Recombinant Market DNA

Energy and its generation, conservation, consumption, and taxation it so fundamental to human commerce that the changes we will see over the next two decades will be multifaceted, complex and profound. We consumers often think in terms of a series of singular changes. If gas costs rise, we’ll consider a more efficient car. As our commute takes longer, perhaps we’ll consider a nicer in-car audio system. As housing costs rise, we consider moving further from the center of the city.

Seldom do we take several things into account at once, because these changes are not all apparent to us at the same time. And the changes are not unidirectional. This fools us over and over. Last year, gas prices scared the hell out of us, then they came all the way back down. Housing prices have hovered steady in the past couple of years in Canada and even dipped wildly in the US.

Just as Detroit did not read the deeper signals from the 1973 oil-embargo (and continued not to read them for
35 years, so as to completely humble an American icon), we too can easily not read the signals that matter to our own personal eco-system. How many owners of 3-year old oversized vehicles do you know that were pleased with their purchase last year? How many people do you know who are getting really tired of their 40 minute commute that now averages 70 minutes each way?

And hey, it is not just you as a consumer who is not always reading the future clearly.

Let's look at four new mobility-related eco-systems.

Automotive energy eco-system

Modest-scale, vertical wind turbine technology works in a broad range of wind speeds. Ontario has new legislation permitting developers to incorporate wind and solar gener
ators whose production can feed into the power grid with feed-in tariffs higher than residential consumption tariffs. As that technology gets more efficient and when I can put in on my roof, I will be able to power my own electric car, another technology that is rapidly developing. What will happen when the next generation of personal-scaled power generation meets yet more progressive legislation regarding feed-in tariffs and in turn meets the reliable electric car? What changes when 3% or 7% of our personal automotive fleet is electrified? God help the gas tax when fleet electrification reaches 30%.

So who’s not reading the future, here? Any government who is not staring down the gas-tax real hard – a tax, by the way that is levied on just the thing we’d like everyone to stop using. I hope we don’t really need that tax, because it has already started to sunset.

Here at home, Ontario
’s Energy Ministry is very progressively driving us to more and greener energy – heck, Ontario Power Generation even advertises this on billboards for everyone who drives by: "Relax about oil, already! With our shining solution around the corner you can keep driving. You will just drive home, plug it in."

Perhaps even using your own generator.

And it is not going to cost $40 or $50 to fill up – especially if you can put a balancing amount back into the grid. We may be approaching near-free energy for private motor vehicles, once the power infrastructure is in place. In any case, even if reliably taxed, it is not going to replace $300 or $600 per year in road taxes.

But next door, over in the Ministry of Transportation, for the self-same Province, discussion of Road Pricing is verboten.

Cheap clean power, electric cars and road-user charging forms a new eco system. Energy, conveyance, and funding for the roads to get conveyed on. And you can be sure this new eco-system to be realized in the next 10 years will have impacts on jobs, power distribution, fueling stations, and many other secondary fallouts. Changing the automotive power plant changes a lot of things.

In-vehicle telematics eco-system

Dr. David Marples, a telematics expert from the Dutch company, Technolution, points to a fundamental error of thinking that many in the still-incubating GPS “road-use charging” industry make: they assume (actually “design as though”) road-use charging telematics systems will address only one function – time, distance and place (TDP) user fees. He is right for the private automotive market – there is no way we can spend a couple hundred dollars to collect a couple hundred dollars.

Marples makes the point that we will have more success if an in-car platform makes possible many dozens of applications for entertainment, traveler information and payment services. Just like the PC hosts thousands of compute applications your car will have a mobile compute platform likely forming a network node that Robin Chase often talks about and to which vendors can add standardized applications.

Road use payment services will be a key driver for this market. As the first few jurisdictions adopt mandatory GPS-based, TDP road-pricing, who cannot see the opportunity that Marples and Chase point to? Road pricing will drive this eco-system into cars, and the eco system will make the fact of TDP pricing far more palatable than would be a dedicated-use road-pricing device.

While this new eco-system is smaller than the automotive energy eco-system in disruptive scale, it will ripple past your dashboard creating or expanding related services markets. The total cost per automotive mile will creep up, as will your enjoyment, one may imagine. We’ve always preferred enjoying our cars, so this may allow you to tolerate congestion just a bit more, as Anthony Downs recommended to Congress in 2001:

… everyone should get used to being stuck in traffic some of the time. You should get a climate-controlled car with a stereo radio and tape deck and CD player, a hands-free telephone, a fax machine and even a microwave oven, and commute each day with someone you really like. Make it a part of your leisure life!

Mobile payment eco-system

The use of the cell phone for micro payments and mobile payments, already an old idea, is just now arriving in Canada. One of the likely ways road-use charging will be introduced will be to provide a body of related services and rewards to provide more carrot and less stick to help motorists over dramatic change of this tax-shift.

Two types of financial exchange include a road-use credit exchange system and shopping incentives related to parking.

A credit exchange assumes that everyone is entitled to a certain number of mobility credits which equates to a modest amount of free road access. Those people who use less than that amount can sell them in analogy to a cap and trade system.

Shopping incentives related to parking are analogous to the store or restaurant that says it will pay an amount of parking for you if you shop or eat at their location. Both of these incentive systems would be able to tap into the mobile payment eco-system, especially since the road-use payment systems are best serviced by telcos anyway.

Since the mobile payment eco-system pre-dates road use charging systems, I cannot argue that they will be “driven” by road pricing programs. However, the synergy will be good for both.

Mobility Housing-Location eco-system

While first response to a road pricing program may be complaint, immediate remedies include paying, using transit, or carpooling. In the medium term people who do not prefer to pay this way will telework, bike, get a smaller car, or even change jobs. But in the long term, people will begin to choose housing that minimizes automobile travel. In this eco-system, strongly precipitated by road pricing, real-estate values will shift. The cheap(er) home an hour from work will see a relative price fall and the smaller home or condo in the city will see a rise. This shift will be permanent and may predict a large number of related changes – far more than can be listed here. On the other hand this growing price differential can tend to counteract the congestion-effect of pricing programs, simply putting money saved by not commuting into a home or providing a cheaper home to a person who values his time less. Regardless, this will be a powerful new influencer on life style decisions.

While I outlined four different eco-systems, each sufficiently complex to make predictions a bit iffy, they actually combine to form a large new eco system that incorporates all of this and more. What is central to all of this recombinant market DNA is that changing the power plant for the private automobile changes taxation and together they will change everything else.

2020 will differ far more from 2000 than 2000 did from 1980.


Lee Haber said...

That's a very interesting post Bern. Some of the ideas fit very much with my own of an over-arching vision for transportation.

Road Pricing is going to change the game completely. I believe that it will precipitate a significant shift towards more sustainable modes of transit and sustainable living in walkable communities. Road pricing will level the playing field that is right now tilted heavily in favor of private automobiles and communities designed solely for their movement.

However, I do not think road pricing alone is sufficient. Yes, road pricing will level the market, but there will be serious problems if the market itself cannot respond readily to changing demands. Will the TTC, that currently struggles with government funding, be able to cope with the surge in demand that will come with road pricing? I don't think so.

What we need to do while scaling up road-pricing is to deregulate the market so it can adapt to changing needs. That will mean deregulating state transit utilities and reforming taxi licensing. What will also likely be needed are policies that govern the use of road-infrastructure so that its use can change with changing users and ones that facilitate a more rapid change in land-use and density while at the same time ensuring that quality of life is not harmed.

Road pricing is a critical piece to creating a new transportation: a free market with many options, and free-flowing information - so that people can choose the right option. Without road-pricing, a free market would not work as modes that receive subsidies and externalize their costs on others will out-compete other modes. However, as you have shown in your post, road-pricing is the tip of the iceberg. There's still that 90% beneath the water line to worry about.

Bern Grush said...

Good point, Lee, that the public transit unaddressed cannot cope with road pricing. But that just forms a new mini eco-system that folds into the full picture. There is no way I covered them all.

Note that the lesson I learned from the US becoming interested in VMT charging because the HTF ran out of dough, rather than because of congestion or emissions, is instructive. Road pricing is not the core driver in my piece. Rather it is secondary to the change in the power plant of the automobile. And that change is because that technology will be cheaper than IC. (I will need to repair that in my blog.)

It is all about money and only about money. The entire change in these eco-systems in about peoples' preference to keep their money in their wallet.

If that sounds cynical, just wait for 35 years.