Is road-user charging for EVs a good idea?

Electric vehicles charging (via Joenomias)

Following South Australia's announcement a few weeks ago, Victoria has just announced that it will be the second state in Australia to introduce a road-user charge (RUC) for Electric Vehicles. The stated rationale is to replace fuel excise - EVs don't burn petrol, so this revenue source will disappear as we transition from Internal Combustion Engines (ICEs) to EVs. But critics say that this disincentivises EV ownership, and will slow down that transition. So is it a good idea or not? 

As I said yesterday, we're in a bit of a tricky spot when it comes to the transition to EVs, because the ideal policy outcome isn't a straight like-for-like replacement of all ICE cars with EVs, it's to transition as many trips as possible away from cars and onto walking, cycling and public transport; and for the cars that are still going, to transition to EVs. Reducing our dependence on cars should be an explicit policy goal - as the saying goes, we need fewer cars, not newer cars. So policies that actively and indiscriminately encourage everyone to buy EVs are a bit problematic. 

It's one thing for me to write a blog post explaining the nuances of when and if you should buy an EV, to an audience that actually cares about said nuances and might conceivably listen to what I have to say; it's quite another to try to achieve these kinds of outcomes with the relatively blunt policy instruments that governments have available to them. This means threading the needle and getting this exactly right is very challenging. 

Active and public transport are way more space-efficient than cars (via Human Transit)

At the same time as all of this is happening, they've got another policy headache on the horizon. While I need to be totally clear that fuel tax (and other car-focused revenue streams like licensing and registration) do not even remotely cover the cost of driving, it does still provide a fairly valuable income stream for general revenue, which no government wants to lose. So various think tanks and policy experts have been calling for some time for governments to implement some form of RUC as a replacement for fuel taxes - often designed so that it would act as a congestion charge, making people pay more if they drove in congested areas like city centres at peak times, and therefore help address the non-carbon externalities of cars. But every time they do, governments immediately stomp on the idea because it's seen as political poison. Making it cheaper and easier to drive your car is an article of faith for both major political parties. Charge every driver to use our roads? Their opponents, and the media, would have a field day. "A great big new tax on everyone" and all that. 

So you've got a policy that is fundamentally sound economically, and a political class that knows it, but is too scared to even float the idea of implementing it, because they're scared that taxing every driver on the road will lose them too many votes. But you also have a nascent group of EV owners - they're very small now, so the political backlash will be small, but you know with a high degree of certainty that this small group will eventually grow to overtake petrol car owners, and eliminate petrol cars not long after. So rather than waiting till this group is big enough to have substantial political clout, you whack it on now, and know that you'll eventually get a scheme that covers everybody without the political backlash that would entail. It may arguably be problematic in the short term from a policy perspective, but from a political perspective, in my view it's playing the long game rather masterfully. 

The meme has a point (via @grescoe)

So, the fundamental idea - implement an RUC now, while you can - is a good one. But I'm not too keen on the way they're planning to implement it. A flat tax per kilometre, based on self-reported odometer readings, means that someone who's driving on a quiet country road, or through the suburban streets late at night, gets charged the same as someone who drives into a busy city centre during peak hour. It's reasonable that people who drive on quiet roads still pay some contribution for their upkeep in line with how much they use them, but those who drive on congested roads at congested times are creating a whole lot of other externalities that need to be taxed - so they should be paying more. There are a few different ways you can do this - cordon charges where you pay a toll to cross a line into a congestion zone, area charges where you pay if you drove within the zone regardless of whether you cross the border, and so on - and I don't have a strong view on which of these models would be best. But the government should pick one of these and incorporate it into the scheme, and they should do so as soon as possible - for exactly the same reason that it makes sense to implement an RUC as a whole at this early stage. 

Greens transport spokesperson Sam Hibbins has also flagged the possibility that the government might ultimately privatise the RUC, noting both that the road lobby group Infrastructure Partnerships Australia is backing the scheme, and that Labor has form when it comes to privatising public services. To be clear, Labor has not mentioned anything of the sort as yet - but he's right, they have form, so this is a reasonable worry. It's difficult to guard against this, since the government of the day can do pretty much whatever they want with these things - but I do wonder whether sitting it directly under Treasury would be better than under VicRoads? They tend to have more clout within government to defend their empire. 

Many of those who have been opposing the RUC have said it will disincentivise people from buying EVs, which will mean we have slower uptake, we'll keep driving ICE cars longer, and we'll struggle to meet our climate targets. Certainly that was the thrust of the arguments from all the panellists in an Australia Institute webinar yesterday. But in the same panel, Audrey Quicke also made it pretty clear that the running costs don't figure very prominently in people's decision-making when deciding to buy a car - the biggest factor is the upfront cost. Professor Jago Dodson from RMIT has come to the same conclusion. As it stands, EVs are much cheaper to run than ICE cars, so the higher purchase price can be seen as an investment that will pay off over the life of the car - but clearly few people have made that investment so far. This is partially because we aren't completely financially-rational homo economicus, but it's mostly because many people simply can't afford to make that investment. This suggests to me that the tax on running costs won't have a particularly huge impact on people's decision to buy an EV - policies that are keeping purchase prices high are the problem. 

Just one example of the price premium that EVs command in Australia (via WheelsJoint)

The really important thing to keep in mind, though, is that more EVs on the road is not the goal in itself; the goal is less ICE cars on the road, and "more EVs" is one of several means to that end. We want to encourage as many people as possible onto active and public transport, and replace the rest with EVs. Which means that disincentivising people from driving EVs (in some circumstances) is actually a valid policy goal - it's just that we need to be disincentivising people from driving ICE cars even more. 

So it's not ideal that this policy has been introduced in a vacuum, without any measures to shift us off ICE cars. This is partly because this is an initiative that the States have worked together on, to get around a completely intransigent Federal government - and the Feds hold most of the policy levers that would best address this. Tighter emissions standards should have been implemented years ago - they'd be better than nothing now, but at this point it's best to just skip to mandating an end date for new ICE cars to be sold, as they're doing in the UK (EDIT June 2021: actually I've thought more about this, and tighter emissions standards do still make a lot of sense as an interim measure, so we absolutely should be pushing for them). Fuel excise wasn't indexed to inflation between 2001 and 2014, and while it's good that the Abbott government finally started the indexation again, it got a 13 year holiday which means it's much lower than it should be - the Feds should raise it enough to recoup that loss and then some. Richard Denniss is also 100% correct that the rate should be substantially higher for heavy vehicles. The power dynamics Denniss mentions mean that we'd struggle to make progress on these issues under a Federal Labor government, but under a Federal Liberal government that is criminally negligent on climate change, we have no chance. So for now at least, it's up to the States. 

Victoria does still have some policy levers within its grasp, and the investment it plans to make in EV charging infrastructure is a good move - it's just nowhere near enough on its own. It could mandate that most of its public service light vehicle fleet be EVs within the next few years (or whenever the cycle of new purchases comes around again), which would provide a huge boost to the second-hand market. It could also probably do some things with stamp duty to make new ICE cars more expensive, while leaving EVs and second-hand ICE cars alone (to help soften the political blow). 

The government can't keep spending billions on megaroads like North East Link (via NELA)

But overwhelmingly what the State government needs to do is stop spending huge amounts of money on projects that encourage people to drive, and divert those funds to providing people with better alternatives. In their latest budget, they're spending around $60 million on active transport and $25 million on buses, compared with $1.6 Billion on roads projects - around twenty times as much as the other two combined. Hell, there's even $231 million for new car parks at train stations - which the government will try to sell as a public transport project, but still encourages people to drive. Some of the roads funding is broadly reasonable - it's for maintenance and so on - but at least half of it could be redirected to active transport or buses. Because the bang-for-buck is so much better for active and public transport, these kinds of funding increases would be absolutely transformative, and could lead to significant mode shift in a very short space of time. 

Despite the fact that I don't really agree with them, it's been heartening to see the coalition of think tanks, environmental groups and EV enthusiasts who've joined together in a short period of time to oppose the RUC. Hopefully that grassroots energy can be harnessed to make the RUC more focused into a proper congestion charge, and to push for the larger conversation we need to have about sustainable transport.