Pricing for Prosperity

Mar 12, 2018 | Publisher: Techcelerate Ventures | Category: Travel |  | Collection: Transportation | Views: 10 | Likes: 1

FINALIST Pricing for Prosperity Paul Buchanan, the spokesperson of Volterra and Jacobs', is an economist specialising in the transport sector. Paul has led many major project appraisals including Jubilee Line Extension and Crossrail. He has extensive overseas experience. Paul led the development of Wider Economic Benefits for Crossrail from 2002 to 2005, subsequently incorporated into DfT guidance. He is a Partner at Volterra. Volterra Jacobs Pricing For Prosperity Prize Team SIR JOHN KINGMAN LORD DARLING ISABEL DEDRING LORD FINKELSTEIN BRIDGET ROSEWELL OBE LORD WOLFSON Chairman of the Judging Panel Judge Judge Judge Judge Founder JULIAN GLOVER OBE Prize Director The Wolfson Economic Prize invites entrants from around the world and all sorts of backgrounds to propose original, well-argued and informed solutions to big national challenges. The aim is to bring forward fresh thinking to help people, governments and businesses develop practical policies. This year the prize addresses an issue at the heart of every country's economic future: road infrastructure, and how can we pay for better, safer, more reliable roads in a way that is fair to road users and good for the economy and the environment? The way cars are powered, driven and owned is being revolutionised. Soon a world of cleaner, automated vehicles will arrive and old annual charges and petrol taxes will no longer work. A new kind of driving will take a new kind of road and a new kind of funding ideas needed not just in Britain but around the world. The five shortlisted submissions of which this is one show that it is possible to come up with potential answers that can help road users, improve safety, protect the environment, and support our economy. | 1 Authors: Paul Buchanan, FCIHT Economist, Partner at Volterra Partners Kieran Arter Economist, Volterra Partners Lucy Dean Economist, Volterra Partners George Matthews Economist, Volterra Partners John Siraut Economist, Jacobs Stelios Rodoulis, MCIHT Transport Planner, Jacobs Shamai Cohen Economist, Jacobs Contents Executive Summary 1. The state we are in 2. Potential solutions, barriers and road pricing examples 2.1 Matching demand and supply of road capacity 2.2 What are the barriers to change? 2.3 Road pricing: case studies 3. Our Solution 3.1 Introduction 3.2 The User's perspective 3.3 How P4P will be implemented 3.4 Private service providers interaction with users 3.5 Incentivising highways authorities 4. How do we deal with technological change? 4.1 Transition to Connected and Autonomous Vehicles 4.2 The technology behind our solution 4.3 Virtual Personal Mobility Assistant 4.4 CAVs and improved asset management 4.5 Road pricing and insurance 4.6 Road pricing enabled CAVs a new urban management tool 3 7 11 11 11 14 19 19 20 29 34 34 35 35 37 40 40 41 41 PRICING FOR PROSPERITY /WOLFSON ECONOMICS PRIZE 2017 2 Disclaimer Copyright 2017 Volterra Partners LLP and Jacobs U.K. Limited. The material in this presentation has been prepared by Volterra Jacobs. The concepts and information contained in this document are the property of Volterra Jacobs. Use or copying of this document in whole or in part without the written permission of Volterra Jacobs constitutes an infringement of copyright. Apart from any use permitted under applicable copyright legislation, no part of this work may in any form or by any means (electronic, graphic, mechanical, photocopying, recording or otherwise) be reproduced, copied, stored in a retrieval system or transmitted without prior written permission. 5. How can we make road pricing acceptable to the public? 5.1 Introduction 5.2 Issues affecting public acceptability of road pricing 5.3 Privacy and the potential of blockchain technology 5.4 Blockchain application for vehicles 5.5 Why is our solution better than other schemes? 6. Environmental and Social Impacts 6.1 Environment 6.2 Combating Climate Change 6.3 A National "Clean Air Zone" 6.4 Noise 6.5 Safety 6.6 Fleet Improvement 6.7 Environmental mitigation 7. Financial and Economic Appraisal 7.1 Financial Appraisal 7.2 Economic Appraisal 7.3 Summary 8. Why we think P4P is the best solution to the Wolfson Economics Prize question 42 42 43 45 48 48 50 50 51 51 53 54 54 54 55 55 61 65 66 PRICING FOR PROSPERITY /WOLFSON ECONOMICS PRIZE 2017 3 Our roads are congested Roads are the arteries of economic activity: connecting labour to jobs, goods to markets and people to places. The vast majority of passenger and freight trips are on our roads. Over the last 50 years, traffic has risen by almost 400% but road mileage has increased by only 30%. The result has been a significant growth in congestion and its severity, increased unreliability in terms of predicting journey times as well as a rapid decline in air quality. and expensive! We pay high costs for using our congested roads. Through fuel duty and Vehicle Excise Duty (VED), British drivers pay just over 30bn a year to HM Treasury of which less than 25% is actually spent on our roads. Not only are journey speeds declining but so is the condition of our road network with an estimated 13 years' backlog of essential maintenance. Today there is no link between what drivers pay and what is spent on the road network. Why? Largely because we pay for roads in the wrong way and there is no connection between the traffic that roads handle and the money that flows to highway authorities. For the highway authorities, roads are liabilities that cost money, not assets that generate a return so they are a low priority in a world of limited resources and competing demands. The taxes paid by motorists are either "fixed cost" like VED or "average cost" like fuel duties. They are designed to raise funds for government, not to make roads work more efficiently. Marginal cost payments, where you pay for the roads that you use and the time at which you use them, can deliver more efficient outcomes. Executive Summary How? By making the price signals clear to road users, helping them to make better choices on timing, routeing and which mode to use. A large part of the problem is that current price signals are ineffective at matching demand and supply. What are we proposing? The Pricing for Prosperity (P4P) solution will provide a time and money quote for any journey and information on alternative routes, timing and modes and to what extent this will change costs. If the quote is accepted, then the highway authority has the responsibility to deliver. Unexpected delays will mean financial compensation to drivers. After each journey, the driver will receive a summary of the actual journey, route, time and cost. Within P4P there will be a single charge comprising three elements: A congestion charge which will rise in line with, and hence reduce, congestion. No congestion - no congestion charge. All of the money raised will be invested in improving the overall transport network; An environmental charge the adverse effects of road use, such as noise and air pollution, will be paid for by drivers and spent on mitigating those adverse effects. For clean and quiet vehicles the cost could be zero; and A maintenance charge which will cover day-to-day maintenance and operational costs and ensure all roads are maintained to a high and safe standard. All charges will be set and monitored by an independent regulator which will also be responsible for ensuring highway authorities are efficient and cost effective in the delivery of their operations. 4 BUS STOP PETROL LIVE BUS ARRIVALS Present .... PRICING FOR PROSPERITY /WOLFSON ECONOMICS PRIZE 2017 5 Will it work? Yes, all the evidence from cities such as Singapore, London and Stockholm and toll roads worldwide, shows road pricing to be highly effective at reducing congestion and providing road users with more reliable journeys. It is notable that early scepticism about road pricing when introduced is replaced by widespread support once its benefits become apparent. The P4P solution will be effective at reducing congestion, providing reliable journey times, protecting privacy and highly efficient in terms of cost of operation. What will happen? Better price signals will help drivers avoid congestion by re-routeing, re-timing or changing mode or destination. Journeys will take less time and will be much more reliable. The P4P price signals will also encourage the use of more environmentally friendly vehicles by charging for emissions. The price signals to drivers will be clearer. Not only will P4P change demand on the roads it will also generate significant new investment to increase capacity, improve driver behaviour and mitigate external costs. Is it fair? Our analysis suggests that around 90% of private road users will either be financially better off or no worse off than at present and most of those paying more will be higher income road users. Polluting and infrastructure-damaging freight vehicles will pay more but will benefit from more reliable and faster journeys and the vast majority of cleaner private cars will pay less. We will introduce a vehicle scrappage scheme to encourage the replacement of older more polluting vehicles and enhance bus services in congested urban areas to provide choice in advance of P4P commencing. Bus users will, in fact, be major beneficiaries as journeys become faster and more reliable. Those in rural areas, even though they drive more than average, will pay less than those in urban areas as there will be no congestion charge element. Will everyone know where I have driven? Not if you do not want them to. Blockchain technology enables all journeys and payments to be made anonymously if desired and there will be no central government database of people's journeys. Sounds good for the driver, what about the economy? Simply by eliminating the majority of delays, P4P will deliver 160 billion of time savings over a 30 year period (present value discounted). In addition, reliability benefits are conservatively estimated at a further 40bn. There is a direct reduction of 60bn in business costs from faster journeys. There is also a 37bn reduction in commuting costs resulting in wider, deeper and more efficient labour markets as well as improved reliability. If HM Treasury were to collect 40% of those savings in taxes, there would be an additional 38bn in tax revenues. That is in excess of the 21bn net cost to government of the scheme, relative to a do nothing scenario, Conclusions Now is the time for road pricing. Our roads are in a poor state and clearly impacting on business performance and quality of life. The move away from carbon fuels and the introduction of connected and autonomous vehicles will result in a loss of government revenues, whilst at the same time delivering a significant increase in road use. 'Do nothing' is not an option; road pricing with modern technology offers a long-term solution to the UK's uncompetitive transport infrastructure by providing more reliable and faster journeys. 6 LIVE BUS ARRIVALS PETROL Future with Pricing for Prosperity PRICING FOR PROSPERITY /WOLFSON ECONOMICS PRIZE 2017 7 The car has been the dominant passenger mode in UK transport since the late 1950s when it overtook other road modes (largely bus) as the main means of travel. Prior to this, as shown in Figure 1, rail had been dominant since the second half of the 19th century, but the lower cost and greater flexibility of first buses and then cars provided a more attractive alternative. To understand how well UK roads perform a comparison is required with other countries. Figure 2 shows the total highway provision across selected countries per square kilometre of land and per one million people. Country size is a key determinant of highway provision, but population, wealth and car ownership are also important. Overall, the UK scores poorly compared to the European countries in the sample. The main determinants of the road density measure are population density and car mode share. In general, the larger countries tend to have lower road kilometres per square kilometre because their population densities are lower. Thus Australia and Canada have low results for this measure despite having high car mode shares. Figure 3 shows that the number of kilometres of road per square kilometre of land is heavily dependent upon population density. It also suggests that the UK (red dot in Figure 3) is undersupplied with roads for a country with its level of population density. Figure 4 displays total road kilometres in the UK from 1951 to 2014 alongside total vehicle kilometres over the same period. Since 1951 vehicle kilometres have increased by 765%, an average annual increase of 3.4%, but road length has risen by only 33%. The difference between those two numbers is the primary reason for higher congestion. Figure 1: UK transport mode shares (%) since 1952 Figure 2: Road provision per sq. km of land compared with people per sq. km of land Source: Department for Transport, Statistics Source: CIA World FactBook, 2017 100% 80% 60% 40% 20% 0% 1952 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Road Car Rail Air 4 3 2 1 0 312,500 62,500 12,500 2,500 km per sq km of land km per 1 million people km's of road per sq. km of landkm's per 1 million of peopleGermany France Italy Japan Australia Canada UK USA Spain New Zealand 1. The state we are in PRICING FOR PROSPERITY /WOLFSON ECONOMICS PRIZE 2017 8 In more recent years, growth in vehicle mileage has been lower. Between 1995 and 2005, the average annual increase was only 1.4%, an overall increase of 15%. Since 2005, vehicle kilometres have only increased by 3.2%, with an average annual increase of 0.2%. However, there has been an upturn in growth as the economy has come out of the recent recession. Road length has plateaued since 1995; the increase in road kilometres from 1995 to 2015 was only 2.4%. However, virtually all of this growth has been of minor local roads serving new developments. In the last ten years, the length of all major roads in Great Britain (motorways and 'A' roads) has increased by just 115 miles or 0.4%. Growth in car usage has reduced in recent years. The "peak car" phenomenon suggests that this is largely due to behavioural change among Millennials, but it may be much simpler than that. Figure 5 overleaf shows that total motoring costs (including vehicle purchasing costs) have fallen in real terms. However, there has clearly been a large increase in running costs of driving with higher fuel prices (and fuel taxes) and more expensive insurance, especially for young people. At the same time, the increase in congestion caused by the mismatch between demand and supply has made driving slower and more unreliable. It appears that the increase in marginal costs has led to a change in behaviour reinforcing the importance of marginal cost pricing. 400 350 300 250 200 150 100 50 0 0 . 0 0 . 5 1 . 0 1 . 5 2 2 . 5 3 . 0 3 . 5 4 . 0 Australia Canada New Zealand USA Spain France km of road per sq. km of land people per sq. km of landItaly Japan Germany UK 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 600 500 400 300 200 100 0 1951 1958 1965 1972 1979 1986 1993 2000 2007 2014 vehicle km driven (bn) km of road Figure 3: Total road provision per square kilometre of land and per million of population, per country Figure 4: Trends in UK road provision (kilometres) and vehicle kilometres - 1951 to 2016 Source: CIA, World FactBook, 2017 Source: DfT statistics PRICING FOR PROSPERITY /WOLFSON ECONOMICS PRIZE 2017 9 It is difficult to obtain comparable congestion information between countries, but TomTom and INRIX provide some useful data. TomTom data is focussed on congestion levels in cities and uses its database to determine levels of congestion in 295 cities around the world. In this dataset, congestion is measured using the percentage increase in travel time compared to travel times at free flow speeds. The TomTom Traffic Index1 data, presented in Figure 6, shows that the UK performs relatively poorly compared to other countries. For example, in the UK the number of cities with congestion over 20% (i.e. those where average all-day journey times are 20% higher than free flow travel times - congestion levels in the peak are far higher) is 23, the same as in the United States, a much larger country with far more cities. As shown in Figure 6, in terms of all day congestion levels the UK tops the index list at 29%, while the United States has the lowest average congestion level at 18%. The INRIX2 (2016) congestion analysis takes a similar city-focussed approach, shown in Figure 7. This analysis looks at European cities with populations over 250,000. An impact factor is used as the measure of congestion (i.e. how large the impact is on traffic). This impact is weighted by population so that countries that have more cities are not over-represented. INRIX also provides forecasts of the predicted economic cost of congestion over a 10- year period, based on time lost due to traffic. Once again the UK emerges as the most congested, with the highest absolute and population weighted impact factors, as well as the highest economic cost of congestion. 250 200 150 100 50 0 1997 2000 2003 2006 2009 2012 2015 Retail Price Index: Motoring running costs only Retail Price Index: All motor costs Retail Price Index: All items 35% 30% 25% 20% 15% 15% 10% 0% 25 20 15 10 5 0 number of cities with congestion over 20% average congestion level Average congestionNumber of cities over 20%United States Spain Canada Australia Germany Italy New Zealand France United Kingdom Figure 5: Changes in motoring running costs in the UK Figure 6: Congestion, by country Source: DfT Statistics, Table TSGB1307 Source: TomTom Traffic Index, 2016 1TomTom Traffic Index, 2016, http://www.tomtom.com/en_gb/trafficindex/list?citySize=LARGE&continent=ALL&country=ALL 2INRIX, (2016), Europe's Traffic Hotspots measuring the impact of congestion in Europe PRICING FOR PROSPERITY /WOLFSON ECONOMICS PRIZE 2017 10 Summary The UK is a densely populated island with lower road provision than most European comparators. International comparisons of congestion suggest that our roads are more congested than those in comparable countries. The direction of causation can be difficult to determine. Figure 8 shows through a comparison of US cities, the more traffic lane miles provided per capita, the higher the level of delay experienced by users. Building more roads is certainly no guarantee of faster travel. Regarding finances, the government makes a substantial net surplus from the road sector. Income from fuel taxes (c. 27bn a year) and VED, (c. 5.5bn a year) combine to make 32.5 billion a year. This significantly exceeds the costs of maintaining and operating UK highways which currently stands at approximately 8bn a year. UK motorists are paying more but doing so in a way which does not encourage them to make more efficient choices on when to drive and what route to take, let alone encouraging a change in mode. In addition, roads are seen by highways authorities as a liability rather than an asset as they incur costs and generate no revenue and hence are low priorities for investment. P4P will turn roads into revenue generating assets allowing highway authorities to invest in maintaining and enhancing their transport networks. 50 40 30 20 10 0 70 60 50 40 30 20 10 0 2025 economic cost of congestion Population weighted impact factor Population weighted impact factor (millions)Cost of congestion in 2025 (bn)UK Germany France Italy Belgium Spain Switzerland Portugal Slovakia Netherlands 90 80 70 60 50 40 30 20 10 0 0 .2 .5 .8 1 1.2 1.5 1.8 2 Miles of Freeway and Arterial road lanes per 1000 pop Delay per driverNew York Philadelphia Chicago San Francisco Boston Washington Los Angeles Seattle Baltimore Minneapolis Cleveland Pittsburgh St. Louis Miami Detroit Phoenix San Diego Houston Dallas Atlanta Figure 7: Impact and cost of congestion, by country Figure 8: Comparison of traffic lane miles and delay for 20 biggest US cities Source: INRIX Roadway Analytics3 Source: Urban Transport Monitor, 1999 13INRIX Roadway Analytics (2016), 'Congestion At The UK's Worst Traffic Hotspots To Cost Drivers 62 Billion Over The Next Decade', http://inrix.com/press-releases/inrix-reveals-congestion-at-the-uks-worst-traffic hotspots-to-cost-drivers-62-billion-over- the-next-decade/ PRICING FOR PROSPERITY /WOLFSON ECONOMICS PRIZE 2017 11 2.1 Matching demand and supply of road capacity It is clear that in many parts of the UK there is a mismatch in the supply of and demand for road capacity. We therefore need to build more road capacity without generating too much of an increase in demand, restrict demand in ways which do not harm the economy or the environment, or probably a combination of both. The main policy options for doing this are described in Table 1. 2.2 What are the barriers to change? It is always easier to maintain the status quo than to change something, no matter how poor the current position or how effective the proposed solution. Road pricing has been proposed many times in the UK only to fall at the hurdle of public support. The main barriers include: All car drivers will be affected and some (albeit only a minority) will no doubt be financially worse off. However, in terms of generalised cost (the sum of the monetary and time costs of a journey), all will be better off with faster journeys offsetting any higher financial costs; HM Treasury may not welcome a system which hypothecates funds, even to a sector as important as transport, although VED has recently been hypothecated; Motorists don't trust politicians when it comes to charging, but are in principle supportive of the idea of road pricing. The AA's Populous Survey (2017) found that 46% of drivers were in favour of replacing fuel duty and VED with a system based on when, where and how far you travel, compared to 33% who did not. However, 75% said they did not trust the government to deliver if promises were made to reduce fuel duty and VED on the introduction of road pricing; There are distributional impacts of a pricing policy, although often not the ones that people perceive. The biggest beneficiaries tend to be those on lower incomes travelling by bus who get faster journeys. The other main beneficiaries are those who drive less than average, who tend to also come from lower and medium income groups. Those who drive high mileages in peak periods may pay more but will gain benefits in terms of time savings; and The road management system and/or operator will know where vehicles are located, and perhaps where they are heading and when. This will generate an enormous amount of trip data containing potentially sensitive personal information. This raises issues of privacy, even if no more so than the ability to track people's movements via mobile phones, apps, CCTV, smartcards, etc. The issue of privacy is a wider, societal issue, but there are technological solutions which enable payment whilst retaining anonymity. 2. Potential solutions, barriers and road pricing examples PRICING FOR PROSPERITY /WOLFSON ECONOMICS PRIZE 2017 12 Option Description Raise fuel tax to restrict demand Fuel duty is a system of broadly charging by distance travelled but it has no long-term future as a traffic management tool. This is a blunt tool, as fuel duty is not location specific. As the country moves away from carbon fuels for road transport, it will become less effective at managing demand and raising revenue. It does, however, have the advantage of being an existing tax with low collection costs and one that is difficult to avoid. Rationing car use In this option, every person gets an allowance of driving an agreed number of kilometres a year. This is seen as a "fair" or equitable system, in that everyone receives the same allowance. People who don't use their allowance might be able to sell the unused portion to other drivers resulting in some income redistribution impacts. However, the system is ineffective at dealing with congestion; indeed it might make congestion worse. Similar problems arise from the use of odd/even number plates on alternate days and it can be avoided through owning multiple cars. Pricing/restricting parking Parking charges and restrictions are a good way of managing traffic demand to specific locations, but they are not effective at dealing with general congestion, for example, on motorways. Increase road building New roads can be built and add to existing road capacity. This is generally expensive especially in urban areas, unpopular and exacerbates environmental concerns. The mass protests against road building of the 1980s made large-scale road building increasingly difficult. Importantly, building more roads may still not deliver the desired outcome of alleviating congestion. Although there are still a large number of road capacity schemes that will improve traffic flow and safety that can be usefully progressed as well as filling in missing links in the strategic network (e.g. Oxford to Cambridge), history suggests that spare capacity is rapidly filled by trip generation. Hence building new roads alone is not an easy, cheap or popular solution to resolving traffic congestion. Technological change Much hope is placed on the role of technology in delivering higher capacity on roads. Connected and/or Autonomous Vehicles (CAVs) operating closer together can certainly increase capacity and reduce accidents, but have the potential to also increase congestion if left unchecked. It is difficult currently to have any real insights about the scale of those impacts. Road pricing Pricing can potentially be a policy option for: financing the network; ensuring that the external costs of road use are mitigated; managing the network, especially dealing with congestion arising from peak demand levels; and incentivising highway authorities to improve the network and the efficiency of their operations. Table 1: Road pricing policy options Against this backdrop of policy inertia there are also positive reasons to think that the barriers to change are lower now than previously: People are accustomed to treating car use as a service. Car clubs, trip sharing apps and Uber Pool are all examples of mobility services and people are much more amenable to those systems in the new "sharing economy"; Uber has demonstrated the attraction of a system that not only picks you up quickly but informs you of the price and journey time in advance. Moving to a similar user-friendly system for road travel will put it on a par with rail and air transport; Relevant technology has advanced sufficiently to make efficient road charging deliverable. The congestion charge in London spends over 50% on administrative costs; new technology means that this can be done for less than 10% now; Government tax revenues from road use will decline significantly in the future as improved fuel efficiency and electrically powered vehicles reduce petrol and diesel consumption. Government will need to find additional alternative revenue sources; and Growing concern about air quality and increased use of more sustainable travel means there is less support for unfettered use of private road transport and more support for charging for negative externalities such as emissions PRICING FOR PROSPERITY /WOLFSON ECONOMICS PRIZE 2017 14 2.3 Road pricing: case studies 2.3.1 Introduction This section considers three examples of road pricing in three different countries: the Electronic Road Pricing charge in Singapore, the congestion charge in Stockholm and the London Congestion Charge. Each was implemented under very different political backdrops and each was initially unpopular with the public, who had doubts over how effective they could be. Since implementation, all three examples have not only reduced congestion in their respective cities but also now enjoy majority public support4,5. 2.3.2 Stockholm The scheme in Stockholm was introduced as a seven-month trial and then residents were asked to vote whether to retain the scheme. Initially, public support was low, however, when drivers started to see the benefits of road pricing support gradually grew as shown in Figure 9. The charge applies on weekdays and is a cordon scheme. Users pay a single charge for entering the cordon regardless of how long the vehicle stays or how far it is driven within the zone. Figure 10 shows the charges for different times of day, rising during the morning and evening peaks. 06:30 - 07:0007:00 - 07:3007:30 - 08:3008:30 - 09:0009:00 - 09:3009:30 - 15:0015:00 - 15:3015:30 - 16:0016:00 - 17:3017:30 - 18:0018:00 - 18:303.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 Charge2007 Charge () 2016 Charge () 80% 70% 60% 50% 40% 30% 20% 10% 0% 2004 2005 2006 2007 2010 2011 1 Announcement of trial 1 2 Trial introduced & referendum 2 3 Congestion charge imposed on permanent basis 3 Figure 9: Percentage of people who would vote "yes" in a referendum on road pricing, excluding "don't know" Figure 10: Original charges (2007) and revised charges introduced in 2016 by time of day Source: Eliasson J. 2014 Source: Eliasson J, 2014) 4J. Walker (2011), Acceptability of road pricing, RAC Foundation 5Eliasson J. (2014), The Stockholm congestion charge: An overview, Centre for Transport Studies: Stockholm Traffic and travel times As a result of the charge, queuing fell by 30-50% and there was a reduction in traffic of 22%6. In spite of population, economic and car ownership growth, traffic levels have remained relatively constant since the introduction of the charge, with charges only rising in the peaks. Vehicle Switch The Stockholm congestion charge has not only been a mechanism for reducing congestion but also a way of tackling pollution. This was evident from the exemption made for cars using alternative fuels. The share of alternative fuelled cars in Stockholm increased from 3% in 2006 to 15% in 2009. The exemption was removed in 2012 because of a debate over exactly what constituted a 'greener car'. Nonetheless, it showed that a charging system favouring less polluting cars is an effective way of changing fleet composition. 2.3.3 Singapore Electronic Road Pricing In order to tackle the growing congestion issue, a road pricing system which would manage the demand for road space was introduced. Initially it was the Area License Scheme (ALS) and evolved in 1998 to become the ERP scheme. It was first introduced in 1975 as a cordon scheme managing traffic into the central business district (CBD). Originally just applying to the morning peak it was later extended to all hours with differential peak and off-peak pricing. The ERP is an electronic version of the ALS in which price can be varied at different times and places according to traffic conditions. From the user perspective, all they need is to have a smart card on their car dashboard, charges are deducted automatically. 6Eliasson J. (2014), The Stockholm congestion charge: An overview, Centre for Transport Studies: Stockholm PRICING FOR PROSPERITY /WOLFSON ECONOMICS PRIZE 2017 16 This approach still fails to inform drivers of alternative modes, routes or travel times and how charges would change in response to those. This is something our proposed scheme addresses by detailing cheaper alternative times, routes and modes. A new Global Navigation Satellite System (GNSS)- based ERP system, which uses broadly similar technology to P4P will be operational from 2020. The most important difference between the ALS and ERP was the ability of the ERP to set the price to whatever it needed to be in order for traffic to constantly be running at the desired speeds. Acceptability To increase acceptability, there were various adjustments made to the vehicle tax structure. There was a concern the ERP could be viewed as purely an extra revenue stream for the authorities. To prove the ERP was a genuine attempt at better managing road usage some of the upfront taxes of vehicle taxes, registration fees, additional registration fees and road taxes were reduced. ERP impacts and benefits Due to the ERP replacing an existing road pricing scheme, the ALS, the impact upon traffic levels would not be expected to be as high as other schemes. In spite of this, the ERP still led to an immediate 15% reduction in traffic entering the zone and in 2015 traffic was still below pre-1975 levels as seen in Figure 11. Even more remarkable was the 34% drop in repeat trips into the zone, a result of the removal of the day pass. Drivers now have to plan their journeys to avoid re-entering the zone and incurring additional cost. While the ERP as is not a real-time dynamic charging system, traffic flows are regularly reviewed and charging levels are adjusted every few months if needed. This means that the Singapore Land Transport Authority (LTA) can, within reason, deliver average target journey times they want by increasing the price whenever traffic speeds get too low. This is why the LTA have consistently met their target of keeping speeds between 20 and 30 kph on CBD roads. This is of particular relevance to our proposed scheme because it aims to have a far more advanced version of the ERP. The ERP has a price based upon congestion levels to manage road demand within a cordon. Our scheme will have a separate price tailored to managing the demand for each specific road link in the country which potential changes in real time. This produces a far more effective method for managing congestion whereby on every road the desired speed or journey time can be achieved. 500 450 400 350 300 250 200 150 100 50 0 Before ALSIndexto City (AM Peak) Car Population Resident Population Road Length (km) 1975 1980 1985 1990 1995 2000 2005 2010 2015 1 ALS implementation (June1975) 1 2 2 ERP implementation (Sept 1998) Figure 11: Effect of road pricing on traffic volume to the city. Index, 1975 pre-ALS = 100 Source: Menon & Loh, 20157 8J. Walker (2011), Acceptability of road pricing, RAC Foundation 2.3.4 London Congestion Charge The London Congestion Charge (LCC) was part of Ken Livingstone's manifesto when campaigning to be the first London Mayor. Following his election in 2000, the LCC was officially implemented in 2003 without referendum or trial. The LCC is a cordon-based scheme covering an area of approximately 22 square kilometres within central London. When a vehicle drives into the zone, a charge must be paid which relies upon self-declaration. Automatic Number Plate Recognition (ANPR) cameras take a note of the number plate and if that number plate is not associated with a valid payment transaction, the owner of the car is fined. The LCC has a number of exemptions/discounts covering: Buses; Taxis & minicabs; Disabled people; Residents; and Low-polluting vehicles. As a result of these exemptions, only 30% of vehicles crossing the central London cordon are actually liable to pay the charge in full. The scheme also suffers from very high collection costs, 51% of the c120m annual revenues. In 2002, before the charge, only 40% were in support. Following the introduction of the charge this rose to 59%8. Impacts Following its introduction, the number of chargeable vehicles entering the zone decreased by 31%. It was estimated that of those who no longer drove into the LCC zone, 60% switched to public transport and 30% diverted around the zone, with the remainder making other changes (including changing trip time). PRICING FOR PROSPERITY /WOLFSON ECONOMICS PRIZE 2017 18 As a result, congestion within the cordon fell by 26%. The impact on congestion in more recent years has reduced as Transport for London (TfL) has re-allocated road space to cyclists and pedestrians. 2.3.5 Lessons from the three case studies There are five key conclusions to be drawn from the case studies: Pricing Works all of the case studies have been effective tools in managing demand. Traffic has fallen initially by 20-35%, and importantly the flexibility of a price-based system means that traffic can be kept at any desired level. Public Acceptability the public find it easy to understand the financial costs of road pricing but difficult to believe the impacts on journey times and reliability. They are so used to peak period congestion that they have difficulty perceiving how the road network could ever operate at free flow speeds in the peak. The case studies show that once road users see the benefits of road pricing it becomes acceptable. Cordon charging cordon charging schemes are a less effective form of charging than distance or link based schemes. They charge to enter a defined area but not for the distance driven, nor the costs imposed on others. If cordons can deliver 20-30% reductions in user demand, then pricing across a whole network could do it more efficiently i.e. at a lower price. Charging for environment and maintenance costs some effort is made in all of the three examples to include environmental costs within the charging system. This is good politics as well as good economics. Those charges both changed driver behaviour and choices of vehicles and fuels. Revenue generating while not the primary reason why the schemes have been the implemented each of the cities uses the funds generated by them to invest in improved transport provision across their cities. 3.1 Introduction This chapter sets out the main elements of our solution from the perspective of users, the government, the regulator (the existing Office of Rail and Road), highways authorities and the private sector operators of the scheme. Our solution very simply charges motorists for every mile they drive on the road network. That charge consists of three elements: a) road maintenance and operation, b) environmental and c) congestion. Not all of these will necessarily apply to each journey. It encompasses a holistic system which: Can price congested parts of the network whilst also funding future investment so that road infrastructure can be improved and charges reduced in the future; Will be cheaper and faster for a large majority of road users; Ensures that the road sector pays for itself, covering its maintenance, congestion and environmental costs in a sustainable long-term solution; Is infinitely flexible, cheaper to implement and operate than existing tolling systems; Can adapt to technological change at different rates and scales of change, for example accommodating autonomous vehicles and Mobility as a Service concepts; Gives drivers effective performance-related charges, automatic price reductions and/or compensation if things go wrong; and Offers complete anonymity if desired. 3. Our Solution PRICING FOR PROSPERITY /WOLFSON ECONOMICS PRIZE 2017 20 Once the scheme has received Parliamentary approval, we envision that it will be rolled out within 18 months with a lot of the preparatory work taking place beforehand. This work will include the regulator advising on the level of charging, simplifying the number of highway/transport authorities and trialling the equipment and software to be used. As VED and fuel duty levels are UK wide taxes it is proposed that P4P will operate throughout the UK. 3.2 The user's perspective Imagine that it is 2020 and you are planning a journey from your home. You pick your phone and access the intuitive P4P app. You tell the app your destination and preferred departure and arrival times. The app then provides you with the possible options, journey times and prices for your journey. You decide to select the fastest route and your required arrival time. The app confirms the quote and provides you with a guaranteed journey time. The P4P app may offer you various incentives to switch your travel mode or alter departure time, in order to reduce the demand on a congested route. You may also be given the option to pick-up other travellers sharing the journey cost as well as the options to purchase travel add-on products, such as parking at the destination. If enabled the app may also "push" offers and adverts for destinations that you may pass on route. For example, it may offer you a discount for your journey if you start at a particular petrol station. You decline the options offered and have a trouble free journey arriving at your destination on time, payment is then automatically deducted from your account and a receipt emailed/texted to you. However, if you have been delayed and arrive 15 - 30 minutes late, then no charge is levied because of poor time performance. If you arrive over 30 minutes late, you receive compensation equal to the original quoted charge. 21 1.50 25 min FREE 22 min Available Options BY CAR 2.30 17 min BY TRANSIT BY CYCLE Your Trip A to B BY CAR The recommended route is 8km and will take 17 minutes. if you are delayed over 30mins you will be compensated 2.30 CHARGES 0.02 for maintenance 0.18 for environment 2.10 for congestion total cost: 2.30 I need to go check on my elderly mum in her town centre care home I need to get there by 6.30pm and carry some stu with me so I will drive, despite the trac 22 Rate Your Trip Journey experience How satisfied are you with the P4P service so you pay the quoted price of: YOU ARRIVED ON TIME 2.30 A receipt for this journey has been emailed to you Your Trip Options Do you want to car share and save? Are you willing to depart later? Do you want to book parking at your destination? Do you need insurance for this trip? ADD ONS YES NO PRICING FOR PROSPERITY /WOLFSON ECONOMICS PRIZE 2017 23 If for any reason you decide to divert from your pre-agreed route or stop for some reason, you can either re-book or just drive on as normal, but in the latter case you will not be eligible for the guaranteed journey time and related benefits. All vehicles will need to have a "black box" installed to enable billing. Users will still have an option to simply get in and drive and not pre-book their journeys but they will not be eligible for compensation. Drivers will also still pay from their account. Users with no access to the mobile phone app can call the P4P call centre and book their trip. Details on the technology behind P4P and how our solution can work both now and in the future are presented in Chapter 4. 3.2.1 Adopting a new system Once the scheme receives Parliamentary Approval, motorists will have around 18 months to prepare for its introduction. They will receive an explanatory booklet setting out how the new scheme will work. A large scale marketing campaign will begin to raise awareness of how P4P works and its benefits including assurances on the abolition of fuel and vehicle excise duties, existing tolls, HGV road user levy and emission charges. At the next MOT9 they will have the "black box" installed on their vehicle and sign up with the service provider. New vehicles will be required to have "black boxes" installed on first sale and foreign registered vehicles will require one to be fitted at the port of entry along and to provide a credit or debit card against which they will be billed. The service provider will be responsible for all billing arrangements and providing journey planning services. Once motorists have had their black box installed in their vehicle they will begin to receive 'dummy' bill statements. Depending on the nature of the journeys made, these dummy statements will suggest alternative routes, times or modes which can be cheaper or faster. These nudges may alter people's journey patterns even before charging actually starts. Motorists will also be able to download an app to a smartphone, tablet or computer that at this stage will provide information on journey times, modes of travel and prices. The app will provide predicted journey times and compare that with actual times achieved and, where appropriate, highlight when the motorist would have received compensation for an excess journey time. The early implementation of a 'dummy' pricing system will help motorists get used to P4P. It will also help to collect data and analyse pricing strategies to work out the technicalities before going live. Bus provision will increase during this transitional period so that users who make early adjustments have travel alternatives. Owners of older, more polluting vehicles will be offered a scrappage allowance to allow them to switch to cleaner vehicles and hence minimise future environmental charges. Six months after Parliamentary Approval, annual VED will be charged at a rate that reflects the fact that it will be abolished when the scheme goes live. This will be a legal requirement set out in the Act. About a year after Parliamentary Approval there will be a steady increase in the provision of buses in urban areas where the charges are likely to be highest. This occurred when the London Congestion Charge was introduced, to provide an alternative means of travel. Bus users and operators will be significant beneficiaries of the P4P scheme, with faster and more reliable journeys reducing operating costs and increasing demand and revenues. 9The MOT is an annual test of vehicle safety, roadworthiness aspects and exhaust emissions required in Great Britain for most vehicles over three years old used on any way defined as a road in the Road Traffic Act 1988. PRICING FOR PROSPERITY /WOLFSON ECONOMICS PRIZE 2017 24 Approximately 18 months after Parliamentary Approval and 24 hours before the scheme goes live excise duty on all road fuels will be reduced to zero. At the same time the London Congestion Charge, any low emission charges and all road tolls will also be abolished. Again this will be a legal requirement of the Act. The following day, the scheme will go live. 3.2.2 The pricing components of P4P Making it clear to motorists what they are paying for will improve public acceptability and help general understanding of how travel decisions affect prices. Maintenance and operating charge This will be the only element that all motorists will automatically pay. The cost will vary slightly by type of road and highway authority based on the actual cost of maintaining the road network. There will also be variation in charges between cars, LGVs, HGVs and bus/coaches. Heavier vehicles will pay higher rates proportional to the damage (wear and tear) they cause to road assets. Transparency of these costs and regulation (discussed below) will lead to these costs falling in real terms, especially as initially they will be set at a level to enable highway authorities to clear the existing backlog of road maintenance. Environmental charge Whether motorists have to pay this charge will depend on how clean and quiet their vehicle is. This cost will also vary by location, being highest in areas with poor air quality and where traffic is intrusive such as in historic centres and near schools and hospitals. Less polluting vehicles will pay less. Again, we expect this element of the charge to diminish over time as vehicles become cleaner and quieter both with advances in technology and the change in behaviour that the charge will lead to. PRICING FOR PROSPERITY /WOLFSON ECONOMICS PRIZE 2017 25 Congestion charge For the majority of trips, congestion is rarely an issue. The main issues occur in the morning and evening peaks in urban areas and on many of our key strategic links. Here congestion can be chronic leading to lengthened and unreliable journey times. Where congestion does occur - that is, there is a noticeable reduction in speed from the free flow average - then a congestion charge will be levied. This charge will be set at a level to either achieve free flow speeds or, where traffic volumes are too great, to achieve a target journey time (how this will work is covered in section 3.3.2). Hence the charge will vary by time of day and section of road. Motorists will have two options when travelling in a congested part of the network. They can either just get in their car as now and drive and pay the appropriate charge. Or book their journey, via their app, on-line or via a call centre. In exchange for pre-booking, they will be offered a discount and a guaranteed maximum trip time. If this trip time is exceeded by 15 to 30 minutes then the motorist will pay nothing for the journey. If it is exceeded by more than 30 minutes, the motorist is entitled to compensation equal to the charge they were originally quoted. In quoting a journey time, the app will take into account breaks in journey and the user's preferred driving style which it will learn during the run-up to the scheme's introduction, i.e. whether they drive at 60 or 70mph on a motorway, do they stop every hour or two hours for a break, etc.) In the run-up to the introduction of the scheme, a considerable amount of data will have been collated on journey times by link, time of

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