Distance-Based Pricing

Mileage-Based Insurance, Registration and Taxes

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TDM Encyclopedia

Victoria Transport Policy Institute

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Updated 25 August 2016


This chapter describes various mileage-based vehicle fees, including Pay-As-You-Drive (PAYD) vehicle insurance, registration fees and vehicle taxes. Converting fixed costs into distance-based charges gives motorists a new opportunity to save money when they reduce their mileage.

 

 

Description

Distance-Based Pricing (also called Pay-As-You-Drive, Mileage-Based and Per-Mile pricing) means that vehicle charges are based on the amount a vehicle is driven during a time period. Such fees tend to be more economically efficient and fair than existing pricing practices (Market Principles). Converting fixed costs into distance-based charges (called Variabilisation) gives motorists a new opportunity to save money when they reduce their mileage. Below are examples of distance-based pricing:

 

Pay-As-You-Drive Insurance

Insurance is one of the largest costs of owning a car, averaging about $750 per vehicle-year. Insurance premiums are generally considered a fixed cost, although the chances of having a crash increase with mileage. A simple and effective way to make distance-based vehicle insurance is to prorate existing premiums by mileage, incorporating all existing rating factors (Bordoff and Noel; Edlin 1999; Ferreira and Minike 2010 Litman 2001). With this system a $375 annual insurance premium becomes a 3¢ per mile fee, while a $1,250 annual premium becomes a 10¢ per mile fee. This is called Pay-As-You-Drive or Per Mile insurance. It provides several benefits: more accurate insurance pricing, increased insurance affordability, a 10% reduction in total vehicle mileage, a 12-15% reduction in vehicle crashes and insurance claims (it is particularly effective at reducing crashes because it gives the highest risk motorists the greatest incentive to reduce mileage), consumer cost savings (motorists are predicted to save an average of $50-100 annually in net insurance costs), and significant reductions in traffic congestion, road and parking facility costs and pollution.

 

Mileage-based Registration Fees

This means that vehicle licensing and registration fees are prorated by vehicle mileage, so a $60 annual license fee becomes a 0.5¢ per mile charge, and a $240 annual license fee becomes a 2¢ per mile charge. Similarly, other purchase and ownership fees, such as Singapore’s vehicle quota charges, can be converted into variable fees (Barter, 2004).

 

Mileage-based Vehicle Purchase Taxes

Purchase taxes average about $1,200 per vehicle. These could be converted to distance-based taxes, which converts to about 1¢ per mile if paid over an average vehicle lifetime, or 3¢ per mile if paid over the first four years of a vehicle’s operating life (Greenberg 2000).

 

Mileage-Based Vehicle Lease Fees

Vehicle leases (which account for approximately 30% of new vehicle acquisitions in the U.S.) and rentals can be restructured to be more mileage-based. Although most leases and rentals include mileage rates for “excessive driving,” this is usually set at high level and so only affects a minority of leased vehicle mileage. Yet, analysis of the vehicle resale market indicates that virtually all mileage increases vehicle depreciation, typically by 5-15¢ per additional vehicle mile. It makes sense that vehicle dealers reward their customers who minimize their mileage on leased and rented cars with discounts (Greenberg 2000).

 

Weight-Distance Fees

Weight-distance fees are a mileage-based road use charge that increases with vehicle weight. This would range from about 3.5¢ per mile for automobiles up to 20¢ per mile for combination trucks (Road User Fee Task Force). This is a more equitable way to fund roads than fuel taxes because it can more accurately represent the roadway costs imposed by individual vehicles (Haldenbilen and Ceylan 2005).

 

Mileage-Based Emission Fees

Mileage-based emission fees that reflect each vehicle’s emission rate would give motorists with higher polluting vehicles a greater incentive to reduce their mileage, and conversely, give motorists who must drive high mileage an incentive to choose less polluting vehicles (Sevigny 1998). For example, in a particular area an older vehicle that lacks current emission control equipment might pay 5¢ per mile, while a current vehicle might pay 1¢ per mile, and an Ultra-Low Emission Vehicle might pay just 0.2¢ per vehicle. This would probably result in relatively large vehicle emission reductions, and modest reductions in vehicle mileage (Emission Reduction Strategies).

 

 

Wit and Humor

Fixed vehicle fees have about the same impact on vehicle traffic as the price of refrigerators has on food consumption. Converting from fixed to distance-based vehicle fees gives motorists a new opportunity to save money when they drive less.

 

 

How It Is Implemented

Pay-As-You-Drive insurance can be implemented by insurance companies as a consumer option (motorists would be able to choose whether to pay by the vehicle-year, as they do now, or by the vehicle-mile). Legislation to encourage or require insurance companies to offer Pay-As-You-Drive pricing has been successful in Texas and Oregon.

 

Other distance-based charges (registration fees, purchase taxes, weigh-distance fees, emission fees, etc.) would be implemented by state/provincial legislation. They could be part of an overall Transport Market Reform program.

 

A variety of Pricing Methods can be used to collect vehicle travel data, as summarized in Table 1.

 

Table 1            Summary of Distance-Based Pricing Options (Pricing Methods)

Type

Description

Equipment Costs

Operating Costs

User Inconvenience

Price Adjustability

Odometer Audits

Odometer readings are collected by certified odometer auditors, usually during scheduled maintenance

Low

Low

Low

Low

VUDAR

Vehicle operating hours are recorded by a small instrument installed in each vehicle. Data are transmitted annually at a special station.

Medium

Low

Low

Medium

On Board Data Collection

An electronic system in each vehicle tracks mileage. Data are transmitted monthly to a central computer, either automatically or by users.

High

Medium

Medium

Low-Medium

GPS

A GPS system is used to track the location of each vehicle. Data are automatically transmitted monthly.

High

Medium

Low

High

This table describes various ways of measuring vehicle use for pricing purposes.

 

 

Travel Impacts

The table below shows the vehicle travel reductions predicted from mileage-based fees. The Transport Elasticities chapter provides additional information on the travel impacts of various price changes, and how to calculate the cumulative effects that result if several pricing strategies are implemented together.

 

Table 2            Travel Reductions Estimates (2001 US dollars)

Mileage Fee

Travel Reduction

-1.8%

-3.5%

-5.1%

-6.7%

-8.2%

-9.7%

-11.2%

-12.5%

-13.8%

10¢

-15.2%

(Deakin and Harvey, 1997, Table B-21, updated to account for 30% inflation from 1991 to 2001)

 

 

Table 3 shows the impacts various distance-based fees would have on vehicle travel. Not all of these charges apply to all vehicles (mileage-based lease charges only apply to leased vehicles, and distance-based purchase taxes might only apply to the first three or four years of a vehicles’ operating life), and the rates for a particular vehicle would vary depending on many factors.

 

Table 3            Travel Reductions Estimates (Litman 2003)

Distance-Based Fee

Per-Mile Fee

Mileage Reduction

Insurance

6.0¢

9.7%

Registration and Licensing

1.5¢

2.7%

Purchase Taxes

1.0¢

1.8%

Lease Charges

5.0¢

8.2%

Weight-Distance Fees

3.5¢

5.9%

Emission Fees

1.5¢

2.7%

 

 

This indicates that distance-based pricing could provide large reductions in vehicle travel. Distance-based insurance alone could reduce total vehicle travel by more than 10%, making it one of the most effective TDM strategies.

 

Table 4            Travel Impact Summary

Travel Impact

Rating

Comments

Reduces total traffic.

3

Provides an incentive to reduce vehicle use.

Reduces peak period traffic.

2

Provides an incentive to reduce vehicle use.

Shifts peak to off-peak periods.

0

 

Shifts automobile travel to alternative modes.

3

Provides an incentive to reduce vehicle use.

Improves access, reduces the need for travel.

0

 

Increased ridesharing.

2

Provides an incentive to reduce vehicle use.

Increased public transit.

2

Provides an incentive to reduce vehicle use.

Increased cycling.

2

Provides an incentive to reduce vehicle use.

Increased walking.

2

Provides an incentive to reduce vehicle use.

Increased Telework.

2

Provides an incentive to reduce vehicle use.

Reduced freight traffic.

2

Some distance-based charges apply to freight vehicles.

Rating from 3 (very beneficial) to –3 (very harmful). A 0 indicates no impact or mixed impacts.

 

 

Benefits and Costs

Distance-Based Pricing can provide the following benefits:

 

·         Increased fairness. Distance-based fees can more accurately reflect the insurance, road and pollution costs imposed by individual vehicles. Current pricing tends to overcharge motorists who drive less than average and undercharge those who drive more than average each year in a price category. Since lower-income motorists tend to drive less than average, this is regressive.

 

·         Increased affordability. Converting to distance-based costs could make vehicle purchase, leasing, insurance, and registration more affordable by allowing motorists to decide how much driving they can afford, as they can with most consumer goods (Litman, 2004). It allows households to afford an extra vehicle that is seldom driven, such as an old truck used for errands or a recreational vehicle.

 

·         Increased economic efficiency. Distance-based charges more accurately reflect motor vehicle costs than existing pricing, and so increase overall economic efficiency and productivity.

 

·         Consumer savings. The average motorist is predicted to save $50-100 per vehicle with distance-based insurance, and more if other charges are distance-based. These savings represent the reductions in insurance and roadway costs that result when motorists reduce their mileage. They indicate that consumers value incremental financial savings more than incremental vehicle use. These are true cost savings, not just economic transfers.

 

·         Reduced vehicle travel. Distance-based insurance and registration fees are predicted to reduce vehicle travel by 10-15%, making this one of the most effective TDM strategies currently proposed. This reduces traffic congestion, road and parking facility costs, accident risk, pollution emissions, consumer costs, and urban sprawl.

 

·         Increased safety. Vehicle crashes should decline even more than mileage (a 10% mileage reduction is predicted to reduce crashes by 12-15%) because higher-risk motorists (who currently pay high premiums per vehicle-year) would pay higher per-mile fees, and would therefore have the greatest incentive to reduce their driving. If implemented at throughout the U.S., this would save about 5,000 lives a year, and prevent a much larger number of disabilities and injuries (Safety Impacts of TDM, Edlin 1999, Litman, 2001).

 

·         Emission reduction. Distance-based fees would reduce energy consumption and pollution emissions. Mileage-based emission fees would provide particularly large tail-pipe emission reductions - a fee that reduces mileage by 2% is predicted to reduce emissions by 4-16% (Deakin and Greig Harvey 1997, tables B.5 and B.10).

 

 

Distance-based pricing tends to provide consumer benefits, by allowing individual motorists a new opportunity to save money. Optional distance-based insurance pricing clearly provides net consumer benefits since motorists would only choose this price structure if they considered themselves better off overall. These consumer benefits are in addition to indirect benefits such as reduced congestion, crash risk and pollution emissions.

 

Converting vehicle purchase taxes to mileage-based fees would reduce the cost of new vehicle purchases while also increasing vehicle-operating costs. This could have the positive effect of shifting driving to newer, less polluting and safer vehicles, in addition to other benefits from reduced vehicle mileage.

 

Congestion and emission reduction benefits could be large. Table 5 summarizes the results of modeling by Deakin and Harvey (1997) for the year 2010. It indicates, for example, that in the Los Angeles region, a 2¢ per mile fee would reduce total vehicle trips by 4.1%, but congestion delay would decline by a much larger 10.5%.

 

Table 5            Impacts of 2¢ Per Mile Fee, Year 2010 (Harvey and Deakin, 1997, Table B.9)

Region

VMT

Trips

Delay

Fuel

ROG

Revenue

Bay Area

-3.9%

-3.7%

-9.0%

-4.1%

-3.8%

$1,122

Sacramento

-4.4%

-4.1%

-7.5%

-4.4%

-4.3%

$349

San Diego

-4.2%

-4.0%

-8.5%

-4.2%

-4.1%

$629

South Coast

-4.3%

-4.1%

-10.5%

-5.2%

-4.2%

$3,144

VMT = change in total vehicle mileage. Trips = change in total vehicle trips. Delay = change in congestion delay. Fuel = change in fuel consumption. ROG = a criteria air pollutant. Revenue = annual revenue in millions of 1991 U.S. dollars. See original report for additional notes.

 

 

Deakin and Harvey also modeled the effect of two types of emission fee, a per-mile charge based on the average emissions for each vehicle model and year, or a fee based on actual emissions measured when a vehicle is operating. Table 6 summarizes their results for the year 2010. This shows that the in-use pricing options has much greater emission reducing impacts, because it discourages driving of gross-emitting vehicles.

 

Table 6            Impacts of Emission Charges, in Year 2010 (Harvey and Deakin 1997, Table B.10)

Region

Fee Basis

VMT

Trips

Delay

Fuel

ROG

Revenue

 

Vehicle Model

-2.2%

-1.9%

-3.5%

-3.9%

-5.4%

$384

Bay Area

Vehicle Use

-1.6%

-1.4%

-2.5%

-6.6%

-17.7%

$341

 

Vehicle Model

-2.6%

-2.3%

-4.5%

-4.0%

-5.7%

$116

Sacramento

Vehicle Use

-2.3%

-2.1%

-5.0%

-7.4%

-20.2%

$102

 

Vehicle Model

-2.5%

-2.2%

-3.5%

-4.1%

-5.5%

$211

San Diego

Vehicle Use

-1.9%

-1.7%

-3.5%

-7.1%

-19.5%

$186

 

Vehicle Model

-2.5%

-2.3%

-5.5%

-3.9%

-5.5%

$1,106

South Coast

Vehicle Use

-2.1%

-1.9%

-6.0%

-7.2%

-18.9%

$980

Vehicle Model Fee Basis = a per-mile fee based on the vehicle model and year. Vehicle Use Fee Basis = a fee based on the measured tailpipe emissions of each individual vehicle, based on some sort of instrumentation.  VMT = change in total vehicle mileage. Trips = change in total vehicle trips. Delay = change in congestion delay. Fuel = change in fuel consumption. ROG = a criteria air pollutant. Revenue = annual revenue in millions of 1991 U.S. dollars. Additional notes and data are in the report.

 

 

Costs include transition costs to insurance companies and vehicle registration agencies of implementing a new pricing system, and the costs of “odometer audits,” which are estimated to have incremental costs averaging about $6 per vehicle year (Litman, 2001).

 

Under some circumstances consumers seem to prefer fixed prices because it minimizes transaction costs and is predictable. For example, some restaurants offer all-you-can-eat meals, and telecommunications companies offer fixed-rate telephone and Internet services. However, this preference appears to be weak. Fixed rate pricing is relatively uncommon in competitive markets. Grocery stores don’t usually offer all-you-can-carry shopping and airlines don’t usually sell unlimited-mileage tickets. Some markets are shifting toward more marginal pricing: water utilities increasingly meter consumption, and toll roads increasingly have time-based rates. Most motorists who would save money would probably choose optional distance-based insurance.

 

Table 7            Benefit Summary

Objective

Rating

Comments

Congestion Reduction

3

Reduces total automobile travel.

Road & Parking Savings

3

Reduces total automobile travel.

Consumer Savings

3

Provides consumer savings.

Transport Choice

3

Improves automobile affordability.

Road Safety

3

Reduces automobile travel.

Environmental Protection

3

Reduces automobile travel.

Efficient Land Use

3

Reduces automobile travel, particularly benefits urban residents.

Community Livability

2

Reduces automobile travel.

Rating from 3 (very beneficial) to –3 (very harmful). A 0 indicates no impact or mixed impacts.

 

 

Equity Impacts

Distance-based insurance and registration fees are fairer than current pricing because prices more accurately reflect insurance costs. Fixed vehicle fees tend to overcharge motorists who drive their vehicles less than average each year, and undercharge those who drive more than average (Edlin 1999; Litman 2001). Since lower-income motorists drive their vehicles less on average than higher-income motorists, this is regressive. Emission fees tend to be regressive, since lower-income households tend to driver older vehicles with relatively high emission rates. However, a distance-based fee is less regressive than a fixed emission fee, since lower-income households tend to drive their vehicles less per year than wealthier households. Larsen, et al. (2012) concluded that VMT fees are about equally regressive as fuel taxes, but more horizontally equitable.

 

McMullen, et al (2008) and Burris, et al. (2013) conclude that shifts from fuel taxes to mileage-based fees would not significantly change the regressivity of the fee, but would increase costs to urban motorists and reduce costs to rural motorists overall. Distance-based pricing benefits lower-income drivers who otherwise might be unable to afford vehicle insurance or who place a high value on the opportunity to save money. Distance-based insurance would provide significant savings to workers during periods of unemployment.

 

Table 8            Equity Summary

Criteria

Rating

Comments

Treats everybody equally.

2

Most groups benefit, although some more than others.

Individuals bear the costs they impose.

3

Makes insurance pricing more actuarially accurate.

Progressive with respect to income.

3

Provides savings to lower-income motorists.

Benefits transportation disadvantaged.

3

Makes automobile ownership more affordable.

Improves basic mobility.

3

Makes automobile ownership more affordable.

Rating from 3 (very beneficial) to –3 (very harmful). A 0 indicates no impact or mixed impacts.

 

 

Applications

Distance-based pricing is suitable for implementation in virtually every geographic area. It is primarily implemented by state or provincial governments, possibly with federal incentives. Individual insurance companies may implement distance-based pricing.

 

Table 9            Application Summary

Geographic

Rating

Organization

Rating

Large urban region.

3

Federal government.

2

High-density, urban.

3

State/provincial government.

3

Medium-density, urban/suburban.

3

Regional government.

1

Town.

3

Municipal/local government.

1

Low-density, rural.

3

Business Associations/TMA.

0

Commercial center.

3

Individual business.

3

Residential neighborhood.

3

Developer.

0

Resort/recreation area.

3

Neighborhood association.

0

 

 

School/college/university.

0

Ratings range from 0 (not appropriate) to 3 (very appropriate).

 

 

Category

Incentive to Reduce Driving

 

 

Relationships With Other TDM Strategies

Pay-As-You-Drive Insurance, Road Pricing and Fuel Taxes are types of Distance-Based Pricing. Distance-Based Pricing supports and is supported by TDM strategies that improve the availability of alternative modes, or increase motorists’ incentive to reduce mileage. It encourages use of Ridesharing, Public Transit, Nonmotorized Transport and Tele-Access, and supports Smart Growth. It is a type of Market Reform. The Pricing Evaluation chapter discusses issues to consider when evaluating the benefits and costs of a particular pricing program.

 

 

Stakeholders

Distance-Based Pricing involves insurance companies, insurance regulators, state or provincial legislators, revenue and transportation agencies. Motorists, transportation professionals, public safety officials, environmentalists, consumer groups and organizations concerned with poverty all have reasons to support distance-based pricing. The National Motorist Association supports Pay-As-You-Drive Insurance to make insurance more affordable and fair (NMA, 1998).

 

 

Barriers To Implementation

Distance-Based Pricing requires a network of odometer auditors and changes in the way fees are calculated. The insurance industry has generally opposed Distance-Based Pricing because it requires changes in their practices, and may reduce long-term profits by reducing total crashes, and therefore total premiums. Higher-mileage motorists tend to oppose Distance-Based Pricing because it will increase their costs, and many motorists who drive less than average are skeptical that they would actually benefit. Many consumers are skeptical of any new or increased vehicle charges, even if they are matched with reductions in fixed costs. Most consumers are unfamiliar with the full potential benefits of Distance-Based Pricing, they tend to evaluate it only as a shift in costs rather than an opportunity to reduce total costs.

 

 

Best Practices

 

·         State or provincial governments can establish odometer auditing systems, to make mileage data easily available.

 

·         Distance-based pricing should be carefully planned to insure that implementation is convenient to motorists and that vehicle use data collection is efficient and accurate.

 

·         Optional Pay-As-You-Drive Insurance can be implemented first as a pilot project, and if no major problems are encountered the program can expand each year until all motorists are offered that pricing option.

 

 

Wit and Humor

Question: What’s the difference between Roast Beef and Pea Soup?

Answer: You can roast beef.

 

 

Examples and Case Studies

European Plans to Charge Distance-Based Road Hualage Fees (www.europa.eu.int/comm/energy_transport/en/lb_en.html)

The European Union has plans to convert existing fixed road hauling charges into distance-based fees by 2010 (EU, 2001).

 

 

Progressive Insurance Autograph (www.progressive.com; Carnahan, 2000)

The Progressive Insurance Company introduced its Autograph vehicle insurance coverage, a form of distance-based insurance in the state of Texas in 1999. This uses Geographic Positioning System (GPS) beacons to track vehicle location and use (motorists pay more for driving under higher risk conditions). This program has been successful, and Progressive is planning to expand it into other markets.

 

 

Oregon HB 3871 www.leg.state.or.us/01reg/measures/hb3800.dir/hb3871.intro.html.

Bill 3871 introduced in the 2001 Oregon legislature would provide tax credits to insurers that offer Pay-As-You-Drive pricing. It is endorsed by the National Association of Independent Insurers, regional governments, the Oregon/Idaho chapter of the American Automobile Association, the Oregon Consumer League, The Oregon Environmental Council and other environmental organizations, citizen transportation reform groups and the Interfaith Global Warming Campaign.

 

 

Swiss Heavy Vehicle Fee (www.zoll.admin.ch)

Switzerland introduced a Heavy Vehicle Fee (HVF) in January 2001, as a result of a successful public referendum passed in 1998. The HVF charges heavy trucks (over 3.5 tonnes) based on their gross weight, kilometres driven and emissions. The system was carefully planned and has been widely accepted by the freight industry. Billing for most trucks is based on data collected by an electronic on-board data collection unit that records vehicle mileage and route. At the end of each month the data are transmitted to the Swiss Customs Agency either by mail or over the Internet. This information is used to generate a bill that is sent to the owner. Total truck volumes actually increased on many cross-Alpine routes when the HVF was implemented because maximum vehicle weights were increased from 28 tonnes to 34-tonnes at the same time, and will be raised to 40-tonnes in 2005, to match European standards. As a result, the total volume of goods transported by road through the Alps increased by 3% but truck trips declined 14% between 2000 and 2005, indicating that pricing encourages more efficient use of truck capacity. Rail transport has maintained its market share in Switzerland, while in France and Austria rail is losing market share.

 

Swiss Heavy Vehicle Tolls (www.gpsworld.com/gpsworld/article/articleDetail.jsp?id=61198)

Driving in Switzerland has a different look nowadays. In the window of an approaching truck, you will usually see bright yellow lights, in bars of various patterns – evidence of the two-year-old Swiss heavy vehicle road-pricing system and its onboard unit using GPS technology.

 

New rules from the Swiss Customs Authority required installation of these onboard units (OBUs) in every Swiss truck during the year 2000. More than 80,000 OBUs have been manufactured, and 60,000 Swiss trucks and an increasing number of foreign trucks that regularly pass through Switzerland now carry the devices. Tax revenues generated by the system totaled more than E500 million in 2002. This will rise to E1 billion from 2005 onwards, due to an increase of the tariff per kilometer.

 

When the initiative began in 1995, several key decisions shaped system specifications and the subsequent design of a new multifunctional onboard unit. The Distance-related Heavy Vehicle Fee (LSVA) system calls for:

·         Payment of vehicle tax for travel over the entire Swiss road network, not just the motorways

·         Fee calculation based on the total number of kilometers driven in Switzerland; the registered net weight of the truck; and the truck's Euro-class (pollutant class)

·         Payment, in addition to the distance-related toll, of a fixed fee for travel on certain roads - the Alps transit passages (many freight trucks travel between Eastern and Western Europe, and Northern and Southern Europe, via Switzerland)

·         Incorporation of a dedicated short range communication (DSRC) 5.8-Ghz microwave link for possible interoperability with existing and forthcoming systems

·         Foolproofing the OBU against manipulation or fraud. In the case of an external power cutoff or failure, the unit must record driving information for at least six months.

·         An optical display viewable from outside the truck, for enforcement purposes.

 

 

Oregon Investigates Mileage Tax (www.odot.state.or.us/ruftf/cat_pilotprojects.html)

The Associated Press, December 31, 2002

The Road User Fee Task Force set up by the 2001 Legislature plans to ask the 2003 session to authorize testing the feasibility of a vehicle mileage tax. Oregon was the first state to adopt a gas tax, in 1919, and could become the first to collect road fees via space technology.


Jim Whitty, the task force administrator, says Oregon relies on the gas tax to pay for its road system and gas tax revenues are expected to flatten as gas mileage improves and more hybrid cars come on line.

Whitty said the task force at this point wants a charge per mile. To be equivalent to the gas tax now, the substitute fee would have to be 1.25 cents per mile. It would be slightly higher to make up for additional administrative costs. “We also have to have a way to track mileage only within the state,” Whitty said. This rules out basing the fee on odometer readings, which would include out-of-state driving.

 

“Technology has improved to the degree that this can be done, with an electronic device,” he said. The device, in a car, would be linked to the Global Positioning Satellite or GPS system, which allows pinpoint navigation by bouncing signals off satellites. The task force hopes to organize a test of this system if the Legislature approves.


First it would test whether the idea works. Then a small fleet of cars would be equipped with the system and evaluated for a year or so. Whitty said there are several options for collecting fees. One is to send vehicle owners a monthly bill. Another is to outfit gas stations so they can read the vehicle transponders and collect the tax at fueling stops. The gas tax would remain in effect. In paying the new tax, drivers would get credit for gas tax paid.


To protect drivers’ privacy, using the system to track cars in real time would be illegal. New cars would be required to have the GPS technology. Owners of older cars would be allowed to take part by retrofitting them.


The task force is thinking of the change in terms of several years away. A decision might not come until the 2005 or 2007 legislative session. This coming session, though, the task force will submit a bill authorizing a fee for the use of studded tires to help collect for road damage done by the studs. Whitty said the group wants a two-region approach because most of the damage - estimated at $11 million a year - is done in the Willamette Valley.

 

 

Pazomat (www.paz.co.il/en/pazomat.asp)

The PAZOMAT system, produced by Hi-G-Tek (www.higtek.com), allows odometer readings to be automatically collected each time a properly equipped vehicle is refueled. It uses a small radio frequency (RF) wireless transmitter installed in the vehicle and a small receiver installed in the fuel pump. This system is has been used by the Paz Oil Company in Israel since 1987, and is being implemented in other countries. This information is currently used for Pay-As-You-Drive insurance pricing, to track vehicle fuel efficiency, and to help detect fraud.

 

 

Pay-As-You-Drive in the Netherlands (www.verkeerenwaterstaat.nl/english/topics/mobility_and_accessibility/roadpricing/index.aspx)

In 2008 the Netherlands government committed to implementing a new electronic road pricing system that charges vehicles based on its environmental characteristics, and the time and place of each journey, with higher rates under congested conditions. An independent government agency will be set up to administer the payments, which is expected to begin in 2011. This will replace the current vehicle tax (Motorrijtuigenbelasting or MRB) and vehicle sales tax (Belasting Personenauto’s en Motoren or BPM). Motorists who drive less will pay less, and those who drive more will pay more. Cars that pollute more will be more expensive than cleaner cars. Total government revenues will not increase. This is considered fairer and more efficient than the current system, which imposes very high vehicle ownership taxes. The program is therefore deliberately named A Different Way of Paying for Mobility.

 

Eventually, each vehicle will be fitted with a mobimeter that will record the number of kilometres driven and the charge payable (www.minvenw.nl/cend/dco/home/data/international/gb/eng1201.html). An open standard will be used, so the private sector can play an important role and incorporate ancillary services such as travel information, automatic breakdown notification and payment for parking. A public/private platform is to be set up in order to develop such services.

 

 

British Road User Charges (www.dft.gov.uk/itwp/lorryroad/lruc01.htm)

In the 2002 Budget the UK Chancellor announced the government's decision to introduce distance-based pricing. the "Economic and Fiscal Strategy Report" states:

 

"The Government is determined to ensure that lorry operators from overseas pay their fair share towards the cost of using UK roads and has consulted on options for introducing a road-user charge that would apply to lorry operators regardless of their nationality. The consultation revealed a strong preference for a distance-based lorry road-user charge from a range of organisations, including haulage associations, environmental groups and general business organisations. The Government has therefore decided to introduce a distance-based lorry road-user charge and aims to introduce it in 2005 or 2006. The Government remains committed to ensuring that the UK haulage industry does not pay any more as a result of a new charge and will at the same time introduce offsetting tax reductions for the industry. Further details of the new lorry road-user charge will be outlined shortly."

 

 

German Government Approves Tolls for Trucks (www.bmvbw.de)

In August 2001 the German cabinet approved plans to introduce tolls on trucks using roadways beginning in 2003. Vehicles over 12 tons would be required to pay euros 0.14-0.19 (0.12-0.16 US dollars) per kilometer, with variation depending on exhaust emissions and axles. The intent of the plan is to shift the financing of road use away from the general taxpayer and onto heavy road users. The toll rate was established by computing the costs of the extra wear and tear on roads and maintenance costs incurred by trucks. Revenue from the tolls will be used for further transport investment, including an anti-congestion program. Nature conservation group Nabu applauded the plan but urged the government to consider putting the revenue into something other than road building. Information about the program is summarized below.

 

Facts About The Toll System For Heavy Goods Vehicles (HGVs): Distance-Related HGV Toll Ensures Allocation Of Infrastructure Costs In Line With The User Pays Principle (www.bmvbw.de/LKW-Maut-.720.13835/Facts-about-the-toll-system-for-heavy-goods-vehi...htm).

 

The Act on the Introduction of Distance-Related Charges for the Use of Federal Motorways by Heavy Goods Vehicles (Federal Law Gazette I, No. 23, page 1234) which entered into force on 12 April 2002 is the legal basis for the introduction of a system of distance-related charges for HGVs in Germany in 2003. With the introduction of the HGV toll system, the Federal Government is pursuing four objectives:

 

  1. Heavy goods vehicles are responsible for a disproportionately high share of the costs for the construction, maintenance and operation of motorways. The road wear caused by a heavy goods vehicle with an axle load of 40 tonnes is about 60,000 times as high as the road wear caused by a passenger car. In keeping with EU transport policy, the Federal Government is therefore pursuing the objective of increasing the contribution made by HGVs to the funding of infrastructure by means of an allocation of infrastructure costs in line with the user pays principle. This is the reason why we want to bring about a change of systems with regard to heavy goods vehicles - away from a funding system based solely on tax revenue and the "Eurovignette" and towards a user-funded system based on a distance-related motorway user charge for HGVs (“toll”).

 

  1. The HGV toll system will lead to the establishment of fairer conditions of competition for the road and rail modes. Thus, there will be a realistic chance of shifting more goods traffic from the roads mainly to the railways but also to the inland waterways. By the differentiation of toll rates according to the vehicle's number of axles and emission category, the environmental policy objectives of the Federal Government will also be promoted.

 

  1. The toll system will bring about additional revenue which is urgently required for the maintenance and further upgrading of transport infrastructure in Germany. Most of the additional revenue is to be used for upgrading the federal trunk roads.

 

  1. With this toll system where tolls will largely be collected automatically, Germany will be able to play a pioneering role in this field of technology in Europe and worldwide. This will open up new marketing opportunities for industry and contribute to securing jobs. Moreover, the fact that the realization of such a system is without precedent in the world can boost innovation in Germany also in other fields of information technology.

 

 

References And Resources For More Information

 

Michelle Babiuk (2008), Distance Based Vehicle Insurance: Actuarial And Planning Issues, B.A. (Hon), Masters Thesis, Community and Regional Planning, University of British Columbia; at http://circle.ubc.ca/bitstream/handle/2429/752/ubc_2008_spring_babiuk_michelle.pdf.

 

Paul A. Barter (2005), “A Vehicle Quota Integrated With Road Usage Pricing: A Mechanism to Complete the Phase-Out of High Fixed Vehicle Taxes in Singapore,” Transport Policy, Vol. 12, No. 6 (www.elsevier.com/locate/transpol), November 2005, pp. 525-536; an earlier version is at www.spp.nus.edu.sg/docs/wp/wp56.pdf.

 

BMVBW (2003), Facts About The Toll System For Heavy Goods Vehicles (HGVs) Bundesministerium für Verkehr, Bau- und Wohnungswesen (www.bmvbw.de/LKW-Maut-.720.13835/Facts-about-the-toll-system-for-heavy-goods-vehi...htm).

 

Matthew Bomberg, Richard T. Baker and Ginger Goodin (2009), MileageBased User Fees – A Path toward Implementation; Phase 2: An Assessment of Technology Issues, UTCM 09-39-07, Texas Transportation Institute (http://utcm.tamu.edu); at http://utcm.tamu.edu/publications/final_reports/Goodin_tech_09-39-07.pdf.

 

Jason E. Bordoff (2008) Pay-As-You-Drive Car Insurance, Brookings Institution (www.brookings.edu/articles/2008/spring_car_insurance_bordoff.aspx).

 

Jason E. Bordoff and Pascal J. Noel (2008), Pay-As-You-Drive Auto Insurance: A Simple Way to Reduce Driving-Related Harms and Increase Equity, The Brookings Institution (www.brookings.edu); at www.brookings.edu/~/media/Files/rc/papers/2008/0417_payd_bordoff/0417_payd_bordoff.pdf.

 

Mark Burris, et al. (2013), Equity Evaluation Of Sustainable Mileage-Based User Fee Scenarios, Report 600451-00007-1, Texas A&M Transportation Institute (http://swutc.tamu.edu ; at http://d2dtl5nnlpfr0r.cloudfront.net/swutc.tamu.edu/publications/technicalreports/600451-00007-1.pdf.

 

CTS (2008), Germany's Mileage-based Tolling: a Model for Minnesota?, Center for Transportation Studies (www.cts.umn.edu); at www.cts.umn.edu/Publications/CTSReport/2008/11/GermanysMileage.html.

 

Aaron Edlin (1999), Per-Mile Premiums for Auto Insurance, Dept. of Economics, University of California at Berkeley (http://emlab.berkeley.edu/users/edlin).

 

Joseph Ferreira Jr. and Eric Minike (2010), Pay-As-You-Drive Auto Insurance In Massachusetts: A Risk Assessment And Report On Consumer, Industry And Environmental Benefits, by the Department of Urban Studies and Planning, Massachusetts Institute of Technology (http://dusp.mit.edu) for the Conservation Law Foundation (www.clf.org); at www.clf.org/our-work/healthy-communities/modernizing-transportation/pay-as-you-drive-auto-insurance-payd.

 

FHWA (1997 and 2000), 1997 Federal Highway Cost Allocation Study Final Report and Addendum, Federal Highway Administration, (www.fhwa.dot.gov/policy/hcas/summary/index.htm).

 

FHWA (2007), Non-Toll Pricing: A Primer, Federal Highway Administration (www.fhwa.dot.gov); at http://ops.fhwa.dot.gov/publications/fhwahop08044/cp_prim6_00.htm.

 

Allen Greenberg (2000), Mileage-Based Automotive Leasing and Vehicle Taxation, Office of Transportation Policy Studies, FHWA (allen.greenberg@fhwa.dot.gov).

 

Allen Greenberg (2013), “Pay-As-You-Drive-And-You-Save Insurance: Potential Benefits and Issues,” CIRP Newsletter, Center for Insurance Policy and Research (www.naic.org), pp. 18-22; at www.naic.org/cipr_newsletter_archive/vol9_pay_as_you_drive.pdf.

 

Ginger Goodin, Richard T. Baker and Lindsay Taylor (2009), MileageBased User Fees – A Path Toward Implementation; Phase 2: An Assessment of Institutional Issues, UTCM 09-39-07, Texas Transportation Institute (http://utcm.tamu.edu); at http://utcm.tamu.edu/publications/final_reports/Goodin_inst_09-39-07.pdf.

 

Greig Harvey and Elizabeth Deakin (1997), “The STEP Analysis Package: Description and Application Examples,” Appendix B, in Apogee Research, Guidance on the Use of Market Mechanisms to Reduce Transportation Emissions, USEPA (www.epa.gov/omswww/market.htm).

 

Soner Haldenbilen and Halim Ceylan (2005), “Development Of A Policy For Road Tax In Turkey, Using A Genetic Algorithm Approach For Demand Estimation,” Transportation Research A (www.elsevier.com/locate/tra), Volume 39, Issue 10, December 2005, pp. 861-877.

 

Innovative Finance for Surface Transportation (www.innovativefinance.org) is an Internet based clearinghouse providing information on innovations in road pricing and user fees.

 

Lisa Larsen, Mark Burris, David Pearson and Patricia Ellis (2012), “Equity Evaluatoin of Fees for Vehicle Miles Traveled in Texas,” Transportation Research Record 2297, Transportation Research Board (www.trb.org), pp. 11-20, http://pubsindex.trb.org/view.aspx?id=1128614; at https://ceprofs.civil.tamu.edu/mburris/Papers/TRR%202297%20-%20MBUF%20Equity.pdf

 

Todd Litman (1997), “Distance-Based Vehicle Insurance as a TDM Strategy,” Transportation Quarterly, Vol. 51, No. 3, Summer 1997, pp. 119-138; at www.vtpi.org/dbvi.pdf.

 

Todd Litman (2001), Distance-Based Vehicle Insurance Feasibility, Benefits and Costs: Comprehensive Technical Report, VTPI (www.vtpi.org); at www.vtpi.org/dbvi_com.pdf.  

 

Todd Litman (2004), Pay-As-You-Drive Pricing For Insurance Affordability, VTPI (www.vtpi.org); at www.vtpi.org/payd_aff.pdf

 

Todd Litman (2005), “Pay-As-You-Drive Pricing and Insurance Regulatory Objectives,” Journal of Insurance Regulation, Vol. 23, No. 3, National Association of Insurance Commissioners (www.naic.org), Spring; at www.vtpi.org/jir_payd.pdf.

 

Todd Litman (2007), Pay-As-You-Drive Pricing in British Columbia: Backgrounder, VTPI (www.vtpi.org); at www.vtpi.org/paydbc.pdf.  

 

Todd Litman (2007), Win-Win Emission Reduction Strategies: Smart Transportation Strategies Can Achieve Emission Reduction Targets And Provide Other Important Economic, Social and Environmental Benefits, VTPI (www.vtpi.org); at www.vtpi.org/wwclimate.pdf.  

 

Todd Litman (2007), Socially Optimal Transport Prices and Markets, VTPI (www.vtpi.org).

 

Todd Litman (2008), Pay-As-You-Drive Insurance: Recommendations for Implementation, VTPI (www.vtpi.org); at www.vtpi.org/payd_rec.pdf.  

 

Todd Litman (2011), Pricing For Traffic Safety: How Efficient Transport Pricing Can Reduce Roadway Crash Risk, Victoria Transport Policy Institute (www.vtpi.org); at www.vtpi.org/price_safe.pdf.

 

Todd Litman (2011), Pay-As-You-Drive Vehicle Insurance in British Columbia, Pacific Institute for Climate Solutions (www.pics.uvic.ca); at www.vtpi.org/paydbc.pdf.

 

Todd Litman, Charles Komanoff and Douglas Howell (1998), Road Relief; Tax and Pricing Shifts for a Fairer, Cleaner, and Less Congested Transportation System in Washington State, Climate Solutions (www.climatesolutions.org); at www.climatesolutions.org/pubs/pdfs/roadrelief.pdf.

 

B. Starr McMullen, Kyle Nakahara, Smita Biswas, Lei Zhang and Divya Valluri (2008), Techniques for Assessing the Socio-Economic Effects of Vehicle Mileage Fees, OTREC 07-03, Oregon Department of Transportation; at www.oregon.gov/ODOT/TD/TP_RES/docs/Reports/2008/ODOT-VMT_Fee_Impacts.pdf.

 

NMA (1998), NMA’s Position on Auto Insurance, National Motorists Association (www.motorists.org).

 

Ian W. H. Parry (2004), “Comparing Alternative Policies to Reduce Traffic Accidents,” Journal of Urban Economics, Vol. 54, No. 2 (www.elsevier.ocm/locate/jue), Sept. 2004, pp. 346-368.

 

Ian W.H. Parry (2005), Is Pay-As-You-Drive Insurance: a Better Way to Reduce Gasoline than Gasoline Taxes?, Resources for the Future (www.rff.org); at www.rff.org/Documents/RFF-DP-05-15.pdf.

 

Alice M. Rivlin and Benjamin Orr (2009), Road-use Fees Could Solve Our Transit Woes, Brookings Institution (www.brookings.edu); at www.brookings.edu/opinions/2009/0501_congestion_pricing_rivlin.aspx.

 

Oregon Road User Fee Task Force Website (www.odot.state.or.us/ruftf) reports on research to evaluate new revenue collection options. Also see Practical Development of the Mileage Fee (www.odot.state.or.us/ruftf/pdfs/03Nov21MileageFee.pdf).

 

Maureen Sevigny (1998), Taxing Automobile Emissions for Pollution Control, New Horizons in Environmental Economics, Edward Elgar (www.e-elgar.co.uk).

 

TRB (2006), The Fuel Tax and Alternatives for Transportation Funding, Special Report 285, Transportation Research Board (www.trb.org); at http://onlinepubs.trb.org/onlinepubs/sr/sr285.pdf.

 

William Vickrey (1968), “Automobile Accidents, Tort Law, Externalities and Insurance: An Economist’s Critique,” 33 Law and Contemporary Problems, pp. 464-470, 1968; at www.vtpi.org/vickrey.htm.

 

Lei Zhang and Yijing Lu (2012), “Marginal Cost Vehicle Mileage Fee,” Transportation Research Record 2297, Transportation Research Board (www.trb.org), pp. 10-10; at http://trb.metapress.com/content/q050l35u7r726813.


This Encyclopedia is produced by the Victoria Transport Policy Institute to help improve understanding of Transportation Demand Management. It is an ongoing project. Please send us your comments and suggestions for improvement.

 

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