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Using the Revenues from the German HGV Toll - Economic Efficiency and Long-Term Dynamics . Claus Doll REVENUE Final Seminar Brussels, 29.-30. November 2005. Background.

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Using the revenues from the german hgv toll economic efficiency and long term dynamics l.jpg

Using the Revenues from the German HGV Toll - Economic Efficiency and Long-Term Dynamics

Claus Doll

REVENUE Final Seminar

Brussels, 29.-30. November 2005


Background l.jpg
Background Efficiency and Long-Term Dynamics

  • 2000: Final report of the governmental commission on transport infrastructure financing: Recommendation to replace tax finance of federal roads by a system of user charges to ensure good network quality.

  • 2001: Decision of federal cabinet to replace the EuroVignette-System by distance-depending motorway charges according to DIR 199962/EC.

  • 2001: Tendering of toll collection.

  • 2002: Contract to the Toll Collect Consortium (DaimerChrysler, German Telekom) to install and operate a satellite-based toll system.

  • 2003: Parliament and council pass the act on use of toll revenues and on the foundation of an infrastructure financing society (VIFG).

  • 2005: Toll system went into operation after a delay of 18 months without major problems.


Design of the german hgv toll system l.jpg
Design of the German HGV toll system Efficiency and Long-Term Dynamics

  • Average tariff 12.4 ct./km differentiated by emission standards and axles according to DIR 1999/62/EC.

  • Of total revenues Toll Collect receives an annual sum of 620 mill. € for operation and enforcement. The contract runs until 2015.

  • Toll Collect has guaranteed a minimum of 90 % of recognising free riders. Per year 10 million vehicles are checked by Toll collect and by the Federal Office for Goods Transport.

  • According to council legislation of 5 / 2003 charges are transferred to the Transport Infrastructure Financing Society (VIFG) which is obliged to distribute them to

  • - road (50 %), - rail (38 %) and to - inland waterways`(12%).


Research questions l.jpg
Research Questions Efficiency and Long-Term Dynamics

  • Primary research questions:

  • Should revenues be re-invested in new infrastructure capacity or in maintenance?

  • Should there be a cross-subsidisation between modes or road classes?

  • Should revenues be partly or fully transferred to the state?

  • Secondary research questions:

  • How should revenues between motorways and trunk roads be allocated?

  • Which role do different pricing rules play with revenue allocation decisions?


Dual model approach l.jpg

Synthesis and Interpretation Efficiency and Long-Term Dynamics

Dual Model Approach

MOLINO:

Partial transport sector equilibrium model

ASTRA:

Integrated transport-economicsystem dynamics model

Demand,

Networks

etc.

Social welfare measures

Equity by income groups

Accounts of agents

Economic, environmental and Finanical indicators over time

Detailed modes, sectors and areas

Charging + revenue spending scenarios


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Scenario treatment by assessment tool Efficiency and Long-Term Dynamics


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Use of the MOLINO welfare model Efficiency and Long-Term Dynamics

  • Scope: Pricing of all inter-urban surface transport modes (road, rail/IWW) with focus on average cost pricing of HGVs on motorways.

  • Geography: Consideration of entire networks.

  • Modes: Federal roads (motorways + trunk roads) vs. mass transport (rail + IWW). (IWW freight only, others passenger + freight).

  • Institutions: Infrastructure charging instead of final user charging; distinction between infrastructure investor and infrastructure operator.


Molino pricing rules l.jpg
MOLINO Pricing Rules Efficiency and Long-Term Dynamics

  • Scheme A: Reference case, no road charging, rail/IWW as current.

  • Scheme B: Current pricing scheme: HGV motorway charges calculated from average costs of constructing, maintaining and operating the networks. Road operation public, rail/IWW operation private (with public subsidies).

  • Scheme C: Average infrastructure cost pricing for all vehicles on all road network types.

  • Scheme D: SMCP on all modes.

  • Pricing, management and investment under public procurement in all scenarios.


Decisive welfare determinants l.jpg
Decisive welfare determinants Efficiency and Long-Term Dynamics

  • Elasticities of substitution: Calibration by studies on market reactions of transport on pricing measures.

  • The marginal cost of public funds: Value for Germany taken out of Kleven and Krainer (2003). Values for Germany (2.21) are very high compared to other OECD countries (average 1.55).


Set up of the astra model l.jpg
Set-up of the ASTRA model Efficiency and Long-Term Dynamics

  • ASTRA is an aggregated system-dynamics model for the EU-15 with several network levels, 4 functional regions per country and 25 economic sectors.

  • It does not compute neoclassical welfare measures but models economic processes more detailed than MOLINO.

  • Single pricing rule: Average infrastructure cost pricing for all inter-urban road users.

  • Three revenue spending scenarios:

    • Road: Re-investment of all revenues in the road sector.

    • Cross: Cross-subsidisation of rail investments and maintenance.

    • DT: Reduction of direct taxes.


Research question 1 maintenance vs new investments l.jpg
Research question 1: Efficiency and Long-Term Dynamics Maintenance vs. new investments

  • Consideration by MOLINO only.

  • External modelling of:

    • time-variant asset deterioration required.

    • level of maintenance requirements and maintenance costs.

    • speed to maintenance elasticity.

  • Results:

    • Total welfare (society as a whole) prefers maintenance activities in order to prevent future re-investment costs and in order not to provoke induced traffic with all its negative implications (environment, congestion, etc.).

    • Users (low and high income) prefer new investments due to reduced time and resource costs.


Research question 2 road vs cross subsidisation of rail iww l.jpg
Research question 2: Efficiency and Long-Term Dynamics Road vs. cross-subsidisation of rail/IWW

  • Consideration by MOLINO and ASTRA.

  • Results:

    • MOLINO recommends the earmarking of funds for the road sector from the perspective of total welfare as well as from the users' point of view.

    • Reason: Rail investments are more cost-effective but road has much higher demand => preference will improve as rail share increases.

    • Considering several indicators (GDP, GVA, exports, etc.) ASTRA also results in slightly more positive values in case of earmarking revenues to road.

    • This preference of the ASTRA model is, however, negligible.


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Research question 3: Efficiency and Long-Term Dynamics Earmarking for transport vs. transfer to public hand

  • This question has been investigated by both models.

  • Assumption: state uses revenues to lower (direct) taxes proportional to income.

  • Alternative ways of revenue use (investment in education, health sector support, etc.) are out of the scope of the models.

  • Direct use of "marginal cost of public funds" (MOLINO) vs. endogenous computation of costs of public funds via behavioural consumption models (ASTRA).

  • Results:

    • MOLINO clearly recommends the transfer of all revenues to the state.

    • Results are much less expressed when using alternative MCPF-values.

    • In the long run ASTRA finds much better results when earmarking revenues to transport due to incentives for productivity improvements.


Conclusions 1 l.jpg
Conclusions (1) Efficiency and Long-Term Dynamics

  • MOLINO and ASTRA agree in the following items:

  • 1. In general average cost pricing has a negative impact on total welfare.

    • From the perspective of transport users this, however, looks different.

    • MOLINO finds positive welfare measures for MSCP.

  • 2. If revenues are to be earmarked to transport, maintenance activities in road should be prioritised.

    • This MOLINO result holds for society in total.

    • In contrast, transport users would prefer investments in capacity extension.


Conclusions 2 l.jpg
Conclusions (2) Efficiency and Long-Term Dynamics

  • The models disagree in the welfare effect of transferring revenues to the general budget.

    • MOLINO and ASTRA short run results prefer transferring revenues to the public household.

    • In the log run incentive and productivity effects make the re-investment cases perform much better in the ASTRA framework.

    • MOLINO: Appropriate to model welfare effects on a limited local level.

    • However, more research is required on the effects of cross-subsidising other sectors (e.g. health, social security or education).

    • Conclusion: The transfer of transport pricing revenues to the general budget is to be considered with care.


Additional material l.jpg
Additional material Efficiency and Long-Term Dynamics


Molino decision tree in the multi modal case m l.jpg
Molino decision tree in the multi-modal case "M" Efficiency and Long-Term Dynamics



Agents and their inter relations l.jpg
Agents and their inter-relations Efficiency and Long-Term Dynamics

  • Users individual and public transport operators (car users, hauliers, train service operators, shippers)

  • The infrastructure operators take decisions on maintenance activities and bears the costs of network capital and maintenance costs, which they can charge to the users. .

  • The network managers (=owners or investors) take decisions on capacity expansions and bear the respective costs for new investments which they can charge to the operators.


Structure of the astra system dynamics model l.jpg
Structure of the ASTRA Efficiency and Long-Term Dynamics system-dynamics model

  • 8 modules which are interfering in every time step (3 months).

  • Feedback loops and reaction delay functions aim at capturing second-round effects of policy measures (e.g. endogenous generation of costs of public funds).

  • Geographical coverage: EU15 (25) with 4 functional zones per country.

  • Emphasis on transport sector.


Determination of molino input parameters l.jpg
Determination of MOLINO input parameters Efficiency and Long-Term Dynamics

  • Demand: Levels and growth rate by federal investment plan

  • Network speed-flow curves:

    • Road: Network model outputs for different demand levels

    • Rail/IWW: Network impacts of big investment projects

  • Marginal costs of capacity expansion: 50% of network replacement costs to capture the effect of targeted investments in bottlenecks.


Question 4 different forms of acp vs mscp l.jpg
Question 4: Efficiency and Long-Term Dynamics Different forms of ACP vs. MSCP

  • Assessment by MOLINO only.

  • Pricing regimes:

    • ACP HGVs >12t on motorways (0.58 ct./tkm)

    • ACP cars (1.88 ct./pkm) and HGVs (1.55 ct./tkm) on all roads#

    • MSCP on roads (11-18 ct./pkm, 10-13 ct./tkm) and rail/IWW (13-18 ct./pkm, 3-10 ct,/tkm)

  • Results:

    • Pricing schemes matter much more than revenue allocation rules.

    • Welfare results extreme for MSCP, driven by positive effect of reduced traffic.

    • User-specific results contradict positive total welfare with MSCP.


Question 5 public administration vs private sector operation l.jpg
Question 5: Efficiency and Long-Term Dynamics Public administration vs. private sector operation

  • Investigated by MOLINO only.

  • Here only presentation of cases with full earmarking of revenues to transport.

  • Different levels of cross-subsidisation between (both private) modes.

  • Profit-maximising price regime (Nash equilibrium) due to elasticities of substitution < 1 not possible => ACP raised by 50% to simulate profit margin.

  • Results:

    • For 100% as well as for 50% earmarking of revenues for road public sector involvement is much worse than public administration of the road network.

    • Remarkably, cross-subsidisation of rail/IWW is favoured even by private sector.

    • Results are confirmed by user-specific welfare measures.


Question 6 investment in motorways vs trunk roads l.jpg
Question 6: Efficiency and Long-Term Dynamics Investment in motorways vs. trunk roads

  • Assessment with MOLINO only.

  • Assumptions: 100% earmarking of revenues to transport, 50% us3e for maintenance activities.

  • Results:

    • Total welfare perspective: 75% use for motorways optimal.

    • User perspective: 25% for motorways, 75% for motorways.

    • Explanation: Detouring traffic causes environmental, noise and safety problems.


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