16 February, 2024

Crucial next steps for Auckland congestion pricing

I usually write about road pricing in my Road Pricing Blog, but I have placed this article here primarily because it is a wider transport policy issue around governance, and isn't just about road pricing in Auckland.

The announcement of the removal of the Auckland Regional Fuel Tax (ARFT) by the (NZ) Minister of Transport, Hon. Simeon Brown is implementation of an election promise, and is not a surprise.  The big question is what comes next, and talk of congestion pricing, given it is also part of the National/ACT party coalition agreement, is clearly something that needs to be progressed this year.  However, there are some big questions that need to be addressed.

Don’t miss the regional fuel tax

The ARFT was introduced, with the intention that it operate for a ten-year period in 2018 to enable Auckland Council to fund transport projects in the region. It had been criticised at the time for its distributional impacts, with a study by Sapere Research Group in 2018 (PDF) regarding both the ARFT and national increases in Fuel Excise Duty (FED) concluding that they will:

• give rise to significant variation across households in terms of impacts;

• be regressive in nature- (i.e. disproportionately impact on lower-income households);

• likely impact inequitably on Māori households, especially in the south of Auckland;

• produce even more inequitable impacts when fuel efficiency of vehicles is considered.

In short, the ARFT unfairly burdens those least able to afford it, not least because they are least likely to be able to afford newer vehicles (such as EVs or hybrid vehicles) that are more fuel efficient, less likely to be able to afford to live near the public transport that connects them to their employment and more likely to work shifts or at times when alternatives to driving are less feasible or attractive. 

Removal of the ARFT is notable as it is rare, anywhere in the world, to see a Government willing a scrap a tax on road use. It raises the issue as to how to pay for significant improvements to Auckland’s transport network beyond the capacity of the National Land Transport Fund (NLTF) which has its own issues of funding capacity to meet government objectives (highlighted in the NZTA Briefing to the Incoming Minister) and the political willingness of Auckland Council to increase rates.

When the previous Government held a Select Committee Inquiry into Congestion Pricing, many suggested that congestion pricing in Auckland could be used to replace the ARFT.  

Congestion pricing can’t replace the ARFT revenue in its entirety for some time

Congestion pricing clearly could generate some net revenues for transport in Auckland, but it is important to emphasise that while it can do that, for it to be effective in managing congestion, the net revenues need to be seen as secondary and not the primary objective. Designing congestion pricing to reduce congestion will mean it is designed to deliver net benefits to transport sector users, regardless of revenues generated and how they are spent.  This is how it has worked in Singapore and Stockholm, but it is not what has happened in London (certainly in the past decade or so) nor Gothenburg.

If it is to be assumed that the Government wants congestion pricing to be about reducing congestion and improving trip reliability in Auckland, it needs to be designed and implemented with that as the primary focus. If Auckland Council and Auckland Transport regard congestion pricing primarily as a tool to make up the revenue lost from not having the ARFT, it is at best going to be sub-optimal in addressing congestion at the times and locations where it is introduced, and at worst will deliver insufficient travel time savings for motorists resulting in a backlash against the concept, killing off congestion pricing in Auckland (and NZ) for many years to come.

The Congestion Question report, albeit now slightly dated (as the analysis was undertaken before the pandemic), indicated the likely net revenues from the short-listed congestion pricing options.  The most promising option was the “Combination” which would see introduction of a city-centre cordon scheme, along with pricing the strategic road network (motorways and parallel main arterials).  

The city-centre cordon was estimated to generate around $21m per annum in net revenues, which is far short of the around $150m per annum generated from the ARFT, so simply operating that scheme would do little for revenue, but of course it wasn’t designed to generate revenue, but to support reducing congestion entering, exiting and circulating within the city-centre.

Table 1 - The Congestion Question: Main Findings July 2020

The strategic corridor option was estimated to generate around $205m per annum, and assuming it would be introduced in combination with the city-centre cordon, there would be a combined net revenues of $223m per annum (the effect of one scheme would be to suppress some demand that would otherwise occur if only the other scheme was in operation).

The strategic corridor option cannot be implemented in full in one go.  The suggestion of pricing SH16 between Lincoln Rd and Te Atatu Rd, and SH1 between Greenlane and Ellerslie/Panmure is a feasible first step towards doing so, so it might be expected that the strategic corridor option is phased in over several years. Although these figures come from 2019, it is reasonable to take a conservative approach, as travel patterns in Auckland have changed somewhat since the pandemic. 

In short it means that the ARFT revenue cannot be quickly replaced through congestion pricing, assuming that congestion pricing is implemented with the objective to improve network performance as a primary goal, rather than revenue raising.

Key decisions

What matters now is how congestion pricing in Auckland is advanced.  There are some big decisions to be made on governance, rate setting and use of net revenues. These will have a significant impact on the likely success of pricing and importantly, public acceptability and durability of pricing as a policy. A key element is how much decision-making will be up to road controlling authorities and how much will be up to central government either politically or administratively, from which there are some big governance issues:

1. How will legislation enable congestion pricing? 

Will it be general empowerment, case-by-case scheme approval or something else?

Existing legislation around tolling essentially requires Cabinet approval on a case-by-case basis following recommendation by the Minister. This is suitable for toll roads, which are specific sections of road with rates set to contribute towards infrastructure cost, and so are unlikely to need to be varied much, except to take into account inflation. For congestion pricing, there is a need to have some variability and flexibility in implemention.  Detailed Orders-in-Council specifying precisely where pricing points are, their hours of operation and price levels are unlikely to be suitable for effective congestion pricing.

An inner-city cordon may need some minor variations in the location of pricing points, and both the hours of operation and rates set will need to vary to manage demand effectively (and avoid pricing traffic during times of low demand).  Pricing, after all, works best in all sectors when it is flexible. History tells us that when prices are heavily regulated for goods and services, especially when pricing is intended to send signals around demand and supply, that it distorts usage, whether by underpricing demand (which is the status quo) or in overpricing (and reducing economic activity in an area).

However, caution should be exercised in simply providing general empowerment for road controlling authorities to implement pricing under certain conditions. International experience indicates that congestion pricing is very difficult to implement, primarily because it is easy to quickly undermine public confidence in the concept and the details of any scheme, resulting in overwhelming resistance and pressure to cancel. This has been seen in several occasions, notably Edinburgh, Manchester, the Netherlands (multiple occasions), Helsinki, Copenhagen and London (with removal of the Western Extension of the congestion charge). 

This is not to say that Auckland Transport, Wellington City Council, Christchurch City Council and Tauranga City Council couldn’t implement congestion pricing, or indeed NZTA, but it’s also worth remembering that when congestion pricing fails, it tends to kill the idea politically for many years. Edinburgh rejected congestion charging in 2005 after five years of development, and is only now again looking at the concept. Manchester rejected it in 2008, after considerable design work over the previous two years, and has no interest in reconsidering it.  Although many trump London as a success, the London Congestion Charge was expanded once and that expansion was rolled back three years later in 2010, and even today there is only talk of more congestion charging for the city (don’t mistake the Ultra Low Emission Zone, for which 97% of vehicles are exempt from paying, for congestion charging).  Local authorities are subject to the political whims of elections every three years, and given the timeframes needed to implement pricing, there is considerable risk that pricing could become a serious political issue if not managed effectively.  Bear in mind no NZ local authority has implemented road pricing before, and only Tauranga implemented tolls (albeit some years ago).  There are a long list of implementation risks that if not managed well could undermine congestion pricing not just in the first city that tries it, but in all others. 

Note also that despite the UK having had legislation generally empowering local authorities to implement congestion charging, only one outside London has actually done so: Durham. The Durham scheme was introduced before London’s and is in effect a small charge on driving in the tiny historic centre of the city.  Empowerment of local government to introduce congestion charging in the UK has largely failed, as none have had the political courage to do it, and of those that tried, they have proven incapable of developing and communicating a pricing scheme that would obtain adequate public acceptability. Indeed, the repeated failures of Edinburgh and Manchester to implement pricing has almost inoculated most councils to implementing it. Most recently it is Cambridge that has attempted to introduce pricing and, in no small part to the design it chose, it has repeated the examples of the other cities in generating enormous opposition to congestion charging for that city. 

Although it is possible to conceive of congestion pricing concepts for Auckland and other cities that do not charge the state highways, excluding them from any scheme is likely to be sub-optimal in managing traffic in those cities. Both Auckland and Wellington could have a “first-stage” pricing scheme implemented in the form of inner city cordons without pricing of the state highways, but the “second-stage” would inevitably need to include them. It is also critical that any road pricing scheme not negatively impact the state highways. In all cities congestion pricing is likely to be more effectively managed if undertaken jointly between NZTA as the State Highway manager and the relevant territorial authority managing the local network. 

For example, in Auckland, this means ensuring SH16 to the Ports of Auckland functions well. Of course if the first scheme in Auckland is actually to price segments of SH16 and SH1 as the Mayor of Auckland proposed late last year, then it is inevitable that it be undertaken jointly, as Auckland Transport does not (and should not) have the powers to price roads it does not manage.

The first congestion pricing scheme in NZ is likely to be in Auckland, so it is critical that it is designed to be effective without being punitive. It needs to have sufficient flexibility as it is introduced to make small adaptations quickly if motorists respond in unexpected ways which cause issues (such as congestion on alternative routes. There should be measurement of performance, in impacting travel times, trip reliability, net revenue collection and compliance, as well as wider economic, social and environmental impacts. London undertook such analysis for its first five years of operation. This is critical in building data on how to expand and adapt pricing and to mitigate any negative impacts.

It is far too risky to simply leave all of this up to a single Council without the necessary experience, particularly if its incentives are more around revenue collection than traffic management.

Auckland congestion pricing should be a joint NZTA/AT project. The Auckland Traffic Operations Centre is, for logical reasons, and this should follow on from that. It doesn’t matter if the first scheme in Auckland is a city-centre cordon or a strategic corridor, as the second scheme will be the other. NZTA is already expanding and renewing its tolling back-office system, which could provide the platform to deliver congestion pricing, although it will need to have a significant uplift in capacity for customer service.  

2. How is rate setting to be undertaken, and reviewed and updated over time? Is there going to be regulatory oversight to it?

To be effective in managing congestion, congestion pricing in NZ should follow the Singapore approach of setting prices to ensure a minimum throughput of average speed on priced roads, with the ability to review and revise (up or downwards) such prices on a regular basis. Singapore does it quarterly, with no regard at all as to whether it impacts net revenues positively or negatively. A similar approach would ensure traffic impacts are optimised, and public acceptability is as well. Having shoulder as well as peak rates, so that the price is not simply $0 at 0630 then $5 at 0700 will be important to avoid bunching of traffic before pricing kicks in, and to spread demand. This is not practicable if rate setting is done by Cabinet, so this needs to be devolved to a governance entity which is empowered to vary rates (with perhaps a cap applied), with some regulatory oversight over time.  In due course, multiple pricing systems in different cities ought to have an economic regulator ensuring that road controlling authorities are looking after the interests of consumers both in the prices they set and how they spend the money. 

3. Who decides what net revenues are used for?

In the UK, legislation determines that net revenues from congestion charging are used on local transport spending. In Sweden, central government decides in partnership with local government how net revenues will be used, and in Stockholm it was initially focused on funding a major highway project, and has since included funding for public transport projects. Oslo similarly has used revenue from its toll ring (which resembles a congestion pricing scheme although it is primarily designed for revenue) for various blends of road and public transport projects, but again, this was determined by central government in collaboration with local government.

If revenue is being raised from state highways, it may seem appropriate for NZTA to decide, following guidance from the Government Policy Statement. If raised from local roads, it may seem appropriate for the territorial authority to decide, albeit it would seem difficult to get public acceptability for pricing if such revenue were used for non-transport purposes or on projects or activities unrelated to those subject to pricing. There are clearly a wide range of options on how net revenues might be used such as supporting spending on capital projects or offsetting rates revenue for spending on local capital projects or local road maintenance or public transport subsidies. A more innovative solution would be to pay a dividend to Auckland householders from congestion pricing, but this seems unlikely given the pressure from the Auckland Council and Mayor to find sources of revenue to spend on transport projects (and the Government is also interested in funding some of those projects as well).

What comes first though is who makes that decision. Compared to many other issues related to road pricing, relatively little thought has been given to this.

One chance to get it right

There are other issues of a secondary nature. Clearly the question as to what the first road pricing scheme in Auckland should look like is critical, but before that there are decisions on governance that are needed that haven’t been adequately canvassed, because they are difficult and controversial.  However they are needed soon, because until they are determined, progress cannot be made on detailed design, procurement and implementation of any congestion pricing in Auckland or elsewhere. It is possible for Auckland to be ground-breaking for NZ and indeed for many other cities with high-levels of private car use relative to other modes. However it is also possible for this to go badly wrong. For the last twenty of so years politicians have erred on fearing the latter, now NZ is on the cusp of making the last crucial step, they should address the remaining key issues and advance, bringing Aucklanders, and especially Auckland motorists with them. This Government has shown, by removing the ARFT, that it doesn’t see motorists as the enemy, it has the chance to show this further by implementing pricing in a way that, overall, delivers net benefits to them, and as a result net benefits to those who ride buses, bicycles and walk, and the businesses and communities they work and live in.

Many write about the successes in congestion pricing, few write or even know about the failures. Plenty of cities have advanced studies and developed proposals, and had the legal mandate to implement them, but pulled the ideas because of public backlash, largely due to key elements having either not been decided or having been designed in a way that doesn't deliver net benefits to those who pay. Auckland should not be on the list of failures.

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