Overview on Interurban Road Pricing

1. Going from A to B against a fair price Overview on Interurban Road Pricing Wim Korver

2. It leads to more and better roads and therefore to more economic growth It is just a new way of filling the treasury It enhances the choices of the consumer It is the solution to make cars cleaner Overview on Interurban Road Pricing

3. Interurban Road Pricing: content • What is interurban transport? • Why do we want to implement Interurban Road Pricing? • State of the art • The economic perspective: searching for the best implementation paths • The technological perspective: searching for an electronic breakthrough • Gaining Social Acceptance leads to less optimal implementation paths • Conclusions on implementing Interurban Road Pricing? Overview on Interurban Road Pricing

4. What is interurban road transport?The majority of EU mobility • All trips > 15 km • Passenger: appr 80% of all car km. • Freight: > 90% of all tonkm • Increasing share, especially 80-250 km category Overview on Interurban Road Pricing

5. Reasons behind Interurban Road Pricing (IRP) • Need for new (road) infrastructure and limited public funds. With interurban road pricing the private sector could be involved (see for instance France) • 350B€ still required to complete TENs. • 100B € needed for the new Member States. • 15-20B€ currently invested by the EU • Towards fair and efficient pricing for transport. • Fair competition among transport modes: social marginal cost pricing would maximize the social surplus, i.e. the sum of the producers' surplus (= the profits of private and public transport enterprises) and the consumers' surplus. • With the help of social marginal cost pricing it is possible to confront every user with real costs (assuming that at the moment this is not the case). This means that • All external effects of transport will be internalized and • Management of traffic flows (to fight congestion or even contain demand growth) Overview on Interurban Road Pricing

6. State of the art_1: Tolling exists in a number of countries • Tolled motorways (long tradition - EU country) • France and Portugal relied on tolls since early stages in the development of their road network • Tolled roads (short tradition – Non-EU country) • Switzerland: the first country in Europe in which am IRP was implemented to charge infrastructure and environmental costs according to actual mileage performed by HGV's on the whole national road network. • Hungary: A pioneering motorway project financed through tolls immediately after political change in Central Europe • Mature for introduction of tolls • Austria and Germany, implementation process is going on • Netherlands: was planning to implement a km charging system for all vehicles, specifically conceived to introduce interurban road pricing to support demand management/increase accessibility. • Newcomer (Nordic countries) • Denmark, Finland, Norway, Sweden, quite an integrated regional economy with common approaches to both environmental motor fuel taxation and Eurovignette; Norway also has a long-standing tradition in electronic pricing around urban areas to fund investment on local road networks. Source: DESIRE Project Overview on Interurban Road Pricing

7. State of the art_2:National perspectives dominates • National decisions concerning IRP are strongly determined by financial needs • National decisions in the cluster of ‘mature for introduction of tolls’ (Austria, Germany and the Netherlands) are by far the most critical for development of electronic IRP in the near future • In many countries (including those where electronic IRP systems are in operation) regional impacts of alternative system configurations are key issues in national dossiers. • In contexts where HGV charges are levied (either manually of automatically) to internalise environmental costs besides infrastructure costs, this will likely generate a surplus revenue, except in regions with low traffic volumes. • Interoperability is in general not a major priority Overview on Interurban Road Pricing

8. The economic perspective • First best pricing: • Theoretical optimal situation, but in practice not (easy) feasible • Second best pricing: • What is the optimal implementation path? Such as: • Passenger versus freight • Road versus not road • Differentiation versus no differentiation • Within MC ICAM several implementation paths are evaluated (focus on freight) • Do nothing (no new policies) • Full social marginal cost pricing (All modes) • Only freight road transport • Only road (passenger + freight) Overview on Interurban Road Pricing

9. Do Nothing policy: increased transport volume leads to increased externalities despite reduced externalities per kilometre Overview on Interurban Road Pricing

10. Total transport performance only differs a little between MSCP implementation paths Overview on Interurban Road Pricing

11. But effect depends strongly on the way revenues are used (and on assumptions concerning labour markets and consumer behaviour) Overall welfare effect of MSCP is positive for all implementation paths in the long term Overview on Interurban Road Pricing

12. 0.1 0.08 0.06 0.04 % change in welfare via labour taxes lump-sum 0.02 0 35 45 55 65 75 85 95 105 -0.02 -0.04 tax rate on freight Revenue use strongly influences welfare effect (and optimal charge)Source: KU Leuven model Overview on Interurban Road Pricing

13. 0.14 0.12 0.1 0.08 0.06 bmk % change in welfare halved tax_t double tax_t 0.04 0.02 0 60 65 70 75 80 85 90 95 100 105 110 -0.02 -0.04 tax rate on freight Optimal congestion charge for freight is lower when passenger transport is also chargedSource: KU Leuven model Overview on Interurban Road Pricing

14. Routes change due to geographical differentiation is for road a major impact; This could lead to more vehicle km; rail and waterway have little alternatives(source SMILE Model Netherlands case) Overview on Interurban Road Pricing

15. Welfare effects are positive if prices are set equal or lower than social marginal costs. Welfare effect is negative if prices are above social marginal costs. Overpricing must be avoided(source SMILE Model Netherlands case) Overview on Interurban Road Pricing

16. Welfare impacts differ between countries with toll systems and without toll systemsCharging Only freight road transport versus all road transport is half of the impact Country First Best Freight Freight All M’way All M’way all roads traffic road traffic Spain 100 -26 63 -86 77 France 100 -4 43 -51 64 Italy 100 60 36 -44 63 Portugal 100 -3 59 -10 75 Austria 100 37 53 57 87 Belgium 100 36 50 63 90 Denmark 100 16 42 57 93 Finland 100 46 87 48 88 Germany 100 19 27 63 95 Greece 100 26 82 27 89 Ireland 100 4 85 6 95 Lux. 100 12 29 32 92 NL 100 26 37 71 92 Sweden 100 41 76 47 89 UK 100 18 52 32 96 TOTAL 100 21 41 47 92 Source: SCENES Models, MC ICAM (draft version_october 2003) Overview on Interurban Road Pricing

17. Uncertainties on expected transport demand still exist • Estimation of behavioral responses of road freight transport differs considerably per transport model. Reasons: • Modeling transport costs versus logistic costs (demand elasticity versus impact higher transport costs on overall production costs) • Differences in presuppositions on the ability to work more efficient trough enhancing the transport efficiency (less empty km and larger trucks) • The use of the revenues • Economic sense versus acceptability issues • And if for instance certain user groups are compensated: what will be their behavioral response? • Second order impacts: • Relation employee employer: what happens if the commuter is compensated for his higher costs? • Location choice of consumers and business will be effected by a different price regime. Overview on Interurban Road Pricing

18. Technological perspective_1: • From toll systems towards electronic pricing systems • Electronic road pricing systems: • Successful in local situations (Norway, London) • In use in Switzerland • Under construction for interurban applications (Germany) • “There are no technological barriers”, But TNO research for the Dutch KM charging system showed (source TNO FEL, 2001): • The retrofit issue: • it takes time to produce the in-board units and to equip all vehicles • Per vehicle the technological specifications can differ • Accuracy: at least 2% margin can be expected • Devices tested are vulnerable for fraud • The private sector will not pay for all costs in a combined road pricing system able to charge consumers for their car use and offering all kind of new services Overview on Interurban Road Pricing

19. on board unit garage mobile communication billing CRM & marketing administration other costs 2004 2005 2006 2007 2008 2009 2010 Only road pricing isn’t enough to cover costs • Roadpricing systems typically generate almost no mobile traffic, because Intelligent applications are able to: • Switch mobile connection on when needed • Switch mobile connection off asap • Wholesale billing Overview on Interurban Road Pricing

20. Acceptance Issues: gaining public support leads to sub-optimal solutions • Most successful implementation of new forms of pricing can be found on the urban level (London, Trondheim, Singapore); with the exception of toll roads, interurban road pricing is faced with a lot of opposition • In successful cases an alternative is available (Public Transport, another road). • Revenues are directly invested in the same area (better public transport, new road infrastructure) • A clear understanding by the public what the problem is (congestion or quality of life) Overview on Interurban Road Pricing

21. Implementing interurban road pricing: The economic optimum versus the real world • Main focus is on freight transport. However from a economic point of view passenger transport should be included as well • MSC pricing • Majority of people gains if revenues are used well, for instance lowering labor tax • However for gaining public support it is better to choose for investing the revenues in the transport system • Charging only interurban road traffic has a major impact on welfare levels (Scenes model says 90% of first best situation) • Welfare impacts differ strongly per country due to: • Different existing levels of charging • Different charging systems • Major “distortions” are toll roads • Do not underestimate the technological aspects • We are on the right track, but the remaining road is still long Overview on Interurban Road Pricing