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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?

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Synthesis and Interpretation Efficiency and Long-Term Dynamics

Dual Model Approach


Partial transport sector equilibrium model


Integrated transport-economicsystem dynamics model




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.

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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.

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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).

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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.

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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.

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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.

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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

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

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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.

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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.

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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.

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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.

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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.