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

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

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

  2. Background • 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.

  3. Design of the German HGV toll system • 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%).

  4. Research Questions • 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?

  5. Synthesis and Interpretation 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

  6. Scenario treatment by assessment tool

  7. Use of the MOLINO welfare model • 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.

  8. MOLINO Pricing Rules • 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.

  9. Decisive welfare determinants • 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).

  10. Set-up of the ASTRA model • 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.

  11. Research question 1: 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.

  12. Research question 2: 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.

  13. Research question 3: 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.

  14. Conclusions (1) • 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.

  15. Conclusions (2) • 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.

  16. Additional material

  17. Molino decision tree in the multi-modal case "M"

  18. Molino decision tree in the multi road level case "R"

  19. Agents and their inter-relations • 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.

  20. Structure of the ASTRA 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.

  21. Determination of MOLINO input parameters • 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.

  22. Question 4: 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.

  23. Question 5: 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.

  24. Question 6: 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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