How can we make road pricing fair?

Talk to a transport economist for more than a couple of minutes (seconds?) and the issue of road pricing will come up. “If only we could introduce road pricing, all our problems would go away,” says your transport economist. Congestion – gone. Greenhouse gas emissions – significantly reduced. Public transport efficiency – dramatically increased. And so on..

So why is implementing road pricing so difficult and so rare? The most common answer is “politics”, but essentially that’s just a proxy for the concept being considered unacceptable by most of the population. And one of the main reasons why road pricing is so unpopular is that it’s seen as unfair, particularly for poorer people.

In a recent Planetizen post, Canadian transport academic Todd Litman looks further into this assumption that road tolls and other means of pricing are unfair and harm the poor.

A major obstacle to efficient pricing is the common, but often inaccurate assumption, that such fees harm poor people. This is generally wrong, and reinforces automobile dependency (an automobile-oriented transportation system which offers inadequate alternatives to driving and therefore forces people to drive more than optimal), which tends to harm physically, economically and socially disadvantaged people overall.

While it is true that a given fee is regressive (each dollar represents a greater portion of income for a poor than a wealthy person), tolls are generally less regressive than other roadway expansion funding options because poor people drive relatively little on such highways: many poor people are retired or unemployed, lower-income workers often have local jobs that do not require highway commutes, and if they do commute on major travel corridors they are more likely to use alternative modes, or travel off-peak because they often have off-peak work schedules.

If the money raised from road pricing or tolls is spent on improving public transport or active transport, then the progressive nature of the funding is enhanced further:

As a result, road tolls are generally less regressive than financing urban highway expansion by increasing fuel taxes (which all motorists pay, not just urban commuters) or general taxes (which everybody pays regardless of how much they drive), and can be progressive overall if a portion of revenues are used to improve alternative modes, such as public transit, so lower-income travellers have better alternatives to driving.

Similarly, poor people often benefit from parking unbundling (paying directly for parking, rather than having it automatically included with building rents) and cash out (being able to choose cash instead of subsidized parking) because they tend to own fewer cars and value the opportunity for financial savings.

There are a couple of ares where Litman’s analysis doesn’t necessarily hold true for Auckland, particularly in relation to how the current debate about road pricing is happening – as an additional revenue raiser, rather than as a replacement of existing funding sources.

  1. Tolling or road pricing is probably only fairer if it replaces other, unfair, methods of funding transport – such as petrol taxes (which unfairly charge those travelling off-peak for infrastructure only required at peak times) or rates. If tolling or road pricing is just another tax on people to pay for a bloated transport programme then chances are they will be unfair because it will be the poor who end up suffering the most from the extra charges (as those charges will be the greatest proportion of their income).
  2. Auckland currently has a very different relationship between income and mode choice compared to US cities. In most US cities it seems that the poorest areas have the highest levels of public transport use – therefore improving PT using money raised from tolls or road charges has the potential to play a wealth distribution role. As illustrated by the map below – which shows car modeshare for journey to work trips in the 2013 census – Auckland seems to have the opposite patters, with poorer areas often being highly car dependent.

car-modeshareOverall, it seems as though road pricing could be introduced in a way that’s considered “fair” by Aucklanders – and therefore may be able to overcome political opposition. However, this would require a couple of pretty big changes to how it’s currently being proposed by the Council. Firstly, the money raised would need to be used instead of existing funding sources, rather than just being another tax. Secondly, some dramatic improvements in the attractiveness and affordability of alternatives to driving appear necessary to reduce car dependency in Auckland’s poorer areas.

The new bus network and the City Rail Link (which vastly benefit the south and west respectively) may meet the second hurdle. A whole pile of unnecessary roading projects need to be killed off to pass the first hurdle, reduce some of the regressive existing transport funding tools, and therefore make road pricing and tolling actually fair.

Privatising Roads

The ACT party – or at least its biggest funder – was in the news last weekend for expressing some of his views for the party at their annual conference. Of note was this line

“I’d privatise all the schools, all the hospitals and all the roads,” he told the conference.

Now obviously we’re not in the habit of talking about schools or hospitals (unless it’s about how to get to them) but roads are something on our list. Now in reality I can’t see it happening here – at least any time soon – but it raises the interesting question of what would happen if we were to privatise roads? This post is really just a thought exercise as to some of the impacts of doing so.

I suspect that if we were ever privatise the roads the impact would how we get around and our views on transport would change dramatically. There would be some overall impacts across the entire network but also more local impacts due to there likely needing to be different forms of privatisation.

The key impact would be across the entire network and the true cost of operating, maintaining and building roads would become much clearer regardless of how that’s passed on to the public. A better understanding of just how much roads cost, especially if charged for through forms of road pricing would lead to changes in how people travel. People would likely reduce the amount of driving they do in favour of more walking, cycling and PT use.

Private road owners would also likely seek to reduce their maintenance costs while users of lighter vehicles would likely demand that costs are more fairly distributed to those that do the most damage. That in itself could have large impacts. It would likely see the vehicle fleet get smaller and lighter over time i.e. less people would be driving around in large SUVs unless they absolutely need too (or want too). Truckies would be even harder hit. Due to their weight, trucks cause substantially more damage to road surfaces and so would likely be charged substantially more than other vehicles which in itself would have far reaching impacts by pushing up delivery costs. Those increased costs would of course be passed on to businesses and ultimately consumers.

Perhaps one of the areas most impacted would be in road construction. In short it would kill it dead. Most transport projects simply don’t make sense financially and the toll road troubles in Australia are proof of this. Traffic volumes often don’t stack up and most projects are only able to be justified based on the benefits to the wider economy from improved travel times. Faced with paying for a journey in time through congestion or paying a monetary cost to avoid congestion, many choose the former. What all of this means is that road construction would dry up almost immediately and the costs would shift to making the best use of the infrastructure that exists. That could have some negative consequences as there might be little attention paid to improving roads through projects like this. The flip side of this is that the private road owners would likely become liable for road safety and therefore be a push to improve crash black spots.

Regardless of whether privatising roads is a good or a bad thing, one thing that isn’t so clear is just how it could be done. The real benefit from roads comes from the fact they are an extensive network. Very few trips begin and end on the same road and a trip might commonly involve travelling on quieter residential streets, arterial roads and motorways. Each of those would present vastly different opportunities for privatisation.


Motorways would probably be the easiest roads to privatise due to the fact they have limited access and all journeys that use a motorway begin and end somewhere else. Motorways also carry large amounts of traffic each day. This is also why groups like the NZCID who have been pushing for the council/govt to find additional ways to fund ever more and larger transport projects have suggested charging for access to the motorways. If we were to privatise roads there would likely be a big temptation to do the easiest ones first and so motorways would be at the top of the agenda. The problem with that though is that it would likely have a huge impact on but still publicly owned roads.

Residential streets

The next easiest set of roads to privatise would actually be quiet suburban streets, particularly those post 1950’s suburbs full of cul-de-sacs. There we would probably do something similar to what is likely to happen later this year in the small sprawly village of Long Grove (north of Chicago). They are looking to privatise many of their currently public suburban roads because it simply can’t afford to maintain them due to their pyramid scheme like system of how roads were funded where the money to pay for them was only raised through development contributions which dried up as a result of the GFC. They are simply going to turn over the ownership of the roads to the owners of the houses on the street and leave it up to them to maintain. 


Some typical post 1950’s street patterns

That could put big strains on neighbourly relations in many places as people work out who will pay for what i.e. does everyone on a street pay equally or do those at the end of the street pay more? In some parts of Auckland there could be interesting changes in the stance taking on intensification. More people living on a street means more people to share the cost of a road with and so some of the suburbs that were most opposed to intensification in the Unitary Plan discussions might quickly change their mind. Going further some residential neighbourhoods might start imposing restrictions on vehicle use in their streets – particularly truck movements – in a bid to lessen the damage vehicles do to the roads. Gated communities might also become more common to stop others from passing through.

On the positive side these communities are likely to become much more pedestrian and cycle friendly as those two modes cause much less wear and tear on roads which equates to less maintenance.


Privatising arterial roads are likely to be the hardest to do because not only do they serve a movement function but they serve a place one too, people live, work and play along arterials. To be honest I don’t even know how you could privatise them as due to their function they can’t just be turned over to locals to maintain but their connected nature means they would be prohibitively expensive to charge for. Who would really want the cost and hassle of owning them?

Overall I don’t think the idea of privatising roads is necessarily a bad one from an ideological perspective and doing so would certainly change how we use roads, including what modes we use but overall it simply isn’t practical. Roads are such a key part of our everyday life that changing our relationship with them – however flawed it currently is – would have radical and far reaching consequences for society, probably far more so than the privatising of many other government functions. As such I would suggest the likelihood of it happening is very very low. Far more likely and practical would be the introduction of proper road pricing.

An ode to demand-based transport pricing

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:

  1. “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.
  2. “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).
  3. “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.

Road pricing and rail

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:

Source: Wikipedia

Source: Wikipedia

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.

Treasury’s interesting position on road pricing

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?

HOT Lanes

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.

The future of fuel taxes

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.

Strong support for motorway tolls?

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.

How to cover Auckland’s (supposed) transport funding gap?

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.

Motorway tolling is a stupid idea

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.