The peak national freight transport body has called for a national road user charge scheme, requesting it be considered at the upcoming Premiers’ retreat. From The Australian:
Australian Logistics Council managing director Michael Kilgariff said a more open pricing mechanism more closely linking road charges with road investment deserved to be considered by all levels of government.
“There is growing consensus that the current system of vehicle charging and investment needs to be put under the microscope, and the premiers’ retreat is an ideal place to discuss this issue further,” he said in a statement…
But the Australian Trucking Association was less impressed, saying plenty of work was needed by government before moving ahead.
There would need to be asset registers so governments know what roads they own and agreed service levels so the industry knows what it is paying for if the scheme is to proceed, the association said.
There would also need to be an independent economic regulator to approve charging proposals.
The debate over a national road user charging scheme – often referred to as “mass-distance-location” (MDL) charging – 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”.
Under current road user charging system, heavy trucks are effectively charged for road use via two means: 1) registration fees, which go to the state governments; and 2) a charge embedded in the diesel fuel excise (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).
Accordingly, because road user charging is indirect, there is 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. And under present arrangements, infrastructure owners are not directly compensated for additional road wear.
In theory, direct user pricing, through MDL charging, is a no-brainer. It 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 theoretical benefits from MDL charging, as indicated by the Australian Trucking Association above, there are practical issues that need to be overcome.
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, means 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 also remain significant technological and institutional issues to be overcome before MDL pricing for heavy vehicles could be introduced.
To the best of my knowledge, though I could be wrong, 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.
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.
Direct charging is already used for rail freight, and reforms along these lines could help to create a more level playing, and remove distortions on modal choice that promote the over use of road freight at the expense of rail.
