Are Electronic Road User Charges the best way to fund our transport system?
Transitioning to Electronic Road User Charges: Implementing the Coalition Agreement Commitment
The Coalition Agreement between the National and Act parties commits the Coalition Government to:
“Work to replace fuel excise taxes with electronic road user charging for all vehicles, starting with electric vehicles.”
The Minister of Transport, Hon Simeon Brown, has recently announced the implementation of the first component of this policy, with the exemption to road user charges (RUC) currently enjoyed by owners of light electric vehicles (EVs) ceasing on 1 April 2024. What about the rest of the commitment – electronic road user charges (eRUC) for all vehicles?
Right back in the early 2000s, the Ministry of Transport investigated transitioning the paper-based RUC system to a fully electronic system for vehicles that aren’t fueled by petrol. Numerous reviews in the subsequent years have explored the fundamental elements of the whole system of funding the roading system by charging for use based on distance travelled, rather than the proxy of using the motive fuel. While these reviews and studies identified some technical changes and amendments, along with some specific concerns from a small number of vehicle owners, the reviews have found RUC to be fit-for-purpose, and left it as the paper-based system it is. Early moves to voluntary electronic RUC began in 2010, and in 2012, legislative amendments formalised the ability for the voluntary use of electronic devices for RUC, but then left it there.
The growing number of EVs however– and the complexity created with duel-fuel vehicles like plug-in hybrid EVs for example – suggests that the days of levying charges on fuel (Fuel Excise Duty – FED) to fairly and efficiently raise revenue to fund our roading system are surely numbered.
In 2004, work on eRUC identified some challenges to transition to a fully electronic system - none were insurmountable then, and the technology has only gotten more accurate and lower cost since.
Even if we only consider a like-for-like replacement: road users currently paying RUC shift to an electronic distance measuring system (which is what that 2004 Report considered), then the decreased administrative burden from ditching the paper-based approach is a significant improvement. The benefits ultimately flow to all road users in additional funding for road maintenance and operations since the administrative costs of collecting RUC are funded through the National Land Transport Fund, and lower costs of compliance for light vehicle users – tradies and the like.
The transformational benefits come when we consider – as proposed in the National / Act Coalition Agreement – the transition of all road users to eRUC:
Equity: Currently, petrol-powered cars contribute to the National Land Transport Fund by paying FED on fuel purchases. This means that vehicles that are more fuel-efficient or those using alternative fuels (like electric vehicles) contribute less or nothing to road maintenance and new road construction through FED. eRUC, on the other hand, would charge users based on distance travelled, regardless of the vehicle's fuel efficiency or type, in addition to the higher charges paid by heavy vehicles (over 3.5 tonnes) to reflect their impact on maintenance. This creates a more equitable system where all road users contribute their fair share to the upkeep and enhancement of the roads they use. Older vehicles – typically used by lower income households – also contribute proportionally more FED than similarly sized new vehicles, because older vehicles are much less fuel efficient. Moving to eRUC could therefore be seen as a progressive policy.
Revenue stability and predictability: As vehicles become more fuel-efficient and as electric vehicle usage increases, revenue from FED is declining. eRUC offers a more stable and predictable revenue stream for road maintenance and infrastructure projects, as it doesn’t depend on fuel consumption patterns.
Accountability and clarity in charging: FED is actually levied at the border on the importer, before being passed on to motorists, not at the point of sale on the end user. Moving to eRUC would create a direct relationship between the Crown as the authority imposing the charge and the road user as the payer of the charge and beneficiary of its expenditure. Any changes in the rate of eRUC would be able to be passed along instantaneously and directly, enhancing accountability and removing international changes in the price of oil from the road user’s perceptions about the cost of road maintenance, operations and improvements.
Future adaptability and flexibility: RUC is currently only based on recovering each vehicle users’ share of the cost of operating, maintaining and improving the roading system.[1] eRUC for all road users would introduce the necessary technology to enable the flexibility to vary charges based on a variety of factors in the future, such as vehicle type, weight, emissions, road type, and time of travel. This is because it relies on GPS tracking and the cellular network, enabling accurate, real-time charging based on actual usage by specific vehicles. Subject to future policy decisions, this would allow for more nuanced approaches to road charging, such as higher charges for overweight vehicles that cause more road wear, or for differential charges for different road types (urban vs. rural / motorway vs. local road) and for dynamic management of the roading network, such as administrative controls on weight-restricted bridges, over-sized vehicles, etc.
Improved traffic management: eRUC could also be used as a tool for traffic management. By varying charges based on congestion levels and time of day, it could be used to incentivise drivers to travel during off-peak hours or use alternative routes, helping to reduce congestion and improve overall traffic flow. This isn’t possible with an averaged system like FED.
Conclusion
The benefits of investing in electronic road user charging for all road users are significant. The current paper-based RUC system is administratively cumbersome and subject to under-collection. Shifting to eRUC provides an opportunity to reduce ongoing administrative burden and cost for users and for the Crown, as well as enhancing the equity of our approach to funding the operation, maintenance and improvement of the roading network.
eRUC would enable nuanced approaches to advancing economic and environmental policy objectives, creating more choice for road users and supporting road users to better understand the implications of their everyday transport decisions. With a growing number of electric vehicles – and other motive powers and unpriced road users (e-scooters more comparable to petrol-powered scooters / motorbikes than ‘toys’) – the time is ripe for New Zealand to transition its road network funding system to eRUC.
[1] Technically, RUC also contributes to the funding of the National Land Transport Fund, which provides contributions for public transport subsidies, as well as walking and cycling infrastructure, and rail and coastal shipping support.
