Road pricing in Europe

(Source Wikipedia)

Facing rising levels of traffic congestion, European governments are giving serious consideration to nationwide road pricing schemes. Some of these could exploit the new Galileo satellite positioning system, although it is possible to arrange road pricing using various different technologies. A satellite based system would entail vehicles containing a satellite tracking device which would determine which roads were being driven along, for how far and at what time of day. This information would then be sent to a central computer system, and the appropriate charges levied against the driver.

Further information: Toll roads in Europe

Germany

Schemes for charging trucks (lorries) in Germany (by the company Toll Collect) and Austria are already underway. The German scheme began on January 1, 2005, trucks pay between €0.09 and €0.14 per kilometer depending on their emission levels and number of axles. The expensive scheme, combining satellite technology with other technologies, suffered numerous delays before implementation, whilst a scheme using much simpler technology in Austria was up and running in 2004. In the UK, the Labour government announced in July 2005 that the proposed UK truck road user charging scheme would not go ahead.

Italy

Main article: Ecopass

A traffic charge program in Milan, called "Ecopass", began on a trial basis on January 2, 2008. It exempts vehicles compliant with the Euro3 and Euro4 emission standards or higher, as well as several alternative fuel vehicles. Residents within the restricted zone, called ZTL (Italian: Zone a Traffico Limitato), may purchase a discounted annual pass. Although the program is operationally similar to existing congestion pricing schemes, its main objective is to reduce air pollution from vehicle emissions rather than relieve traffic congestion.^[3][4][5] The program was extended until December 31, 2009, and a public consultation will be conducted to decide if the charge should become permanent.^[6]

Malta

A fully automated system called a Controlled Vehicular Access (CVA) system has been launched in Malta's capital city of Valletta since May 1, 2007.^[7]When compared to other countries that make use of congestion charging models, the Maltese system makes use of a wider array of innovations including variable payments according to the duration of stay, flexible exemption rules, including exemptions for residents within the charging zone, and monthly or quarterly billing options for vehicle owners. Pre-payment facilities, including direct debit arrangements and purposely designed vouchers, are also available. The billing system was designed in Malta and has been described as a state of the art 'next generation congestion charge billing solution'. The Valletta Congestion Charge, which is also known as Valletta CVA, was recently nominated for the Best European Transport Strategy Award. Public voting is still underway.

Norway

One of the earliest schemes was introduced in Bergen in Norway in 1986.^[8] Only traffic entering the town is charged and only during weekdays from 6:00 a.m. through 10:00 p.m. Public service vehicles pay no charge.

Bergen has now a fully automated toll plaza system that is based on passing without stopping for all traffic. There are no coin slots or manual service. A similar system was introduced for the Oslo Toll Ring from February 2, 2008. To ensure interoperability of electronic fee collection in Norway a system called AutoPASS is used throughout the country for toll roads and congestion charging schemes etc. Most local drivers have purchased a tag which is automatically read on passing the detectors. As of February 2008^[update], there will be six fully automated schemes in operation. For the others motorists without a tag pay a fee at a manual barrier.

Sweden

Main article: Stockholm congestion tax

Stockholm has a congestion pricing system, Stockholm congestion tax,^[9] in use on a permanent basis since August 1, 2007,^[10][11] after having had a seven month trial period from January 3 to July 31, 2006.^[12] The City Centre is within the congestion tax zone. All the entrances and exits of this area have unmanned control points operating with automatic number plate recognition. All vehicles entering or exiting the congestion tax affected area, with a few exceptions, have to pay 10–20 SEK (1.09–2.18 EUR, 1.49–2.98 USD) depending on the time of day between 06:30 and 18:29. The maximum tax amount per vehicle per day is 60 SEK (6.53 EUR, 8.94 USD).^[13] Payment is done by various means within 14 days after one has passed one of the control points, one cannot pay at the control points.^[14]

Road Pricing

Road pricing (Wikipedia) is an economic concept regarding the various direct charges applied for the use of roads. The road charges includes fuel taxes, licence fees, parking taxes, tolls, and congestion charges, including those which may vary by time of day, by the specific road, or by the specific vehicle type, being used.^[1] Road pricing has two distinct objectives: revenue generation, usually for road infrastructure financing, and congestion pricing for demand management purposes. Toll roads are the typical example of revenue generation. Charges for using high-occupancy toll lanes or urban tolls for entering a restricted area of a city are typical examples of using road pricing for congestion management purposes.^[2]

Road pricing UK

(From Wikipedia)

UK governments have periodically considered the possibility of using road pricing since the early 1960s, when the Smeed Report considered how to implement congestion charging.^[15]

Durham became the first city in the UK to have a permanent congestion charge in 2002.^[16] London has had a congestion charge in the central area since 2003. The organisation responsible for the charge is Transport for London (TfL). The fee was introduced on February 17, 2003.^[17] Initially set at £5, then raised on July 4, 2005 to £8,^[18] the daily charge must be paid by the registered keeper of a vehicle that is on public roads^[18] in the congestion charge zone between 7 a.m. and 6 p.m. (previously 6:30 p.m.), Monday to Friday.^[19] Failure to pay the charge means a fine of at least £50.^[20] The charge area was extended into parts of West London on February 19, 2007.^[21]

A scheme similar to the one in London is proposed in Manchester, covering a wider area but with a much smaller daily charging window covering the morning and evening rush hours.^[22] . A scheme for Cambridge is currently under consideration and the subject of heated public debate,^[23] with council surveys showing that a majority of Cambridge-area residents reject the scheme.^[24] A scheme for Edinburgh was rejected in a public referendum in February 2005.^[25] On 2008-03-05, councils from across the West Midlands, including those from Birmingham and Coventry, rejected the idea of imposing road pricing schemes on the area, this was despite promises from central government of transport project funding in exchange for the implementation of a road pricing pilot scheme.^[26] Similar schemes proposed for cities in the East Midlands have also been dropped.^[27]

Extensive studies are being done on introducing a scheme for all UK vehicles, with an aim to implementation at the earliest around 2013.^[28][29] In October 2005 the UK government suggested they explore "piggy-backing" road pricing on private sector technologies, such as usage based insurance (also known as pay-as-you-drive, or PAYD).^[specify] This method would avoid a large-scale public sector procurement exercise, but such products are unlikely to penetrate the mass market. If introduced, this scheme would likely see a charge being levied per kilometre depending on the time of day, the road being driven along, and perhaps the type of vehicle. For example, a large car driving along the western section of the M25 in rush hour would pay a high charge; a small car driving along a rural lane would pay a much lower charge. The very highest charges would be likely in the most congested urban areas. It is expected that rural motorists would benefit the most from such a scheme, perhaps by paying less through road pricing than they do at present through petrol and car taxes, whereas urban motorists would pay much more than they presently do. However, this is highly dependent on whether such a scheme would be designed to be either revenue neutral or congestion neutral. A revenue neutral scheme would replace (at least in part) petrol and vehicle taxes, and would be such that Treasury revenue under the new scheme would equal the revenue from current taxes. A congestion neutral scheme would be designed so that growth in congestion levels would stop as a result of the new charges; the latter scheme would require significantly higher (and increasingly higher) charges than the revenue neutral scheme and so would be unpopular with the UK's 30 million motorists. The carbon emission consequence of moving from fuel duty to a charge per mile has been raised as a concern by some environmentalists, as has any diversionary response from heavily trafficked (and hence more expensive) roads.^[specify] The UK government announced funding for road pricing research in seven local areas in November 2005.^[30]

In June 2005, Transport Secretary Alistair Darling announced the current proposals to introduce road pricing.^[31][32] Every vehicle would be fitted with a satellite receiver to calculate charges, with prices (including fuel duty) ranging from 2p per mile on uncongested roads to £1.34 on the most congested roads at peak times.^[33]

A 2007 online petition against road pricing, started by Peter Roberts and hosted by the British government attracted over 1.8 million signatures, equivalent to 6% of the entire driving population. Over 150,000 signatures were added during the last day before the petition closed on February 20, 2007.^[specify] In reply, the prime minister e-mailed the petitioners outlining his rationale, denying that the proposals were to introduce a stealth tax or increase surveillance, and promising 'debate' before a decision was made as to whether to introduce a national scheme.^[34] Also, in a recent poll 74% of those questioned opposed road pricing.^[35]

In July 2008, Roberts started the Drivers' Alliance, a mass-membership organisation dedicated to researching the issues surrounding road pricing and campaigning against its introduction.

National Transport Model

The National Transport Model

The Department has developed a National Transport Model (NTM) as an analytical and policy-testing tool, providing a systematic means of comparing the national consequences of alternative national, or widely-applied local, transport policies.

Contestable Markets

Contestable Markets

Contestability theory is associated with Baumol who argues the mere threat of new firms entering a market impels existing firms to act competitively ie earn normal profits and deliver allocative and productive efficiency.

Imperfectly competitive markets can be made contestable - another policy, alongside privatisation and deregulation, for introducing competition into transport industries.
Contestable market theory is based around four concepts:

i Barriers to entry: the technical or economic factors preventing firms from entering an industry and competing with existing firms

i Sunk costs are the costs associated with leaving an industry. Firms entering an industry incur costs. Those expenditures that cannot be recovered on exit eg promotion and R&D are known as sunk costs. Sunk costs act as a barrier to entry because new entrants know that if they are unsuccessful then some set up costs are lost

i A franchise is the legal right to operate a given service for a given period of time.

Franchisees make a lump sum payment to buy a franchise, must meet quality standards as set out in a contract and invest their own capital in providing the service. Because franchises are time limited there is the threat of a potential entrant when the franchise next comes up for tender ie contestablility. However, short-term franchises that introduce contestability into transport markets also deter long-term investment where firms feel they may lose their current franchise and experience sunk costs. For this reason, the latest franchise agreements are for longer periods eg 15 years. 15 year franchises create uncontested legal monopolies.

i Hit & Run Rival firms attracted by abnormal profits ‘hit’ ie enter an industry. As increased supply forces down prices, they then ‘run’ ie leave.

Making markets contestable by reducing barriers to entry into the market means potential entrants are able to enter market quickly if abnormal profits are made. This process helps ensure normal profits only, are earned in the long run – irrespective of the number or size of firms.

It is important to understand that contestability theory does not require firms to enter the market. The theory of contestable markets argues that changing the behaviour of existing monopolist is not actual but the threat of potential competition.

A contestable market has

i One or only a few firms in the industry ie a pure monopoly or oligopoly market structure
i No or minimal barriers to entry eg - firms can enter or leave an industry freely
i Minimal sunk costs ie the costs of entry and exit are zero or minimal

The government has sought to create contestable markets in the rail, bus, ferry and air industries through deregulation (buses) and short franchises (trains).

However, contestablility is an inappropriate policy in natural monopolies like Network Rail and NATs, where regulation is more appropriate.

Barriers to Entry

Barriers to entry: the technical or economic factors preventing firms from entering an industry and competing with existing firms
Barriers to entry in transport include
i Legal monopoly eg a eg Train Operating Companies have been given a regional monopolies with a time-limited franchise by law
i Vertical integration: where by acquiring suppliers or distributors a firm can exclude rivals from a producing a product or supplying a market
i Predatory pricing where established firms lower price to force competitors into losses and so force their withdrawal from industry eg Laker Airway’s Skytrain no frills transatlantic route
i Economies of scale. Initially, new entrants with low output cannot enjoy the same economies of scale and low unit costs of established firms
i Large potential sunk costs deter new entrants from risking entry
i Branding establishes products as unique. New entrants require expensive advertising to establish sales deters entrants
Monopolists sustain abnormal profits by blocking potential entrants. Barriers to entry largely determine the degree of competition in a market.

Air Transport Deregulation

Air Transport Deregulation

Before discussing the UK’s experience of air transport deregulation, consider first the special characteristics of air travel

i Aviation generates significant externalities including noise, climate change, and diminished air quality. Planes burn most fuel during take-off. Therefore short flights are disproportionately polluting The Dept of Transport estimates a £3 tax on short-haul, and £20 on a long-haul flight, is needed to internalise the externality ie make the polluter pay.

i Airport development involves significant land use and consequent urbanisation of the surrounding area

i In the UK and Europe, the supply of airspace and landing slots at major cities is limited.

i The current airports, runway and air traffic control infrastructure lacks the capacity to handle the projected number of flights

Air transport is made up of several interlocking components:

i Airline operators in the private sector commercial airlines such as Virgin or state own ‘flag carriers’ such as Air France, low cost companies such as Ryan Air and charter airlines used by holiday firms

i Infrastructure: airports and air traffic control systems

Air travel markets are segmented into submarkets: first class & economy class, low cost, leisure & business domestic, short & long haul. Evaluation requires performance indicators. The criteria to evaluate the performance of air transport include fares, the number of services, service frequency, quality of service, changes in demand, loading.

Air transport is a heavily regulated industry because:

i Travel by air is potentially dangerous and any accident involves hundreds of people
i Air flights pass through the airspace of different countries and so pose a potential security threat

The first country to deregulate air transport and allow new carriers to enter the market was the USA in 1978, resulting in a proliferation of smaller airlines, competing against established major airlines.

During this period European air transport was dominated by state-owned 'flag carriers'. Governments negotiated bilateral agreements eg BA flies from Heathrow to Geneva and Swiss Air form Geneva to Heathrow. Resultant barriers to entry meant virtually no competition and high prices.

Starting in 1987, UK air transport deregulated as part of an EU wide process. Additional 1993 reforms granted all European airlines the right to offer international flights within Europe and most domestic routes. Airlines became free to set their own fares.

The result has been to replicate the US experience. There has been an explosion of low cost operators such as EasyJet challenging established state owned carriers.

Europe is now moving towards an open skies policy where the air transport industry is liberalised and governed by an EU regulatory framework. Increasing competition involves allowing more airlines to fly to destinations. To encourage new entrants, the EU allocates 50% of unused or newly created slots to newcomers to the market.

The impact of deregulation varies between sub markets:

i Low cost operators like Easyjet and Ryanair have rising profits and are expanding by offering low cost flights.
i Premium carriers such as BA are losing business passengers and profits to cheap fares airlines