many or too few seats and, in the case of the latter, you simply would not be able to get where you want to.
In this situation, I would have been faced with an even harder decision: Do I take the job in Brisbane and risk missing Christmas in NZ, or stay home but miss out on the work? Thankfully that’s not a choice I had to make because airlines price their seats in response to demand, or more specifically what economists refer to as “willingness-to-pay”. Willingness-to-pay describes what you are prepared to pay for goods and services.
From a layman’s perspective it means making economic hay while the sun shines. At this point people frequently assume that someone with high willingness-to-pay must be rich and vice versa. Well no, not exactly. In fact, detailed empirical studies of my purchasing behaviour over 31 years proves that willingness-to-pay has less to do with income than it has to do with my own personal preferences.
For example, on the same day as I booked my flight home from Brisbane I also booked a $150 return flight from Auckland to Christchurch. In this instance if the ticket had been more than, say, $300 I probably would not have traveled at all. The difference in what I was willing-to-pay for these tickets reflects that when travelling for work I’m prepared to pay a lot, whereas I’m more frugal when travelling for pleasure.
That frugality does not mean that I never travel at busy times, but it does mean that when I do I’m more flexible about when/where I travel (e.g. later at night). It’s ultimately got very little to do with how much money I have or don’t have. So it seems intuitive to me that willingness-to-pay to travel varies considerably for factors that are not related to our income, but instead depend on personal preferences.
Moreover, the fact that airlines use a demand-based pricing system tends to mean that the available capacity is allocated to the people who really want them. Of course that’s not why airlines price this way; they do it to make money. But in a competitive environment (such as trans-Tasman air travel) the ability of airlines to “price gouge” is of course limited by how other companies respond.
That’s why demand-based pricing makes so much sense. But despite it’s enormous advantages, we do not price parts of our transport system in response to demand. From what I can tell the debate about demand-based transport pricing often gets distracted by the following issues:
- “Alternatives” - i.e. we have to invest in public transport before we can price road capacity. In response I point out that even if we had no other transport options would it not still be in our interest to implement a demand-based pricing system to ensure road space was allocated to those who needed it most? Also, cities that have implemented demand-based pricing schemes, such as Stockholm, have not observed major increases in PT patronage, at least compared to the reduction in vehicle trips.
- “Social equity” - i.e. low-income people will be priced off the road. But low-income households a) tend to drive less, especially at peak times in metropolitan areas. So why not implement an efficient pricing system and then compensate those (few households) that are adversely affected? That way we provide the right signals to everyone, while supporting those affected who are unable to change (although that support should be tagged to people adversely affect at the time of implementation).
- “The devil’s in the details” – i.e. we need to flesh out the details before we sign up to demand-based transport pricing. I understand the sentiment but think we need to split the “strategic” and “operational” factors. Can we not as a society decide to support demand-based transport pricing “in principle” and then undertake research to flesh out the details? And then put the result to a public referendum? Indeed, if way back in 2005 if Auckland had not made a strategic commitment (through the RLTS) to support public transport, then we probably would not have seen the gains we have seen – simply because the operational details had not all been worked through at the time.
The first objection is the most common and deserves more attention than I can give it here because my flight is now boarding.
But very quickly, I will say that the disappearance of “traffic” in the presence of demand-based pricing has two interesting implications. First that there are many people on the roads at peak times that are not willing-to-pay very much, i.e. they’re just there because the price is low. Second, people have many more options open to them than public transport, i.e. PT is not an all-encompassing transport panacea.
And with that said this economic scrooge would like to wish you all a very merry and safe summer holiday.
The issue of road pricing comes up quite frequently in the comments on this blog and it’s certainly not something we’ve shied away from in the past – though I find myself a bit frustrated by how polarised arguments over road pricing become:
- Its advocates think it’ll solve all transport issues, tend to ignore its potential negative side effects and think we should do it tomorrow if only the politicians had some guts.
- Its detractors think it’s the worst thing ever, will price the poor off the road and forces us to pay for roads we’ve already paid for.
Both sides miss the point I think. Let’s start with the arguments in favour of road pricing, which are nicely summarised in this TEDx video from Jonas Eliasson:
I like the points made around how a relatively small change in the number of vehicles along a certain route can make a big difference to its level of congestion and how often we just need to accept that an issue (like transport) is really really complicated and instead of coming up with a grand plan to “solve it” we should rely upon little incentives and nudges that can lead to better outcomes. It’s also very clear that road pricing is very effective at reducing congestion.
What I always find interesting though in road pricing debates is to look at the cities where schemes have been successfully implement, and to think about their existing public transport (especially rail) systems at the time of implementation. Let’s take Stockholm for example, which has the excellent Tunnelbana system:
Or the London Underground, providing a part of the PT system that enables around 95% of people entering the “congestion charging zone” to not actually have to pay for it because they’re not driving.
The situation in Singapore is similar as well, with excellent public transport alternatives to driving available throughout the city-state.
Maybe it’s just a coincidence that cities which have successfully implemented road pricing schemes also have superb underground rail systems, but I tend to think that’s not the case. I don’t know whether it’s because the population looks more kindly on road pricing schemes when they know there are high quality alternatives, or whether it’s because those adversely affected are a pretty tiny minority or whether the presence of the underground rail system meant – in more of a technical than political sense – the alternatives exist to enable the scheme to be implemented in a way that doesn’t generate a lot of negative consequences.
Because of this, I do tend to think that the chances, or even the merits, of introducing a road pricing scheme to Auckland before the CRL is in place, is a risky business. Particularly a scheme which created some sort of cordon around the city centre like what’s been done in London and Stockholm. So perhaps overall my feeling is that road pricing is a good idea, once we’ve got the good alternatives in place.
The National State of Infrastructure Report was released by Treasury’s Infrastructure Unit a few weeks back, and makes for some quite interesting and amusing reading in relation to transport. I’ll leave what’s said about transport in Auckland to another post (basically it seems like they’re suggesting Auckland needs a whole pile more motorway but aren’t quite sure where they’ll go), but perhaps one of the most amusing parts of the document is in relation to road pricing.
One would think that Treasury, being a bunch of purist neoliberal economists, would love the concept of road pricing. And on the one hands it seems they do:
There is near consensus among economists that managing demand and optimising our transport networks through some form of more targeted road pricing should be part of the transport programme for Auckland, especially considering the forecast increase in congestion over the medium/long term. However, road users are deeply suspicious of road pricing, especially in the form of tolls and cordon fees, such as used in Singapore and London. In fact, managing demand on our roads using road pricing seems to be an issue with the widest gap between economists and the motoring public. This is despite the large scale of road pricing tools that we already have – Fuel Excise Duty (FED) and Road User Charges (RUC) – although these do not accurately reflect all the full costs imposed on road users. For example, motorists pay the same regardless of whether they travel at peak times or off-peak. Implementing a more comprehensive and detailed road pricing regime would have a number of key benefits.
I get the feeling there’s some interesting politics behind this section. Interesting because we’re in a rather bizarre situation of Auckland Council – with a ‘left-leaning’ Mayor, being keen to investigate revenue mechanisms which include road pricing while there’s a centre-right government who are running away from the idea utterly terrified. This gets reflected even more in the next paragraph:
On the other hand, public reaction to the general concept of targeted road pricing is usually negative, often coming from a fairness perspective. Cordon pricing in London has been seen as being very effective at pricing poorer people from the suburbs off the roads, while enabling richer central city dwellers to move around more freely. The high cost of bringing a car into the city may deprive lower-income people of important options, particularly when public transport does not provide the flexibility that a car can provide. A further concern is often a lack of trust that government will use the revenue raised for the purposes advised.
I’m not sure whether we see too many “lower income” people driving their cars into the CBD these days, due to the cost of parking. So that’s perhaps a bit of a red herring issue in terms of a road pricing scheme structured as a cordon around the CBD. It’s probably a more reasonable concern for wider schemes.
Considering this discord, it is often difficult to know where to start and how to progress the debate in a positive manner. Fundamentally, the challenge is to understand how the current network is being used and determine whether this use is as effective and efficient as it can be. Knowing this demand, and ensuring the network is being used as optimally as possible, provides clarity and robustness around what future investment will be required and when.
Oh the pain! This is just so hard!
I think that if road pricing was proposed as analternativeto existing transport revenue sources – rather than in addition to them – most of the opposition to it would disappear. If people had the choice between a road pricing scheme that varied the amount they paid by time of day or particular road used while significantly reducing petrol taxes or rates, we could have an interesting discussion around how it compares to these other transport funding mechanisms and whether it would deliver better transport outcomes while raising the same amount of revenue.
The big problem in all the debates about road pricing is that it’s always put forward as a revenue raising tool, when it fact it’s actually a market-based demand management tool which prices the roads to ensure a better match between demand and supply: just like we price bread, computers and Ferraris to get the most efficient outcomes. Of course there will be the potential for adverse social impacts of a road pricing scheme, but that’s just the same as the adverse effects of current rating schemes or the unfairness of someone having to pay the same to use the roads when they only drive around at the weekend as someone who makes long trips during peak times and helps contribute to the traffic jams around Auckland.
I’m not quite sure why Treasury don’t understand this. Or maybe they do, but it’s politics getting in the way?
No. Not anything about the temperature, spicyness or physical attractiveness. High Occupancy Toll Lanes are a fairly recent phenomenon becoming increasingly widespread throughout the USA. A recent Atlantic Cities article covers the introduction of a pretty large scheme, implemented by way of a public private partnership (PPP) in Washington DC:
The expanded roadway – two lanes in each direction, from the I-95 interchange to Tysons Corner – will be made of High-Occupancy Tolls, or HOT lanes. Carpools of three or more, buses and motorcycles (but not hybrids) can drive them for free. Anyone else who wants in will have to pony up according to a dynamic pricing scheme, and there’s no limit to what that could cost.
The $2 billion system was built in a public-private partnership between the state and Fluor Transurban, an engineering and construction conglomerate. Virginia put up about $400 million. The private firms paid for the rest (with the help of a hefty federal loan) in exchange for the right to collect the toll fees for the next 75 years.
Fluor Transurban is guaranteeing a minimum speed on the HOT lanes of 45 miles an hour. That means the toll price will vary according to demand to maintain the steady flow of traffic. The companies estimate that the average ride will cost between $3 and $6 (tolls will be in effect at all hours of the day, not just during rush hour). But there’s no ceiling to what the system may charge drivers to achieve that goal, if it turns out everyone heading to Tysons Corner is willing to pay a ton of money to get there.
These lanes are an interesting convergence of trying to both increase car pooling (the high occupancy bit) as well as being some form of congestion pricing (the toll bit). Proponents of the schemes cite the lanes as not only providing a congestion free option for those using the lane, but also reducing congestion in the general traffic lanes (presumably due to the car pooling). But the scheme comes with its challenges:
If this infrastructure is now managed by private companies, will their interests always align with the public good? Fluor Transurban, for instance, stands to lose money with every carpool that enters the lanes for free. And isn’t there something ethically dubious about enabling drivers who’ve got the money to pay for faster commutes, while low-income commuters continue to pay for transportation with their time?
These toll lanes will offer the equivalent of driving in first class. But some public money did go into providing that premium experience, and the lanes will be patrolled by publicly funded state police.
For transportation engineers, the project poses just as many logistical questions as philosophical ones. Will people really use this system the way Fluor Transurban expects them to? How much will they be willing to pay? And how long will it take drivers to catch on to the new infrastructure? The technology itself is so complex the Washington Post even published a user’s guide for its readers (no, the price of the toll won’t change on you while you’re driving; yes, you will be caught – and pursued by collectors – if you try to beat the system).
I think I’d feel reasonably comfortable with HOT lanes being implemented in Auckland as long as they were done so in a relatively inexpensive way by converting an existing lane – rather than spending megabucks to add additional lanes. Though there’s still something a bit queasy around forcing lower income commuters to pay for transportation with their time. The fact that everyone gets stuck in congestion, no matter how rich or poor they are, has always seemed something of a leveller. But perhaps I’m being too ideological there?
What are your thoughts? Could something like this work in Auckland? Would it reduce congestion? Is reducing congestion really that important? So many interesting questions.
Earlier this week the “fuel excise duty” (FED) increased by 2 cents per litre. As the Herald noted, taxes of one form or another now make up nearly $1 pre litre from what you pay at the pump:
* Fuel excise – 50.524c
* GST – 27.77c
* ACC levy – 9.9c
* Local authorities fuel tax – 0.66c
* Petroleum monitoring levy – 0.045c
* Total tax – 88.899c.
This money, plus road user charges for diesel vehicles, adds up to around $3 billion a year and makes up all the money that NZTA spends on transport projects – from building new state highways to helping maintain local roads and paying for public transport services.
Fuel taxes are a pretty efficient way to raise money, with there being little in the form of transaction costs – at least compared to complex tolling systems. Presumably the oil companies keep track of how many litres of fuel they sell and just send NZTA a few big cheques every once in a while. Fuel taxes also have the benefits of encouraging us to drive less, drive more fuel efficient vehicles and also – at least in theory – could compensate for the environmental externalities created by burning fossil fuels. The more fuel we go through, the more tax we need to pay.
However, fuel taxes also have a bit of a problem in the longer term – especially as vehicles become more and more fuel efficient and as we shift to hybrid and fully electric vehicles. The problem is that the amount of revenue raised per vehicle kilometre travelled will inevitably decrease.
NZTA have had significant revenue problems in recent times, having to borrow quite a lot of money from Auckland Council for example. I’m not sure the extent to which this is caused by improved fuel efficiency or the extent to which it’s because traffic growth has stalled, but the issue of having less fuel tax being raised than expected is a real one – perhaps the ‘elephant in the room’ when it comes to our ability to actually fund the transport programmes we have proposed.
As time goes by we do have the option of continuing to raise fuel taxes to ensure enough money is raised to pay for the transport programme. Compared to many other countries around the world New Zealand has a pretty low petrol tax. This is highlighted in the graph below, which was from the Ministry of Transport’s briefing to the incoming minister (BIM), released earlier this year:
A higher fuel tax would probably be fairly effective at encouraging people to shift to more fuel efficient (hybrid or full electric) vehicles as those become increasingly price attractive. This is a good thing for the environment and for reducing our dependence on imported fuels, but isn’t really a long term solution to the revenue problem. Quite obviously, as we tax petrol at a higher and higher rate we will encourage more and more people into electric and hybrid vehicles – meaning we need to find a way of raising revenue from those road users.
Presumably fully electric vehicles may end up paying some sort of road user charge. But I suspect fully electric vehicles may be rarer than we think – we’ll instead end up having hybrids that are progressively more dependent on their electric motor than on their petrol one. Do they need to pay a proportion of their travel as Road User Charge and a proportion through petrol tax? Sounds messy.
Lower traffic volume increases in the future – potentially due to higher fuel prices and/or lower economic growth – was put forward in the Ministry of Transport’s BIM as a real pressure on the ability to generate enough revenue to cover the cost of the transport programme in the future. This is highlighted in the graph below:
To the Ministry’s credit they note that high oil price scenarios are likely to mean that much of the proposed expenditure on road capacity expansion may not be necessary (due to lower increases in traffic volumes), but that greater spending on public transport would be required. Even taking the current GDP growth path as a mid-point suggests some significant problems over the next 20 years.
Getting back to the main point of this post, I think there’s a reasonably clear case that – at some point in the future – we will need to shift to a different way of raising revenue for transport purposes. While there are good arguments to be had around the amount of revenue that is required and where that revenue should be spent, we will clearly still need to maintain what we have, we will clearly need to operate a public transport system, we will still need to fix up things that don’t work, and so on. The question really becomes what replaces fuel tax, and how can we be as fair as possible in working out who pays and how much they pay.
This leads us, inevitably, to questions around road pricing. While fuel tax has many great strengths – its low administration cost, the way it is a useful incentive to improve fuel efficiency and minimise the burning of fossil fuels – one thing that fuel tax doesn’t do is vary the amount we pay by the time of day we drive and the particular routes we take.
To give an example, my impact on the roading network from driving down a suburban side-street at 10pm on a Sunday night is almost zero. Perhaps a slight degradation of the road, obviously some environmental impact, but really little else. By contrast, if I drive from Papakura to the CBD at peak times up the Southern Motorway then my impact is huge. I’m not just stuck in the traffic jam, I am the traffic jam. My extra vehicle on the road is slowing down a huge number of other people, just as I am being slowed down myself. Removing a few people from that motorway will improve travel for a vast number of people.
At an overall level, it becomes clear that a relatively small proportion of trips generate the vast bulk of motoring costs. Perhaps put more simply, every additional car travelling across the Harbour Bridge at the ‘peak of the peak’ contributes to the (supposed) “need” to spend $5 billion on another Harbour Crossing. This is the real value of the Northern Busway of course, having ‘knocked the top off’ this peak and delayed the need for spending this eye-watering amount of money. But in the longer run, people travelling across this future Harbour Crossing at peak times should be the ones paying for its construction – rather than someone driving along a suburban street at 10pm on a Sunday night.
A graph from a UK study confirms that the marginal costs imposed on the transport system come from a pretty tiny minority of trips:
What this graph highlights is that for the vast bulk of trips we are paying too much in fuel tax, compared to the impact we are having with our trip. However, for a few trips the fuel tax is nowhere near covering the impact of those trips. I’m possibly not entirely convinced the marginal cost curve should be quite this steep as the methodology used to calculate it is overly focused on congestion, but I think the general point holds. I generally use public transport during peak times and drive during off-peak times – yet find myself paying for road widening projects that will really only benefit people travelling during the peak on a select number of routes. While the subsidies for my PT trip compensate for this situation to an extent, the situation still seems a bit unfair.
Ultimately this approach to road pricing, as an eventual replacement for fuel tax that more fairly apportions cost based on the impact you’re having on the transportation network, seems the most likely way to see it actually implemented. As shown in the graph above, the vast majority of trips would be better off under this pricing scheme than they are at the moment. A few trips would be much worse off, but presumably that would act as a disincentive to travel at that time of the day on that route.
Nevertheless, this approach presents two possible problems:
- The administration cost of implementing this kind of scheme ‘properly’ – differentiating between different routes, different times of the day and then coming up with a charging mechanism.
- As we’re relying on taxing a few trips to provide the bulk of our transport revenue, if those trips disappear so does most of our revenue. I guess of course we also see many of our problems solved, but the extent to which this works probably depends on the extent to which congestion is seen as the main transport problem.
I guess this is an issue we’ll eventually have to tackle though.
An article in today’s Herald notes the results of a survey undertaken by the NZ Council for Infrastructure Development, which looks at different levels of support for different ‘alternative’ funding mechanisms for paying for Auckland’s transport system.
Pollsters have found almost two-thirds support from Aucklanders for motorway tolls to ease congestion and raise extra transport money.
A finding of 63.8 per cent support in principle for tolls – published today after a survey of more than a thousand Super City residents – comes amid Government resistance to imposing tolls or raising fuel taxes to plug a $10 billion to $15 billion funding gap.
Some further details are available in the NZCID press release:
To fund transport improvements, respondents were given a choice of increasing rates, fuel taxes, cark park charges, an airport tax on international travellers, a charge on all traffic entering the CBD, and an average $2 toll on the motorway network. Of these, the $2 average toll was the only option attracting more support than opposition: 46% support a $2 average toll; 33.4% oppose and 18% are neutral.
Motorway network tolls were then explored in more detail. It was explained that higher tolls in busy periods would incentivise commuters to drive at different times, use different routes, car pool, take public transport or walk or cycle. This would reduce traffic on the motorways, meaning faster journeys for users of the tolled network, and tolls would also raise revenue for investment in new transport solutions including roads and public transport services.
Under this scenario, 64% of respondents gave in principle support to tolls on Auckland’s motorways varying in price and times at which they are charged, if this reduces congestion and helps fund major transport projects. 36% did not support this idea.
Majority support remained strong regardless of household income or political party support. Tolling in principle was supported by 47% of those who use the motorway system twice a day or more.
Of the four pricing packages surveyed, the option of a $2 charge in peak periods (7am – 9am) and $1.50 between 4pm and 6pm, was given the most support overall.
The point at which tolls cross over from being seen as “fair value” to “expensive” overall was: $0.76 in Off-Peak for travel between 7pm and 7am; $1.25 in Inter-Peak for travel between 9am and 4pm; $1.70 in Peak traffic 7am to 9am and 4pm to 6pm. Price tolerance varies according to frequency of motorway use: Less frequent cross over point $2.70 at peak, 2 x per day users $1.50.
Among frequent motorway users who were prepared to pay tolls, the average maximum was $4.75 per day for cars and vans and $5.80 for heavy commercial vehicles. These levels apply regardless of the frequency with which respondents use the motorway system.
Accuracy of polling methods is something I’m not an expert at, but I know that Horizon Polls have often been criticised in the past for the method chosen. I’m not going to go into that issue in too much detail.
Overall I must say that I’m rather surprised how much support the concept has with the general population, if the poll is reflective of that. Overseas cities have generally struggled to implement any sort of network/congestion pricing scheme – even in cities with much better public transport systems than we have here in Auckland. I guess the general feeling amongst the population is that something really needs to be done about the transport system – and there is perhaps a greater willingness to pay for that improvement than we had previously thought.
I still have significant reservations about the motorway tolling idea, even if it is found to have an acceptable level of public support, largely because I think it’ll push traffic from motorways onto local roads. But I suppose closer analysis will explore the extent to which that’ll happen.
For other forms of congestion charging/road pricing, it seems there’s a tension between the effectiveness of the scheme at reducing congestion and the effectiveness of the scheme at raising revenue. To be effective at reducing congestion requires a lot of complexity (charging different rates depending on the time of day, the road chosen and probably charging all travel) which comes with a huge administration cost – eating away at the money actually available for improving the transport system. Simpler methods, such as cordon schemes (like London’s congestion charging system) are likely to have unintended consequences (like killing off the city centre) and aren’t likely to be as effective at reducing congestion where it’s most severe.
It’s a useful debate to be having though. I just wonder whether this support will remain when people imagine themselves paying $2 every time they drive along a motorway onramp.
The Council issued a press release today highlighting that it’s shifting to the next phase of analysing ways in which to bridge the $10-15 billion funding gap between the projects that are (supposedly) required over the next 30 years and the amount of money available under traditional funding schemes. Here are the details:
Alternative options for funding critical transport projects such as the additional Waitemata Harbour Crossing, City Rail Link, Penlink, rail to the Airport and the East-West Link will be considered by Auckland Council on Thursday.
“If and when these projects proceed, Auckland will be required to fund part of the cost alongside government contributions.”
“Auckland Council is considering a number of funding options which can be used instead of loading all the burden on to Aucklanders’ rates bill,” says Len Brown.
“While the proposal does not rule out other funding mechanisms such as tolls or fare charges, it does identify three options that need additional work, as a result of public feedback. The proposal is for council to consider doing further work around regional fuel taxes, congestion and network charging and additional car parking charges.”
“I remain open-minded to a number of funding options. What is certain, however, is that Council must consider new ways to fund these major transport projects in a way which is affordable and fair for Aucklanders.”
The report follows a discussion document released earlier this year entitled “Getting Auckland Moving”. Eighty-five per cent of submitters felt additional funding was required to address the region’s transport infrastructure challenges.
“Alternative funding options are required because we face a $10-15 billion funding gap between Auckland’s future transport needs and what rates and taxes can cover. Auckland’s congestion will significantly worsen as the region’s population continues to surge. Auckland and the government need to invest in a mix of road and rail projects to provide the region with a transport system which will cope with a population of two million plus.”
The five most popular options were tolling on new roads, regional fuel taxes, congestion charging, development contributions and additional car parking charges. As tolling of new roads and development contributions are permissible under existing legislation, it was felt they did not require the same level of investigation.
The report proposes that further investigation of the three funding mechanisms take place with the aim of taking a funding proposal to government in 12 months recommending relevant legislation be changed. A consultative working group comprising council, government, community organisations, business and transport groups will be set up to consider and develop the proposals.
“The citizens of Auckland will be given the chance to have their say before any final decisions are made. It is important that we develop fair and affordable funding options for further consideration,” says the Mayor.
Further detail is in a report going to the Council on Thursday, which includes quite a lot of information around the feedback received on the discussion document.
This will be an interesting discussion to be had – particularly around the issue of regional fuel taxes and congestion/network charging – where Central Government has made it quite clear they’re not a fan of either way to raise additional revenue for transport projects. A few months back I highlighted that I think tolling existing motorway onramps (generally known as network charging, although it’s debatable whether that’s the appropriate phrase) was a dumb idea because it would shift traffic from motorways onto local roads. A regional fuel tax was almost introduced in 2008 before the incoming National government canned it, and the idea of road pricing & congestion charging seems to raise almost everyone’s heckles. It seems like additional parking charges might be the easy one out of the lot, although it won’t necessarily raise much cash.
However, I disagree with Mayor (and it seems around 85% of submitters) in that I’m not convinced whether significant additional funding is required to sort out Auckland’s transport woes. While many of the expensive projects on the Council’s wishlist are justified (like the CRL), a large number quite possibly aren’t, plus I think we shouldn’t necessarily consider all these large projects as over and above “business as usual” funding. Much of “business as usual” might not end up being particularly high quality spending (like building heaps of new roads to service growing urban sprawl) plus there should be ways to improve the efficiency of much of our operational spending – like getting better bang for our buck around how we operate public transport – to generate savings that can be reinvested.
Of course that doesn’t necessarily mean that congestion charging, parking charges, tolling new roads or a regional fuel tax aren’t justifiable – or aren’t good ideas. In fact I think all of them might have some merit – though generally through their ability to promote behavioural change and modeshift. But maybe we don’t need to squeeze as much money out of them as previously thought if we’re tougher about which projects make the cut, or perhaps we can offset the money raised through lowering rates as a way of getting public support to implement something like congestion charging.
The Auckland Council’s business advisory group has decided, based on what wisdom I don’t know, that the best way to raise the supposedly necessary additional funding to build Auckland super-expensive motorways like an Additional Harbour Crossing and the East-West Link, is through tolling people who travel on the motorway network. It sounds a lot like an idea that was proposed by the NZ Council for Infrastructure Development last year. With the briefest of analysis, the tolling idea seems like it might have some merit because of the large amount of money that could be raised – with (NZCID estimate) 915,000 vehicles joining the motorway network each day, even a fairly low toll for each vehicle would raise a lot of money that could be spent on transport projects. Compared to other revenue raising systems, the idea is also relatively simple: just toll gate every motorway onramp.
Here’s how it was described in a NZ Herald article earlier this week:
The council’s business advisory panel believes a toll of about $2 a day would be fairer and more effective than 12 other options raised by Auckland Mayor Len Brown to fill an $11.7 billion transport funding gap.
Councillor Cameron Brewer, who chairs the forum, said yesterday that there could be some variation in the toll according to time of day and location but an average of $2 would raise about $700 million a year.
“That would go a long way to servicing and making inroads into the $11.7 billion funding shortfall,” he told the Herald.
However, the idea has a number of significant flaws – one of which really kills the whole concept. Firstly, the ‘non-fatal’ flaws:
- The system is likely to disproportionately impact upon lower income Aucklanders by pricing them off the motorways (at least at peak times). While the system seems like it’s designed to raise money as its primary purpose, rather than to reduce congestion, clearly adding a charge to driving on the motorway will dissuade some from doing so, who by definition will be priced off the road (the big question is ‘where do they go). Set against that argument is the reality that this is how markets work, and we live in a market economy for most things – why not roadspace? We can, arguably, achieve social equity in other ways such as a progressive tax system and through the social welfare system.
- The next flaw, as pointed out by Brian Rudman’s column yesterday, relates to the efficiency of these tolling systems at raising money. As a way of raising money, tolling is far less efficient than – for example – simply whacking up fuel taxes. You need to build a whole pile of infrastructure to capture people getting onto the motorway, you need to set up a very large and complex computer system to process it all, you need to send out a lot of letters reminding people to pay their bills, you need to take a few people to court to ensure they pay their bills. It’s just complicated and costly, particularly when compared to fuel tax which is just done through sending the petrol companies a bill once in a while. Set against this argument is that perhaps, even despite the massive collection costs, the system could raise enough money to still be worthwhile.
These issues aren’t necessarily fatal to the concept as a whole. If Auckland’s population can be convinced that we need to waste billions more on additional motorways, to the extent that we’re willing to pay $2 each and every time we get on the motorway, perhaps with different pricing schemes to reward those travelling outside the peak for shift-work, maybe we can get past the social equity issue. And perhaps, if the operating costs for this system could be minimised – in comparison to the amount of money raised, then the efficiency argument becomes a bit less critical.
However, there remains a flaw that I don’t think has a solution – and that is a little thing called diverted traffic. If motorways are tolled but not adjacent arterial roads (and the system’s complexity would be increased hugely if we included non-motorway roads), then surely a fairly significant chunk of traffic is going to shift away from the tolled routes and onto the free routes. This has a number of rather perverse results:
- The big, wide and fancy new motorways that we’ve spent billions on will be largely empty, except for rich businessmen to drive along (maybe that’s why they like the idea?)
- The arterial roads which people actually live in, where we run our buses, where we have pedestrians, cyclists, driveways, where we want to improve the balance between movement and place functions, will become horrendously busier and more congested as people use these roads to avoid having to pay the motorway tolls.
- In short, we shift traffic away from where we want it (on the motorways) and into places where we don’t really want much through-traffic (the streets and roads where we live, work and play).
The only way to get around this flaw is to also start charging for travel along local roads. In which case we’re really shifting to a GPS-based congestion pricing scheme which, although probably more sensible in terms of avoiding problems like the above, is likely to be much much more complicated and expensive to implement and may well face significantly greater political opposition.
In short, tolling motorways to raise money (in isolation) may sound like a good idea in theory, but when you look at it in reality, it’s pretty damn stupid.
Congestion pricing seems likely to become a bit of a hot topic in Auckland over the next few months, as various ways to ‘plug the gap’ between the amount of money required for the transport projects wanted and the amount of funding actually available are explored. An article at the excellent Atlantic Cities blog points out some recent research into the effectiveness of congestion pricing at reducing peak time congestion compared to other measures – most specifically rewarding those who travel during off-peak times.
Congestion pricing is generally considered to have two aims: raising revenue and discouraging car travel either to certain areas or at certain times of the day. For most transport economists, the focus is on the second of these matters, as congestion charging is a pretty inefficient revenue generator – due to its significant administration costs (especially when compared to fuel tax, which is incredibly cheap to administer). The theory goes that roads are congested at peak times because peak time road-space is a scarce resource, and by under-charging for it we are creating too much demand for the relatively limited amount of available supply. In order to use this road-space more efficiently, we should charge higher rates at times (or in locations) where demand is highest. This will encourage people to travel outside peak times or to take public transport, walk or cycle, instead of driving.
The beauty of congestion pricing is that it gets around, to an extent, the problem of induced demand. Historically, we have tried to solve congestion by simply building more and more supply – and then for some reason being surprised when that supply is taken up quickly, leading to our roads being just as congested as before the widening/new building took place. Congestion pricing means that we don’t have to go and spend a huge amount of money on additional capacity, only to see it eaten up close to immediately. Rather, it means that trips which can be taken in another way often area, as many people with options will choose to avoid paying the charge. Of course induced demand doesn’t disappear completely – freer flowing roads encourage further traffic which can mean that congestion charges need to keep on being hiked up to ensure the roads stay free-flowing: the same ‘chicken-and-egg’ spiral you get with road widening, although more helpfully this time you’re making money rather than spending increasingly eye-watering amount on roading projects.
Of course an alternative to charging people for driving at peak time is to instead offer rewards for travelling off-peak. Fundamentally, either option could have the effect of helping to ‘spread the load’ and reduce peak time congestion. In a sense we do this at the moment, through subsidising public transport services for their ‘congestion relief’ benefits: which are particularly applicable at peak times. It’s in the best interests of motorists to have a lot of people on public transport. Therefore it’s sensible for drivers to help keep PT fares lower than they would otherwise be, through contributing to subsidies. The question is, what if we extend this theory to directly encouraging people to travel outside peak times?
That’s what this study in the Netherlands looked at, and here’s its abstract:
In a 13-week field study conducted in The Netherlands, participants were provided with daily rewards – monetary and in-kind, in order to encourage them to avoid driving during the morning rush-hour. Participants could earn a reward (money or credits to keep a Smartphone handset), by driving to work earlier or later, by switching to another mode or by teleworking. The collected data, complemented with pre and post measurement surveys, were analyzed using longitudinal techniques and mixed logistic regression. The results assert that the reward is the main extrinsic motivation for discouraging rush-hour driving. The monetary reward exhibits diminishing sensitivity, whereas the Smartphone has endowment qualities. Although the reward influences the motivation to avoid the rush-hour, the choice how to change behavior is influenced by additional factors including education, scheduling, habitual behavior, attitudes, and travel information availability.
A further academic article looks at making a comparison between the effectiveness of congestion pricing schemes and the kind of reward scheme the Netherlands study trialled. The results of the study are quite interesting – starting with the differences in the changes people made when either a cost or a reward was provided to encourage them to drive outside peak times: I’m not entirely sure what’s with the bike result, but it seems that the major difference is that the reward scheme generally encouraged people to travel outside peak time or to shift to public transport at a higher rate than road pricing did. Road pricing seemed more successful at shifting people to riding bikes, other modes (presumably largely walking) or staying at home.
But this is only a part of the story. What really matters is the issue about how effective the two schemes are at achieving their primary purpose – which is to reduce peak time car travel. And the results of that are quite interesting: There are some variations in the methodologies for the different studies that went into creating these results, but the distinction seems pretty sharp at an overall level of analysis. It seems that people do respond better to rewards than to ‘punishment’ when it comes to shifting away from travelling at peak times by car.
Of course reward schemes are potentially quite challenging to fairly implement, and of course they cost money rather than generate it – as road pricing does. However, obviously they’re likely to be quite a lot more politically acceptable and if they are more effective at getting the results we want, then they might be a legitimate form of public intervention. Put in a slightly different way, spending money on reward schemes to reduce peak time congestion might be quite a lot cheaper, quicker and more effective than spending money on increasing roading capacity with the same goal.
I must say I was rather shocked this morning to find an editorial in the NZ Herald on transport matters that I agreed with to such a great extent. Typical editorialist John Roughan, with his “Auckland wants to sprawl” and “Auckland should pay for the City Rail Link if we really want it” (not that I disagree there, our petrol taxes should help pay for it, but I don’t think that’s what he means) must have been away because I can’t ever recall seeing such a strongly pro public transport editorial. The editorial picks up on a proposal by the Auckland Business Forum to put a blanket toll on all transport trips around the region to help fund important transport projects. The proposal is relatively similar to the “network pricing” proposal that the NZ Council for Infrastructure Development is promoting as a way to help fund a supposed “gap” between cost of transport projects we “need” and the funding available for them. The Editorial says:
There is a surface allure to the Auckland Business Forum’s view that all transport users, not just motorists, should contribute to the city’s big road and rail projects. If nothing else, it seems fair to spread the burden. Accordingly, the forum says, the price of tickets for rail and possibly ferry trips should include a $2 toll to complement that being paid by car drivers. These tolls would raise more than $700 million annually to cover repayments on loans to fill a $10 billion funding deficit. The idea is included in the forum’s submission on the 30-year Auckland Plan as a means of financing a “ring-fenced’ group of high-priority network improvement projects. At the top of its priority list is the east-west highway corridor from Pakuranga to Onehunga, which is likely to cost about $2.5 billion, followed by the $2.4 billion inner-city rail tunnel plan, both of which the forum wants completed by 2020.
The sheer amount of money such a charge would raise makes it worth exploring further. But, as the editorial then notes, looking closer at the plan reveals its flaws:
Unfortunately, however, the Business Forum’s case has a serious flaw. The major thrust of transport spending in recent years has been to get people out of cars and on to trains, buses and ferries, thereby lessening congestion on the roads. To attract and retain patronage, public transport has not only to be fast, frequent, convenient and comfortable. It has to be affordable. The danger of making a $2 toll part of ticket prices is that this will cease to be the case. If so, many public transport-users would return to their cars, creating greater road gridlock. The forum’s prescription has the potential to be a spectacular own-goal.
And that’s ignoring the huge flaw with the NZCID proposal, which would push traffic off motorways onto local roads. The issue with fare levels and public transport use is something that has was highlighted by the comparator city study that Auckland Transport undertook in recent months – where Auckland had the highest fare levels and (perhaps not unrelated) the lowest PT per capita use:The bright side to the business forum’s proposal is that a core part of the roading lobby seems to recognise the importance of the City Rail Link project:
Perhaps a more notable part of its submission is the high priority that it accords the rail loop. The road corridor from Pakuranga to Onehunga is, understandably from its perspective, top of its list. It caters for more daily freight traffic than any other state highway except the Auckland Harbour Bridge. But the forum’s promotion, as a second priority, of the rail loop suggests that, unlike Transport Minister Steven Joyce, it is convinced of its cost-benefit merits. This view could, of course, also hinge on the fact that forum members stand to be major beneficiaries of a project that advocates say will boost business and employment in a revived city centre. They also note that the rail tunnel would make road trips easier for longer periods of the working day.
I think there are plenty of ways we can fund the City Rail Link without resorting to network pricing, $2 a trip transport charges or many of the other funding proposals put forward. Most obviously we can redirect money away from silly motorway projects (like the Greens and Labour have proposed) while the Council’s side of the project could probably be funded through ‘betterment levies’ on properties that will appreciate in value through the project, a smarter approach to parking charges and a reprioritisation of council’s current transport funding – which totals around $650 million a year, not an insignificant amount!