BACKGROUNDER #8: Transportation Pricing

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1 BACKGROUNDER #8: Transportation Pricing Purpose: Why is this topic important to the Regional Transportation Strategy? Transport Demand Management (TDM) is the use of policies, programs, services and products to influence whether, why, when, where and how people travel. TDM helps shape the economic and social factors behind personal travel decisions and can be broadly split into three categories: information and education; regulation; and pricing. Figure 1 The role of information, regulation, and pricing INFORMATION REGULATION PRICING Travel Planning Awareness & Marketing Communications Incentive programs Published information (wayfinding, maps, real time information) Use of IT (teleworking, home shopping) Parking Management pricing regulations Carsharing Related land-use policies, including Transit Oriented Communities and Frequent Transit Development Areas Transit Fares Road Pricing area-wide facility/corridor lane full network Parking Pricing Vehicle Pricing gas insurance purchase price TDM is largely focussed on reducing the number and type of trips made by single-occupancy vehicles, but to be successful it must consider all modes within the transportation network. Managing the network through a range of TDM measures is important for a number of reasons, including: Many TDM measures, in particular transport pricing, enable people to recognize the full cost of their choice, leading to a transportation system where people choose the route, time, and mode that works best for both them and the transportation system. 1

2 Through recognizing the true demand for a transport service, transport agencies can defer the need for some kinds of new investments. This money can be used more effectively in other parts of the transportation system; and Adopting a TDM measure such as mobility management 1 can make the connection between why people travel and how. This allows people to understand the value of transportation and facilitates tailored programs to target certain mobility needs. This opens up new possibilities for TransLink to build relationships with customers. The Regional Transportation Strategy will include policy direction on all three categories of TDM. However, this backgrounder focuses on the key policy area of transport pricing. What is transport pricing? On the whole, urban transportation consumers only pay for a portion of the costs of the infrastructure and services they use. Other costs are paid out of general tax revenues, often referred to as subsidies, and are not linked to the level of usage. Examples of usage fees in Metro Vancouver include, transit fares, parking charges, and bridge tolls. Fuel taxes are a proxy for level-of-usage, but are not exact because of variations in vehicle fuel consumption and where the fuel travels. In this respect, urban transportation is unlike other utilities (e.g. electrical power or drinking water supplies) that collect user fees in order to meet actual system costs. The balance between user fees and subsidies for different modes varies in cities around the world. Some cities subsidise transit heavily by offering reduced fares. Other cities raise user fees on auto travel through auto ownership costs, road usage costs, and/or parking costs. This balance between user fees and subsidies raises important questions for TransLink and the regional transportation system: What proportion of transportation costs should be covered by user fees? How should user fees be applied and to what parts of the transportation system? What policy goals should transport pricing support? User fees have a capacity to improve the economic efficiency of urban transportation systems, because accurate pricing acts to keep supply and demand in balance. User fees can also provide revenue that local, regional, and provincial governments can use to build, maintain and renew transportation infrastructure and services. User fee pricing can therefore bring a number of benefits, including: A clearer link between supply and demand to reflect the true cost of the transportation mode; More efficient use of transport assets which can potentially defer the need for some kinds of new investment; 1 The term mobility management is used when considering the transportation system from the user s perspective. This approach brings together all transport modes and seeks to make best use of investment in existing transport infrastructure. 2

3 A price signal to incentivize certain travel behaviours, including reducing trips by single-occupancy vehicles; and A revenue source that is connected to transportation and overcomes reliance on general taxation. The decisions made on transport pricing have widespread impacts. They determine how much an individual customer will directly pay to travel as well as how much the region needs to generate in subsidies to top up this amount. These decisions will also vary by mode because the direct and indirect costs of different modes vary. For example, some cities subsidize cycling heavily because it brings broader health and environmental impacts that are not captured in traditional transport pricing. Figure 2 presents annual levels of societal subsidies to the transportation system in this region. Figure 2 - Annual Transportation Subsidies in Metro Vancouver ($ millions) $2,876 $millions $690 $848 $62 $34 AUTO TRUCK TRANSIT BIKE WALK 3

4 The role of pricing elsewhere Pricing is a common nudge to customer behaviour in all sectors of the economy. Many people are familiar with the variable pricing structures that exist in cell phone contracts. For example, when calling longer distance the charges are higher to reflect the increased costs incurred by the network provider in connecting the call. Likewise, many providers offer discounts at evenings and weekends to encourage usage at these times when the overall network has excess supply because most workplaces are offline and electricity costs are lower How is transport pricing applied? (Opportunities) The most frequently considered opportunities for urban transportation pricing are: vehicle ownership/ use; road use; parking; and public transit use. Not all pricing measures will be applicable to every region, and a policy package is dependent on transportation goals; available transportation choices; and likely public acceptance of user fees. Figure 3 Transportation Pricing Options in Use Elsewhere Vehicle Ownership and Use Vehicle registration levy Distance-based vehicle insurance Fuel taxes Transit Fares Zonal (distance) or time-based transit fares Road Pricing Lane pricing Facility/corridor pricing Area-wide/cordon pricing Full network pricing P Parking Pricing Parking meter fees Parking rights tax Elimination of workplace parking subsidies 4

5 Research on transportation pricing in Metro Vancouver and in other international city-regions has identified a number of key lessons: Transport pricing policies have a significant impact on travel behaviour, especially when compared to other TDM measures. In simple terms, people stop and think about their travel behaviour when they are required to pay more, or they have an opportunity to save money by making different travel choices. Even a minor price change can nudge people to consider other options. For example, TransLink has assessed the impact of TDM measures on the total amount that people drive (referred to as Vehicle Kilometres Travelled or VKT), as outlined in Table 1. The majority of the impact is as a result of the road pricing and the parking pricing, and the illustrative scenario with the highest level of user fees has the potential to reduce regional VKT by 25% from current levels 2. Table 1 Effectiveness of TDM Measures in Metro Vancouver Illustrative TDM Scenarios Scenario 1 Full network road pricing at $0.02 per km Parking pricing of av $0.50 at 10% of trip locations Scenario 2 Full network road pricing at $0.03 per km Parking pricing of av $1 at 10% of trip locations Information/education targeting 750,000 people Scenario 3 Full network road pricing at $0.05 per km Parking pricing of av $1 at 20% of trip locations Information/education targeting 1,000,000 people Potential reduction in Regional VKT Up to 10% Up to 15% Up to 25% Source: Litman (2013) A number of different stakeholders are involved in both the policy-setting and the delivery of transport pricing policies. For example, the only category over which TransLink has functional control is the setting of transit fares. 3 The other transport pricing categories require TransLink to work with numerous actors. In the case of the vehicle registration fee, legislation permits TransLink to introduce this measure, but designates ICBC to administer the charge. Likewise for road pricing, depending on 2 The conclusions of this assessment are made on the assumption that there would be sufficient non-auto transportation options to allow the individual user to consider switching mode. 3 TransLink has full control to set and discount transit fare levels working within necessary legislation and the required approvals of the TransLink Commission. 5

6 the design, TransLink would be required to work with municipal and provincial governments, and interested parties such as the goods movement industry in the design and delivery of the policy. Pricing is just one part of managing transport demand and it is best delivered in combination with regulatory and information/education measures. When pricing is applied in concert with regulation, information, and education, the leverage effects are greater. How is transport pricing applied currently in Metro Vancouver? (Trends) Metro Vancouver already has experience with all four types of pricing. Table 2 outlines the current approach to transport pricing in Metro Vancouver with respect to user fees. Table 2 Current Transportation Pricing Policies in Metro Vancouver Category of transport pricing Transit Vehicle Parking Road Approach in Metro Vancouver 3 zone transit fares to approximate distance-based pricing. Existing discounts for monthly zonal pass. Motor fuel tax of 42.2 cents per litre, apportioned to federal and provincial governments and TransLink. This includes a portion attributed to the Carbon Tax. Parking rights tax administered by TransLink on all paid parking in the region. The tax rate is set at 21%. Paid parking is in place in parts of Metro Vancouver, in particular the Metro Core area, but is less prevalent elsewhere in the region. Facility tolls are in place on Golden Ears Bridge and Port Mann Bridge. No other form of direct road pricing is in place in the region. There appears to be growing acceptance that the region should use transportation pricing to send price signals that help achieve transportation goals. The Mayors Council has identified future regional transportation funding sources that were linked to the user pay principle, even while recognizing the need to be sensitive to public affordability. Proposed funding sources included a vehicle registration levy and road pricing (see Backgrounder #10 for further information). Stakeholders such as the BC Chamber of Commerce and the Greater Vancouver Gateway Council have also supported transportation choices based on the principle of user pay. At the Municipal level there is broad agreement that general taxation such as property tax is not an adequate way to fund transportation and that user fees should be a key part of future approaches. 6

7 Challenges Despite an apparent political and public shift in support of transportation pricing, it is important to note that previous efforts to implement pricing have failed and to understand why. For example, increases in parking charges within all town centres and comprehensive bridge tolls were proposed but not delivered. Gaining public and political approval for a reform of transportation pricing structures is difficult because new approaches may have unequal impacts. For example, it is easy to accept, from a system perspective, that better pricing is fairer, but it might not seem that way to those users who are unable to change their travel patterns and who will have to pay more. There are a number of reasons to suggest that the timing today is much more favorable compared to the early 1990s when Transport 2021 was adopted in Metro Vancouver. TransLink s jurisdiction enables a comprehensive approach for almost the entire commuter shed and technology has advanced significantly since the 1990s to enable a broad range of pricing mechanisms. There is also the increasing realization that without comprehensive TDM measures, the region cannot meet its agreed goals and targets. The region is largely built out and 80% of growth over the next 30 years will be in urbanized areas, increasing pressure and potentially adding congestion to the road network. In the case of transportation pricing, more people are becoming familiar with user fee charges, whether locally in the case of bridge tolls (Golden Ears Bridge, Port Mann Bridge) and parking charges or internationally (high profile road pricing projects in London, Stockholm, and Toronto). A number of key stakeholders have also indicated their support for improved pricing, including the Mayors Council, Metro Vancouver, and the Gateway Council. 7