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

10 October 2003Overview on Interurban Road Pricing2 It is just a new way of filling the treasury It enhances the choices of the consumer It leads to more and better roads and therefore to more economic growth It is the solution to make cars cleaner

10 October 2003Overview on Interurban Road Pricing3 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?

10 October 2003Overview on Interurban Road Pricing4 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 km category

10 October 2003Overview on Interurban Road Pricing5 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 B€ 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)

10 October 2003Overview on Interurban Road Pricing6 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

10 October 2003Overview on Interurban Road Pricing7 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

10 October 2003Overview on Interurban Road Pricing8 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) 1.Do nothing (no new policies) 2.Full social marginal cost pricing (All modes) 3.Only freight road transport 4.Only road (passenger + freight)

10 October 2003Overview on Interurban Road Pricing9 Do Nothing policy: increased transport volume leads to increased externalities despite reduced externalities per kilometre

10 October 2003Overview on Interurban Road Pricing10 Total transport performance only differs a little between MSCP implementation paths

10 October 2003Overview on Interurban Road Pricing11 Overall welfare effect of MSCP is positive for all implementation paths in the long term But effect depends strongly on the way revenues are used (and on assumptions concerning labour markets and consumer behaviour)

10 October 2003Overview on Interurban Road Pricing12 Revenue use strongly influences welfare effect (and optimal charge) Source: KU Leuven model tax rate on freight % change in welfare via labour taxes lump-sum

10 October 2003Overview on Interurban Road Pricing13 Optimal congestion charge for freight is lower when passenger transport is also charged Source: KU Leuven model

10 October 2003Overview on Interurban Road Pricing14 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)

10 October 2003Overview on Interurban Road Pricing15 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)

10 October 2003Overview on Interurban Road Pricing16 Welfare impacts differ between countries with toll systems and without toll systems Charging Only freight road transport versus all road transport is half of the impact CountryFirst BestFreight Freight All M’wayAll M’way all roadstraffic road traffic Spain France Italy Portugal Austria Belgium Denmark Finland Germany Greece Ireland Lux NL Sweden UK TOTAL Source: SCENES Models, MC ICAM (draft version_october 2003)

10 October 2003Overview on Interurban Road Pricing17 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.

10 October 2003Overview on Interurban Road Pricing18 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

10 October 2003Overview on Interurban Road Pricing19 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 on board unit garage mobile communication billing CRM & marketing administration other costs

10 October 2003Overview on Interurban Road Pricing20 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)

10 October 2003Overview on Interurban Road Pricing21 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