The road to proper pricing is not as bumpy as you think

On Wednesday, December 16, 2009, Maarten van Biezen and Chris Nobel from The Netherlands Society for Nature and Environment, who would be certain advocates for the Dutch intention to price all road use, reported some concerns in an article called “The road to good charging can often be bumpy

Their article, reprinted here without permission, is important and needs comment. I usually comment on articles from journalists that do not understand the importance and fairness of this tax-shift, but Messers van Biezen and Nobel do understand, but have provided some undue admonishment to their government.
The idea of basing motoring taxation on the distance a vehicle is driven – generally known these days as a 'kilometre charge' – is in principle a good one which environmental groups have advocated for years. But as recent developments in the Netherlands have shown, the road to good charging can often be a bumpy one.

A number of countries have talked about a kilometre charge, and some – notably Germany and Switzerland – have introduced charging for goods transported by road. But the Netherlands want to become the first European country to implement such a charge for private car drivers following last month's proposals put to the Dutch parliament. This is indeed a historic move that should be welcomed.

But, the devil is in the detail. There are four significant things that should change in the proposed Dutch charge.

Firstly, the kilometre charge will replace the existing road tax and vehicle registration (or purchase) tax, and the amount of money raised by the kilometre charge must not exceed the combined income of the two taxes being replaced. The idea is that motorists will pay for using their vehicles rather than owning them, but registration or purchase taxes encourage the introduction of low-CO2 technology. Therefore the unacceptable effect of abolishing the registration tax will be that cars become less fuel-efficient. If the expected 15% reduction in kilometres driven does not materialise, we end up emitting more CO2.
The statement that “the unacceptable effect of abolishing the registration tax will be that cars become less fuel-efficient” is most likely a typo. The authors likely meant “the unacceptable effect of abolishing the road tax will be that cars become less fuel-efficient”. However, the Dutch government has wisely left the fuel tax in place (I think that is what the authors refer to as “road tax”, with apologies if I am wrong). So this fear of drivers reverting to gas guzzlers because of this tax-shift is completely unfounded. The opposite will occur. To consider further, the registration tax, which is quite high in most EU countries including the Netherlands is paid regardless of distance-traveled. A high fixed tax would require that a person thinking to extract the maximum value from his or her purchase would then drive as much as possible. Hence the economic argument (proven correct many times) is that charging by usage instead of by vehicle purchase price reduces driving. What a high purchase price means is that fewer people can afford a vehicle, but those that can will prefer to drive over almost any other alternative.
Secondly, the prospect of having regionally differentiated congestion fees is still unclear. The proposal makes a congestion charge possible after the full introduction of the kilometre charge (2018-2020), but it does not specify how such a charge should diminish congestion and new road building. If you don't charge people more for where their vehicles do most damage - and congestion is one of the negative impacts of too many vehicles on the road - then the charging system does not achieve its objective of steering mobility in an environmentally, and economically, better direction.
The authors are correct that charging by time and place of use is critical to congestion management. The Dutch government knows this and intends to introduce time-distance-place charging (TDP). “Charge maps” will not have been disclosed, because this takes time and negotiation. Since I have not seen these maps I cannot comment on them, but if the Dutch government charges a single flat rate and does not move to TDP charging shortly into the program, I will eat my hat as well as those of Messers van Biezen and Nobel. What needs to be done now is to guard that the charge maps will be designed in a transparent and easy-to-understand manner. Drivers need to be able to easily see how much a trip will cost in advance (similar to ask a taxi driver before you get in) and to not be surprised at the final calculation. Drivers also need to easily determine the cost difference of taking a trip at various times of the day, so that they may plan to avoid high tolls. Avoiding high tolls is the whole point of the program!
Thirdly, the government proposes to cap the total revenue at €6.6bn (2007 price levels). This has been much less widely reported than the proposed maximum charge of €0.067 per km. If the current proposal becomes law, the charge will begin at €0.03 in 2012 and rise steadily to its maximum by 2018. The capping of total revenue means that if mobility increases, the price per kilometre will fall! This would undermine the core objective of the law – a more conscious use of mobility - and will make environmental objectives harder to achieve. It should change.
Capping total revenue makes sense on a relative basis. These programs are about congestion cessation and collecting more than is needed for that purpose or for fair-funding purposes is inappropriate for nurturing user acceptance and trust. However, because we might guess that the underlying demand for mobility will increase, and because of normal inflation, an absolute fixed ceiling would indeed be an error. The reason that the United States has Highway finding problems now is that fuel-taxes are unindexed so that they are an increasingly smaller pool for funding our highways. I realize that the authors are congestion/emission focused rather than funding focused, but the analogy holds AND the two issues (congestion and funding) are strongly correlated.
Finally, the government proposes lower charges for trucks than for cars. As a result of the pledge not to raise average taxes for each category of vehicles, the proposed maximum charge for trucks will be only 2.4 cents per kilometre. In other countries trucks pay rates of 15 to 80 cents per km. You would pay less for driving a truck to the beach than driving your car.
This is most likely a temporary measure requiring the logistics industry to adjust its prices. Truck tolls should rise, as well, which have a very positive effect on fleet efficiency. The number of trucks that have been replaced or updated in Germany because of lower tolls for cleaner vehicles is astounding (this needs reference!) Remember, the person who is really paying truck tolls is the person eating the food or using the iPod that was transported by the truck. Raising both at the same time would cause additional economic ripples that a private vehicle driver may not want. You don't want to pay more for road use AND more when you eat at the same time! This kind of driver-thinking shows an anti-truck bias, which is not different from drivers who display anti-bicycle bias. We are all in this together.
There are times when we have to accept some Realpolitik, and when a new form of charging is being introduced, perhaps this is one time. But the danger of accepting a compromise to get a new form of taxation through the legislative process is that, when it comes into effect, it does not solve the problems it is supposed to solve, which can give the public a negative view of what should be a positive form of charging. That's why the Dutch government better try to get the scheme right, rather than make political concessions that could ruin it in the long term.
I think that the Dutch Government is VERY sensitive to “getting the scheme right”. I predict they will be very close, and with intelligent program design will be able to adjust in the first couple of years. They cannot be expected to make large changes after the first week any more that they can be expected to optimize perfectly for every driver type and every vehicle type and every trip type. I applaud the Dutch Government for its tenacity, diligence and courage.

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