The Heavy Vehicle Charging and Investment Reform group has launched a campaign to have Australia’s fleet of 548,000 trucks charged for road use via GPS, in a move that is likely to infuriate the trucking lobby. From The Australian:
…there could be almost $22 billion in net economic benefits from radical changes.
The group warns that within seven years, and possibly sooner, the limits on revenues raised by heavy vehicle road-user charges paid through fuel excise will be reached.
When this happens, the only source for extra roads funding would be “inefficient, inequitable and lumpy” registration fees that truck owners pay to the states…
Rail companies have been pushing for trials of “mass-distance-location” pricing that would charge trucks based on their weight, distance travelled and the roads they use. But the peak body for trucking operators has demanded a halt on work to the HVCI’s proposal for mass-distance-location charges, saying it has “grossly underestimated the cost, administrative burden and practicality of rolling out and maintaining this equipment”.
The proposal “would greatly increase the cost of transporting freight in rural and regional areas, because roads in these areas are built to a lighter standard than major highways,” said Australian Trucking Association chief executive Stuart St Clair. “To meet the cost of road wear, charges for local roads in rural areas would need to be 25 times higher than charges for freeways”…
Under the existing road user charge, trucking operators receive a fuel tax credit for the difference between the charge (of 26.18c a litre) and the fuel excise rate of 38.14c/L. But because of the rate the road user charge has been increasing; it is expected to reach the fuel excise ceiling in the next five to seven years.
The debate over “mass-distance-location” (MDL) charging of trucks has been raging for more than a decade.
The rail industry has in the past claimed that current road pricing arrangements distort modal choice and promote the over use of road freight at the expense of rail. First, because there is under recovery in relation to the largest vehicles that travel the longest distances and compete with rail (e.g. B doubles used for interstate line haul). And second, because the costs of pollution, noise and trauma are typically higher for road use but are not priced to take account of the externalities associated with the provision of freight services. As a result, the level of road freight usage is above the socially optimal level.
There is also an argument that the current road pricing system is achieving sub-optimal outcomes as it provides road infrastructure owners with a perverse incentive to limit usage of the road network by more productive (heavier) vehicles in order to limit road damage. Further, from the perspective of the transport industry, there is no mechanism to choose to pay for a higher level of road consumption, irrespective of the potential productivity benefits. Moreover, under present arrangements, infrastructure owners are not directly compensated for additional road wear.
In theory, direct user pricing, through MDL charging, has the potential to create better incentives and improve outcomes by providing a direct fee for service relationship between road infrastructure providers and vehicle owners, thereby shifting the intent of heavy vehicle regulation from road asset protection to optimising its use and improving investment in road infrastructure.
Under complete MDL charging, a truck traveling with x weight on y road would be charged in real time, with money transferred electronically from a nominated account to the road agency. Charges would vary as these parameters change, for example, moving into a more/less sensitive road surface, crossing a bridge and/or loading/unloading 10 tonnes. Prices would be lowest on roads designed specifically to carry heavy freight, since the marginal damage caused on these roads would be low. By comparison, prices would be highest on thinly paved roads where heavy vehicle damage is high.
However, while there are considerable potential benefits from MDL charging, as indicated by the Australian Trucking Association above, there are likely to be adverse impacts on regional areas.
Rural areas are typically highly dependent on road transport, with the exception of a small number of locations serviced by rail, and are often located long distances away from ports and manufacturing centres. With existing cross subsidies removed, the cost of long distance road freight operations would likely increase. In addition, the roads to rural areas are often lowly trafficked and can be expected to have higher marginal costs than roads built to take advantage of economies of scale and carry heavier loads.
The combination of long distances and high marginal costs, therefore, mean that the costs of getting supplies to rural and remote areas, and costs of getting their products to market, would likely increase under MDL charging.
There are also significant technological and institutional issues to be overcome before MDL pricing for heavy vehicles could be introduced.
To the best of my knowledge, there is no MDL charging system operating anywhere in the world and there exists no established market that could provide the expertise, resources and services necessary to support such a system. International systems of road pricing, using simpler forms of technology, have also proven to be expensive to implement and maintain.
A move to MDL charging for heavy vehicles could also have a substantial impact on intergovernmental revenue flows if hypothecated. Removal of the fuel excise component would significantly reduce Commonwealth revenues. Similarly, removal of the registration component would reduce State and Territory Government revenue.
Given the significant barriers to implementing MDL pricing, a compromise solution could involve incremental pricing – a process whereby road users are charged additional fees, over and above the existing ‘base’ charges, for particular activities that are not normally permitted. For example, a logging truck might be permitted, for a fee, to use a section of road at higher masses than normal limits. The fee would be calculated to cover the truck’s contribution to road wear and tear costs, over and above that collected through the standard charges. Meanwhile, other heavy vehicles would continue to pay road charges based on the current system of registration and excise payments.
Incremental pricing has the potential to unlock significant productivity improvements while also changing the nature of the relationship between road authorities and heavy vehicle users. Importantly, it would reduce the incentive for road authorities to preclude higher mass on their roads in order to limit road wear because of the compensation they would receive for granting access.
The system could also be applied on a voluntary basis, thereby minimising the compliance and administrative burden, as well as potential opposition and political risks, associated with changing the road pricing system.
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