Long Live Norwich Union!

It’s old news by now that pay-as-you-drive innovator Norwich Union has withdrawn from the fledgling PAYD insurance market. Many were taken by surprise. Listening to spokesperson Erik Nelson explain why provides that perfect 20-20 hindsight for the rest of us. He also provides a fabulous insight into the value of this program. He still clings to one critical, false hope however. But let’s hear from Erik first. He is interviewed here by Traffic Technology International, and transcribed below for your convenience.

TT: Norwich Union's innovative telematics-based pay-as-you-drive insurance policy was withdrawn earlier this year because it was costing too much to operate, but as spokesman Erik Nelson reveals, the company plans to re-enter the market once economic conditions prove more favorable.

EN: What we did was we installed a box in their vehicles, a GPS-based box and that box tracks their movements, it tracks a couple of things actually. It tracks how far they were traveling, it tracks the time of day and it tracks where they were traveling - that is what type of road specifically they were on. The reason we are interested in a road – what type of road - is because we know for example that motorways are ten times safer than urban roads so we’re able to give you better rate on motorways than driving on an urban road which is more dangerous. We also know for example that driving at night, especially for young drivers is much more dangerous than it is traveling during the daytime, so we take in the time of day, we take in the road that you’re using and we’re able to give you an individualized pence-per mile tariff. Now based on that, [and] the number of miles you drive, you get your premium.

TT: Did you find that people actually did change their driving habits as a result of this policy?

EN: That’s a very interesting question. I think that’s very difficult to answer, because of course we didn’t know what they were driving like beforehand. What we did see was that people were driving over the time gradually a little bit less, I think they were very conscious of how far they were driving. The big thing is not about how far they were driving, though. It’s about the times of day and they types of roads they were using. We definitely saw safer driving behavior. As a result our claims reduced by more than 30% which is a staggering statistic and a huge boon for road safety. But when you are able to incentivize, for example, young drivers not driving during the most dangerous times of day for them, when they are 10 times more likely to be involved in an accident at night, 14 times more likely to be involved in an accident at night on the weekend. And you incentivize them to take the taxi, take public transport or whatever when they go out during those times you see accidents drop more than a third, you’re really on to something in terms of roads safety.

TT: I understand that renewals were really quite high on this, the policy seemed to be popular, yet you didn't carry it on from the Spring of this year.

EN: That’s correct. The retention rate was at or above 90% during the time that we operated the policy, and feedback from customers was overwhelmingly positive. This is probably because customers were saving around 30% on their premiums. So we paused it because, simply put, because the economics of the policy don’t work out for us right now. We thought that telematics was going to be a lot further along than it actually is. We thought that motor manufacturers would be installing telematics devices in the vehicles that they are making at the point of manufacture, but that did not come to be, and certainly not on the scale that we imagined. So instead of piggy-backing our little insurance policy on the back on existing piece of kit in a car, we were actually forced to provide the kit and install the kit ourselves which from an operating model point of view becomes very expensive and that is why we have temporarily withdrawn.

TT: Is it the case that the motoring industry just isn’t ready for this yet?

EN: I don’t know if it is the case of whether the motoring industry is ready for it. You’d have to speak with the motor manufacturers about that. Certainly it’s the case from our perspective I think we were just a little bit ahead of our time. I think we as a company still have faith that the telematics industry will continue to evolve and at some point the time will be right for us to re-enter the market because their will be more telematics devices in vehicles and it will be much more sustainable for us to operate a policy such a pay-as-you-drive and we look forward to re-enter the market in a very good position at that time.

TT: Do you foresee that technology like that is very much going to be a key part of insurance policies in the future, like red-light boxes that stop cars maybe from driving over red lights, that sort of technology’s going to be key?

EN: There are so many different ways that this technology can be used. As an insurer, our main objective is to find a way to calculate a premium. I think that is what pay-as-you-drive did incredibly cleverly and incredibly well and that is calculate a usage-based premium that motorists found fair and transparent in a way that has never been done before.

TT: Erik Nelson from Norwich Union. If you have any questions about this feature contact tt@ukintpress.com.

~~~

The false hope Erik Nelson clings to is that the automotive manufacturers will soon pre-install the telematics he needs. While this is technically possible, it is unlikely – mostly because we do not yet know everything about how we want these telematics to behave. To do insurance-only is an unworkable business model – as Erik can attest. We’ll need a whole fleet of cross-subsidizing services to make the pre-installation calculus work out. Even a package like OnStar causes the new-car purchaser some pause before adding it to the invoice. We will soon be paying for road use via GPS, which itself remains unreliable for most telematics manufacturers in built-up cities. And why not handle parking while we’re at it?

The assumption that we will record GPS tracks and process them off-board will hit a privacy wall. The counter assumption that we will pay everything on-board raises equal security concerns. The ISO standards to guide all this were completely scrapped a couple of years ago after nearly a decade of work. Only some components of the new edition, which I estimate to be about ¾ complete, will survive a hard privacy review in the EU and the US. What little the privacy advocates leave intact of the new standard will cause more hesitation on the part of the automotive manufacturers.

I believe all this will serve to postpone the time when the automotive manufacturers will provide a “whole product” that an insurer could simply “piggy-back” on. The telematics market segment that will handle financial transactions (insurance, road-use, parking), must be “liability critical” – in other words, it must be critically reliable and repeatable – something we call “financial grade” GPS. The technology to do this is not the same as navigation grade GPS and the automotive manufacturers know this.

This, and the fact that there is already a world fleet of well over 500,000,000 vehicles that will need an aftermarket fitting, informs my prediction that the early years of PAYD will based on self-installed, specialized, “financial-grade” systems that can be purchased anonymously, monitored without knowing the vehicle or owner ID and without data retention, and that also provide a couple of other payment services such as road and parking tolls.

High oil prices are good for you?

From Maclean’s, July 28 2008

The oil diet
Your wallet may be hurting, but soaring gas prices could be the answer to a long – and skinny – life, according to new research out of Harvard, traffic deaths will plummet by as much as one-third over the next year because so many motorists simply can’t afford o back out of the driveway. A separate study by a North Carolina professor has found that a $1 boost at the pumps could cut obesity rates by nine per cent, as people are forced to walk, bike, and cook at home.

~~~

I notice on my drive to work a huge increase in cyclists. People of every age and weight class. This is a good thing, of course, but the condition of our roads (Toronto) and the lack of marked bike lanes on the roads I use make it a very dangerous-looking trip. I can’t help but wonder if there will be enough cycling deaths to make up for the automotive fatality shortfall predicted by Harvard.

When are we going to start putting a couple of bucks into biking facilities for every zillion dollars we spend on automotive facilities?

Oh, yeah, cyclists don’t pay gas tax, right? I forgot.

On-Street Convenience Pricing

The University of Minnesota hosts a listserv dedicated to congestion pricing. I recommend it for browsing on occasion.

Roger Herz of NYC and a long-time advocate of market pricing recently included a comment, there: "on-street parking should be priced at least equal to and perhaps more than off-street."

I couldn’t agree more.

On-street parking should be by-the-minute with no ceiling and at rates comparable with or somewhat higher than off-street parking (which could retain ceilings to be more competitive with on-street). This can be done with in-car meters that are commercially available.

This encourages turnover and a greater preference for off street-parking. The price difference between on-street and off-street should generally reflect the relative convenience of the on-street offering against the inconvenience of off-street. Call this "Value pricing" for parking. Or use USDoT Secretary Mary Peters' newer and more direct term "convenience pricing".

To bring shop keepers and the disadvantaged on side, offer 10-20 minutes free, but make that up in the remainder of the first 60 to 90 minutes. Don't lower it after the make up period, rather make that the premium for convenience.

With such a system, a municipality could save enforcement dollars while maintaining enforcement revenues by using a simple price escalator after the usual two- or three-hour parking allowance is used up. For example double or triple the minute-rate after the allowance period is up.

As well, it is possible – when the system is GPS based and fully automated – to provide parking credits to motorists who do not move their vehicles during peak hours. Such a pricing-and-reward parking system, priced appropriately, would have a dramatic effect on CBD congestion, without the introduction of cordon tolling as London and Singapore have done. Here is an amusing scenario about this new type of meter: http://grushhour.blogspot.com/2007/08/how-to-get-free-parking.html

The meter is available from Skymeter and is available in an anonymous version (wink-wink, nudge-nudge), and, one assumes, in any color, as long as it is black.

~~~

A related idea to offer a reward to delay your entry into traffic comes from the Netherlands.

“Rijkswaterstaat (Dutch road administration) [are] providing real-time traffic and public transport information to visitors of amusement parks and catering establishments [to achieve] a better dispersal of traffic. … displays with traffic information are placed at the exit of a large number of amusement parks, zoos, road restaurants and conference centers [to show] real-time traffic jams and or train delays. When there are traffic jams in the surroundings of the participating locations an interesting alternative can be offered to prolong the visitors stay. For example a ‘rush hour menu' for a special price. The ‘rush hour menu' has to stimulate visitors to stay longer at the location when there are traffic jams or train delays. This will create a better dispersal of traffic.”

"It won't happen here..."

Mary Peters - on the mark again

Mary Peters, the US Secretary of Transportation, authored an op-ed piece this weekend. I took the liberty of copying the whole thing below, because few say it better than she and if her article ever becomes unavailable, it would be a loss.

Unfortunately, she missed three critical words. In her bold and correct assertion that “… a larger scale regional approach throughout Northern Virginia and the Hampton Roads regions could be put in place in a relatively short period of time”, she did not mention that the only realistic way to do this is with anonymous satellite technology.

Bravo for getting the economics right (and she is no longer a loner on that score), but we cannot straddle large regions like Northern Virginia with current RFID technology because of its expense, its intrusiveness, and its uneven (read unfair) distribution. The proper way to directly charge for road use in lieu of increased fuel taxes (or any fuel taxes if I had my druthers) is to charge everywhere – variably of course, as Secretary Peters prescribes – but everywhere.

TRANSPORTATION

By MARY E. PETERS
TIMES-DISPATCH COLUMNIST

Try Real Reform – Not Additional Taxes

WASHINGTON With the special transportation legislative session complete, Virginia's leaders and legislators now have a clean slate to consider real reforms to the commonwealth's transportation challenges.

The answer to these challenges, for both the nation and Virginia, lies in a fundamentally different approach to financing and managing our highways and transit systems. For example, at the heart of Virginia's transportation's debate was a proposed $6.4 billion tax increase to pay for transportation improvements. Yet Virginia has more than $4 billion worth of projects underway utilizing private funds for new construction. And recent studies show that direct pricing of roads would generate at least as much in revenue while delivering far better economic results.

Clearly, we need to change how we fund transportation projects. It makes little sense -- and it's certainly not sustainable -- to increase our reliance on gasoline taxes at a time when we all recognize the need to decrease fuel consumption and increase the use of alternative fuel sources. And, as virtually every study has concluded, gasoline, car, property, and sales taxes have little or nothing to do with the use of highways and are ineffective at reducing highway congestion, increasing business productivity or improving quality of life. Not to mention that they are rightfully unpopular with the public.

The commonwealth should make history by widely embracing the use of new open road tolling technologies where prices vary throughout the day. As traffic levels change, so too would the nominal amount drivers are charged. These varying tolls would ensure that car and bus traffic keeps flowing, even during the busiest times of the day.

Variable pricing, or congestion pricing as it is more commonly called, is a proven approach to managing and financing transportation systems that price road use based on supply and demand, just like long distance phone service, hotels and electricity. Imagine a rush hour where cars move and commuters get home in time for dinner with their families.

This concept is not a new solution for Virginia, where some of the most significant projects -- such as widening the Capital Beltway -- are moving forward as tolled facilities funded with significant amounts of private sector funds. As a result, while many other local transportation projects are likely to be stalled until Virginia settles on a new funding solution, some of the most significant projects in the state will continue unaffected.

Pursuing this approach on a project-by-project basis, as Virginia is doing with the Beltway project, is certainly preferable to doing nothing. But a larger scale regional approach throughout Northern Virginia and the Hampton Roads regions could be put in place in a relatively short period of time. Virginia's leaders could easily and rapidly oversee the first ever statewide reduction in traffic congestion.

Virginia's leaders have a clear choice. They can ask drivers to pay more at the pump, more at the store, and more at the DMV -- regardless of where they live or when they drive. Or, they can put in place direct user fees that will be targeted to areas where congestion is at its worst, and will actually cut traffic, speed commutes and improve the timeliness and quality of transit bus service.

As important, direct road pricing would provide the commonwealth with a significantly more robust and sustainable revenue stream. Congestion pricing would provide needed revenue for road construction projects. It also would help fund transit agencies struggling to cope with the recent surge in ridership. And, it would help finance some of the ambitious transit expansion plans being contemplated.

Embracing direct pricing for road use would also have the added benefit of encouraging better decisions about land use, stimulate reductions in carbon-dioxide emissions and encourage more of the commonwealth's commuters to try transit. In short, embracing tolling as a solution to Virginia's transportation funding challenges would cut traffic, generate needed revenue, improve transit, and significantly benefit the environment.

Clearly, there is good policy available for Virginia's leaders to take up -- policy that promotes accountability and delivers the results that Virginians, and Americans, want and deserve.

Mary E. Peters is the U.S. Secretary of Transportation. To contact her please visit the Web site www.dot.gov.

Why the Gas Tax is a Lame Duck

How many times have you read a comment that road pricing is unnecessary (the language is usually baser) because you could just raise the gas tax?

How many times have you heard recently that the rising gas prices will end the conversation about congestion pricing?

Maybe this will help drive some of the air out of those arguments.

$4,000 Car-pool Bludgeon

There have been hundreds of thousands of articles, papers and reports in tens of languages about the effects of the major cordon charging schemes of Stockholm, Singapore and London (LCC and WEZ). Surprisingly, the subject remains unexhausted.

Reports about these systems generally claim an instantaneous 10% increase in speed, a 15% decrease in air pollution, a 20% decrease in congestion, and a critical shift in public acceptance from somewhat below 50% to somewhat above. Any variability that you note is due to the lack of a single audit standard and confounding factors or assumptions that change from report to report.

However encouraging the good news, there is also some bad news. Because these cordon-class systems are new, we have not yet deployed appropriate technology. We are over-reliant on a clutter of road-side infrastructure of fixed DSRC and cameras, and we have been limited in scope – so far, we deploy in 20sqkm areas for about 200-400,000 daily car-trips.

With Google as the lazy researcher’s crutch, I worked out some rough, unaudited figures. I neglected Singapore because I could not find all the data I needed to complete the requisite calculations. Accordingly, for each of LCC, WEZ and Stockholm, after-deployment daily trip counts of 130,000, 178,000 and 329,000 meant trip-count reductions of 60,000, 72,000, and 81,000, respectively. Using average cost reports of capital and operating costs combined to estimate an annual cost for the first five years ($239M, $255M, and $91M, respectively – all figures in rough 2007 US dollars), the annual cost of servicing a daily car trip (250 trips) into each of these three cordons was $1835, $1433 and $277, respectively. (Stockholm, a peninsular island, has only a few choke points.)

Far more interesting, however, the annual cost of removing a daily car trip (250 trips) – is $3975, $3542 and $1123, respectively. Of course this is double-dipping; if a city paid to service the trips that remain in the system, the trips that moved to car-pool, bus, bike or telework are the bonus. But the whole point of this exercise is to reduce peak-hour trips, isn’t it?

I looked also at the area-costs of servicing a cordon – roughly $11M, $20M and $4M /sqkm/per annum, respectively, over the first five years.

This contrarian’s back-of-the-envelop accounting method tells us something: relatively small, equipment-heavy cordons – as any city mimicking London would create – are disastrously expensive. We should learn how to reduce the road-side infrastructure by deploying privacy-assured GPS technology rather than continuing to punish our central business districts with high-maintenance crapscapes.

GHG, Transportation and Congestion

This says 40% of America's GHG is from Transportation:
Reducing Greenhouse Gases Through Traffic Management and Smart Growth
Environmental Defense Fund, Michael Replogle, Transportation Director May 21, 2008

But this table says that overall in the largest 100 US municipalities 59% of per capita contribution to GHG is from transportation, and 3/4 of that is from cars (you'll have to do your own math).

AND the companion brief says metro area residents have smaller carbon footprints than the average American:
Shrinking the Carbon Footprint of Metropolitan America
The Brookings Institution, Andrea Sarzynski, Marilyn A. Brown, Frank Southworth May 2008

(page two of their brief says 33% of GHG comes from transportation across the nation)

How come the discrepancies?

If you look closer at the table, taking ratios city-by-city (for example San Francisco's ratio is a bit over 75%), we are seeing the effect of the predominance of the private vehicle as the producer of GHG. Metro dwellers may have a slightly smaller footprint, but that budget is largely spent on their cars. That will be exacerbated by sprawl, congestion, lousy transit, low transit patronage, outsized vehicles, congestion, longer average commutes, diminished walking, poor bicycle paths and congestion.

The point? In America, metro dwellers may have a slightly smaller footprint, but they could have a very much smaller footprint. Furthermore, since these 100 largest metro areas occupy a tiny fraction of the United States, wide-area cordon pricing could make a huge difference.

Telcos, Tollcos

On April 28th, this year, Secretary Mary Peters spoke at The Brookings Institution. There she said that congestion in America is worse than ever; that it will continue to get worse; that the gas tax is unresponsive, unsustainable, and unpopular; and that Americans will not agree to increase that gas tax. She added that the “brass-ring opportunity we have before us is to substantially change that system and move forward to something that is more user responsive and more market-based.”

Later in response to a question, Secretary Peters, said that HOT lanes are an interim measure “…a stepping stone to get people acclimated to paying a fee for use of a section of roadway at a peak period of time.” And that here in America we will eventually go to a “vehicle miles traveled (VMT) form of pricing”, by which she means the same thing as the Europeans mean by Time-Distance-Place (TDP) charging. When I asked later how far away that might be, she said “some states cannot wait more than ten years”. The AASHTO Journal in both April and May of this year puts the date for a switch-over to VMT at 2025.

USDOT and Secretary Peters do NOT see market pricing as a way to maximize revenue, rather as a way to maximize network performance – i.e., if we can price to reduce congestion, sufficient funding and somewhat cleaner air will naturally follow.

Given this rapid awakening of Americans to the need to switch to TDP pricing, the American prediction that this will occur somewhere between 2018 and 2025 coupled with the European prediction that it is between 2011-2020 and predictions by many other countries for times in between, this thing might be well past half-way done by 2020.

But what thing?

The EU has declared GNSS to be the only known technology that can feasibly apply TDP pricing everywhere; if the transportation leadership in America sees HOT as interim and sees GPS as the endgame, then we are talking GNSS-tolling in a big way – perhaps 300M vehicles worldwide by 2020.

How is that going to be done? For the US, "ten years" is awfully close. The experimentation, cross-vendor bake-offs and standards bodies in the EU are in a dead heat to be ready for the 2011 kickoff by the Netherlands which has 9M vehicles against Americas 250M. Right now the EU schemes on the drawing board are still expensive; they demand a massive telecommunication commitment, either sophisticated heuristic map-matching at the dashboard or massive amounts of raw data moving to a central processing area. There is nothing on the drawing board that will network to support 300M vehicles. So far we are at 640,000 trucks in open sky in Germany – 0.21% of what is being predicted for 2020.

What will we do here in America? We could assume the Europeans will solve it, then import their technology? Is that what we want? And what if they don’t solve it?

So far as I am aware, the GPS-tolling experiments executed in America have not sought to solve the problem of tolling using Liability Critical GPS as some of those in the EU have addressed – albeit unsuccessfully so far. Rather these experiments use navigation-quality GPS receivers to test user acceptance, state boundary detection, and user modal adaptability. The Europeans have shown repeatedly in Copenhagen, in London, in Amsterdam and in several other cities that navigation grade GPS will not work in our cities due to signal interference.

Let’s assume the problem of low-cost Liability Critical GPS will be solved and shared around the globe. This is a reasonable gamble, since one company already claims this. Still how would such a system be deployed?

What we want to do is:

• put a small device that includes GPS in a few hundred million vehicles,
• measure road use in small time, distance and place increments,
• log that use privately – maybe even anonymously,
• move that data wirelessly to a billing capability,
• generate bills for many tens of such small transactions, perhaps hundreds per month per user,
• set up credit, debit, and pre-paid accounts for these users,
• handle device fulfillment, customer support, troubleshooting, device repair and replacement
• make sure motorist driving in an area far away from their home RUC provider can “roam” on the roads of another provider and have the transaction handled seamlessly.

This mimics exactly what the Telcos do now. There are two differences; first the device meters road use instead of handling voice and email, and second it is attached to your windshield instead of your ear. Otherwise, the business of being a Road Network Tolling Operator is identical to that of being a wireless network operator.

The only organizations that can toll the entire United States on short notice are the Telcos. And 10 years is short notice. We should get started.

Intelligent Car Lobbyist

I know this is old news, but ya gotta wonder how a car lobby would ask for Road-Use Charging. How did they get so smart while so many politicians – like some in New York, recently, seem less so?

I copy it all here to be sure it is always available...

Car lobby calls for road-use charging
Shane Wright | theage.com.au | June 17, 2007

ALL motorists should carry a GPS-type transponder in their vehicles and, instead of paying fuel taxes, they should pay for every kilometre they drive, in varying amounts depending on what time they use the road.

This is the ambitious plan of the Royal Automobile Club, which is pushing the Federal Government and the Labor Party for an overhaul of fuel taxation.
The plan, backed by motoring groups, would work in a similar way to the way in which people are charged by phone companies depending on when they make a call, over what distance and how long it lasts.

Motorists would be rewarded for driving at off-peak times or in cars that used less petrol. Instead of the various taxes imposed on fuel, people would be charged on either their use of roads or on carbon emissions.

RAC member advocacy general manager David Moir said suggestions to change the way GST was applied to petrol would deliver, at best, cuts in petrol prices of about four cents a litre.

But a shift to a user-pays system would not only allow people to control the amount of tax they paid, but also enable governments to target carbon emissions from vehicles as well as congestion in large cities.

"This isn't a short-term fix, but a longer-term plan that could address a lot of problems," he said. "It sends the right price signals to people, so you can get a benefit on congestion, you can encourage people to drive the right type of vehicle and at the right time."

The technology to monitor vehicle movements is already available, with cashless motorways in both Melbourne and Sydney relying on electronic tags. Global positioning systems would enable exact measurement of the distances travelled by motorists.

But Mr Moir conceded there could be winners and losers from the system, and some motorists could have privacy concerns. (There are ways to protect privacy -- this is a common error due to a subtle confusion beween 'positioning' and 'tracking' /ed.)

Road Pricing Discounts

RUC discounting schemes have political acceptability as their core motivator, but location-based discounting can be complex, unfair and counterproductive. This article proposes an alternative that is simpler and fairer – one that addresses political acceptability while multiplying the pricing signals that motivate congestion-mitigation programming.

Some RUC (road-use-charging) cordon-based scheme designs provide discounts for those that live within a pricing cordon. This can be done intentionally, as is the case in London, or in the original New York City proposal. It can also happen by default with any scheme that only charges for cordon entry, since residents that travel locally or only re-enter after-hours will avoid the charge by fortune of geography and schedule.

In the face of unsustainable fuel taxes and contemplating more and larger charging schemes, up to and including continent-wide time-distance-and-place (TDP) charges, the question arises: “Can we provide a discount to motorists driving near their homes when we use a satellite-based, RUC system?”

Granting a “discount radius” to each motorist could accomplish this, but that increases the expense of the TDP charging computation. A slightly less expensive way is to assign discounts based on charging districts. However, I am generally against such discounts because I believe everyone should pay for what they consume. In an urban community we generally pay the same for utilities such as electricity or water regardless of our location and I think that should apply to mobility, as well.

Considering that discounts encourage consumption and tend to generate cross-subsidies, a more direct question to ask is: “Should we provide discounts for motoring?” or if we must discount, “Should we provide motoring discounts by geography, since that encourages automotive use in specific geographies, harming other residents sharing those locales?”

Geographic discounts say to motorists: “It is fine to drive as long as you are from here, but we’re going to charge visitors, since they contribute to congestion and to air-quality problems”. Such discounts can be seen as cynical, telling the local motorist: “We value your vote more than accessibility – or more than air quality.” Or “It’s not your car, it’s theirs.” Geographic discounts signal entitlement rather than conservation or increasing choices for mobility.

To the first question: “Should we provide TDP RUC discounts?”, there are at least two critical reasons to say yes:

1. It is politically easier to sell: “we will charge a very modest fee, perhaps only nominal, to those motorists who are rate payers here, who work, go to school and church here, who are part of our local commercial and social community; and we will charge a market rate to visitors, motorists in transit, and commuters who do not live here.”
   
   Since the essential hurdle to universal, fair market pricing for roads is political, this reason alone is sufficient to argue for discounts. But is geographic discounting the only political lever to get RUC programs in place?
   
   
2. Poorer motorists tend to drive fewer miles and closer to home. RUC fees, since they can compound the effect of increasing fuel prices, can serve to further exaggerate the have/have-not forces that constrain the mobility of poorer motorists). Hence a close-to-home RUC discount is biased in favor of poorer drivers and this is fair in that regard.
   
   This social reason is, in my opinion, sufficient on its own to force us to address discounting in some way.
   

Hence, I believe there are political and social reasons that make RUC discounting a critical conversation that we need to engage in now. Unfortunately, assigning discount by geography is expensive, unfair and counterproductive.

1. Expensive. Granting a discount radius from a point (e.g. your home) or assigning discounts by district would be administratively expensive.
   
   
2. Unfair. Person A and B are neighbors and live near the edge of a discounting “district”. Both live 5 miles from their respective jobs. Both drive the same type of car and both work the same shifts but A works inside the assigned district while B works in the adjacent district. This unfairness to B could be solved by the more complex and expensive radius approach.
   
   
3. Counterproductive. Assigning discounts to short journeys has the undesired effect of discouraging cycling, doubling, moving, pooling, transit-use, trip avoidance, waiting and walking. This problem is worse than the issue of high administration expense that could be seen as a job generator (a benefit).

Mobility credits

There is another solution that is very inexpensive to operate, fair to all regardless of geographic happenstance and encourages cycling, doubling, moving, pooling, transit use, trip avoidance, waiting and walking. Furthermore, this alternate solution compounds pricing signals, and diminishes entitlement signals.

We have a hint about this solution from the Puget Sound Regional Council (Washington State, U.S.) trials:

If you give people money that they can spend on
RUC fees or keep, they attempt to keep some.

I propose providing mobility credits. These could most easily be distributed on a monthly or annual basis to the user of a pay-for-what-you-drive road-use meter and could be managed by a billing services operator. An annual allotment is preferred so that a motorist is not pressured to “use up” credits before month-end. An annual allotment could be used up well in advance or could even be carried over in the event that a motorist managed to avoid driving during chargeable times or on chargeable roads.

A credit distribution associated directly with the meter ensures that the metering device holds attraction for the motorist. For example, if such a meter was charging 5 to 50 cents per mile (depending on time and place) and was the only access to mobility credits, then a $250 annual credit against a $10 per month device usage fee, makes the meter an investment rather than an expense. Note that such credits would be easy for a government-operated tolling scheme to justify since most government schemes already provide free access to most roads.

Assume a vehicle-attached meter (i.e., a telematics sensor) operating as an electronic license plate and producing an anonymous, evidentiary record of road use from which can be generated a billing feed (our firm makes one such system, as an example). Grant each motorist mobility credits (for example, $20 per month – enough to travel 40 to 400 miles depending on time and place charge rates). In this way, a simple per-device accounting credit provides:

1. discounted or free trips for a motorist who drives to shop, to church or to drop kids at school;
   
   
2. an incentive for other motorists, including poorer motorists, who would like to conserve these credits for longer trips or trips that must be made in an automobile and to otherwise avoid, cycle, double, move, pool, take transit, wait or walk.

As we engage in the shift from paying based on fuel consumption to paying based on TDP metering, the question will arise whether meters should be paid for by the motorist, by the government, upfront or over-time. If they are distributed at no charge, mobility credits would make it especially attractive to road users to participate in the system, but the meter itself might not be valued, unless credits continued to be provided. If the meters are to be paid for, mobility credits should cover more than just meter costs to provide a net credit. I believe meters should be paid for over time, as are mobility handhelds, now in order to ease the expense. Such as arrangement would make the system easy for motorists to purchase: they would pay gradually for the meters, while receiving a net credit for their participation. It also makes it easy for a meter operator to finance millions of meters, since there is a guaranteed source of revenue to secure the loan.

Transferable Credits

But why stop at credits just to motorists who use the meter? What granting credits to transit users and cyclists? In the economic-fairness spirit of parking cash-outs that provide an equivalent transportation incentive to employees who do not use free employee parking, mobility credits could be provided to all people of driving age. These could be sold or given to others, creating a market analogous to that for carbon credits. Such an approach provides two valuable signals:

1. the motorist who buys such credits is directly subsidizing some other person to use a non-automotive alternative – or at least to use their automobile on uncongested roads and at uncongested times;
   
   
2. the value of not driving is now rewarded, as opposed to only having the act of driving taxed.

Creating a system on the internet for such an exchange is not terribly difficult. True, not all people have internet access, but most libraries provide access and most people have a friend who could help. What is needed is a unique mobility identifier for each person over driving age. In the extreme, an exchange office could be set up for handling this by mail, but it would be best to avoid such an expense and invest in ensuring that libraries have access and staff who can help new users. This has additional side benefits.

Mobility for all

Is it fair to provide mobility credits only for those over 16? Consider that parents of three- and nine-year-olds likely need to travel additional miles for schools, doctors, sports and the like. Consider also that many families have an older person or a disabled person who does not drive, rather depending on others in that family to drive for them. Mobility credits for every person would send even more cycling/walking/transit signals to a family with a couple of young children, especially if they could sell such credits to other motorists. Similarly, relieving the additional expense burden of transporting an aging family member to medical appointments promotes a greater sense of fairness.

In the balance between road-use charges and credits is the combined opportunity for addressing congestion, emissions and funding issues all while keeping an eye on fairness and political acceptance. Credits say: “we understand you require reasonable access”, while pricing says: “Please take treat that access like the precious resource it is.” Done right, the shift from fuel tax to pay-per-use can provide immediate solutions as well as additional health, lifestyle and urban quality benefits.

Road Pricing for Greenhouse Gas Efficiency

I always prefer to price correctly for congestion and rely on that to address emissions and funding. Nonethless the arguments for pricing away GHGs must still be made. Michael Replogle, once again, does it well (download PDF).