Prospects for road pricing in achieving Net Zero

Road pricing has been a perennial issue for transport policy, seen by transport economists as a rational means for allocating scarce road capacity when congestion is prevalent. The loss of revenue from road fuel duty as we switch to electric propulsion is a further reason to introduce road pricing, as the House of Commons Transport Committee argued in a report published in February 2022. The Government’s belated response, in the form of a letter from the Chancellor of the Exchequer sent in January 2023, stated that the government does not currently have plans to consider road pricing. The Transport Committee chair was not satisfied with this brush-off and has invited the Treasury to respond in greater detail to the Committee’s conclusions and recommendations.

The recent webinar, in which I participated, on the role of road pricing in achieving Net Zero, organised by Landor in partnership with SYSTRA, was therefore very timely. (View here )

Road pricing (or road user charging) has been in use for centuries in the form of toll roads, the money levied used to reimburse the cost of construction. Road pricing (or congestion charging) has been adopted in London, Stockholm and Singapore as a demand management measure. A more recent aim has been to reduce air pollution in urban areas by imposing a charge on the more polluting vehicles if they enter a Clean Air Zone (CAZ). And the need to decarbonise the transport system now prompts the question of whether and how road pricing might help achieve this objective.

Webinar contributor, David Connolly, SYSTRA, argued that to achieve a Net Zero trajectory for transport, there would need to be a significant reduction in car use. To attain this, the cost of car use would have to rise significantly, to increase the relative attractiveness of all of the alternative modes, (including car-sharing) and encourage shorter &/or less-frequent car trips. Increased costs of car ownership, of fuel and of parking were possibilities, but distance-based road pricing would have a direct impact on car use and could plug the revenue gap created by the loss of road fuel duty.

Trevor Ellis, an expert in the technology of road pricing schemes, outlined how these have been applied throughout the world. GPS-based tolling has already been adopted by a number of European counties for trucks, while many US states are trialling or operating per mile fee programmes. In Asia, Singapore and Indonesia are to implement national all-vehicle distance-based schemes soon. Trevor concluded that distance-based charging by GPS gives the flexibility to vary the charge by time and place, as well as by distance and emissions, but the biggest challenges are likely to be gaining political and public acceptance.

Silviya Barrett, of the Campaign for Better Transport, reported the outcome of a survey of public attitudes to road pricing, finding substantial agreement that the present system of vehicle taxation is in need of reform as we switch to electric vehicles (EVs), with almost half respondents supporting pay-as-you-drive as they reached the end of the survey. There would be more support if public transport were cheaper with improved connectivity.

My own view is that it would be difficult politically to use road pricing to increase the costs of motoring or of road freight, as a means to reduce vehicle usage. Our society is too dependent on road transport, so that not many politicians would be brave enough to attempt to reduce carbon emissions by a direct hike of road fuel duty or imposing an additional charge for road use. The situation of low-income motorists needing their cars for travelling to work would be a point of particular sensitivity.

However, EVs do not pay fuel duty, so there is a case that they should pay a charge for use of the roads, both to contribute to the costs of operation and maintenance of the network, and to make a contribution to the Exchequer, as do internal combustion engine (ICE) vehicles. Yet this could not be implemented immediately since the lower operating costs of EVs are important to compensate for the present higher capital costs. Nevertheless, it is expected that capital costs will decline as battery technology advances and that equivalence in capital costs of EVs and ICEs will be reached prior to the 2030 date for completion of the phasing out of sales of new ICE cars and vans.

The phasing out by 2030 is a policy that commands wide support across the political spectrum, as well as from the car manufacturers and the public, who are purchasing EVs in impressive numbers. It would be desirable to link the introduction of a road user charge for EVs to this policy approach, on the grounds of fairness as between the two kinds of vehicle in respect the operating costs incurred. This would allow time to develop a suitable road pricing system for EVs. I suggest that the existing fuel duty should remain in place for ICEs, which would avoid the anxiety that would be created, particularly amongst low-income motorists, by a major change in the charging regime. EV owners are generally better off, given the newness of the technology and the very limited second-hand market, and would be more able to cope with the cost increase.

There are variety of technologies that might be used to implement road user charging, some of which are in use other countries. Yet rather than introduce an unfamiliar technology, there would be much to be said for building on London’s experience, as the basis for a national system.

The London congestion charge has been in operation for twenty years. It has been technically successful, publicly acceptable, with no concerns about privacy despite camera surveillance for enforcement purposes, and it generates useful net revenues that support public transport provision. London has employed the same enforcement and charging system to implement the ULEZ (its version of a CAZ), initially within the central congestion charging zone, expanded last year to encompass the area within the North and South Circular Roads with fairly minimal public opposition, and intended to cover all London boroughs later this year (albeit with some local political resistance emerging in the outer boroughs). This exemplifies the scope for incremental roll-out of an established technology.

London’s daily congestion charge is based on the presence of the vehicle within the charging zone, for however long. For London’s technology to the basis for a national road user charging scheme for EVs, it would be necessary to migrate the charging arrangements to a smartphone app, since a smartphone knows where it is in time and space, so knows if it is in a charging zone at a time when the charge is levied. Smartphones are generally linked to  payment mechanisms. They would also need to be linked to the vehicle, since it is the presence of the vehicle that is chargeable, not the phone, but this should be feasible.

Adoption of the smartphone as the mechanism for payment could be incentivised by capping the daily payment at no more than the standard daily charge as paid via the existing online payment mechanism, at present £15. Once there was sufficient uptake of the app, there would be opportunity to vary the charges according to such factors as duration in the charging zone, time of day, level of congestion, location or distance within the zone. This should be publicly acceptable with the daily charge cap in place, analogous to the capping of fares on London’s buses and trains when contactless payments are made. The standard daily charge payable online would remain for those not wishing to use the app, as would the existing camera-based enforcement system.

With the app payment mechanism tested and accepted, it would be possible to extend it beyond the existing congestion charging zone. In the past, there had been a western extension of the London scheme, introduced by Ken Livingstone when he was mayor, but revoked by Boris Johnson. It would also be possible for other cities to adopt the technology, whether before or after national adoption for EVs. In the past both Manchester and Edinburgh developed plans to implement congestion charging, which, however, were rejected in referenda. Cambridge is considering a similar initiative. Adoption by a single city may seem a major step by the voters, whereas taking advantage of a national charging system in prospect may lessen their reluctance.

A national scheme of charging for road use by EVs could be introduced incrementally, whether by road type (such as motorways) or region, and by starting the charge at a low level, increasing over time as the arrangements bed down.

While a national scheme for EV road user charging might employ a separate payment app from that used in London or other cities, it would make more sense to use a single payment mechanism, apportioning the revenues between the Exchequer and the highway authorities, allowing the latter scope to vary their component of the charge to meet local needs. Over time, this could reduce the need for local authorities to bid competitively to central government pots of money for funding local transport initiatives, consistent with a general policy trend to increasing devolution of responsibilities from national to local government.

One particular possibility for the exercise of local decisions on the local component of the road user charge would be to fund improvements to public transport by increasing the charge, subject to the willingness of the electorate. More and better bus and rail services would be important in providing an alternative to car use, so facilitating decarbonisation. However, fare box revenues are insufficient to support good services, both frequency and geographical spread, so external funding is required. Yet subsidy from government, whether national or local, will always be in short supply. So revenues from road user charging seem the most likely source of further support to improve local bus and rail services.

The phasing out of sales of new ICEs by 2030 is generally agreed to be about as rapid as is feasible, but faster decarbonisation thereafter could employ the revenues from EV road user charging to fund a scrappage scheme for ICEs. This would need to be targeted at the most carbon emitting vehicles, a function of engine size and distance travelled. Age would also be important since the amount payable per vehicle would become more attractive as vehicles became older and less valuable. However, such a scrappage scheme could not usefully be implemented until there were good numbers of EVs available in the used car market.

Overall, my view is that road user charging seems unlikely to be acceptable as a means to increase the costs of road vehicle use generally in order to reduce distance travelled and carbon emissions. But there is a case for charging EVs once capital costs reduce, on grounds of fairness between vehicle with different types of propulsion. The good experience of the London congestion charge offers an incremental route to nation application, the key step being migration to a smartphone app, a familiar payment mechanism. Revenues could be apportioned between central and local government consistent with further devolution, and employed to facilitate transport decarbonisation by supporting improved public transport and funding a scrappage scheme for internal combustion engine vehicles.

So no big-bang implementation of road charging technology, rather an incremental approach that aims to carry the public along, step by step.

This blog post was the basis for an article in Local Transport Today of 20 March 2003.