*** Note: This post has been updated to correct errors in the initial version. Correcting these errors has not, however, affected the conclusions ***
Imagine, for a moment, that I was trying to sell you a bag of organic lemons. Now imagine that my bag of organic lemons costs 25 times the normal price. They’re very good ***organic*** lemons, I would say, while flashing a Simon Bridges smile. Well-fertilized by a lovely labradoodle called Lexie, I might add.
When confronted with such a scenario, I imagine (hope) that most of you would tell me to stick my organic lemons somewhere nice and dark. Like Norway.
View of Bergen, Norway
How is this relevant to EVs? Well, the Government has just announced policies to subsidize uptake of electric vehicles (EVs). The Government is subsidizing EVS so as to reduce carbon emissions. A noble objective, you might think. Except for one small problem: My analysis suggests the Government’s is paying 25 times more to reduce emissions via EVs than what it’d cost to reduce emissions via other channels. Put another way, if we took the money being used for EV subsidies and instead used it to offset carbon emissions elsewhere in the economy, then we’d be able to buy 25 times more for our money.
Doesn’t sound like a very good deal does it? Let me first present some numbers to support this conclusion.
First, let’s consider the benefits side of the EV subsidy equation. Information available on the MoT website suggests (from my reading) that the main objective of the Government’s EV subsidies is to reduce emissions from transport. To achieve this outcome, the Government is proposing a suite of measures (subsidies) that are designed to increase the number of EVs on New Zealand roads from approximately 5,000 now to 64,000 in 2021. Of course, under a counter-factual (do-nothing) scenario the number of EVs on NZ roads would also be expected to increase, simply because EV technology is improving over time. For the sake of this analysis let’s say that under the counter-factual scenario (i.e. in the absence of the Government’s subsidies for EVs) we’d see an additional 10,000 EVs on NZ roads. From this we can deduce the Government’s subsidies cause a ***net*** increase of 50,000 EVs.
Second, on the cost side of the equation we find that two of the nine policies are costed at $42 million per annum in 2021. However, we’d expect the cost of the subsidies to start off low and ramp up progressively over the five year period, as more people buy EVs. Let’s assume the subsidies amount to an average of $20 million p.a. over 5 years, or $100 million in total. Let’s also keep things simple and use undiscounted monetary values. To sum up, the Government’s subsidies for EVs amount to spending approximately $100 million over 5 years, which is expected to result in an additional 50,000 EVs on NZ roads. This subsidy can be broken down further: $100 million divided by 50,000 EVs equates to $2,000 per EV, which over five years amounts to $400 per EV per annum. If we further assume an individual EV will be driven an average of 12,000km p.a., then we find the subsidies amount to approximately $0.03 per kilometre travelled.
So what do New Zealand taxpayers get for this investment? Or more specifically, how much of a reduction in CO2 emissions do we get from this investment? The Government’s analysis suggests that EVs will save 0.15 kg CO2 per kilometre traveled compared to a normal car. At 12,000 km p.a. this equates to 1.8 tonnes of CO2 saved per vehicle per annum. If we then apply the current carbon price of NZD $10 per tonne, then we find the Government’s EVs subsidies cost approximately 25 times more per year than the market value of the carbon emissions that they save.
I want to pause for a second to let this sink in: The Government’s EV subsidies cost 25 times more than what it would cost to reduce emissions in other ways. Oh. Dear.
Some of you may argue that a carbon price of NZD $10 per tonne of Co2 is too low – and I’d most definitely agree. Recent research suggests a carbon price closer to $200 per tone would be more accurate. However, I think it’s worth keeping in mind that the current carbon price is the direct consequence of deliberate policy decisions implemented by this Government over the last 8 years. Specifically, the Government has chosen to give out large volumes of free carbon credits, which have suppressed the price of carbon. Hence, I’d argue that the current carbon price at least reflect the Government’s views on how much New Zealanders should be paying to reduce carbon emissions.
Other people who are reading this may be thinking that I simply can’t be right. That somewhere I’ve missed out some zeros, or got a decimal point out of place. Perhaps I’ve been doubling-down on a few too many space-cakes here in Amsterdam, and/or skipped a few too many economics classes.
To try and get an independent perspective on my calculations I undertook some further research into the impact of EV subsidies in other countries. In doing so I stumbled across a very interesting paper titled “The Norwegian support and subsidy policy of electric cars. Should it be adopted by other countries?“, which was published in 2014 in Environmental Science and Policy.
This paper evaluates Norway’s subsidies for EVs and concludes (pg. 167; emphasis added):
Our main conclusion is that the Norwegian EV subsidy policy should be ended as soon as possible, and that this policy certainly should not be implemented by other countries. The solution to the GHG problem of the transportation sector in the next few decades in a world in which the GDP and population growth are the main drivers of the road traffic volume (Bosetti and Longden, 2013) is not to offer subsidies making it cheaper to buy and run EVs, or other alternatives, but to introduce more taxes and restrictions on car use. There are simply too many social costs associated with car transportation (Sterner, 2007). The subsidization idea, which informs so much of environmental policy today, not least within Europe, is ineffective, has several unintended consequences and will in many cases be counterproductive (Helm, 2012). The Norwegian policy for the support of EVs is an example of this.
Reading further, one finds that the authors have reached this conclusion based on an analysis of emissions savings from Norway’s EV subsidies. And guess what? They find the cost of the subsidies was approximately 2,700 times higher than the equivalent cost of offsetting the same amount of carbon (pg. 167; emphasis added):
Under certain reasonable assumptions, we then find that the EV subsidy package that the single EV owner gains amounts to about 13,500 USD/tCO2. As pointed out, this is about 2700 times higher than the current CO2 emission price. Therefore, under similar assumptions, subsidizing 20,000 EVs adds up to the value of more than 50 million permits, or about the present yearly GHG emission in Norway. Rather than supporting EV owners, the Norwegian Government could have bought emission rights in the same amount in the quota market and kept these rights unused, meaning that the quota supply would actually have shrunk. This would have driven the quota price up and possibly contributed to a technology push along different lines. At the same time, this measure would have made Norway ‘carbon neutral’.
Also contained in the paper is some interesting information on who seems to benefit from EV subsidies (pg. 167; emphasis added), with the authors commenting as follows:
It is widely believed that this EV policy will result in less energy consumption based on fossil fuels and a reduction in the local emission and noise problems. However, our discussion and analysis show that unfortunately the issue is not that simple. One of the most worrying aspects of the current EV policy incentives in Norway is that they motivate high-income families to buy a second car. At the moment, two-car households make up a minority. However, if two cars per household become more common, they will pose an environmental challenge across several dimensions and will doubtless mean that the EV policy as a GHG emission reduction instrument is totally missing its point.
“Totally missing its point” is not something you read in academic papers everyday. It’s worth mentioning that political parties in Norway recently reached consensus on rolling back EV subsidies, by removing EVs’ ability to use bus lanes and lifting their exemptions from tolls.
If you’re looking for a sound-bite from this post then this is it: The Government is proposing to spend $100 million to subsidize wealthy households to buy electric cars in order to achieve a relatively paltry reduction in emissions.
At this point I should point out that the Government is not alone in proposing that the New Zealand taxpayers subsidize EVs. The Green Party, for example, has also proposed removing FBT from EVs. While I haven’t evaluated their policy in any detail, on the basis of the numbers I’m seeing here I’d be ***extremely*** skeptical about the effectiveness of such a policy, especially when considered from an environmental and social justice perspective.
To finish, I want to make two moderating comments in relation to my criticisms of EV subsidies.
The first caveat is that I think EV technology is really cool and has a lot of potential to make our lives better. However, observing something is a “cool technology” is not sufficient reason to implement subsidies. Call me square if you will, but I personally believe that good policy should try to 1) achieve its stated outcomes and 2) to do so in an effective manner. Spending $100 million for what appears to be little gain seems to fall outside of this definition of “good policy”..
The second caveat is to acknowledge that EVs have benefits which extend beyond carbon emissions, and include things like air quality and noise benefits. These benefits should definitely be considered as part of a detailed benefit cost analysis. However the onus for demonstrating these benefits, I would argue, lies with the Government / MoT – not some strawberry-blonde punk blogger like myself. Specifically, the Government should really be doing detailed benefit cost analysis before announcing policies. For this reason I think it’s fair for us to evaluate Government policies in terms of their stated objectives.
Notwithstanding these moderating comments, my conclusion is that the Government’s is spending about 25 times more on EVs than they should.
Personally, I feel like this is a shame because I would love to see New Zealand take some serious steps towards reducing carbon emissions. The EV policies announced by the Government, however, do not qualify as a serious step. I’m left with the distinct impression that these EV subsidies are a superficially attractive way (“greenwash”) designed to distract New Zealanders from what is a very real problem: Our carbon footprint is too damned high.
Last week the government announced a package of options to try and boost the number of electric vehicles in New Zealand including the extremely idiotic move of allowing electric vehicles in bus lanes – something that even seems to have surprised our transport agencies. As part of the announcement they also set a target for how many electric vehicles they want to see in country.
A target of doubling the number of electric vehicles in New Zealand every year to reach approximately 64,000 by 2021
With this post I thought I’d look the numbers to see how we’re performing. The good news in this regard is that the Ministry has quite a bit of data publicly available to use. This is how the MoT classify an electric vehicle:
They can be powered in two ways:
- solely by electric batteries. These are commonly known as pure electric vehicles; or
- a combination of electric batteries and a petrol or diesel engine. These are commonly known as plug-in hybrid electric vehicles
Hybrid vehicles that use a combination of a petrol or diesel engine, a battery or an onboard electric motor are not included in this definition of electric vehicles because their batteries cannot be charged from an external electricity source.
So where are we now. The data from the Ministry shows that as of April there were just over 1,220 electric vehicles registered in the country and growth has been fairly strong on an annual basis there has often been over 100% growth compared to the same time the previous year. This has been coming off a low base though. The 1,220 electric vehicles are made up of 659 full electric vehicles and 561 Plug-in Hybrids.
If we are to meet the government’s target, growth levels will need to remain at an exponential level for five years. This is shown below with us meeting the 64k target by the end of 2021.
To put things in a little perspective, as of the March quarter there are over 3.5 million light vehicles in the country so electric’s only make up a tiny 0.03%. Even if the total fleet size didn’t growth for the five years of the 64k government target, electrics would still account for fewer than 2% of all light vehicles. In reality growth in the total fleet will mean that even if achieved, electrics will make up a tiny percent.
Next let’s take a look at the number of registrations that are actually occurring. The good news on this front is you can see there has definitely been growth and April was the biggest month yet with just under 100 vehicles registered with used full electric (Nissan Leaf’s I believe) the largest segment.
But again while the growth is heading in the right direction, they represent only a tiny fraction of all vehicle registrations with the data showing that over the last year an average of over 23k light vehicles are being registered each month. While still small the good news is that the share of electric vehicles being registered and in March reached a high of 0.3% and was then passed 0.4% in April. To be on track for the government’s target the numbers registered for each month to this December will need to surpass the April results.
Trying to predict forward just what percentage of vehicles will need to be electric in 2021 is a little difficult though because as the graph below shows, unsurprisingly the car market appears to be linked closely to economic cycles- although I haven’t bothered to look at that issue more closely. Should the total number of light vehicles sold in 2021 remain at the level it’s out now, the 32,000 electric vehicles that would need t be sold in 2021 to meet the target would account for about 11% of all registrations.
When it comes to where electric vehicles are located it’s no surprise they’re where our largest cities are. The MoT list the regions where the vehicles were registered and also by where they were last inspected which they say is the best guide for where they’re located. Auckland tops the list with over 630 (52%) EV’s.
Lastly a there is also information about what make and model these EV’s are. Of the over 1,200, 73% are one of two models. The Nissan Leaf is the most popular with 487 vehicles while the Mitsubishi Outland PHEV is second at 400 units registered.
Getting a greater range of EV’s and having them in a price range more people are prepared to pay (as much as we may want a Tesla), will be critical to improving the uptake of them.
Do you think we can meet the government’s targets?
We keep a close eye on what’s happening with public transport patronage in Auckland and to a lesser extent in Wellington. Other than the fact that these are the two biggest PT regions in New Zealand it’s also because they are the ones with relatively easy monthly data available. For other regions across New Zealand we rely on data from the NZTA and Ministry of Transport, however due to delay with the results from one of the regions, 2015’s data has only recently become available.
Across all of New Zealand there were over 144 million PT trips up to the end of June 2015, up from 137 million the year before. The results show than when it comes to PT in NZ, Auckland dominates with around 55% of all trips occurring in the region. Further, the growth in Auckland during the last financial year made up about 95% of all PT growth that occurred in NZ (6.9 million of the 7.3 million increase). Of course if Auckland was performing more like peer cities overseas it would have a much larger share of the overall pie.
But we know PT is has been growing strong in Auckland for some time, reaching over 79 million by June 2015. We also know that PT usage in Wellington has grown much slower and has been hovering around the 35-36 million trip level. But what about the other regions?
In many regions patronage is very low with less than 1 million trips per year – in fact most are less than half a million. These regions are below along with the most recent patronage result.
- Northland – 0.31 million
- Gisborne – 0.14 million
- Hawkes Bay – 0.74 million
- Taranaki – 0.59 million
- Marlborough – 0.03 million
- Nelson – 0.42 million
- West Coast – 0.02 million
- Southland – 0.25 million
Moving on to regions with more than 1 million trips, these are shown below along with how they’ve changed over time.
There are a couple of interesting things you can notice fairly immediately.
The most glaring is Christchurch which was obviously significantly impacted by the earthquakes over 5 years ago. We’ve started to see some good changes in Christchurch like the new central bus interchange, a new bus network and quite nice suburban bus interchanges, but given when they opened/were implemented we’ll really need to wait till this year’s results to see if they’ve had any impact. Hopefully they will have, but I suspect it will take a while to get back to the level it was at before the quakes, especially given the change in urban form that’s occurred.
Perhaps the next most interesting result is actually the Bay of Plenty. In 2001 there were only around 100,000 PT trips in the region but that has now risen to over 3.1 million trips, the largest percentage increase of any region over that time. One reason for this is likely to be that it appears the region has some fairly well designed bus networks providing relatively simple connective routes, such as Tauranga’s network which is below.
The last thing worth noting is the drop off in patronage in the Waikato in recent years. I’m not sure what has caused it, but if current trends continue it appears likely that in a few years’ time the Bay of Plenty could surpass its western neighbour too.
Given there are also wide differences in population between different regions it’s also useful to look at things on a per capita basis. For this I’ve also included Auckland and Wellington for comparison.
The trends are pretty similar to the graph above although interestingly Otago does better on a per capita basis which is probably due to having a comparatively lower population outside Dunedin and Queenstown compared to regions like the Waikato or Bay of Plenty. This is one of the limitations of only having data at a regional level and it would probably be good for the Ministry to collect the data at a city/urban area level if possible in the future.
In my view all cities have fairly low per capita results – even Wellington should really be higher than it is. In Auckland’s case it has improved but based on peer cities we should probably have around twice the number of PT trips, so still a lot of improvement to go.
A piece by Todd Niall at Radio NZ has highlighted just how much of the advice the Ministry of Transport has changed about the City Rail Link and disturbingly that the advice they’ve given in the past has been far from neutral.
Papers obtained by RNZ News show officials who once saw little merit for the project starting before 2030 now support it getting underway 12 years sooner.
In July 2013, when Prime Minister John Key announced for the first time that the government backed the project, but with conditions, the Ministry of Transport was advising against an early start.
“We conclude that the evidence does not support a case for construction of the CRL by the council’s desired timeframe of 2021, but that the case becomes stronger closer to 2030,” said a Minister of Transport briefing dated April 2013.
Last month Mr Key went a step further, removing the previous funding conditions, and promising a half share from 2020, in a way that would give the council certainty to start building the main tunnels in 2018.
By then, a joint Treasury and Ministry of Transport cabinet briefing, released to RNZ News, showed official advisors had got in behind.
“On balance we consider the disadvantages are outweighed by the merits of enabling the Auckland Council to provide funding certainty for the project,” they wrote.
We had been seeing the Ministry’s language slowly changing in the six-monthly progress reports that they produced with the most recent being in August last year – we normally would have had one around now however with the government’s announcement I assume we won’t see any more of them. They started off at the end of December 2013 saying Auckland would never reach the target, then it was that patronage was growing strong but would taper off and by August last year said it remained on track to reach the target. In the papers released to Radio NZ they say:
If rail patronage continues to grow at its current rate, it is likely to reach the 20 million threshold that was specified by the Prime Minister by 2018. At this rate of growth, Auckland Transport has indicated that there is likely to be capacity issues with Britomart during the morning peak period from around 2018 which may cause some access restrictions to the station.
I guess that’s the kind of change you see when there are sustained 20% per annum increases in usage.
The papers have a lot of blacked out information including risks – such as the potential for cost escalation – and ownership issues the Ministry think need to be addressed.
The article highlights that there remains a big discrepency between the ministry and AT on the business case for the project with the ministry relying on the results of the hatchet job they performed on the original business case. AT’s response suggests they’ve got a more recent assessment so I’ve asked them for a copy of it.
The most concerning aspect of Todd Niall’s piece is the suggestion that the Ministry haven’t been providing neutral advice, instead telling the government what they want to hear.
Minister of Transport Simon Bridges acknowledged that the view of the government had had an influence on what the officials were advising.
“Look I think ultimately Treasury and the Ministry of Transport respond to what the government’s position is,” he told RNZ News.
We’ve obviously been following the issue fairly closely over the years and it’s been pretty clear to us that this was the case. One of the clearest examples was with the City Centre Future Access Study where Ministry officials were involved in and supportive of the process only for that to change as it emerged that the CRL was the best option.
I’m sure this definitely won’t be the first and won’t be the last time this happens under governments from all sides and it’s hardly unsurprising that it happens. If your ultimate boss – the minister – only wants to to hear one side of the story, not providing that view point could cost you your career. It does make you wonder just what the advice would have been had there not been the political view on the project had of been more neutral.
While on the topic of the CRL, AT have released a new video about the project featuring Jerome Kaino. The messaging about the project is clearly shifting now that construction is getting under way with AT able to focus more on the fact it is happening rather than trying to justify the project.
I also noticed there were a few new images about the project on AT’s website including this one of what the platforms at the Karangahape Rd station may look like.
That goes with this one from late last year showing what the Aotea Station platforms would look like – it looks like the guy in the red checked shirt is a regular user of both.
These images how the ground floor level of Britomart will look are also new and show that the raised platform in the middle will go which will make it much easier for people accessing the station. You can also just make out that the gates are moved to this area which is something we’d that had been indicated before.
Our red checked shirt guy also likes Britomart too.
Lastly in an update a few weeks ago, AT say the contractors working on shifting services before construction starts came across some of the old tram tracks.
Working through layers of power and telecommunications services, they came across an unexpected piece of Auckland’s transport history: a section of the city’s old tramway network in Victoria St West that connected back to Customs St.
“These services are always very dense at the corners of intersections where most are located, so you can never be certain what you’ll ﬁnd underground,” says Mark Anderson, utilities engineer with the Connectus Consortium, undertaking the work.
“Even though we used ground penetrating radar and searched through the city’s service records, we didn’t expect to uncover the old tramway network.
I wonder how much of the old network they’ll discover when they start digging up streets to build the light rail network in a few year’s time.
For many years now one of the biggest areas of difference between the government and the council has been in the area of transport. Nowhere was this more apparent than with the City Rail Link where the government dismissed the project for years until it became politically untenable to continue doing. Even when government agencies and the council/AT worked together – like on the City Centre Future Access Study – the two sides couldn’t agree even on some of the basics.
While the government changed its position of support for the CRL back in 2013, the two were still worlds apart on the future of Auckland’s transport system during the Long Term Plan debate last year, most notably over the issue of how to pay for future projects.
In August last year there started to be a light at the end of the tunnel – and it wasn’t a train coming through the CRL. The council and government signed a Terms of Reference for what they called the Auckland Transport Alignment Project (ATAP) which over the course of a year would look at trying to come to an agreement on a broad 30-year plan for transport in the region.
On Friday Transport Minister Simon Bridges and Mayor Len Brown released first of three reports ATAP will produce over the course of the work – the Foundation Report. Before going into that I must say I was quite impressed with the speeches, especially that of Bridges who I thought covered some of the issues very well. He even talked about trying to take the politics out of transport as much as possible and ultimately that is what ATAP is about.
The Foundation Report is essentially all of the agencies involved agreeing on the assumptions and evidence they will use to assess how effective potential solutions will be. This is important as by having an agreed set of inputs to the process they should avoid the disputes of the past were each side ended up with widely different results. It also helps to define just where the focus on solutions needs to be.
Now that they’ve agreed on the how Auckland will change over 30 years the next step they are taking is to come up with and model a range of transport packages (combinations of
transport projects, services and policies). This will be used to try and find the ultimate package they end up recommending. Having picked the low hanging transport fruit they note that solutions from here on out get much more challenging and expensive – although I’d argue they haven’t quite finished picking all of the low hanging PT and cycling fruit just yet.
I haven’t had a chance to read all 64 pages of the report but at first glance it appears to cover many of the issues we’ve been highlighting for years which great to see.
Starting off with Auckland’s Geography they note the impacts on the city’s urban form caused by the harbours which has resulted in development stretching out considerably giving it the appearance of being lower density than it actually is. They also make this observation which succinctly covers why:
Auckland’s geography presents a number of major transport challenges and opportunities. Infrastructure and demand are focused into a small number of narrow corridors, leading to congested pinch points across the transport network. Conversely, this concentration of demand should be well suited to supporting high capacity public transport systems – although Auckland’s relatively dispersed employment creates challenges for the efficient provision of public transport.
I guess another way you could say this is, we have a geography which through its multiple pinch points is almost uniquely suited to high capacity public transport solutions but we stuffed it up by spreading employment too thinly – which of course we did in the belief it would reduce congestion.
Moving on to how Auckland has been performing recently. Over the last decade or so Auckland has had significant investment in transport which in part is starting to catch up on decades of underinvestment. Since 2003 the regions population has grown by about 300,000 yet they say travel time surveys show that AM peak congestion has actually fallen, PM peak is fairly stable while there’s a slight upward trend in interpeak congestion. They do note that this is at a regional level and some areas may have more localised congestion issues. They also say travel time variability has increased.
They also note that people at an individual level are driving less but that had been offset by population increases however even the total vehicle travel has flat-lined recently.
PT use has also improved but as we talk about that regularly I don’t think I need to cover it again.
Comparing Auckland to the key Australian cities they note that on average we have less congestion all of them with the exception of Perth. Where we do struggle is with travel time reliability and particularly in the afternoon peak. Of course with the exception of Adelaide, Auckland is smaller than all of these cities.
ATAP are using Stats NZ medium growth projection which out to 2043 sees an additional 700,000 people living in the region. They also expect another 250,000 jobs in Auckland with the sector seeing the most growth being business services. The maps below show where the growth for both metrics is expected to occur. The darker the colour the more it is expected to change. The shaded areas are the future urban areas.
One of the concerns they’ve identified is that a significant amount of the population growth is expected to be over 20km from the city centre while much of the employment growth will be closer to the centre.
Again they seem to be suggesting that road focused solutions are going to struggle.
These projected household and employment growth trends will place significant pressure on the transport network through longer trip lengths, especially to major centres. The low level of growth in local employment is also likely to make improvements in employment access by car more challenging, as trips lengthen and become relatively more focused towards major centres with constrained access. Furthermore, the high value of land in major centres presents a key challenge of providing significant people-moving capacity without using extensive amounts of space.
Despite this they’ve tried to predict the future vehicle travel demand which they think will increase substantially over the next 30 years. They say the demand growth is largely in line with population growth so effectively represents a flat-lining of per capita car travel.
ATAP is also considering the impact of technology changes. They make no predictions about what will happen but do say that the next stages of the project will look at them in more detail and the impact they would have on the options they assess.
To assess how well the transport packages work they’ve created five high level objectives and under each is one or more measures and KPIs. The objectives are:
- Improve access to employment and labour
- Improve congestion results
- Increase public transport mode share
- Increased financial costs deliver net user benefits
- Ensure value for money
In addition to the objectives they’ll also be assessing the packages against some other outcomes. Again there are one or more measures and KPI’s under these outcomes.
- Support access to housing
- Minimise harm
- Maintain existing assets
- Social inclusion and equity
- Network resilience
Understanding the Problem
To get a base case, ATAP have assessed how the plan used in the Long Term Plan performed. As you may recall this was a build everything plan and had the following major projects completed in over the three decades
So here’s how it performed.
Over the 30 years the proportion of jobs able to be accessed by a car within 30 minutes declines while the number of jobs accessibly by PT in 45 minutes increases but the rate of that increase reduces after 2026. The report doesn’t say why they assess cars and PT using different travel times.
This is shown more visually in the maps below.
Out to 2026, despite the investment in the Western Ring Route jobs accessibly by car decline most significantly in West Auckland while PT improvements are mostly in Central Auckland and the North Shore.
At the end of the 30-year period it’s the North Shore that benefits most with the most improvements in both car and PT results. The Northwest Busway obviously has quite an impact too.
In all scenarios West Auckland (as opposed to the North West) and South Auckland don’t fare all that well compared to other parts of Auckland. They note that this is something they’ll need to address through the ATAP process.
Overall congestion is expected to get worse for cars with the biggest impact being off peak. For PT though the increase in the Rapid Transit network or use of bus lanes means that PT trips suffering from road congestion will improve.
PT modeshare is expected to increase from 7% to 15% over the 30 years. Combined with walking and cycling driving modeshare is expected to continue to decline. Taking out active modes and PT modeshare rises from 13% to 29% across the region but will obviously be much higher in some areas like the city centre.
Maps showing PT modeshare changes are similar to the ones above showing the most change happening on the isthmus, North Shore and Northwest with little change in the west and south. They note that rail service levels used in the models for the West and South are not likely to be good enough. They note:
Overall, the APTN analysis highlights that public transport mode share growth needs to make a greater contribution to reducing congestion, particularly for long trips where people using private vehicles are utilising highly congested motorway corridors
Overall it’s an interesting report and given the constraints on the road network – i.e. there isn’t any space for new or much wider ones – suggests they’ll need to significantly improve what is planned for PT if they want to get better transport outcomes for Auckland. Getting more people on PT will be the best thing for those that need to drive.
This previous post considered wider socio-economic factors which might shape the development/deployment of transport technologies, namely 1) denser cities, 2) policy settings, and 3) demographics. In this post I now discuss some more specific issues that are relevant to transport technologies, specifically:
- Economies of density
- Costs: Fixed versus variable
- Complements versus substitutes
- Conclusions: The Spruce Moose?
The takeaway message from this post is that the future is complex and uncertain. D’uh … read on for enlightenment!
1. Economies of density
The Prime Minister’s recent speech, in which he announced funding for the City Rail Link and the East-West Link, is an example of how policy settings can respond to wider socio-economic factors, such as population growth. Auckland’s rapid growth means that public investment in underground passenger rail stacks up more now than it perhaps has done in the past. As a result changed, Auckland’s transport network is set to change in a rather profound way.
Why has Auckland’s growth helped make the case for the CRL? Well, passenger rail has relatively high fixed costs. This in turn means that passenger rail experiences so-called economies of scale (or more accurately density). The phrase “economies of density” is used to describe situations where marginal costs are below average costs. This means that average costs fall as demand increases. Fixed costs like rolling stock and train stations all contribute economies of density in passenger rail.
Last week saw another example of “economies of density” in the context of New Zealand’s transport system, although this time the investment originates with the private sector. Emirates announced that – from this March – they will begin direct flights between Auckland and Dubai (NB: Apparently Qatar Airways is considering similar moves). Direct flights to Dubai will shave approximately 3 hours off travel-times between New Zealand and a number of destinations in the Middle East and Africa.
Economies of density lead to virtuous/vicious cycles: Higher demand begets lower costs, which begets higher demand etc (and vice versa). That’s why they are sometimes called “positive feedback loops”. Domestic air travel in New Zealand provides a nice example of virtuous cycles at work. Here, a combination of falling fuel costs, higher visitor numbers, larger and more efficient planes, and competition has seen airfares fall (NB: I’m waiting on updated inflation data before making a more definitive statement). Many transport technologies, especially those where passengers share vehicles and/or facilities, tend to experience economies of density.
Private vehicles also experience economies of density to some degree. High levels of car ownership, for example, makes it easier to find a petrol station when you need one. The key difference between private vehicles and other transport technologies, however, is the degree to which road networks experience congestion. Beyond critical levels of demand, traffic congestion increases rapidly, i.e. congestion is a convex (upwards sloping) function. Congestion externalities are an example of dis-economies of density, and it’s one that is apparent in most cities of Auckland’s size and larger.
Congestion externalities are also an issue that things like driverless and/or electric vehicles do not resolve. Road pricing does solve congestion, although this is achieved by suppressing demand. So when people argue that electric and/or driverless cars will reduce demand for PT I’m somewhat sceptical, because these technologies don’t seem to change the fundamental dis-economies of scale that afflict urban road networks.
And when one thinks of the growth that Auckland will experience over the next 20 years, then economies of density are actually rather important. Perhaps more important than new technologies themselves …
2. Costs: Fixed versus variable costs
Our previous discussion noted that economies of density/scale arise in the presence of fixed costs. In this section I want to distinguish more carefully between fixed and variable costs. One useful way to think about transport costs is using a matrix which has “fixed/variable” versus “private/public” dimensions (NB: The latter is not relevant to this discussion, but can be for discussions of transport pricing more generally).
Of course, such distinctions involve some arbitrary judgements. Parking for example, is both a private and a public cost. I’ve categorised it as “public” simply because a proportion of parking costs are subsidised by society. Despite the need for such judgements, I think this type of cost matrix is quite useful for classifying costs and subsequently analysing how changes in transport technologies (or policy settings for that matter) might impact on demand.
Using this framework (and a bunch of heroic assumptions) I have constructed the following graph to illustrate how the costs of cars compares to taxis and public transport, and how costs vary with distance measured in kilometres travelled per annum. PT fares are capped at the price of 12 monthly passes at $220 per month).
Here we see that cars become cheaper than taxis for people who are travelling more than 2,500 kilometres per year. Of course, the orange line is just one possible instance of the cost curve for cars. Depending on their preferences and circumstances, some people may opt to buy a cheaper car with higher operating costs, which would reduce the intercept but bump up the slope of the orange line. Nevertheless, the general point remains: For people who travel a lot, owning your own car makes more sense than using taxis.
Now consider a future scenario where electric driverless vehicles (“robot cars” for short) are available. How might they impact on these cost curves? Well, let’s assume robot cars cost 50% more than conventional cars; are 50% cheaper to park; and cost 25% less per kilometre to operate/maintain than conventional cars. When robot cars are used for taxis, they remove the need for a driver and increase higher utilisation. For the sake of the argument, let’s assume that the cost of using taxis drops by 50% with the advent of robot cars.
Under these assumptions, the cost curves presented above can be re-calculated as follows.
In this scenario taxis suddenly become cheaper than private cars for people who travel less than 10,000 kilometres per annum. By way of comparison, that’s slightly more than the average New Zealander travels per year. By pushing up fixed costs but reducing variable costs, robot cars seem to dramatically increase the scope for cheap taxi services to meet the demand for car travel for a wider range of households.
So consider this “what if” scenario: What if the primary impact of robot cars was to reduce the cost of taxis? In such a scenario would we need more or less PT? This leads me nicely onto the next topic …
3. Complements versus substitutes: A or B versus A & B?
When a new transport technology hits the market, one of the key questions we should seek to answer is whether it will complement or substitute existing technologies. The answer is not always obvious, but it is always important.
To provide an example, consider whether taxis increase or decrease demand for public transport. Many people think taxi’s compete with public transport, i.e. the two are substitutes. Rodney Hide, for example, had this to say on the matter (source; emphasis added):
[Uber is] … a whole new way of doing business. It disempowers bureaucrats and puts customers and drivers in charge. I love it. The public transport of the future won’t be clapped-out trains but driverless cars and Uber. It may happen much quicker than we now can possibly imagine. We won’t own a car. A driverless car is always just a minute away, ready to whisk us to our destination.
According to U.S. researchers, however, taxis are complements for public transport. This article provides a nice synopsis of relevant issues, while more detailed analysis is available here. The last report identifies “primary factors” for taxi demands, including 1) the number of workers commuting by subway and 2) the number of households that don’t own vehicles. Of course, places like New York have some attributes which are – for better or worse – not relevant to the New Zealand context …
Given that Auckland doesn’t have the density or subway system which exists in NYC, could Rodney be correct with his crystal ball-gazing? The answer, I think, is both “yes and no”. More specifically, taxis will compete with public transport in some places, while complementing it in others.
I think this article puts the distinction rather nicely when it says:
It is likely that these [taxi] services will just exacerbate the differences that already exist in the quality of public transit in different areas. The localities that invested and ran their systems well won’t be as impacted. In the areas where frustration is higher, the problems will surely become worse when revenues and ridership decline. And the biases and history that impact why certain systems are the way they are will become more apparent.
The complements versus substitutes issue is relevant to many debates about new transport technologies. Some people seem convinced not only that driverless cars are imminent, but that they will drag people away from PT. I’m personally not so sure.
Conclusions: “The Spruce Moose”?
One of my favourite Simpsons episodes starts with Mr Burns opening a casino. At the end of the episode, when the whole sordid venture is crashing down, an increasingly erratic Mr Burns pulls a gun on his ol’ mate Smithers and orders him to get into the model bi-plane affectionately known as the “Spruce Moose”.
While hilarious, the behaviour of Mr Burns is not something we should emulate when it comes to transport policy. History is littered with unfortunate examples of politicians picking winners well in advance of demand. Indeed, such attitudes gave us 50 years of motorway building in Auckland, replete with well-documented examples of optimism bias and strategic misrepresentation. My point? Let’s not hold a proverbial gun to our own heads and over-commit to any particular kind of transport technology. Instead, let’s embrace the transport technologies we have, and be passionate about using them more efficiently, while keeping tabs on new transport technologies as they evolve.
There is no doubt that we live in exciting times: New Zealand is growing and seems to be experiencing economies of density, at least in the transport sector. Costs of air travel are falling, while other technologies, such as passenger rail, are more viable than they have perhaps been in the past. Robot cars and trucks seem likely to emerge onto the scene at some point, helping our car fleet to become smaller, quieter, cleaner, and generally more efficient than it is currently.
Meanwhile, rapid developments in telecommunications (which I intend to discuss in a later post) are changing the way that goods and services are delivered. This change is occurring at astounding speeds and in amazing ways. In a few years Uber has grown to become one of the world’s most valuable transport companies. In Europe, a start-up called “Blah blah car” has raised hundreds of millions in venture capital to expand its business, one which is already moving millions of people around the continent at very affordable prices. I can book any one of 5 trips from Amsterdam to Brussels tomorrow for about 10 Euro.
In such a dynamic and rapidly changing environment it’s hard to know what to do. And that’s kind of the point: There’s a risk that we over-adjust to new technologies, just like the motorway builders did in Auckland 50 years ago. What I would do, however, is ask some hard questions “around the edges” of what we are currently doing. And perhaps consider delaying some projects slightly in light of the uncertainty.
Indeed, when it comes to the CRL, my main criticism of the National Government’s requirements for accelerating funding was that similar conditions were not also attached to other large transport projects. Appropriately specified triggers would seem to be useful adjunct to existing benefit-cost analysis and provide a more precise understanding of when work on a particular project should go ahead (NB: Of course there are other factors to consider, such as interest rates).
In an upcoming post I will talk more about emerging technologies for non-car transport modes; that stuff is so exciting it deserves its own post.
This is the second and final post discussing some broad ideas for building a better city. The first post discussed the dynamic nature of cities and argued that a focus on appropriate pricing and incentive mechanisms was important to managing urban ills without stifling beneficial change. This part discusses how we might identify policy areas in need of improvement, and why we should care about efficient policy.
2. Cost benefit analysis is important for identifying opportunities to improve policies
Over the last 170 years, New Zealand cities have been shaped by a wide range of policies, ranging from planning regulations to public investments to government land-holdings to tax and subsidy policies. Many of those policies serve (or served) a useful purpose, and most are good intentioned. But it’s almost inconceivable that all of them are efficient. Cities are dynamic places, and policies put in place in past decades can easily become outmoded and begin to distort prices and limit people’s choices.
Fortunately, as I have tried to suggest in the previous post, we’ve got more policy alternatives than we think. We don’t have to use yesteryear’s solutions to solve next year’s problems. But how do we know what we might have to change?
In my view, cost benefit analysis, or CBA, has an important role to play in identifying which policies are good and which need to change. If you want to learn more about CBA, you can delve into the technical guidelines published by organisations like the Treasury and the NZ Transport Agency. But CBA is not really as complicated as the tedious official guidance makes it sounds. It boils down to a rather simple question:
“This policy has some benefits and some costs. Do we expect the benefits to exceed the costs?”
If the answer is no, perhaps we should do something different instead.
Cost benefit analysis can be applied to a wide range of policy questions. It’s commonly applied to evaluate public investment options – that’s what NZTA uses it for – and less widely used elsewhere. But the principles can readily be extended to a wide range of urban policies. In a paper I wrote for this year’s NZAE conference, I looked at a couple of approaches to evaluating the costs and benefits of planning regulations. I found that analysis of property sales could be used to identify cases where planning rules distorted prices and prevented people from making useful investments – as well as cases where planning rules could provide benefits by managing localised externalities.
Here are a few good examples of how CBA can help in making better decisions.
Back in 2009, the new National-led Government worked with the Green Party to design and implement an insulation and clean heating subsidy programme. In the first four years of the programme, roughly 180,000 homes were insulated and heat pumps were installed in around 60,000 homes. A cost benefit analysis undertaken in 2011 (Grimes et al, 2011) found that the project’s benefits exceeded the costs by a factor of five:
The overall results suggest that the programme as a whole has had sizeable net benefits, with our central estimate of programme benefits being almost five times resource costs attributable to the programme. The central estimate of gross benefits for the programme is $1.28 billion compared with resource costs of $0.33 billion, a net benefit of $0.95 billion.
This finding provided a strong rationale to extend the programme to 2016 and trial a rental warrant of fitness programme to improve home weathertightness and safety performance in selected NZ cities.
A second good example is the Ministry of Transport’s recent analysis of the economic performance of state highway investment. I reviewed their analysis in a series of posts last year (parts 1, 2, 3, 4). Among other things, they found that the economic efficiency of road spending had fallen since 2008, with projects with low benefit-cost ratios being selected over projects with higher BCRs.
This is a valuable finding that should be taken seriously by policymakers and the public. It suggests that there may be opportunities to significantly improve the value that we are getting out of transport investment. That being said, it also suggests that policymakers have chosen to take a more optimistic view about project benefits than indicated by conventional CBA procedures. Sometimes this is warranted – it’s difficult to accurately account for some benefits – and sometimes it’s not.
This reminds me of a third example. I was struck by recent comments by Wellington’s Deputy Mayor about the city’s new publicly funded convention centre and film museum:
Deputy Mayor Justin Lester said the museum would become New Zealand’s most significant man-made attraction and an international draw card.
“It’s a little bit when Disneyland first opened in California, but in a Wellington context… In the 150th year since Wellington became New Zealand’s capital, there are only a handful of moments that rival the significance of this announcement.”
I haven’t read the business case, so I don’t know what assumptions were made to sell the project. But if the financial and economic forecasts require Wellington to become the “Disneyland of the south”, I would be very nervous.
This leads on to a very important consideration when using CBA results: To get the real story, it’s important to dive into the data and calculations that sit behind the headline figures. In some cases, people make claims about projects that are not backed up by their analysis. For example, they may require unlikely things to happen in order for the hypothesised benefits to materialise. In these cases, a properly-done CBA should also provide you with a means of understanding the risks inherent with the policy.
3. In an efficient city, there is time and space left over to lead a good life
But why is efficiency important? At the start of this post, I argued that good urban policies facilitate agglomeration economies in both production and consumption. This, in turn, enables cities to succeed in attracting new businesses and new residents. (The alternative of urban stagnation or economic decline is not really very appealing.)
Or, as Stu argued in a post last year, efficient urban policies provide us with an abundance of good things. Efficient urban planning policies allow us to have abundant, affordably priced housing, without sacrificing public goods. Efficient transport policies enable us to have abundant access. Good management of public assets allows us to combine a productive economy with a good supply of public goods.
Furthermore, generally prioritising efficiency in our urban policies means that we will have more resources left over for all the non-economic things that make life beautiful and enjoyable. For example, allowing people to use land efficiently by building more housing in areas that are accessible to jobs and amenities will also allow them to avoid commuting long distances to sprawlsville. This in turn frees up time to spend with the ultimate in non-economic investments – children and families.
Last December, I saw how things could be a little different. It was the first day that LightPath / Te Ara I Whiti cycleway was open. (Incidentally, I think it should be called PinkPath.) I skipped the mass ride organized by Bike Auckland in favour of a drink elsewhere, but checked out the new cycleway on the bike ride home.
Now, I wasn’t extraordinarily enthusiastic about the project. It seemed to be too far over to the west edge of town and so I wasn’t sure how many people would want to use it. But it has surprised me. I’ve been up and down it eight or ten times since then, and there are always people out on it, even at 10pm. They are having fun cycling – a relatively new concept for Auckland.
PinkPath was designed to be fun to cycle on and fun to see from a distance. It sends a message: “Auckland will give you new choices about how to travel. Rock up on your bike.” It didn’t cost much – less than 1% of Auckland’s annual transport budget and a disused motorway off-ramp. But that money and space can easily be consumed by inefficiency elsewhere in the system.
Which leads me to my conclusion: the good things in life are not necessarily expensive, but they can easily be crowded out by bad urban policies. So get the prices right, do some CBA, and live a better life in a better city.
As the new year kicks off, it seems like an appropriate time to reflect on some wider trends – as Patrick recently did in this excellent wrap-up of the year just gone. Looking forward, one of the most exciting trends relates to how technology will impact on how we travel. This post marks the first in what I hope to be a long-running series on transport technologies. In this initial post I want to focus on wider factors that might shape changes in transport technologies.
Some people may find this strange. After all isn’t technological change a random gift from the gods, i.e. something which emerges from the ether without any particular rhyme or reason? Au contraire. Technological change doesn’t occur in a vacuum; it arises from entrepreneurial people and businesses anticipating people’s wants and needs. And just because a particular technology is developed doesn’t mean it will find a market and become widely adopted.
For this reason, before we try and portend too much about future transport technologies themselves, I think it is useful to step back and think about the process through which technological change occurs, and in particular the factors that capture the attention of entrepreneurs and/or shape the market for new technologies in other ways. The following sub-sections identify three factors, namely 1) Land use; 2) Public policies; and 3) Demographics, which I expect to direct the arrow of technology change in coming decades.
You may be able to think of others, and I’d be interested to hear what they are.
1. Land use: Denser cities favour space-efficient transport modes
Why begin a conversation about transport technologies by talking about land use? Put simply, the demand for transport (especially when measured in terms of passenger-kilometres travelled) is strongly dependent on the choices people make about where to live in relation to where they want to be. Land use also impacts on the relative effectiveness of different transport modes. For example, when average trip distances are short, then walking and cycling become more viable and vice versa. Hence, trends in land use are likely to have a bearing on the scale and composition of future travel demands.
What is happening to land use in New Zealand? Two over-arching trends emerge from the data: 1) urbanisation, i.e. more people are living in cities and towns and 2) densification, i.e. the dense areas of our cities are growing the most rapidly. The first trend is well-established and has persisted for the best part of a century, so I won’t cover it here. The second trend, however, is not well-understood in some quarters. David Seymour, for example, was recently quoted by The Herald as follows (source):
I don’t believe in 50 years time when we’re a society with vastly more sophisticated transport that people will be as attracted to living so intensely,” he said. “As transport technology improves, as it has for the last 200 years, people will say that’s great and travel farther and faster and we’re going to consume more space,” he said.
Seymour’s forecast runs contrary to observed land use trends over the last two decades or so. The table below is extracted from a paper written by my colleague Peter Nunns, which summarises densities for New Zealand cities in the period 2001 – 2013. We find that most cities that are growing have also experienced increases in density in this period, with Auckland leading the pack with a 33% increase in density.
I should point out that this table uses “population-weighted densities”, which measures the density at which the average resident lives. Population-weighted densities are a more accurate indicator of urban density than the more-commonly cited “average density”, for reasons Peter discusses here.
The following two graphs provide strong evidence of how density is changing in Auckland. The first figure shows population growth in Waitemata compared to other parts of Auckland. The second figure then shows population growth in Auckland’s city centre from 1996 to 2015, in which time the population of the city centre grew at an average rate of ~12% p.a.. This is approximately six times higher than the Auckland average, which in turn is higher than the New Zealand average.
It’s reasonable to suggest that where density increases, then we can also expect the value of land to increase – holding other factors constant. Research by Arthur Grimes into land values in Auckland suggests that the “pull” of Auckland’s city centre has indeed increased in the last two years (source).
And where space becomes more valuable, then one might reasonably expect space efficient transport modes to become relatively more attractive. A paper aptly titled “The Future of Motorized Transport” had this to say about the relative space efficiency of different transport modes (source).
This analysis suggests that, on average, cars require ten times more space than the next least space-efficient transport mode (buses). In my opinion, this seems to indicate that where density increases, and space becomes more valuable, then cars will be placed at an significant disadvantage compared to other transport modes.
Is my hypothesis borne out by data on people’s transport choices? While we can never be sure, I would cautiously answer “yes”. The following figure, for example, shows how the total number people accessing the city centre using cars or public transport has changed in the period from 2001 and 2014.
Basically, all of the growth in travel demands to Auckland’s city centre over the last 15 years (plus some) has been met by public transport. Moreover, the following figure shows total public transport patronage in Auckland since 1920. While much hooplah has been made of recent patronage growth, this figure shows how PT patronage in Auckland has actually been growing at a decent pace since the early 1990s, which is around the same time that the population of central areas started to grow. Coincidence? I suspect not.
Is Auckland unique in terms of its land use trends? After all, what matters most to technological development is not what’s happening in Auckland but the general trends that are happening globally. It’s hard to say conclusively, and I don’t have time to do a detailed survey in this blog post (please let me know if you know of one). However data does suggest that Auckland is not *alone* in terms of the land use trends that it’s seen over the last two decades or so. For example, here’s what a recent publication had to say about trends in the value of land in Amsterdam (source): “The price of land in the Amsterdam city centre is 200 times as high as that in the countryside … this price difference more than doubled between 1985 and 2007.”
Now at this point you might not be convinced by my dot-joining between density, land values, and transport outcomes, and for quite understandable reasons: Not all of the transport outcomes illustrated in the preceding figures will be caused by trends in land use. You might argue that changes in travel demands are likely to reflect a myriad of other factors, such as policy changes and demographic trends. And I think you’d be correct, which brings me to my next two points …
2. Public policy: Slowly recognizing the need for change?
The preceding section argued that trends in land use in Auckland have increasingly favoured space-efficient transport technologies. This raises the question of whether policy-makers have been responding to these trends? The answer, I think, is “yes, albeit rather slowly”. The key point I want to make in this section is that future trends in travel demands will be impacted by shifts in public policies which are already underway. Hence, it is useful to understand these shifts because they are relevant to the question of which technological developments are adopted by people with the most vigour.
Parking is perhaps the most notable example of policy change in the Auckland context. So-called minimum parking requirements, or “MPRs”, were removed from Auckland city centre in the 1990s. For those of you who haven’t heard of MPRs, they are regulations imposed by Councils which require new developments to provide a certain “minimum” amount of parking. The amount is based on predictions about the peak demand for parking at each individual development.
Of course, if you provide a lot of free parking then you are providing a large subsidy to people who drive, and at the same time reducing the density of development. In this recent post, Peter discussed the removal of MPRs in terms of the proposed Commercial Bay development at the foot of Queen Street. He comments as follows:
… if those MPRs still applied to the city centre, Commercial Bay would have required over 2,000 carparks. That’s seven times as much parking as the developers actually want to build … According to Precinct, Commercial Bay will cost $681 million to build. If MPRs required the development to include another 1,750 carparks, at a cost of $30-50,000 apiece, it would add $50-90 million to the cost of the project. That suggests that MPRs would impose a “regulatory tax” of 7-13% on downtown development.
In a nutshell, removing MPRs can be expected to both 1) increase the costs of owning and operating cars and 2) enable more intensive development. For this reason, the Unitary Plan proposes to remove MPRs from areas where they are considered likely to do the most damage, as illustrated by the red areas in the figure below (source).
* This map is slightly out of date due to recent changes.
I note that Auckland is not alone in rolling back MPRs: Many cities in New Zealand and overseas are moving in a similar direction. Basically, it seems likely that the size of the red blobs in the figure above will grow over time. In this context, it seems reasonable to suggest that parking policies will increasingly shift in a direction that is, by historical measures, not as favourable to individual car ownership and use.
What other policy shifts might change the way we travel in the future?
The recent “Paris Outcome” on climate change and carbon emissions is an obvious one. Given its multi-lateral nature, the Paris Outcome seems like a policy that might impact on global trends in transport technologies. Personally I think the transport technology game-changed in Paris; our transition to a low carbon economy needs to start immediately and be complete by the middle of the century if we are to avoid catastrophic climate change.
Congestion charging is another potential policy shift. It involves charging differential prices by time and location so as to keep vehicle demands within the available road capacity. Over time, congestion pricing is becoming more attractive as the benefits of adopting such a scheme increases (due to Auckland’s growing population), while the costs of doing so decreases (due to improvements in technology). Congestion charging is supported by the likes of this Blog, the Auckland Council, NZCID, and the Productivity Commission.
The general point I want to make, however, is that public policies are changing in response to wider transport and energy issues. Unfortunately I think it’s all-too-common to focus on how policy should respond to technology, without thinking also about how technology might respond to major policy settings. Widespread adoption of policies associated with parking reform, the Paris Outcome, and congestion charging will change the way we use existing transport technologies in the near future, while also changing the incentives associated with new technologies. There is a mutual dependence between policy and technology that operates in both directions.
The final factor I want to discuss is the question of demographics, i.e. what the hell is New Zealand’s population going to look like in 30 years?
3. Demographic trends: Which horoscope do you prefer?
Demographic trends are increasingly difficult to predict, hence I prefer to talk in terms of “scenarios”, rather than defined outcomes. The two key demographic attributes are size and age.
To highlight how uncertain these projections are, just consider that barely 5 years ago New Zealand was effectively staring down the barrel of a major demographic problem: We’d done so well at exporting young people to more exciting cities overseas that our population growth was slowing and our demographic profile was becoming increasingly imbalanced. This was all occurring at the same time as the first of the baby-boomer generation were entering into their retirement, with all of the associated fiscal costs this implied. Back in 2011, Natalie Jackson from the University of Waikato’s (excellent) NIDEA research group had this to say on the issue of demographics (source):
As elsewhere, New Zealand’s population is ageing. As elsewhere, this ageing has two main drivers: increasing longevity, and declining birth rates, both outcomes of the Demographic Transition. In New Zealand’s case, however, the population is also ageing ‘prematurely’ from another cause, the legacy of net migration loss at young adult ages (typically 20-24 years) which New Zealand experiences in most years, and at 15-19 and 25-29 years in many other years as well. The loss, compounded by the falling birth rates at the time each cohort was born, has created a deep bite in today’s age structure across ages 25-39 years. This bite is not only driving up the median age faster than would otherwise be the case, given that New Zealand has the highest birth rate in the developed world, but has enormous implications for the country as it faces the retirement of its baby boomer generation.
Around the same time, economists working at the NZIER published a separate working paper titled “The Flight of the Kiwi”. This made the following comments on net migration between New Zealand and Australia, which was accompanied by the figure below (source):
If economic growth for the 2010-2025 period in New Zealand and Australia were to be at the rates currently projected by the OECD, then we should expect a net 412,000 people to emigrate between now and 2025. This is the equivalent of the whole population of Wellington, including the Hutt Valley and the Kapiti Coast, moving to Australia.
Fortunately, subsequent events have ensured these demographic predictions have not materialised. I can’t shake the feeling, however, that this owes more to Australia’s relative misfortune (due to the collapse in global commodity prices) than it does to New Zealand’s good management. And despite New Zealand’s economic performance relative to Australia’s being about as good as it gets, we still only achieve a net migration gain between the two countries of a couple of hundred people p.a. This suggests that if/when Australia gets on top of its economic/fiscal challenges, then the net outflor might return to the sorts of levels predicted by the NZIER.
Personally, I think volatility in population and demographic statistics is something we need to get used to. In gneeral, New Zealanders seem to be a relatively mobile, skilled group of people who are benefiting from the opportunities afforded by an increasingly globalised world. As such, movements of people appear to be increasingly sensitive to relative socio-economic performance. When New Zealand is not performing well, then tends of thousands of us are likely to take our leave and head offshore (mostly to Australia), and vice versa. This is good for them and generally good for the receiving country. I doubt that it’s good for New Zealand, given the aforementioned demographic issues we face.
This has led me to consider two rather divergent population/demographic scenarios for New Zealand:
- “The home-coming queen” – New Zealand’s socio-economic performance exceeds that of the countries with which we compete for people, such that fewer people depart while more New Zealanders currently living overseas decide to return home. As a result, New Zealand experiences strong population growth of 2-3% p.a., which helps to grow the workforce and mitigate the demographic imbalance introduced by the baby-boomers; or
- “The gerontocalypse” – New Zealand’s socio-economic performance lags behind that of the countries with which we compete for people, most notably Australia. Young and/or mobile New Zealanders depart en masse, and population growth to fall to approximately 1% – almost all of which occurs in Auckland. The growth in the workforce is unable to offset increasing costs of health and super, but necessary policy reforms are opposed by baby-boomers. As a result, tax rates rise, further exacerbating the exodus.
The transport implications of these two scenarios are obviously rather different. The “home-coming queen” scenario might require increased transport investment, especially in the upper North Island where most of the population growth is likely to occur. It might also require different types of transport technologies, such as driverless metro systems and/or and inter-city passenger rail between Auckland and surrounding urban centres, namely Hamilton, Tauranga, and possibly even Whangarei. It might a new tunnel under the Kaimai ranges, or Auckland and Tauranga ports to merge into one “super-port” located midway between the two cities. I don’t know.
In contrast, the “gerontocalypse” scenario would be associated with lower economic growth, and lower socio-economic well-being generally. In terms of transport, we’d expect transport budgets to come under pressure. Some roads may need to be closed or sold off, and/or road user charges might need to rise simply to fund maintenance of the existing network let alone new investments.
I don’t know which scenario is more likely, but I know it’s important to discussions of transport technology. There’s a big difference between what technologies might work for a country of 5 million versus a country of 10 million, where most of the growth is located in and around Auckland, Hamilton, and Tauranga.
Without having answers to such question, it’s hard to frame discussions of which transport technologies might need to be adopted in the future. Dare I say it, perhaps this raises the need for some strategic thinking at the national level about demographic/population changes? It seems like National is betting on our ability to attract young people as a means for mitigating the rising costs of health and super associated with an ageing population. If so then that’s fine – but it would be useful to know this such that it can inform discussions of transport technologies, and the appropriate policy responses.
Discussions of future transport technologies often occur within a “transport silo”, where the interaction with wider socio-economic factors is downplayed. In reality, the development and adoption of transport technologies does not happen in a vacuum but is instead shaped by prevailing socio-economic factors. Current trends in land use and public policy, for example, indicate that transport technologies which are space and energy efficient are likely to have a comparative advantage in the future. Demographic outcomes are something of a wild-card. Whether New Zealand is able to address its demographic imbalances, and more specifically maintain socio-economic performance at levels comparable to the countries with which we compete for skilled migrants, may have a large bearing on the transport technologies needed over the coming decades.
In Matt’s recent post about MoT’s work on the future of transport, there was an interesting little side-discussion about transport models, and in particular the travel demand forecasts which emerge therefrom.
We’ve previously written about the accuracy of transport models when used for project evaluation purposes. Perhaps the most notable (notorious?) was this post on the Waitemata Harbour Crossing, where we discussed how NZTA’s business case used traffic volumes that were approximately 10% higher than actual volumes. Naturally this led to the benefits of the project being overstated.
More recently, this post on the SH20 Manukau Harbour Crossing found it was carrying approximately 45% less traffic than projected 10 years after it was complete.
Transport models are important not just for the purposes of project appraisal. The outputs of transport models are also used to forecast aggregate travel demands and determine policy at a much higher level. For example, the MoT and the NZTA use (different) transport models to forecast aggregate vehicle kilometres travelled, which in turn determine the funding that is available in the NLTF to fund the projects identified in the NLTP. Hence, our ability to plan ahead is influenced by transport models.
In this context, graphs such as the one below are something of a cause for concern.
But let’s not be to critical of the MoT and NZTA; they are not alone insofar as their transport models have consistently over-estimated demand. Graphs surprisingly similar to that above exist in the US and the UK; one such example is shown below.
In some earlier posts here and here, we’ve presented some possible reasons for what might be causing the transport models that are used for forecasting travel demands (both at the level of individual projects and in aggregate) to get it wrong. The systematic positive bias in forecasting errors has been the subject of formal academic research led by the Danish economist Bent Flyvberg. I presented a paper at last year’s IPENZ Transportation Conference in which I discussed some of these issues in more detail, while Peter wrote an excellent post on the topic here. His analysis of NZTA data suggests that New Zealand may not be immune to the same systematic biases found overseas.
This post, however, is not about the systematic positive bias into transport models. Instead, this post is about whether the mechanics of the models are capturing what they need to capture in order to formulate accurate predictions. I think this is a useful starting point for thinking about “transport futures”, as the MoT seem keen to do.
I also think it’s fair to say that the superficial explanation for the slowdown in the growth of aggregate vehicle travel is that per capita vehicle travel has been on the decline. That is, people (both in New Zealand and overseas) aren’t driving as they used to. But this doesn’t get us very insofar as predicting the future, i.e. observing that per capita demands are declining simply begs the question of why?
And this is exactly where things start to get interesting. In my time thinking about these issues the views that are expressed tend to be readily grouped into one of three broad categories, which I now present for you to consider.
First we have what I call the “establishment view“, which is led by the likes of the MoT, the Government more generally, and a number of consultants. This view argues that the decline in per capita vehicle travel primarily reflects higher fuel prices and reduced economic activity over the last 5-10 years. There’s obviously some logic to this view; it seems reasonable to suggest that both the cost of fuel and the state of the economy will impact on travel demands, at least in the short term (say 1-5 years). Where the establishment view struggles, however, is to explain why the slowdown in vehicle travel started so early (way back in 2005), and why volumes haven’t bounced back more strongly of late. The latter is particularly interesting given NZ’s robust levels of economic growth, strong population growth, and sustained low fuel prices.
While VKT is currently growing again, it doesn’t seem to be growing by as much as one might expect based on these factors.
Which leads me to the second view, which I call the “wider socio-economic view“. This is probably the position which best describes my own views, at least in terms of understanding travel demands in the medium term (say 5-10 years). This view looks beyond the hard economic factors considered by the establishment view and instead consider some wider factors that seem likely to impact on the demand for vehicle travel. People who subscribe to this view will often talk about the following issues:
- Demographic factors, such as an ageing population and changes in the number of people with drivers licences;
- Transport and land use factors, such as availability of public transport and the ongoing intensification of our cities; and
- Vehicle substitutes, such as air travel and telecommunications.
The wider socio-economic view complements the “establishment view” in some senses, because it appeals to similar micro-economic mechanisms, but it does so in a way that allows for a wider range of factors to impact on the demand for vehicle travel. In doing so, however, the socio-economic view can lead to predictions that are quite different to those of the establishment view. Instead, the socio-economic view allows quite a lot of room for future growth in aggregate vehicle travel to differ from what we’ve seen in the past – which is something the establishment view struggles to incorporate.
Finally, we have what I call the “changing preferences” view. This perspective interprets the declining per capita demand for vehicle travel as a function of wider shifts in people’s underlying preferences. This view emphasises, for example, that young people are now placing a higher value on other forms of consumption, such as the connectivity offered by smart phones, than the personal mobility associated with owning and operating a vehicle – at least compared to their parents. The changing preferences view would seem to suggest the trends we’ve seen in the last 5-10 years are just the tip of the ice-berg, and that profound changes are just around the corner. Often people highlight that it’s not just technology which is driving these changes, but also awareness of the health and environmental effects of driving. Evidence for this view were recently summarised in this NZTA research report, which we previously discussed in this blog post.
The following figure is taken from this report.
Which view to believe? Well, personally I think all three have elements of truth to them. I think the establishment view is correct insofar as certain price and economic factors are likely to dominate changes in travel demands in the short term.
In the medium to long run, however, the other two views presented above seem to have more currency. I mean, if fewer people have drivers licenses then it seems plausible to suggest that there will be a reduction in per capital vehicle travel, ceteris paribus. Similarly, we can expect reductions in the cost of air travel to eat into the demand for long distance vehicle trips. In terms of preferences, these are critical to the accuracy of any model that seeks to forecast future demands based on past behaviours. If preferences changes, then our predictions are resting on a wobbly plank over shark-infested analytical waters.
So what’s the takeaway message? Well, I think it’s fair to say that we simply don’t know what to expect with regards to the future demand for vehicle travel.
In this context, I personally wouldn’t be investing in large transport projects, especially in rural areas, e.g. Puhoi-Wellsford, Waikato Expressway etc. As for the CRL, I think it’s likely to be a good project because of 1) patronage growth on the rail network, 2) Auckland’s growth as a whole, 3) the explosive growth in the city centre (both in terms of population and retail), and 4) wider trends in transport and land use policy, e.g. time-of-use road pricing and removing minimum parking requirements.
But I’m open to being convinced either way, and am interested to hear what others think on all this.
Meet George Jetson, his boy Elroy, daughter Judy, Jane his wife.
That’s the what immediately popped into my head after seeing the future vision for transport released by the Ministry of Transport yesterday. The visions look about 30 years into the future and the reason for doing the work is explained as:
The Ministry of Transport is taking a whole of system, long-term view of the future of transport to help in our role as the Government’s adviser on transport. We want to stimulate wider debate and generate ideas on the possible future of New Zealand’s transport system by sharing our visions of how we think the transport system could look in the future.
The visions we are sharing are not predictions about what will happen, just what could happen.
A lot of the premise for this work seems to be the idea that we’re about to see fundamental change in transport as a result of technology. There are repeated analogies made to the level of change experienced in the early and mid-20th century with them noting how the first cars came to NZ in 1898, that by the 1930’s they were becoming more common while around 30 years later we had wide-bodied passenger jets and had landed a man on the moon.
The technological change expected over the coming three decades is primarily about making our transport system more intelligent. For example the likes of autonomous vehicles and using data to better organise trips.
The ministry have been looking at what the future holds for a while, starting last year with their work on future travel demand. From it they found that in most possible scenarios the level of personal travel – i.e. how far we collectively travel – would decline.
That work also produced this chart which is one of my favourites and shows that their previous predictions of vehicle kilometres travelled have continued to be over optimistic.
The visions released so far are not all of them but do cover off a lot of transport sphere. They note that at least one more they are working on is looking at the future of public transport and I’m taking a trip to Wellington shortly to discuss this with them.
To me the visions as shown in the slides below are a mixed bag. Some seem fairly likely such as the suggestion that we will buy mobility as a service – which is starting to happen right now as a result of companies like Uber – and that high-density urban villages will allow for more trips to be made by walking and cycling which will improve health. However other ideas seem much more fanciful such as the people will be able to commute by plane from a regional centre to a job in Auckland in the same length of time as those who live in Auckland or that we’ll have airships carting freight around.
Some ideas aren’t in the slides but in supporting documents (like this one). One that we’ve seen raised before has been that we turn our rail network – outside of Auckland and Wellington – into guided truckways occupied by trucks platooning together.
The challenge with these road trains is they will probably require dedicated freight lanes. We think New Zealand has unique opportunities in this space. The rail network, outside of Auckland and Wellington, already provides a separated corridor that could be transformed into a high-speed freight network. The space already allocated means we can potentially be an early mover when
the right technology comes along. Imagine platooned trucks, not guided by a physical set of rails, but by a system that allows them to operate safety on narrow concrete pads on dedicated freight corridors. Imagine the productivity gains for our supply chains, and the avoided costs, by not having to extend the road network to accommodate these systems.
We are not advocating we close rail transport in New Zealand, but there may be whole new ways we could utilise existing rail networks and corridors.
Or you know we could just make trains more efficient and not have to pave all the tracks in concrete.
Here’s a couple more videos about the work, one from the MoT CEO and one from the Deputy CEO.
Have you looked through it and what are your visions for the future and do they align with the Ministry’s? Now, where are those moon colonies and how do I get to them.