1.1.1.
CRRP Feasibility Study Final
Report
1.1.2. 2/18/20162/18/2016Abbreviations
COAG Road Reform Plan
4 November 2011
CRRP Feasibility Study
Final Report to COAG
COAG Road Reform Plan – Document Title | 1
COAG Road Reform Plan
T (03) 9095 4409
E crrp@transport.vic.gov.au
W roadreform.gov.au
Level 6, 121 Exhibition Street Melbourne VIC 3000
COAG Road Reform Plan – Final Feasibility Study Report to COAG |
Table of Contents
Abbreviations .....................................................................................................................2
Executive summary ...........................................................................................................3
1.
Introduction .............................................................................................................8
2.
What is the CRRP Feasibility Study? ....................................................................9
2.1.
The context for the COAG Road Reform Plan .................................................................................................. 9
Box 1: Phase 1 of the COAG Road Reform Plan (CRRP)............................................................................... 10
The Feasibility Study process ......................................................................................................................... 11
Box 2: Principles guiding the Feasibility Study ............................................................................................. 12
2.2.
3.
Consultation ..........................................................................................................13
3.1.
3.2.
3.3.
How did the CRRP project engage with stakeholders? ................................................................................. 13
What were the key stakeholder messages? ................................................................................................... 14
Continued engagement with industry ............................................................................................................. 15
4.
Why reform arrangements for heavy vehicle charging and funding? ..............16
4.1.
4.2.
4.3.
The challenge to achieve productivity in the road freight industry.............................................................. 16
Improving productivity of the road freight industry ...................................................................................... 17
The role of road reform in improving productivity......................................................................................... 18
5.
The feasibility of mass, distance and location based charges .........................20
5.1.
What pricing options have been considered?................................................................................................ 21
Box 3: Charging principles ............................................................................................................................. 21
What costs are associated with heavy vehicle traffic? ................................................................................. 21
What are the benefits of more direct heavy vehicle charging? .................................................................... 22
Estimating the benefits of pricing reform alone............................................................................................. 24
Options to collect information for more direct road use charges ................................................................ 25
Box 4: Technologies available to measure key pricing parameters ............................................................. 28
Estimated costs of implementing more direct pricing options ..................................................................... 28
Feasibility of implementing more direct heavy vehicle charges .................................................................. 30
Box 5: Additional potential opportunities from the use of in-vehicle units to measure mass, location and
distance ............................................................................................................................................................. 32
5.2.
5.3.
5.4.
5.5.
5.6.
5.7.
6.
Feasibility of alternative funding and expenditure arrangements ....................33
6.1.
What funding and expenditure options have been considered? .................................................................. 33
Box 6: Funding and financing principles ........................................................................................................ 33
What does funding and expenditure reform need to address? .................................................................... 34
What are the benefits of heavy vehicle funding and expenditure reform? .................................................. 36
Box 7: Case Study – Cost efficiency from improving road funding certainty ............................................. 36
The options to improve incentives for more efficient maintenance and provision of roads ..................... 38
The net benefits of introducing more direct road use charges and associated funding and expenditure
reforms .............................................................................................................................................................. 40
6.2.
6.3.
6.4.
6.5.
7.
Achieving the benefits of reform – the next phase of CRRP .............................42
7.1.
What challenges will need to be addressed in the next phase of CRRP? ................................................... 42
Appendix A: CRRP reports and supporting models ....................................................44
Appendix B: Glossary ....................................................................................................47
Appendix C: Explanation of heavy vehicle segment definitions .................................51
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 1
Abbreviations
ATA
Australian Trucking Association
ATC
Australian Transport Council
BITRE
Bureau of Industry, Transport and Regional Economics
COAG
Council of Australian Governments
CRRP
COAG Road Reform Plan
CSO
Community Service Obligation
GPS
Global Positioning System
GSM
Global System for Mobile Telecommunications
HML
Higher Mass Limits
IAG
Industry Advisory Group
IAP
Intelligent Access Program
NFF
National Farmers Federation
NHVR
National Heavy Vehicle Regulator
NTC
National Transport Commission
PAYGO
Pay As You Go
PBS
Performance Base Standards
RUC
Road User Charge
SCOTI
Standing Council on Transport and Infrastructure
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 2
Executive summary
Road freight transport is an integral part of Australia’s economy; it enables goods and
services to be transported to markets, raw materials to reach processing sites, exports to
reach rail heads and wharves and waste to be removed from our communities. The cost,
reliability, timeliness and quality of the transport sector has a measurable impact on the
nation’s international competitiveness.
The efficient functioning of the road transport sector contributes to the growth of the
economy in the short term by reducing the time and cost of transporting people and
goods to destinations and markets and indirectly as savings flow through and compound
in the economy in a multiplier effect.
Poor investment decisions can, and do, constrain Australia’s productivity growth and the
nation’s living standards. Getting reform right is important for the productivity and
efficiency of Australia’s economy both in the short and long term.
Road freight transport faces challenges
There are a number of current and emerging challenges that are driving the case for
reform to delivery of road freight infrastructure and improving the direct pricing of that
infrastructure. Foremost among these is the plateauing of national productivity. However,
government’s capacity to fund productivity enhancements that are sustainable, safe and
efficient is limited. There are significant challenges in achieving social, economic and
environmental objectives through provision and use of road infrastructure when the
incentives and revenue certainties which underpin client focused service provision are
absent.
Road transport infrastructure is one of the only remaining public sector assets yet to
undergo major economic reform. While there have been considerable steps forward
along the reform path, including the Model National Laws and the agreement to the
National Heavy Vehicle Regulator (NHVR), comprehensive structural reform has not
taken hold in the sector.
Technical and structural issues can seem all the more insurmountable when you
consider the intrinsic difference between the road transport sector and the sectors
reformed in the 1990s. Businesses and private individuals have always directly paid for
their consumption of electricity, gas and water and the network infrastructure used to
provide these services are orders of magnitude less complex than the road network. It is
clear that progressing charging reforms in the transport sector can be expected to be a
significant challenge for any government prepared to take it on.
Australia’s road freight task is continuing to double every 20 years. However, unlike in
previous decades, this growth is placing increasing pressure on an already strained road
network, degrading road assets, increasing emissions (both air quality and carbon
equivalents) and contributing to congestion. Road providers have faced pressures to
maximize the use of their road assets in the face of these increasing demands. To the
extent that these demands are unable to be accommodated, this has resulted in higher
vehicle operating costs, reductions in productivity and consequential costs and lost
opportunities to the economy and community at large.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 3
There are also a number of other key emerging issues and challenges which will impact
the ability of governments to effectively fund and supply road transport infrastructure into
the future. The Australian Government’s 2010 Intergenerational Report1 noted that these
pressures and challenges are likely to come from:
 population growth
 demographic change and an ageing population
 greater urbanisation
 climate change.
In addition, and largely as a consequence of these issues, governments are likely to
increasingly face constraints in their capacity to fully fund road construction and
maintenance expenditure from general taxation revenue. Such constraints will continue
to limit heavy vehicle productivity and efficiency.
Road revenue is part of the taxation base.
The vast majority of road transport infrastructure operates, in effect, as a government
owned monopoly. Roads that are privately owned on government land and provide public
services are fully regulated by governments. Road user revenues from fuel excise,
registration, stamp duty, licence fees and tolls, in most jurisdictions, are not linked with
public expenditure on roads. Generally, income from fees and charges goes into the
consolidated revenue of the jurisdiction that collects it (Commonwealth or state). There is
no universally direct link between road revenue and expenditure on maintenance and
new infrastructure.
Investment in road infrastructure is a result of complex funding arrangements between
Commonwealth, state and local governments. In general, state governments are the
responsible road manager for arterial roads while local governments are responsible for
local roads. The Commonwealth Government plays an integral role in planning,
constructing and maintaining road infrastructure through its funding relationship with state
and local governments through nation building and local road grants.
Road funding is determined through annual budgetary processes at all levels of
government. Funding out of general revenue means investment in road infrastructure is
balanced against other competing government priorities. Road infrastructure investments
generally require long lead times and have large and lumpy costs resulting in a long lived
asset. This is not conducive to the traditional decision making timelines of government
which often focus on a 2-5 year time frame rather than a 10-50 year time horizons.
The CRRP Feasibility Study
In April 2007, the Council of Australian Governments (COAG) asked the then Australian
Transport Council (ATC) – now the Standing Council of Transport and Infrastructure
Ministers (SCOTI) – to undertake a study into the feasibility of introducing more direct
pricing for heavy vehicles and to examine future funding arrangements for roads. This
1
Commonwealth of Australia, Australia to 2050: Future Challenges, 2010.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 4
remit stemmed from COAG’s consideration of the Productivity Commission’s 2006 study
into Road and Rail Freight Infrastructure Pricing and recommendations from phase 1 of
the COAG Road Reform Plan (CRRP). The establishment of dedicated resources under
the guidance of a Board to undertake this reform complemented the parallel initiative of
the establishment of the NHVR. In both instances the Boards comprised senior officers
from transport and roads agencies and the National Transport Commission (NTC).
The Feasibility Study (the study) was assisted by an Industry Advisory Group (IAG)
comprising major freight shippers, retailers and fleet owner representatives. Their input
was critical in identifying pragmatic issues affecting users and clients of the road
networks.
The current focus on heavy vehicle pricing reform being undertaken as part of this study
under COAG Road Reform Plan, has as its principal objectives to:
1: Promote the more efficient, productive and sustainable provision and
use of freight infrastructure.
2: Ensure that national heavy vehicle road prices promote the efficient,
safe and sustainable use of infrastructure, vehicles and transport modes.
Pricing and funding are inextricably linked
The initial emphasis in the study was on evaluating pricing reforms. That is whether
shifting from the current system of registration and fuel based road user charges to a
more direct pricing regime for heavy vehicles was technically feasible, capable of
implementation and likely to result in net economic benefits to the community.
The study involved some significant research into how changes in charges might impact
on operators’ choices and in turn result in more efficient use of roads and the vehicle
fleet. On the cost side, work undertaken for Austroads and supplemented by internal
research provided best estimates of the costs and effectiveness of current technologies
in implementing direct pricing options. All the research was subject to review by a panel
of technical and economic experts and the subsequent working papers were shared with
the Industry Advisory Group.
During the course of the study, and as with earlier reports to COAG, it was evident that a
broader focus on reform of road funding, provision and use would result in benefits well in
excess of those from reform of heavy vehicle pricing alone. Indeed the study now
estimates that reforms to funding could deliver net benefits in the order of $5 billion to $7
billion (in present value terms) whereas undertaking direct pricing reform alone is likely to
result at best in a small benefit, but more likely, a small economic loss. This finding is
broadly consistent with the Productivity Commission’s findings although they had slightly
higher estimates of the relative benefits of pricing reform compared to broader supply
reform.
As a consequence, steps were taken to identify options for examining how an integrated
package of pricing, funding and expenditure reforms could be evaluated and
implementation pathways developed for COAG’s consideration. It was evident that any
shift in pricing would require a related shift in how road funds might flow to and through
road providers. This close link between pricing and funding reform was considered to
have wider implications that would require input from central agencies as well as
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 5
transport agencies. For this reason, the CRRP Board has established a joint working
Group with the Deputy Heads of Treasuries to refine the funding and supply side issues
for the consideration of COAG.
Recommendations
Recommendation 1:
Recommendation 2:
An integrated package of pricing, funding and expenditure
reforms should be pursued where benefits outweigh the costs and
that takes into account that:

more direct pricing of heavy vehicles without funding and
expenditure reform is not economically feasible;

changes to the existing system of heavy vehicle charging will
have consequential impacts on funding arrangements; and

transitional arrangements will be required to manage the
impacts on industries and communities.
The next phase of CRRP should include development of a
package of reforms, where benefits outweigh costs, that support
the COAG Road Reform Plan objectives and address:

the mechanism by which road user revenue would be
transparently linked to road funding including transitional
arrangements to take into account the impact on affected
groups;

economic incentives and accountabilities for road providers,
including local government;

mechanisms to ensure services that promote social objectives
or benefits to the broader community beyond those a
commercial road owner would provide are transparently
funded; and

new arrangements for price setting.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 6
Recommendation 3:
The new arrangements for heavy vehicle road funding and
expenditure and direct pricing for heavy vehicles should be
developed by December 2012 for consideration by COAG along
with the preparation of any necessary agreements to give effect to
those arrangements. Any decision by COAG to proceed to
implementation will follow consideration of a Regulatory Impact
Statement (RIS).
In short, there are considerable benefits to be reaped from economic and structural
reforms to the planning, provision and maintenance of roads and consequential shifts to
more direct pricing.
There are also significant concerns that the current system of road provision and
charging for heavy vehicles is not sustainable for the future.
If pursuing reforms recommended by the Feasibility Study is approved by COAG, further
work will be necessary to prepare a package of reforms that incorporate appropriate
agreements and supporting cost benefit analysis of options for implementation. The
expanded work program required to meet the recommendations of the Feasibility Study
is expected to require a reconsideration of the most recent COAG Reform Council
timetable for delivery of the implementation phase of CRRP.2
The CRRP Board and project team acknowledges the contribution from industry
representatives, particularly those who participated in the CRRP Industry Advisory
Group, representatives of local government and officers from all levels of government
who participated in developing, reviewing and commenting on the work of the Feasibility
Study.
2
COAG Reform Council, National Partnership to Deliver a Seamless National Economy – Implementation
Plan, 17 August 2010.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 7
1. Introduction
This paper is the final report of the COAG Road Reform Plan (CRRP) Feasibility Study (the study) from
the Standing Council on Transport and Infrastructure (SCOTI) to the Council of Australian Governments
(COAG). The SCOTI was tasked with determining the feasibility of introducing more direct heavy
vehicle road use charges and associated funding arrangements, in order to promote a more efficient,
productive and safe heavy vehicle industry. The study was undertaken by a Board of senior transport
officials and representatives of all levels of government.
The Feasibility Study involved detailed analysis and investigation into heavy vehicle pricing options and
funding reform opportunities, in order to promote the CRRP objectives to:
1. promote the more efficient, productive and sustainable provision and use of freight
infrastructure.
2. ensure that national heavy vehicle road prices promote the efficient, safe and
sustainable use of infrastructure, vehicles and transport modes.
At the outset of this study there was anticipation that the introduction of more direct pricing3 of heavy
vehicle would yield significant economic benefits to the industry, government and the community. The
principal conclusion of the study is that it will not do so if separated from integral funding and
expenditure reforms.
This paper sets out the findings and basis for the recommendations arising from the COAG Road
Reform Plan (CRRP) Feasibility Study.
 Section 2 describes the COAG Road Reform Plan and the process followed to complete the
Feasibility Study.
 Section 3 outlines the consultation activities undertaken by the CRRP project.
 Section 4 sets out the reasons why reforming arrangements for heavy vehicle charging and
funding is required to meet the increasing demands being placed on Australia’s road network.
 Section 5 describes the analysis of options for more direct heavy vehicle charges.
 Section 6 describes the analysis of options for more efficient maintenance and investment in
roads.
 Section 7 outlines the risks, uncertainties and impediments for implementing the key
recommendations of the feasibility study and outlines recommendations to support the next
phase of road reform.
3
Direct pricing may be described as pricing a vehicle for the use of roads by using actual measures that reflect the costs of that
use. These measures include such variables as the mass of a vehicle, the distance it travels, and the location (or road type) of
its travel.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 8
2. What is the CRRP Feasibility Study?
The CRRP Feasibility Study represents the current phase in Australian governments’ commitment to
create a more productive, safe and efficient road freight transport industry. It is complementary to
current reforms to establish national heavy vehicle and rail regulators, and efforts to develop a national
freight strategy.4
2.1.
The context for the COAG Road Reform Plan
The CRRP is the COAG’s response to the recommendations made in 2006 by the Productivity
Commission in its Road and Rail Freight Infrastructure Pricing inquiry. The Productivity Commission
found that road charges and regulatory arrangements for heavy vehicles impeded the efficient use and
development of transport infrastructure, and consequently imposed unnecessary costs on both industry
and government.5
The Productivity Commission highlighted that there are good reasons for reforming road charging and
road provision arrangements:6
 averaged charges under PAYGO (which are more like taxes) convey negligible signals to road
users about the costs of using particular roads, or to infrastructure providers about the demand
for different roads
 the disconnect between road charges and future road spending can lead to inefficient decisions,
including holding back efficient road projects and encouraging public sector road providers to
preserve road assets
 government provision of road infrastructure is unlikely to provide an incentive framework for
providing road infrastructure services efficiently.
The recent review of Australia’s Future Tax System (the Henry Review) further identified opportunities
for reform to road transport taxes to address Australia’s future transport challenges.7 Transport pricing
was also considered at the October 2011 Tax Forum. Emerging from the work of CRRP and other
bodies is that significant structural reform of pricing and more fundamentally funding and investment of
road infrastructure, has the potential to deliver significant economic efficiency and productivity gains.
While arguably more complex than other infrastructure areas, road infrastructure provision is one of the
last infrastructure areas to undergo significant structural reform.
The first phase of the CRRP involved a number of research and evaluative tasks, as a precursor to
investigating the feasibility of additional heavy vehicle reforms – See Box 1.
4
See www.nhvr.gov.au for further information about the National Heavy Vehicle Regulator; www.nrsrproject.sa.gov.au for
information about the National Rail Safety Regulator, and www.infrastructureaustralia.gov.au/freight/ for information about the
proposed national freight strategy.
5
COAG Road Reform Plan Funding and Implementation Issues Paper, page 1.
6
Productivity Commission, Road and Rail Freight Infrastructure Pricing, Productivity Commission Inquiry Report No. 41,
December 2006, p.xxxix.
7
Australia’s Future Tax System Review Panel, Australia’s future tax system: Report to the Treasurer, December 2009
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 9
Box 1: Phase 1 of the COAG Road Reform Plan (CRRP)
Phase 1 of the CRRP involved:

an independent review of policy relevant externalities of heavy vehicle road use and cost-effective
policies for attaining efficient abatement of external costs

an independent review of heavy vehicle road use and costs to refine PAYGO, improve investment
decision making and provide an information base for examination of location-based charging8

government research to identify road spending to meet Community Service Obligations (CSOs) to
assist transparency of funding for CSOs and help inform future charging arrangements

a detailed review and trials of the impact and feasibility of incremental pricing schemes for higher
mass and other innovative vehicles that allow access to parts of the road network from which they
are currently excluded.
The Phase 1 analysis concluded that:

direct pricing of externalities (e.g. for air pollution, greenhouse gases, crashes and congestion) is
not considered optimal at this time, but should be reassessed if a direct charging system is
established

there are a number of possible refinements to the existing PAYGO system, to address some of its
disadvantages

CSOs should be defined with reference to services that would not otherwise be provided by a road
provider acting commercially

CSOs are able to be measured, and should be separately identified as part of the investment
framework for road infrastructure

there are likely to be beneficial opportunities from incremental pricing that warrant the continuation
of trials.
The CRRP Feasibility Study (Phase 2 of CRRP), focused on investigating the feasibility of introducing
more direct road use charges for heavy vehicles, (defined as vehicles 4.5 tonnes gross vehicle mass
and above) as a foundation for considering alternative models of road pricing and funding and
institutional matters. The study considered charging relating to the whole road network inclusive of local
roads.
8
GHD Meyrick, (2008), Alternative Approaches to Estimating the Road Cost Base.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 10
2.2.
The Feasibility Study process
In May 2009, the Australian Transport Council (now SCOTI) appointed a CRRP Project Board to
conduct the Feasibility Study on its behalf. The Project Board was accountable for the delivery of all
pricing, funding and related institutional issues associated with the CRRP.9
The Feasibility Study builds upon the initial work of the Productivity Commission in its inquiry into Road
and Rail Freight Infrastructure Pricing, and the research conducted as part of Phase 1 of the CRRP. It
has focused on:
 developing alternative direct pricing options to current heavy vehicle charges, and understanding
the likely implications on heavy vehicle road use of adopting those charges
 analysing the technical feasibility of implementing a charging system capable of satisfying the
likely performance requirements of each alternative charging option investigated
 investigating alternative funding options
 determining the economic feasibility of each heavy vehicle charging option in combination with
funding options
 legal and regulatory feasibility.
It is important to note that the estimates of benefits and costs outlined in this report are based on high
level analysis and data which is limited to providing estimation of aggregate benefits and costs to
Australia of reform and as such for the completion of the feasibility study. Key assumptions and
limitations related to the study are detailed in the COAG Road Reform Plan Evaluation of Options paper
and include:

The road network that was modelled is considered broadly representative of the overall road
network, however, the actual variation of costs of road provision that vary across jurisdictions
were not modelled.

Detailed road usage estimates were not available and therefore the results should be considered
representative of expected aggregated (Australia wide) outcomes.

Road agencies were assumed to not be budget constrained for the purposes of cost estimation.

Cost estimates were only available for sealed roads.
 The net benefits of funding and expenditure reform should be considered representative of
expected aggregate (Australia wide) outcomes.
These assumptions and limitations should inform more detailed assessment of costs and benefits and
the implementation of reform options. The implementation issues that will need to be addressed in the
next stage are discussed in Section 7 of this report.
9
Terms of Reference for the CRRP Project Board, page 1. A complete list of Project Board members is attached in Appendix A.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 11
The development of options considered by the Feasibility Study has been guided by a number of
principles – See Box 2.
Box 2: Principles guiding the Feasibility Study
The Feasibility Study options should:
1. support the delivery of a national seamless economy
2. support efficient provision and maintenance of roads
3. support productive and efficient use of roads
4. support staged implementation of recommended reforms, where practical difficulties preclude near
term implementation
5. be implemented having regard to the impacts on all road users and other affected parties
6. not foreclose or be conditional on possible additional future reforms in the road industry.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 12
3. Consultation
This section outlines how stakeholders were engaged during the CRRP project. The key messages
from industry are summarised below:
Industry message 1:
Industry will only support pricing reform that is linked to complementary funding
and expenditure reforms that will demonstrably deliver productivity by
incentivising road providers to be more responsive to the needs of heavy vehicle
users.
Industry message 2:
Industry will benefit from certainty in the regulatory environment, particularly in
relation to pricing changes where uncertainty creates risks for doing business
and impact upon investment decisions. Any new arrangements for heavy vehicle
pricing would require a transitional period.
Industry message 3:
Industry experiences a range of approaches to road service delivery across
local and state jurisdictions. In general, heavy vehicle road users accept that
they should ‘pay their way’. They are prepared to meet efficient costs incurred in
improving service levels.
Industry message 4:
Industry acknowledges that some operators are advantaged under the existing
cross-subsidies where for a given class of heavy vehicle, registration charges
are the same regardless of distance travelled, mass carried or type of road
used.
Industry message 5:
Industry recognises that the use of local, regional and rural roads by heavy
vehicle users can impose significantly greater costs than major freeways and
arterials. Industry has indicated that heavy vehicle traffic on those roads should
not be disadvantaged under a more direct charging regime.
CRRP Finding 1:
Continuing engagement with industry and other stakeholders is essential to
ensuring the success of the next stage of heavy vehicle road reform.
3.1.
How did the CRRP project engage with stakeholders?
The CRRP Project Board has released a number of papers on relevant issues, met with government
and industry stakeholders, and conducted industry forums to consult on the matters considered over
the course of the study.10 The CRRP Industry Advisory Group (IAG) was set up to give industry a
platform to provide its views throughout the study to the team and Project Board and to provide a forum
for findings from the Feasibility Study to be discussed. Input was also sought from a number of industry,
economic and finance experts, to ensure that the analysis drew upon the best information and expertise
available.
In June 2011, the Project Board released a consultation paper setting out its preliminary findings, for
the review and comment of stakeholders.11 To explain the preliminary findings and get direct feedback
from stakeholders the Project Board conducted 11 forums around Australia. These were held in
Sydney, Adelaide, Launceston, Dubbo, Perth, Townsville, Brisbane, Canberra, Melbourne, Darwin and
10
All of the consultation papers and documents can be found at www.roadreform.gov.au.
11
COAG Road Reform Plan, Preliminary Findings Consultation Paper, 27 June 2011.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 13
Mount Gambier. Twenty-eight written submissions were also received. Between the forums and written
submissions, a wide range of stakeholder views were obtained.
During the last 18 months, members of the Board and project team members gave presentations at
over 20 conferences and seminars on the project progress and work to date.
The information and opinions obtained from submissions and other consultation activities has been
used to inform the development of the final findings and recommendations.
3.2.
What were the key stakeholder messages?
3.2.1. Trucking associations
The Australian Trucking Association (ATA) identifies itself as the peak body representing the trucking
industry. The ATA strongly opposes more direct pricing using technology and has put forward a ‘fuel
only’ pricing option, which was included in the Feasibility Study analysis. It suggests the fuel-based
option is the most cost effective to implement due to absence of technology costs, minimal
administrative costs and a low regulatory burden on industry. The ATA supports cross subsidies and
states that the industry sees no need to repeal the ‘welfare inducing’ policy. The ATA does support
pricing reform and believes that COAG’s first reform should be of the supply side agencies that deal
with road provision and providing more access.
The ATA suggests that “if the government can reform this important role in road provision, the heavy
vehicle industry can improve its capability for efficiency and productivity”.
3.2.2. Other associations, excluding road transport associations
Stakeholders including freight and logistics councils, rail and bus associations, automobile associations,
farmers’ federations and various other livestock carriers voiced a broad range of views related to pricing
reform. Rail associations and some freight and logistics councils supported a direct pricing scheme
because in their view it eliminates cross subsidies and promotes competitive neutrality with other
modes of transport. However, the bus industry raised the issue that buses and coaches should be
differentiated from trucks as they generate substantial social and environmental benefits that are not as
relevant for trucks. Farmers’ interests and livestock carriers rejected direct pricing and any form of
mandated technology required for such a scheme. These stakeholders operate in rural and remote
areas where the marginal cost of the use of rural roads by heavy vehicles is the highest. The farmers’
federations opposing technology believe it will be a cost burden12 to farmers who do not operate their
trucks full time and who already pay registration and rates. It was also suggested that the in-vehicle
technology required for more direct pricing should not be used as a compliance tool.
There is general support for heavy vehicle revenue flowing back to the road networks where there is
greater transparency and accountability in how that revenue is invested. However, submissions called
for further investigation of funding models and methods of data collection other than through direct
pricing to support fund distribution.
The National Farmers Federation (NFF) suggests “… a significant shift would also be required in the
expertise and culture of road asset managers, to move away from a philosophy of protecting road
assets to a situation where investment in road assets occurs in response to their use and strategies to
maximise productivity”.
12
In fact more direct pricing removes the concerns of lumpy registration and rates payments. This appears to not have adequately
been explained in CRRP consultation with industry.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 14
3.2.3. Owner/drivers and transport companies
The majority of feedback from owner/drivers was received in the nationwide forums. There was strong
support for a fuel-only pricing option due to administrative simplicity and the fact that fuel indexation is
recognised in a number of existing cartage contracts.
A number of submissions from the industry called for a harmonised review process to avoid confusion.
The 2010 Henry Tax review, the introduction of the National Heavy Vehicle Regulator, Infrastructure
Australia’s National Land Freight Strategy paper,13 the proposed carbon tax and other heavy vehicle
initiatives have caused confusion amongst the industry which became evident during the CRRP forums.
It was suggested that heavy vehicle reviews and proposed legislation should be presented to the
industry in a holistic manner.
3.2.4. Suppliers of in vehicle technology
Suppliers of technology, such as Fleet Effect support a more direct pricing scheme. Fleet Effect has
requested that any technology rollout is done in parallel with existing regulatory reform processes such
as electronic work diaries. Fleet Effect also suggested that any stand alone technology for
distance/location charging could integrate with existing private systems and secure economies of scale
and scope.
3.2.5. Local governments
Local government in Australia plays an important role in the provision and maintenance of the road
network for heavy vehicles, particularly in relation to ‘first and last mile’ access. Local government
supports a direct charging scheme that would see revenue flow back to road providers. They are
supportive of a charge using dynamic mass measurement and a charging system that is simple and
transparent.
Local governments are concerned with who will bear the burden of compliance and administrative costs
and have called for more work to be done on how direct funding will work in practice. Funding is of
particular concern as many local government roads have low heavy vehicle traffic and are not designed
to carry high productivity vehicles.
3.3.
Continued engagement with industry
The reforms contemplated by the CRRP Feasibility Study are primarily aimed at improving productivity
of the road freight sector. However, road reforms will have a significant impact on the road freight
industry if they are implemented. A continuing dialog and engagement needs to be maintained with
industry and other key stakeholders to ensure the success of any future road reform.
13
Infrastructure Australia, National Land Freight Strategy: Discussion Paper, 2011.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 15
4. Why reform arrangements for heavy vehicle charging and funding?
This section provides an overview of the challenges facing the road freight industry and why there is a
need to reform of heavy vehicle charging and funding. The following is a list of the findings followed by
discussion of the reasons for these conclusions.
CRRP Finding 2:
Current road charging methods, funding flows and incentive arrangements for
heavy vehicle users and road providers inhibit the efficient use, investment,
operation, maintenance and management of road transport infrastructure. This
in turn imposes avoidable costs on industry, governments and the community.
In particular, current arrangements impede:

the ability to minimise the whole of life costs of roads

the removal of restrictions on access to the road network for high
productivity vehicles at both state and local government levels

efficient choices in the use of roads by heavy vehicles that reflect the true
costs of their provision.
CRRP Finding 3:
Achieving the benefits of reform requires implementation of a new set of
arrangements for both funding and charging that replaces the existing
arrangements for heavy vehicles. The new arrangements should allow for a
transition to more direct charging of heavy vehicles in return for measures that
improve productivity including lower heavy vehicle operating costs where the
benefits to the community exceed the costs.
CRRP Finding 4:
More efficient provision and use of roads that result in productivity benefits
including lower heavy vehicle operating costs is encouraged by:
CRRP Finding 5:
4.1.

providing information to heavy vehicle road operators on the cost of road use
through more direct charges and to road providers on the requirements for
road infrastructure to meet the freight task (pricing reform)

creating certainty of sufficient, long term funding by establishing a direct flow
of heavy vehicle charge revenue to road providers for investment, operation,
maintenance and management of the road network (funding and expenditure
reform).
A package which combines funding and more direct pricing reforms is expected
to yield a net present value of between $5 and $7 billion dollars. The expected
improvements to productivity from heavy vehicle road reform result from the
interaction between reforms to heavy vehicle charges and reforms to funding of
road services for heavy vehicles. These are intrinsically linked.
The challenge to achieve productivity in the road freight industry
The transport industry is critically important to the Australian economy. Transport costs have a direct
impact on the cost of all goods and services, and so impact on business competitiveness both
domestically and internationally. Key factors limiting heavy vehicle productivity include:
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 16
 the physical capabilities of the existing road network and associated vehicle standards that limit
vehicle mass and volume capacity
 regulatory access impediments to road access by higher productivity vehicles
 regulatory operational safety constraints.
The physical design of a road imposes limitations on the loadings and dimensions of vehicles using that
road. In general the system provides a capacity and right of access for those vehicles designated as
general access vehicles. In many instances increased payloads or vehicle dimensions would yield
significant economic and commercial returns. However, most of the current road network is not
designed for these larger vehicles.
Network constraints that result in regulation to restrict heavy vehicle access may only occur on part of
the desired route of a vehicle which impacts its capacity to operate efficiently. This is sometimes
referred to as the ‘first or last mile’ problem in relation to local government roads, however, these
problems can occur on all parts of the network.
The current approach to road planning and investment seeks to satisfy a number of objectives including
improving road safety and satisfying light vehicle demands in addition to promoting heavy vehicle
related productivity. Inevitably with limited funds available for road investment, many projects that could
deliver net economic benefits to society cannot be undertaken.
4.2.
Improving productivity of the road freight industry
The value of improving productivity and efficiency has been recognised by governments, who in
conjunction with industry, have embarked on reforms focusing on benefits from national harmonisation
of regulation and heavy vehicle pricing and getting the most out of the existing road network. These
reforms include:
 The establishment of a single national law and National Heavy Vehicle Regulator
 Performance Based Standards (PBS) – a nationally agreed process of safety and infrastructure
protection standards, for assessing new and safer ‘innovative’ heavy vehicles as an alternative to
the existing prescriptive system for regulating heavy vehicles 14
 Incremental pricing trials for heavy vehicles to facilitate productivity initiatives using more direct
pricing of heavy vehicles and maximising the existing capacity of the network 15
 Ongoing changes to current heavy vehicle pricing arrangements to support various productivity
initiatives.
Through these reform efforts Australia has achieved significant gains in road freight transport
productivity which has lead to real declines in the cost of transport. The BITRE estimate that heavy
vehicle productivity improved on average approximately 6.24 per cent each year between 1971 and
14
Information Bulletin Performance Based Standards Road Network Classification, Queensland Government Department of Main
Roads, p 1.
15
Incremental pricing to unlock heavy vehicle productivity - National Transport Commission (NTC) 2009.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 17
1991.16 Between 1991 and 2007 heavy vehicle productivity improvements slowed to 3.53 per cent per
annum. Future increases are likely to slow even further in the absence of reform.17
The current heavy vehicle charges are based on the PAYGO (or Pay As You Go) approach, which is
designed to achieve expenditure recovery at an aggregate level. PAYGO recovers heavy vehicles’
share of road expenditure, including capital expenditure, in the year it is incurred. The original policy
objective of the current system was simply to set uniform national heavy vehicle charges, primarily to
prevent revenue distortions from owners ‘jurisdiction shopping’ for the best registration fee.
While the current pricing framework has largely met its objectives, it was never intended to send the
precise pricing signals and revenue incentives to:
 minimise the whole of life costs of roads
 remove restrictions on access to the road network for high productivity vehicles at both state and
local government levels
 encourage efficient use of roads by heavy vehicles that reflect the true costs of their provision.
There is a fundamental disconnect between the collection of heavy vehicle road user charges and the
allocation of funds required to maintain roads for heavy vehicle use and investments to promote a more
productive heavy vehicle industry. The Commonwealth collects revenue from the fuel based road user
charge and the states collect registration revenue from heavy vehicles. These sources of revenue are
intended to recover the historical costs of road provision, however, there is no transparent flow of funds
back to the road provider responsible for covering the cost of heavy vehicle road use.
In the absence of guaranteed funding sources there are limited incentives for road providers to grant
access to higher productivity vehicles and insufficient incentives to optimise network maintenance and
investment to improve heavy vehicle productivity. This is particularly so for the majority of local
governments which do not currently directly receive any component of the current heavy vehicle
charges.18
Given the increasing freight task, there are significant concerns that the current system of road
provision and charging for heavy vehicles is not sustainable for the future.
Governments now recognise that there are limits to obtaining productivity gains under the current
system of heavy vehicle pricing and funding. The CRRP Feasibility Study investigated the role that
reforms to heavy vehicle charging and funding might play in promoting a more productive and efficient
transport industry.
4.3.
The role of road reform in improving productivity
The CRRP Feasibility Study has highlighted the importance of providing infrastructure that meets the
needs of its users in a cost effective and sustainable way. While acknowledging the complexities
16
Bureau of Infrastructure Transport and Regional Economics (BITRE), Report 123 - Truck productivity: sources, trends and future
prospects, p 19.
17
Bureau of Infrastructure Transport and Regional Economics (BITRE), Report 123 - Truck productivity: sources, trends and future
prospects, p 19, 48-56.
18
Western Australian and Tasmanian local governments have some funding allocated from revenue collected from heavy vehicle
registration charges.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 18
involved in providing roads for both heavy and light vehicles, there is a need to transform the road
infrastructure industry to be more customer focused, particularly for heavy vehicles.
Like any industry, heavy vehicle users should expect to receive a clearly defined service for the fees
paid. This means that there is a need to create a mutual obligation on heavy vehicle users to pay the
costs directly incurred from the use of roads and on road providers to provide roads that meet
predetermined service levels. There is also an ongoing obligation for governments to fund road services
that promote social objectives beyond those that a commercial road owner would provide (commonly
referred to as a community service obligations or a CSO) and to ensure sufficient funds to deliver the
economically efficient level of road maintenance and investment for all road users.
There are two dimensions to the role of road reform in improving productivity:
 user pays - providing information to heavy vehicle road operators on the cost of road use through
direct charges and to road providers on the demand for road infrastructure to meet the freight
task (pricing reform)
 the money follows the truck - creating funding certainty from establishing a direct flow of heavy
vehicle charge revenue to road providers for maintenance and investment in the road network
(funding and expenditure reform).
The costs and benefits of these aspects of reform are discussed in the following sections.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 19
5. The feasibility of mass, distance and location based charges
This section provides an overview of the feasibility of options for more direct heavy vehicle charging.
The findings arising from consideration of these matters are:
CRRP Finding 6:
Based on current estimates the net present value of more direct pricing reform
alone is estimated to be low or negative. This reflects the existing productivity of
the trucking industry and the expected costs of technology, enforcement and
compliance, as well as the limited route and vehicle choices available to
operators. However, further advances in the cost and nature of technology may
change this finding.
CRRP Finding 7:
Some incentives for more efficient use of the road network occur as a response
to information about the cost of road use.
CRRP Finding 8:
More direct pricing of heavy vehicles, taking into account mass and using actual
location (road type) and actual distance travelled is technically feasible.
CRRP Finding 9:
The high cost of technology to measure mass in real time means that it is not an
economically feasible basis for charging all heavy vehicles at this time.
CRRP Finding 10:
The direct economic benefits from pricing alone are greatest when heavy
vehicle charges that take into account the mass carried, actual distance
travelled and actual location (road type) for a particular trip are applied to the
largest and heaviest segments of the fleet.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 20
5.1.
What pricing options have been considered?
The Feasibility Study examined a number of alternative combinations of mass, distance and location
charging parameters against a base case representing the maintenance of the status quo
arrangements. See Table 5.1. The options considered and the level of analysis undertaken reflects the
purpose of the study to understand the feasibility of a range of more direct pricing options for heavy
vehicles.
Table 5.1: Pricing model options
Model options
Explanation
Base case: Status quo
The current road charging system comprising a fixed registration charge levied by
the states and territories and a variable charge from a component of the diesel fuel
excise.
Option 1: Fuel-based distance
price
A charge collected through fuel excise taxes as a proxy for pricing for distance and
mass.
Option 2: Kilometre-based
distance price
A charge based on a system that measures the actual distance travelled.
Option 3: Distance-locationbased price
A charge based on a system that measures distance travelled taking into account
the location (road type) of the vehicle.
Option 4: Mass-distance-based
price
A charge based on a system that measures distance travelled taking into account
the actual (real time) mass of the vehicle.
Option 5: Mass distancelocation-based price
The road price is based on a system that measures distance travelled and actual
vehicle mass (real time) taking into account the location of the vehicle.
The pricing model options were chosen to be examined against the charging principles that were
developed early in the Feasibility Study process. See Box 3.
Box 3: Charging principles
Heavy vehicle charges should:
1. recover the efficient cost of providing, maintaining and operating roads for use by heavy vehicles.
2. be forward-looking and provide incentives for efficient and effective ‘life-cycle’ road provision and
maintenance.
3. be determined with reference to:

the marginal cost of road provision, maintenance and operation

the transaction costs associated with the charge

the extent that heavy vehicle road users are able or likely to respond to price signals

minimising distortions to the efficient pattern of use of the road network.
4. be developed through a continuously improving transparent and public process.
5.2.
What costs are associated with heavy vehicle traffic?
Roads carry both heavy and light vehicle traffic. However, a significant component of the costs of
providing, operating and maintaining roads goes towards catering for heavy vehicle road use. The costs
to be recovered that relate to heavy vehicle use of the road network include an appropriate allocation of
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 21
the total costs of providing the road asset (common costs) and the particular costs associated with
heavy vehicle use of the network (marginal costs). These costs are strongly linked to the distance
travelled by a heavy vehicle and measures of a vehicle’s ‘location’ and ‘mass’.
Critical cost factors affecting pavements and bridges relate to the expected heavy vehicle mass and the
number of axle passes across the road or bridge.19 The dimensions of roads such as lane widths,
gradients of roads, overtaking lanes and local street alignments are also designed, in part, to reflect
expected heavy vehicle road use. Traffic volumes, which principally comprise light vehicles, largely
determine road capacity, whether multiple carriageways are needed and much of a roadway’s traffic
management and street furniture needs. Road construction costs are also affected by the need to
address issues such as local amenity and safety concerns, some of which arise from heavy vehicle
operation (e.g. truck parking bays, passing lanes and road gradients). The costs associated with a road
also vary with external factors including the terrain, soil types and rainfall that need to be considered in
its design.
5.3.
What are the benefits of more direct heavy vehicle charging?
The existing heavy vehicle charging scheme recovers costs associated with heavy vehicle traffic on the
network. It does this using two tools: a ‘Road User Charge’ (RUC) collected through the fuel excise and
a heavy vehicle registration charges. Moving to more direct heavy vehicle charging involves replacing
the existing scheme with a variable usage charge calculated using the mass of a heavy vehicle and the
distance and location (road type) of a trip. Better reflecting the costs of heavy vehicle traffic in a more
direct usage charge is expected to deliver benefits by encouraging:
 the use of more efficient routes by heavy vehicles where there is a choice available, as the
charge for using a road is more directly attributed to the cost of a particular heavy vehicle trip
 a more efficient heavy vehicle fleet mix, as operators over time make vehicle choices based on
minimising the total heavy vehicle charging costs of road use.
The expected benefits from changing heavy vehicle behaviour include lower total heavy vehicle
operating costs for a given freight task and improvements in road safety from having fewer, more
productive vehicles on the road. Some technology that could be used for a more direct charging system
will also collect information on road freight movements which could be used for fleet management as
well as other purposes. The size of these benefits will be affected by the design of the charge, the
physical opportunity to change behaviours and the likely responsiveness of road users to changes in
price. For example, rural operators and public transport providers will often have no alternative vehicle
or route choice and this will need to be considered in any pricing scheme design. These factors are
discussed further below.
5.3.1. Design of the charge
Providing a closer link between road use charges and costs incurred by heavy vehicle road use will in
principle increase the benefits. However, at some point the administrative costs and complexity of the
charging system will result in a reduction in benefits. For this reason, the actual benefits will be
dependent on striking the right balance between providing price signals, without creating a system of
charging that is too complex and costly.
19
In addition, axle spacing and other factors are important for bridge and other structure design.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 22
5.3.2. Physical opportunity to change behaviour
The expected benefits from changes to behaviour requires viable substitutes for existing routes and
vehicles and sensitivity to the charge as a component of the total costs faced by a vehicle operator. In
many instances (e.g. some rural, local and arterial roads) there may not be a viable alternative route
meaning that heavy vehicle behaviour will not change and so the benefits (from reduced road wear
costs) of direct pricing on those roads may be small. This observation might justify not having
differentiated (i.e. cost reflective) charges on some routes so long as sufficient funding is provided to
the road provider responsible for that route to maintain the road at an appropriate standard for the
heavy vehicles using those routes. Consideration of the appropriate prices and levels of services was
not undertaken as part of the feasibility study.
5.3.3. Likely responsiveness of users to price
To investigate the likely change in behaviour from road pricing changes, the Feasibility Study undertook
a detailed assessment of the responsiveness of heavy vehicle users to changes in price. A study was
undertaken to investigate the likely heavy vehicle road use demand responsiveness of changes in
heavy vehicle charges, under a number of alternative pricing options.20 The study involved the
estimation of freight demand elasticities from data collected via a stated preference survey of industry
participants. The results indicate that:
 freight travel on freeways and arterial roads is less responsive (almost three times less) to
changes in heavy vehicle charges than travel on local roads
 the opportunity to use an alternative route is particularly limited for local roads (only 11 per cent
of travel on local roads could be done on an alternative route, compared with almost 25 per cent
for freeways)
 the opportunity for vehicle switching was also found to be low (a 1 per cent increase in heavy
vehicle charges was found to only decrease the number of vehicle kilometres by at most 0.18
per cent).
A key conclusion of the study was that the opportunity for both route and vehicle switching in response
to location based pricing was likely to be limited. This likely reflected operational constraints, which
mean that opportunities are already limited.
5.3.4. Community service obligations
Consideration of more direct pricing raises the issue of who could be disadvantaged by reforms. In
particular, the use of location as a charging parameter raises two principal concerns.
Firstly, more direct heavy vehicle charges could cause some users of certain road network segments to
have higher overall costs relative to the costs they would incur under the current charging system. A
material increase in transport costs may in turn increase the cost of living and cost of goods for parts of
the Australian community. The degree of the impact may necessitate consideration of overt subsidies
and other transitional arrangements.
20
National Transport Commission, Road Freight Demand Elasticities: Stage 2, GHD Meyrick and NERA Economic Consulting
Consultancy Paper, 2011.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 23
Secondly, linking road funding to revenue raised through heavy vehicle charges could seriously impact
funding of low volume roads required to maintain current service levels. This would occur if ongoing
maintenance of these roads could not be funded through revenue from heavy vehicles combined with
funding from other sources. However, as long as the overall level of funding to roads is maintained
through transparent community service obligations there should be very limited impact to current
service levels on low use roads.
5.4.
Estimating the benefits of pricing reform alone
Figure 5.1 shows the estimated potential benefits21 for each high level pricing option examined by the
Feasibility Study, for the whole of fleet and for two groupings of the largest and heaviest segments of
the fleet. The benefits estimated are the:
 avoided cost of road wear from more efficient use of the existing road network
 changes in vehicle operating costs from switching to larger, more productive vehicles, partially
offset by potential increases in kilometres travelled
 potential fleet management operator benefits, from the use of information provided by in-vehicle
units
 safety benefits from reduced vehicle kilometres and from the use of in-vehicle technology,
resulting in lower crash costs and reduced injuries and deaths.
21
In all cases the analysis assumes a 30 year project life and uses a discount rate of 7 percent.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 24
Figure 5.1: Gross benefits from charging options implemented for selected segments of the fleet
($2011 present value)
The results highlight that the largest estimated pricing benefits arise from charging options that include
a measure of location and dynamic mass in addition to kilometre-based distance charges (i.e., options
3, 4 and 5). The fuel based distance charge (option 1) and kilometre based distance charge (option 2)
have the lowest potential pricing benefits. This is because these options do not necessarily reflect the
costs associated with different locations, and so provide less information on the costs of a particular
heavy vehicle trip and reduce the likelihood of behavioural shifts.
5.5.
Options to collect information for more direct road use charges
The cost of introducing more direct road use charges is critically dependent on the information
capabilities required to support the desired charging system. In turn, the information framework will also
have an effect on the benefits generated. Options for collection of mass, distance and location
information are outlined below.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 25
Table 5.2: Information collection options
Component of charge
Options to collect information
Mass

using technology to measure axle mass in real time

operator nominated mass

measures of mass that do not vary by the load of a trip (e.g., average gross
mass).

measurement of the actual distance travelled for every road user

the use of an approximation for distance (e.g., fuel consumption or nominated
distance)

a measure of distance that does not vary by trip (e.g., average distance or
capped distance).

electronic tags on road entry and exit points

satellite and other communications technology

user nominated (e.g., for plant or mine vehicles, council vehicles, dedicated
location vehicles, etc).
Distance
Location
5.5.1. Charging on the basis of mass
Measuring mass in real time requires the installation of an in-vehicle unit capable of measuring gross
vehicle or axle mass at any point in time. The feasibility study found that while technology is available to
do this, the cost of such units including installation range between $550 and $1,050 per vehicle per
annum for a rigid heavy vehicle, and between $850 and $2,700 for an articulated vehicle per annum.
These costs far outweighed the marginal benefits. The high cost of technology to measure mass in real
time means that it is not an economically feasible basis for charging all heavy vehicles at this time.
The alternative approaches to estimating the mass of a vehicle are expected to be less costly than
using technology to measure mass dynamically. For nominated mass, these are the costs associated
with developing a compliance and enforcement regime to provide sufficient incentives for operators to
nominate mass accurately.22 Given the size of the road network, and the remoteness of many vehicle
trips, developing a sufficiently robust compliance and enforcement system of nominated mass has
significant costs. These costs will also depend on the risk assessments of the road providers.
For measures of mass that do not vary by load, the compliance costs are considered to be relatively
small and the most economically feasible approach to heavy vehicle charging for all vehicles at this
time.
5.5.2. Charging on the basis of distance
The principal advantage of a fuel based charge over a system than measures actual distance travelled
using technology that also collects location information, is that it is low cost. However, the study has
found that using actual distance travelled is likely to be preferred to using fuel consumption as a proxy
for distance travelled because:
22
These costs are expected to be higher than the compliance and enforcement costs needed for alternative approaches.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 26
 charges more closely reflect actual road use in a way that is similar to how other utilities are
charged
 the costs of providing and maintaining roads are better reflected in a direct charge rather than
fuel use
 direct information on vehicle road use is collected and can be used for road planning and
investment decision-making
 direct and transparent information is available to road users about the costs incurred from road
use.
The likelihood is that the road user charge (RUC) component of the fuel charge plus the proposed
carbon tax may be greater than the total fuel excise. Either an additional tax above the current excise
would need to be imposed on heavy vehicles or fuel excise would need to be increased. The current
rebate system is relatively simple but compliance could be compromised with the substitution of an
additional tax for the current rebate.
Given the current system collects the majority of road user charges through a fuel based road user
charge it is likely that this system would be maintained through any transition to more direct heavy
vehicle charging regime or for the smaller and lighter segments of the fleet.
5.5.3. Charging on the basis of location
Charging a different amount for every road to reflect the differences in marginal costs of each link in a
network is neither feasible nor desirable. It would create an overly complex charging system. However,
there may be merit in developing different charges for each of the principal road type categories used
by road providers. For example:23
 arterial roads (including freeways), which generally connect major activity or population centres,
or which have other economic, tourism, strategic or other significance. These types of roads are
also referred to in some jurisdictions as state roads, classified roads and Crown roads
 local roads, which provide access to land and do not have the significance of arterial roads.
Community service obligations (discussed above) are also relevant in considering charging on the basis
of location.
5.5.4. Technical feasibility
The choice of approach should reflect the least cost technology given the overall package of
information required to achieve the anticipated benefits and associated enforcement costs. Analysis of
alternative technologies suggests that an electronic tag system is likely to be cost prohibitive because
of the number of gantries that would be required to monitor the entire road network.24 This is a
consequence of both the length and interconnectedness of the road network throughout Australia.
The analysis indicates that charging on the basis of actual vehicle mass, the distance travelled and
location of the vehicle is technically feasible in most conditions. Box 4 shows examples of technologies
that are used both overseas and within Australia that measure and store relevant mass, distance and
location information in real time. These could be used to support such a charging system if warranted.
23
ARRB, (2010), Cost Implications of Incremental Loads on Road Pavements, Austroads Project No. AT1394, March, pp 121-123.
24
Austroads, (2011), Feasibility Study: Heavy Vehicle Charging in Australia, AP-R384/11, June.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 27
Box 4: Technologies available to measure key pricing parameters

Hubodometer – measures distance using a device on the vehicle axle to count the number of
rotations.

Tachometer – measures distance by recording working hours and speed through the vehicle’s
gearbox.

Automatic Number Plate Recognition – measures distance and location without the need for an invehicle unit by using roadside equipment and vehicle databases.

Dedicated Short Range Communication (i.e. electronic tags and gantries) – measures distance and
location by using on-board equipment to communicate with roadside equipment.

Global Positioning System (GPS)/Cellular Network/Global Systems for Mobile Communications
(GSM) – measures distance and location by using GPS and matching data with network maps.

Pressure sensors – measures mass by using an in-vehicle unit to monitor the pressure caused by
the mass of the vehicle.
5.6.
Estimated costs of implementing more direct pricing options
Table 5.3 sets out the technology assumptions made for the purposes of determining costs for the
Feasibility Study. It will be necessary to undertake a more detailed assessment of costs and business
system changes if there is a decision to support an alternative charging approach. If this results in a
significant deviation in costs then the appropriateness of the program should be re-evaluated. It should
be noted that where estimates were calculated for implementing more direct charging for only a subset
of the heavy vehicle fleet it was assumed that the remainder of the fleet would be charged as for the
existing regime.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 28
Table 5.3: Charging technology assumptions
Charging option
Technology Assumption
Option 2: Distance
Hubodometer / odometer
Option 3: Distance-Location
GPS
Option 4: Mass-Distance
GPS and on-board mass
Option 5: Mass-DistanceLocation
GPS and on-board mass
Figure 5.2 sets out estimated costs for each option for the whole of fleet and largest and heaviest fleet
segments. The key costs that have been quantified are:
 the cost of in-vehicle units (as required by the pricing option), including installation costs
 ongoing communications costs
 costs of monitoring and enforcing compliance with the charging regime
 additional registration, administration and billing costs.
Figure 5.2: Estimated costs for selected segments of the fleet ($2011 present value)
Costs vary due to the number of vehicles in each segment. Table 5.4 lists how the costs of direct
pricing vary by the numbers of vehicles in the scheme. The highest cost options are mass-distance and
mass-distance-location charges applied to the whole heavy vehicle fleet reflecting the significant costs
of installing dynamic mass in each vehicle.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 29
Table 5.4: Costings used to assess feasibility
Estimated Cost
(per annum per
vehicle unless
otherwise stated)
Cost categories
Detailed description
Cost driver
In-vehicle unit
GPS unit and installation
Vehicle numbers
Rigid vehicle
Vehicle/trailer
numbers and axle
group numbers
$550-$1050
Multi articulated vehicle
Vehicle/trailer
numbers and axle
group numbers
$1250-$2700
Single semi-trailer
Vehicle/trailer
numbers and axle
group numbers
$850-$1600
Enforcement and
infrastructure cost
Level of
compliance
Registration look-up
Vehicle numbers
Dynamic mass
technology25
Compliance and
billing
5.7.
$230
$62.5m (whole fleet per
annum)
$18
Feasibility of implementing more direct heavy vehicle charges
The net economic costs of the pricing options considered in the Feasibility Study are shown in Figure
5.3. The results show that the net economic benefit or present value of more direct pricing alone is
estimated to be low or negative and that there is a small economic benefit in introducing a fuel based
distance price. The costs of implementation of technology are not trivial and while there are some
benefits from changes in heavy vehicle operator behaviour in response to price incentives the
opportunities for changing routes or vehicle type are limited and fall below the current costs of
implementation.
25
Dynamic mass is included separately as it requires additional technology and related costs compared to a distance and location
charge which only requires the more cost effective in-vehicle GPS/GSRM units. Dynamic mass costs also vary by vehicle type
as measurement technology must be fitted to each axle group.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 30
Figure 5.3: Net present value of introducing more direct road use charges for selected segments
of the fleet ($2011 present value)
Despite the costs involved, examples exist where technology has been introduced for the purpose of
heavy vehicle charging. International examples are useful for understanding the technical feasibility of
direct charging, however, the nature of overseas markets for road transport and the contexts of
implementation are very different to those in Australia.
In Germany an electronic road user charging system with rigorous compliance and enforcement was
introduced only on major road routes, due to the high proportion of use of roads by operators with
vehicles registered in another country. The large amount of ‘through traffic’ meant that it was difficult to
administer a permit system to collect revenue and a large number of commercial road users were not
paying for road use. In this situation it was therefore considered appropriate to make a large investment
in a new system to address revenue leakage issues.
In New Zealand, an electronic road user charging system is offered on an opt-in basis, where there is
some industry discontent with the legacy system, which involves the use of mechanical hubodometers.
In New Zealand, the electronic system is offered by a third party provider who provides a number of
commercial services in addition to charging, which reduces implementation costs. The existing
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 31
compliance and enforcement regime was used, which meant that additional costs were not incurred in
the introduction of the eRUC alternative.
While this analysis has focused on considering the use of technology to facilitate the introduction of
mass, distance and location charging for heavy vehicles, there might be other policy and operational
benefits from introducing the technology required to measure mass, location and distance of heavy
vehicles. See Box 5. However, these additional uses of the technology and potential benefits (e.g.
safety benefits from using in-vehicle units to monitor compliance with fatigue laws) have only been
partially quantified. The study has endeavoured to ensure that potential benefits from technology are
not counted more than once and that the staging of technology implementation is properly justified.
The Feasibility Study acknowledges that industry’s concerns regarding the privacy implications of
in-vehicle technology and increased monitoring of compliance impact support for more direct heavy
vehicle charging. Other applications of telemetry, for example, the IAP scheme and the New Zealand e
RUC, which monitor the distance travelled and location of heavy vehicles have specifically excluded
extensions of the technology to other regulatory purposes. These considerations should be balanced
against the potential for both economic and regulatory benefits from multiple applications available
using the same in-vehicle technology.
Box 5: Additional potential opportunities from the use of in-vehicle units
to measure mass, location and distance
Introducing a system of more direct heavy vehicle road use charging, based on the mass, distance
travelled, and location of heavy vehicles on roads requires the use of technology which monitors all of
these parameters in some way. If real-time data is collected, then the information can be used for a
number of non-charging related purposes including:

monitoring vehicles carrying more than general access mass limits in certain approved
circumstances, in line with the intelligent access program

ensuring that heavy vehicles are not overloaded, thereby allowing operators to load vehicles more
efficiently within existing limits

as part of operator fleet management

providing real time inventory data and, in the case of refrigerated shipments, temperature to
customers

providing security support and engine diagnostics.
Any system of charging for heavy vehicles should be sufficiently flexible so as to not foreclose on
opportunities to develop more targeted charging systems that use dynamic mass measurement where
the incremental benefits outweigh the costs.
Although the findings of the Feasibility Study are that gross benefits of pricing are estimated to be less
than the costs of implementation, introducing more direct pricing is a recommended part of a package
of pricing and funding and expenditure reforms. The role that more direct pricing could play in a new set
of arrangements for heavy vehicle charging and funding is discussed in the next section.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 32
6. Feasibility of alternative funding and expenditure arrangements
This section provides an overview of the feasibility of funding and expenditure reforms to promote
investment, operation, maintenance and management decisions to ensure productivity benefits. The
findings from consideration of these matters are:
CRRP Finding 11:
The most significant economic benefits are expected to be generated if
incentives are created for road providers to promote the efficient long term
investment and effective operation, maintenance, management and use of road
infrastructure.
CRRP Finding 12:
Incentives for economic efficiency can be created for both road providers and
heavy vehicle road users by creating a direct link between the costs incurred
from heavy vehicle road use, more direct road use charges and the funds
received by the providers of roads.
6.1.
What funding and expenditure options have been considered?
Alternative funding and expenditure models have been examined as a means to providing improved
incentives for more efficient maintenance and investment decision-making. The possible models
examined in the feasibility study were:
 a departmental model – this would retain the existing model of road supply but would improve
funding certainty and strengthen accountability and transparency frameworks
 a dedicated road fund or funds – this would operate as an independent road fund or funds to
oversight the distribution of funds and the accountabilities associated with their distribution
 a public utility model – this would bring the incentives and disciplines of a business to the
provision of road infrastructure services.
The funding options that could be supported under these models include:
 the allocation of funds based on a transparent formula
 transparent guidelines allocating money to road suppliers
 pass though of all revenue derived from a road provider’s network.
These models are consistent with the suggestions made by the Productivity Commission26 and have
been developed taking into account the funding/financing principles set out in the CRRP Policy
Framework. See Box 6.27
Box 6: Funding and financing principles

Funding should finance the efficient provision, maintenance and operation of roads to meet current
and future demand.

Revenue from heavy vehicle charges should be linked to heavy vehicle road expenditure.
26
Productivity Commission, (2006), Road and Rail Freight Infrastructure Pricing, Inquiry Report No. 41, December.
27
CRRP (2010), Policy Framework Reference Guide, July.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 33

Social obligations associated with the provision of roads should be explicitly and transparently
defined and funded.
Implementation of pricing reform options will likely impact the relative revenues collected by the
Commonwealth and by state and territory governments. This is because revenue will be collected
primarily on the basis of where heavy vehicles travel rather than where they are garaged. Any change
in revenue shares could impact on the Commonwealth Grants Commission assessment of the state
and territories’ revenue raising capacity and expenditure requirements (including for community service
obligations) for the purposes of determining GST revenue.
It should also be recognised that moving away from the current arrangements for revenue collection
and fund flow would involve significant departure from the existing institutional and governance
arrangements. The development of detailed options for this reform lies outside the scope of this study,
however, by examining high level options for funding and governance reform a number of key elements
for funding and expenditure reform have been identified. Further, engagement with central agencies
has been initiated to define the options for the next phase of CRRP.
6.2.
What does funding and expenditure reform need to address?
Currently, road maintenance and investment decisions take into account a number of government
objectives and priorities including, safety concerns, light and heavy vehicle needs, the availability of
funds and the extent of earmarking these for ongoing maintenance funding versus capital funding.
Road providers are typically funded for ongoing costs and new capital costs from different sources and
some varying programs. There is often limited scope for road providers to optimally choose between
maintenance and capital expenditure. This disconnection between funding and network management
responsibilities exacerbates the tendency to emphasise ‘managing assets’ instead of ‘providing
services’ to the road freight sector.
The lack of flexibility in managing expenditure is compounded by a lack of sufficient and consistent
information on national road use and costs. This means that there is little opportunity to benchmark
road costs to determine whether the resultant heavy vehicle charges are reflective of efficient costs.
That said, there has been considerable focus through earlier reforms on ensuring that proper
investment decision-making frameworks are used to evaluate road investment decisions.
To achieve increased heavy vehicle productivity and associated benefits for the Australian industry and
broader community, the current funding and expenditure arrangements require substantial reform. Key
outcomes under the current funding and expenditure arrangements that impact productivity are:
 Lack of long term funding certainty - Governments take into account a number of competing
priorities in allocating funds in the budgetary process. This can result in asset management
practices which do not promote long-term efficient maintenance (i.e. life cycle cost reduction)
and efficient network expansion planning.
 Poor investment signals - Road providers currently do not receive cost reflective demand
signals that reflect the need for additional efficient investment and maintenance. In addition,
even if efficient demand-warranted road projects are identified, road providers may not receive
funding for these investments under the current funding model.
 Unfunded financial burden resulting from high productivity vehicles – Allowing access for
some high productivity vehicles to some roads can lead to an increased deterioration of the
network which the road provider has not anticipated and is not directly compensated for. This
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 34
situation creates an incentive to restrict heavy vehicle access even though the benefits of
improved productivity are not being achieved.
6.2.1. Lack of long term funding certainty
Roads deteriorate over time due to a combination of climatic factors and road use, particularly by heavy
vehicles. The deterioration results in road cracking, rutting, pavement deformation and potholes that
result in a road becoming rougher. This increases vehicle operating costs.
Pavement maintenance of the existing road network is managed through:
 routine maintenance, which addresses minor road defects and involves spot issues such as
potholes, cleaning of drains, damaged road furniture, and rough patches as they appear
 periodic maintenance, which involves resurfacing and resealing roads to prevent water
infiltration, shoulder maintenance, and addressing surface roughness
 rehabilitation, which involves removal and replacement of some or all of a road pavement to
improve the structural condition of the pavement and improve the roughness to an acceptable
level.
In practice all road agencies regularly monitor road condition and plan maintenance to best manage
roughness and other road characteristics to ensure safe, efficient and comfortable use of roads within
funding limits. Considerable research has been undertaken on asset maintenance practices and
regimes to ensure that road conditions are maintained over time.
Under the current arrangements a lack of funding certainty means it is often easier to fund smaller
routine and periodic maintenance rather than undertake the more costly yet efficient rehabilitation of a
road. This means that some roads may receive only routine and periodic maintenance, even if the life
cycle costs of maintaining a certain level of roughness over time would be less if more significant
rehabilitation works were financed earlier. This directly results in increased road provision costs and/or
the provision of lower services and network quality all else being equal.
6.2.2. Poor investment signals
Some small scale capital investment projects that would deliver net economic benefits by facilitating
improved heavy vehicle productivity may not be funded under the current funding arrangements due to
a lack of clear demand signals and due to competing road funding priorities. Examples of these smaller
projects include:
 bridge strengthening projects, where current restrictions exist for general access vehicles and to
facilitate an expansion to higher mass limit vehicles
 projects that allow freight vehicles to avoid congested or speed-restricted road segments
 targeted small scale projects to expand the network for higher productivity vehicles.
6.2.3. Unfunded financial burden resulting from high productivity vehicles
There are limited incentives for road providers to remove access restrictions where these could result in
an unfunded financial burden.
In particular, feedback from local government indicates that it is unlikely access to heavy vehicles will
be improved when the main beneficiaries of granting this access are through traffic. This is largely due
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 35
to the fact that if access were granted in those circumstances, the local government is likely to be left
with an unfunded financial burden.
Case studies of local government funding and expenditure models show that local government funding
arrangements do not create any significant incentives to improve access for heavy vehicles.
6.3.
What are the benefits of heavy vehicle funding and expenditure reform?
Improving confidence in the availability and sufficiency of funds creates benefits by allowing road
providers to make better road maintenance and investment trade-off decisions. This has the potential
to:
 lower costs of heavy vehicle operations through improved quality of existing roads
 facilitate maintenance and capital investments in road projects that directly benefit heavy vehicle
operators by removing network constraints and facilitating more routes for high productivity
vehicles.
Improving the certainty of funding for road maintenance (at least for the component caused by heavy
vehicle road use), and also providing flexibility for road providers to manage the lifecycle costs in a cost
effective manner, is expected to result in:
 better incentives to increase routes available for high productivity vehicles by creating a certain
source of revenue from heavy vehicle charges linked to the costs of providing route access for
these vehicles
 improved road condition for parts of the road network as road providers make use of improved
certainty of funding and flexibility of prioritisation to undertake those maintenance tasks that are
likely to deliver benefits but which were not prioritised through current arrangements
 facilitating the most cost effective balance of routine, periodic and major rehabilitation
expenditure so as to lower overall life cycle costs where road condition is generally satisfactory.
Improved road conditions deliver benefits to heavy vehicle operators by lowering the cost of road use
through reductions in the wear on vehicles and tyres, and lowering fuel costs. There has been
considerable research into understanding the relationships between road roughness and operating
costs and this research suggests that the impact of even small changes in road condition on operating
cost is considerable.28
Box 7 provides a case study of how improving certainty of road funding might deliver road expenditure
efficiencies.
Box 7: Case Study – Cost efficiency from improving road funding
certainty
Most government supplied road funding models have funding cycles that fall short of the asset’s life
cycle. The analysis attempted to identify situations where the level of maintenance funding was
‘guaranteed‘ for a greater period than the conventional annual or tri annual budget cycles.
In 1999/2000, the Department of Main Roads in Western Australia entered into 10-year road and bridge
maintenance contracts with a number of private maintenance providers. Payments were based on the
28
See BTE, (1991), The Cost of Maintaining the Australian National Highway System.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 36
achievement of performance criteria set out in the contracts. Each private maintenance provider bid to
service a defined geographic area of the road network.
The key purpose of the outsourcing approach was to deliver savings in the costs of maintaining the
road network. It was premised principally on the benefits from providing long-term funding certainty to a
maintenance provider, thereby allowing the provider to invest in equipment and undertake scheduled
maintenance activities to minimise the overall lifecycle costs of road maintenance within the defined
geographic area. Real savings have been reported through long-term maintenance contracts.
While the approach adopted in Western Australia to achieve better funding certainty was an
outsourced, long-term maintenance contract, such an approach is not critical to the achievement of the
benefits. This is because it is the funding certainty rather than the outsourcing of maintenance to private
providers that is the likely critical driver for the benefits achieved. Indeed there is a view that
outsourcing has some other consequences for road providers.
The expected benefits from funding and expenditure reform arise from:
 a decrease in the life cycle and annual costs of road provision (all else being equal)
 a decrease in heavy vehicle operating costs due to the removal of network constraints that
currently restrict best use of the road network
 facilitating the uptake of higher productivity vehicles that are currently constrained because of an
inability to fund upgrades to the network to allow expanded use of the network.
Figure 6.1 sets out the expected potential benefits from heavy vehicle funding and expenditure reform
and a range around these benefits under different charging options. The benefits that have been
quantified do not include additional benefits from improving the efficiency of capital expenditure.
Figure 6.1: Gross benefits from improving incentives for more efficient maintenance and
provision of roads ($2011 present value)
The results suggest that:
 there are potentially significant benefits from improving certainty of funding, with an associated
incentive framework to drive efficiencies in road expenditure, and target expenditure in areas that
can facilitate improved vehicle productivity
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 37
 the largest potential benefits result from those pricing options that provide information on road
usage and so result in funds being directed to road providers on the basis of road use29
 a fuel only approach (the status quo approach) does not provide any information to direct funds
on the basis of road use and is not expected to deliver any benefits compared to the alternatives
 a kilometre distance only approach (i.e., option 2) has some, but smaller potential benefits
because of the inability to directly link funding to road use where distance is the only charging
metric used.
The potential benefits from improving incentives for more efficient maintenance and provision of roads
are estimated to be the same across the distance-location, mass-distance and mass-distance-location
charging options given that each of these provide improved information on the location of vehicles
within the network. This outcome highlights the merits of a charging system that includes location, to
facilitate the flow of funds to road providers on the basis of road use. The alternative options do not
create the opportunity for the achievement of these potentially substantial benefits.
6.4.
The options to improve incentives for more efficient maintenance and
provision of roads
The Feasibility Study has identified improved collection and use of information, improved governance
accountability, and funding arrangements that facilitate the flow of revenue from heavy vehicle road
user charges to road providers as being critical to improving incentives for efficient maintenance and
provision of roads. Each of the high level funding and expenditure models examined by the Feasibility
Study could be used to implement these elements.
The departmental model essentially maintains the existing governance and institutional arrangements
with the potential to allocate funds in a way that improves funding certainty for road providers through
agreement of an appropriate funding mechanism and revenue stream to road providers.
A road fund model involves establishment of an independent heavy vehicle road fund whereby all
revenue from heavy vehicle charges is credited to the fund and then allocated to road providers on the
basis of funding allocation guidelines.30 An important function of the fund is to establish transparent
fund allocation that in principle results in:
 incrementally improved certainty to road providers about the level of road funding (i.e., those
funds arising from heavy vehicle charges)
 improved certainty to heavy vehicle operators that charges paid to use roads are reinvested in
the upkeep of roads and new heavy vehicle priority road investments.
The key feature of a public utility model is that the incentives and disciplines of a business are brought
to the provision of road infrastructure services. This is facilitated by the pass through of all revenue from
heavy vehicle charges to the relevant road provider based on the use of its network. This ‘pay for
service’ approach linking revenue from heavy vehicle charges to road use, should improve certainty of
funding for providing appropriate roads for heavy vehicles.
29
For the purpose of the Feasibility Study it has been assumed that all communications based technology pricing options generate
equal gross benefits from location information. It is acknowledged that incremental benefits exist for actual mass measurement
to facilitate access, however, these have not been quantified in this study.
30
Productivity Commission, (2006), Road and Rail Freight Infrastructure Pricing, Inquiry Report No. 41, December, section 10.6.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 38
The analysis indicates that the feasibility of road reform is dependent on the assumption that improving
certainty and sufficiency of funding will facilitate road maintenance expenditure and investments that
lower the costs of road provision for heavy vehicle operators, and improve access for higher
productivity heavy vehicles. Importantly, to the extent that funding reforms do not result in behavioural
change in expenditure priorities then these benefits will not be realised. To facilitate the introduction of a
new set of heavy vehicle charging and funding arrangements, foundation reform activities will need to
be undertaken by road agencies to differing degrees. Foundation reforms include:
 improved transparency of decision making
 clear accountabilities through published benchmarks for provision of road services to heavy
vehicles
 becoming more service oriented and responsive to the needs of heavy vehicle road users.
A consequence of introducing direct user charges is that the revenue earned from the charges could
flow to the jurisdiction within which the charges are incurred. Further, the benefits from any heavy
vehicle charging and funding changes will have different implications in each jurisdiction. As a
consequence, understanding these differences will be an important part of implementing any proposed
reforms. How these funds flow to road providers within a jurisdiction, including local government, will
also need to be considered further.
Much of the existing road network is provided and maintained in order to satisfy wider community
needs, and so it would be impractical to charge road users for the entire cost of roads. As a
consequence, part of the cost of maintaining and expanding parts of the road network would need to be
funded by government to meet a more explicit financial obligation to provide a community service. It is
more appropriate for such funds to be sourced from government consolidated revenue, rather than
specifically recovered through vehicle charges, to avoid sending incorrect pricing signals to road users
about the actual cost of road use.
To progress reform a model for implementing heavy vehicle pricing and funding reform needs to be
investigated and agreed. Key elements of the model to support pricing and funding reform should
address:
 How revenue from heavy vehicle road user charges is linked to funding for road providers?
 What governance and institutional arrangements are required?
 The requirements for nationally consistent data collection and reporting
 The requirements of the price setting function.
The benefits identified in the Feasibility Study are achieved from introducing measures that help align
expenditure priorities with the needs of the heavy vehicle freight industry. In introducing reforms it will
also be critical to ensure that any regulatory burden on industry is minimised and that any new system
is administratively simple and that transition to a new system avoids disruption to doing business in the
road freight industry. How the models for funding and expenditure are implemented will determine the
associated incentives for more economically efficient investment decision making. Possible options for
implementation require consideration of the appropriate legal and regulatory regime to support the
model and the associated costs and potential benefits. Funding and expenditure models that represent
a radical change from the current model will require significant transitional arrangements to be put in
place including engagement with and involvement of central agencies.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 39
6.5.
The net benefits of introducing more direct road use charges and
associated funding and expenditure reforms
The greatest net benefit of funding and governance reforms supported by any required charging reform
is expected to be between $5 and $7 billion in present value terms. These net benefits will be
generated by introducing:
 more direct road use charges that provide information on the location of heavy vehicle road use
but that do not measure mass in real time
 funding and expenditure reforms that provide incentives to use that information for more
economically efficient investment decision-making.
Figure 6.2: Net benefits of introducing more direct road use charges and associated funding and
expenditure reforms for selected segments of the fleet ($2011 present value)
The net benefit from funding and governance reforms is expected to be around $6.5 billion in present
value terms while the net benefit of the supporting pricing reforms is expected to be up to negative $0.5
billion in present value terms. It is believed implementing direct heavy vehicle charging in the first
instance for the largest and heaviest segments of the fleet would provide the best balance between
promoting more efficient outcomes, and the costs involved. However, as greater experience is gained
from introducing more direct road use charges, and as technologies improve over time, it might be that
the incremental benefits of extending more direct road use charges to other heavy vehicle types
increases. In the meantime, it is clear that existing arrangements for cost recovery through a
combination of registration and fuel based charges should be maintained for the remainder of the fleet.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 40
The analysis indicates that more direct pricing of heavy vehicles needs to be part and parcel of broader
reforms to funding of roads. There is no economic nor industry support for direct pricing alone. Any shift
in charging arrangements will necessitate changes in fund flows. This will require an agreement
between governments to address funding and governance reforms in combination with the required
supporting direct pricing reforms.
The fuel-only option generates a low net present value because there are diluted demand signals to
road users and no credible information to support improved funding and expenditure reforms.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 41
7. Achieving the benefits of reform – the next phase of CRRP
This section provides an overview of the anticipated work required to achieve the benefits of reform
identified in the Feasibility Study. The key finding in relation to next phase of CRRP is:
CRRP Finding 13:
7.1.
Achieving the benefits of road reform requires a comprehensive program of
work around the funding and expenditure reforms and a consolidation of the
existing work on direct pricing for the next phase of CRRP.
What challenges will need to be addressed in the next phase of CRRP?
To progress reform a model for implementing heavy vehicle pricing and funding reform needs to be
investigated and agreed. Key elements of the model to support pricing and funding reform should
consider:
 refinement of the assumptions underpinning the Feasibility Study
 a mechanism by which road user revenue would be transparently linked to road funding
 transitional arrangements to take into account the impact on jurisdictions, heavy vehicle users
and rural and regional communities
 economic incentives and accountabilities for road providers, including local government
 nationally consistent collection of data and reporting to support transparent and accountable
decision making
 mechanisms to ensure services that promote social objectives or benefits to the broader
community beyond those a commercial road owner would provide are transparently funded
 arrangements for appropriate price setting, including the extent of independence of the price
setting body and the price setting processes and methodologies, that more closely links road use
to costs
 options for the pricing of externalities, where appropriate, once more direct pricing has been
implemented
 options for establishing an incremental pricing scheme and other voluntary opt-in schemes
 policy on the appropriate collection and use of heavy vehicle data, including for the purpose of
compliance and enforcement. This policy should include consideration of privacy and
confidentiality issues related to the collection of personal and commercial information
 appropriate business systems to minimise administration costs
 an effective legal and regulatory framework that provides sufficient long term funding and
regulatory certainty.
It should also be noted that work on current reforms, particularly the COAG Road Reform Plan has
highlighted a lack of reliable data and the absence of this information is hampering analysis to support
further reform. This includes information on the costs of providing unsealed roads. These information
limitations will need to overcome in order to undertake more detailed costs benefit analysis required to
underpin the case for reform options for implementation of possible funding and pricing reforms.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 42
Based on the findings of the Feasibility Study, to achieve the benefits of heavy vehicle road reform it is
recommended that:
Recommendation 1:
Recommendation 2:
Recommendation 3:
An integrated package of pricing, funding and expenditure reforms should be
pursued where benefits outweigh the costs and that takes into account that:

more direct pricing of heavy vehicles without funding and expenditure reform
is not economically feasible;

changes to the existing system of heavy vehicle charging will have
consequential impacts on funding arrangements; and

transitional arrangements will be required to manage the impacts on
industries and communities.
The next phase of CRRP should include development of a package of reforms,
where benefits outweigh costs, that support the COAG Road Reform Plan
objectives and address:

the mechanism by which road user revenue would be transparently linked to
road funding including transitional arrangements to take into account the
impact on affected groups;

economic incentives and accountabilities for road providers, including local
government;

mechanisms to ensure services that promote social objectives or benefits to
the broader community beyond those a commercial road owner would
provide are transparently funded; and

new arrangements for price setting.
The new arrangements for heavy vehicle road funding and expenditure and
direct pricing for heavy vehicles should be developed by December 2012 for
consideration by COAG along with the preparation of any necessary
agreements to give effect to those arrangements. Any decision by COAG to
proceed to implementation will follow consideration of a Regulatory Impact
Statement (RIS).
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 43
Appendix A: CRRP reports and supporting models
The COAG Road Reform Feasibility Study Final Report draws on a number of subsidiary research
reports produced by consultants and the Project Directorate. They are depicted in a structured
hierarchy in the figure below, and are available for examination by COAG.
STAGE 4 REPORT
FINAL RECOMMENDATIONS TO COAG
Hierarchy of Documents
DECEMBER 2011
Friday, September 02, 2011
CRRP Preliminary Findings Discussion Paper
(Board)
CRRP Feasibility Study Report (COAG)
(NERA)
Evaluation of Options
(CRRP Directorate PAD-0044)
Policy Principles
Pricing Options
(PAD-0038)
(PAD-0036; PRC-0007)
Policy Framework (POL-0001)
Pricing Principles (PRC-0000)
Community Service Obligations
(PRC-0006 / PAD-0034)
Elasticities (PRC-0007A)
Segmentation (PAD-0043)
Road Use Data (PRC-0004)
Supply-Side (Funding)
Options
Business Systems to Support
Heavy Vehicle Charging
(PAD-0037)
(PAD-0039)
(PAD-0040)
Total Cost Base Project (PRC0001)
Central Agency Discussion Paper
(PAD-0035)
Marginal Cost (PRC-0002)
Road Fund Vs Departmental
Model Analysis (PAD-0027)
Economy Wide Assessment of
Pricing Impacts (PAD-0032)
Funding & Implementation issues
paper (LAR-0003)*
Vehicle Operating Cost Model
(PRC-0007)
Funding flows – Local
Government case study (LAR0004)
Incremental Pricing Trials (PAD0009)
Heavy Vehicle Pricing Options:
Development and Assessment
Framework Discussion Paper
(CRRP Private Intranet - NTC
Australia 4 August 2010)
Transition to Implementation
Use of Heavy Vehicle Data Sets –
Opportunities for Improvement
under Direct Charging
Arrangements (BAS-0001)
FS 1409 Feasibility Study: Heavy
Vehicle Charging Australia Final
Report
Legal & Regulatory framework and high
level options analysis (LAR-0002)
Funding & Implementation issues
paper (LAR-0003)*
Local Government Consultation Paper
(LAR-0003)
Documentation of Business
Processing and Technical Design
of Jurisdictional Registration
Systems (BAS-0002)
New Zealand Case Study (LAR-0003;
PAD-0016)
Final Report CRRP Multi Project
System Design (BAS-0003)
Funding flows – Impact of pricing
options on CGC distribution (LAR-0004;
PAD-0017)
Intelligent Transport System (ITS)
Architecture (BAS-0004)
Compliance & Enforcement Issues
Paper (LAR-0004)
Mass Charging Options Paper
(PAD-0050)
Fuel Policy Issues (PAD-0041)
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 44
ACIL Tasman, Assessment of the Viability of Fuel Charging Options, 2011.
ARRB, Cost Implications of Incremental Loads on Road Pavements, Austroads Project No. AT1394,
2010.
Allens Arthur Robinson, Governance Arrangements for Implementation of High Level Pricing and
Funding, 2011.
Austroads, Feasibility Study: Heavy Vehicle Charging in Australia Final Report, Report FS 1409, 2011.
Bureau of Transport Economics, The Cost of Maintaining the Australian National Highway System,
1991.
Bureau of Infrastructure, Transport and Regional Economics, Report 123, Truck Productivity: sources,
trends and future prospects, 2011.
COAG Road Reform Plan, Intelligent Transport System Architecture, Consultancy Report by ARRB,
2011.
COAG Road Reform Plan, Central Agency Discussion Paper, 2011
COAG Road Reform Plan, Community Service Obligations, 2011.
COAG Road Reform Plan, Compliance and Enforcement Issues Paper, 2011.
COAG Road Reform Plan, Documentation of Business Processes and Technical Design of
Jurisdictional Registration Systems, Acache Consulting, 2011.
COAG Road Reform Plan, Economy Wide Assessment of Pricing Impacts, Consultancy Paper by
Centre of Policy Studies, Monash, 2011
COAG Road Reform Plan, Evaluation of Options Paper, 2011.
COAG Road Reform Plan, Funding and Implementation Issues Paper, 2011.
COAG Road Reform Plan, Funding Flows – Impact of Pricing Options on Commonwealth Grants
Commission Distribution, 2011.
COAG Road Reform Plan, Funding Flows – Local Government Case Study, 2011.
COAG Road Reform Plan, Local Government Consultation Paper, 2011.
COAG Road Reform Plan, Mass Charging Options Paper, 2011.
COAG Road Reform Plan, Multi-Project System Design, Consultancy Paper by Acache, 2011.
COAG Road Reform Plan, New Zealand Case Study, 2011.
COAG Road Reform Plan, Pricing Analysis, 2011.
COAG Road Reform Plan, Pricing Principles, 2011.
COAG Road Reform Plan, Policy Framework, 2011.
COAG Road Reform Plan, Policy Principles, 2011.
COAG Road Reform Plan, Road Use Data, 2011
COAG Road Reform Plan, Road Fund Versus Development Model Analysis, 2011
COAG Road Reform Plan, Transition to Implementation, 2011.
COAG Road Reform Plan, Funding and Expenditure Analysis, 2011.
COAG Road Reform Plan, Compliance and Enforcement Issues Paper, 2011.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 45
COAG Road Reform Plan, Business Systems to Support Heavy Vehicle Charging, 2011.
COAG Road Reform Plan, Vehicle Operating Cost Model, 2011.
DLA Phillips Fox, Mechanisms for Collection of Road User Charges Under the COAG Road Reform
Plan, 2011.
DLA Phillips Fox, CRRP Charging Reforms: Compliance and Enforcement Issues, 2011.
GHD Meyrick and NERA Economic Consulting, Alternative Approaches to Estimating the Road Cost
Base, 2011.
Hyder Consulting, ITS Telematics Survey, 2011.
National Transport Commission, Incremental Pricing to Unlock Heavy Vehicle Productivity, 2009.
National Transport Commission, Heavy Vehicle Pricing Options Development and Assessment
Framework, 2011.
National Transport Commission, Road Freight Demand Elasticities: Stage 2, GHD Meyrick and NERA
Economic Consulting Consultancy Paper, 2011.
National Transport Commission, Investigating the Development of Heavy Vehicle Road Use and Road
Asset Data Sets, Consulting Report by GHD Meyrick and Adam Pekol, 2010.
Productivity Commission, Road and Rail Freight Infrastructure Pricing, Productivity Commission Inquiry
Report, 2006.
Queensland Department of Main Roads, Information Bulletin Performance Based Standards Road
Network Classification, 2010.
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 46
Appendix B: Glossary
Term
Definition
Access restrictions
The restrictions different vehicles face in allowing passage on
different parts of a road network.
Articulated vehicle
A vehicle with flexibly connected sections. Usually applied to a
prime mover and semi-trailer as opposed to a truck and trailer
and known as a combination vehicle.
Community service
obligation (CSO)
A service that promotes social objectives or benefits to the
community at large that would not otherwise have been
provided by an infrastructure provider acting commercially.
Distance charges
Distance charges are based on the actual or estimated
distance travelled by a vehicle. This may be supported through
the monitoring of the vehicle (including through the use of onboard units), measuring time as a proxy for distance travelled,
and/or the use of surveys and statistical analysis.
Distance charges aim to reduce cross-subsidisation between
high and low kilometre users.
Distortion
Refers to an impediment in a market (e.g. regulation, control of
market power, externalities) that creates an economic
inefficiency, producing an outcome that differs from one that
would occur in a perfect market.
Earmarking
Refers to the assignment of funds for particular purposes.
Efficient investment
Refers to the efficient allocation of scarce resources. At the
margin, resources should be used by the individual who is
willing to pay the most for them. This should promote optimal
infrastructure provision with minimal cost.
Investment that allocates scarce resources in accordance with
users’ willingness to pay.
Enforcement costs
The costs involved in ensuring that vehicles comply with laws
associated with their access and use of the road network.
Externalities
Costs or benefits arising from an economic transaction that
falls on a third party and that are not taken into account by
those who undertake the transaction.
Externalities may be in the form of a negative or positive
COAG Road Reform Plan – Final Feasibility Study Report for COAG | 47
Term
Definition
externality. A negative externality occurs where consumption or
production of a good generates a cost borne by someone
outside of the production or consumption of that good (for
example, pollution). Positive externalities occur when a benefit
accrues to someone outside of the production or consumption
of a good (for example, education).
Freight task
Refers to the aggregate movement of freight of all kinds (bulk
and non-bulk) within Australia, typically measured over one
year. There are several ways in which this can be measured,
including in terms of tonne kilometres, tonnes, volume or value.
Fuel-based charging
A heavy vehicle charging system based on the application of a
charge (or tax) to fuel consumption.
Gross vehicle mass (GVM)
The sum of the allowable gross mass of a vehicle combination.
Heavy vehicle (HV)
A road vehicle weighing equal to or greater than 4.5 tonnes.
Higher mass limits (HML)
A scheme which conditionally permits increased mass above
general access mass limits, provided that the vehicle is
operating with road friendly suspension. Since inception,
additional state based requirements have been imposed.
HV Registration charge
Heavy vehicles are required to pay to State authorities an
annual fixed charge in the form of vehicle registration.
Life Cycle Cost
The sum of all costs of an asset over its life including capital
and maintenance. In includes purchase price, installation cost,
operating costs, maintenance and upgrade costs, and
remaining (residual or salvage) value at the end of ownership
or its useful life.
Location charges
Location charges are levies imposed on vehicles according to
their location.
Maintenance
costs/expenditure
Expenditure incurred in preserving and retaining (repairing and
rehabilitating) the existing road infrastructure at or to a
predetermined level of performance standard. In the area of
roads, routine maintenance and periodic maintenance (reseals,
major patching and resheeting) comprise the majority of road
maintenance expenditure.
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Term
Definition
Marginal cost
Marginal cost refers to all costs incurred as a consequence of
providing one additional unit of a good or service. In the context
of heavy vehicles and roads, marginal costs would include road
wear and tear included in road maintenance costs, as well as
any traffic operations or safety regulatory costs, associated
with the use of roads for an additional user. In short, marginal
road costs are any additional cost caused by the use of a road
by an additional vehicle.
Mass charges
Mass charges impose charges on heavy vehicles on a permass-carried basis. This monitoring can be done through
weigh-in-motion stations, depots, nominated mass or on-board
weighing technology.
Mass charges could relate to the actual mass carried, the
average mass carried, mass by axle group type or the
maximum mass limit for the vehicle.
Mass-distance charges
Mass-distance charges impose charges according to distance
travelled and by vehicle mass over a defined period.
Mass-distance-location
(MDL) charges
MDL charging imposes charges according to vehicle mass,
distance travelled and vehicle location.
Mass - dynamic
Dynamic mass involves measuring and using telematics to
transmit the actual mass of a vehicle in real time. For the
purposes of our analysis, this is assumed to require fitting
telematic on-board mass measurement devices to a vehicle so
that actual information on the mass carried and the resulting
impact of the vehicle on the road can be recorded as the
vehicle travels. Given continuous mass monitoring occurs,
dynamic (or on-board) mass measurement is able to take into
account different trips, and changes in mass with changes in
payloads where a vehicle travels anywhere from empty to fully
loaded, or makes multiple pick ups and drop offs in a particular
journey.
Mass - static
Static mass measurement involves setting an assumed fixed
mass level for a vehicle or vehicle class. Static mass
measurement assumes that a vehicle is travelling at the fixed
mass level for all vehicle travel. There are a number of options
for how static mass levels could be set including; average
mass, current mass limits (i.e. GML, CML or HML) or another
agreed mass level. Static mass measures could also mean
direct entry of mass into an on-board unit where there is
telematic monitoring of distance and location parameters but
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Term
Definition
no direct measurement of mass.
More direct pricing
Prices that are closer to cost relative to the status quo
Net benefits/net economic
benefits
The value of benefits less the value of costs
Net present value
The value of all the net benefits in all current and future periods
discounted to today.
PAYGO
A Pay-As-You-Go approach to estimating the cost of road
service provision recovers capital and maintenance
expenditure on roads in the period in which it is incurred. This
means that users of roads, rather than road providers,
effectively fund the investment.
Present Value
The value of one or more cash flows discounted using an
interest rate to get a value today.
Price signals
A fee which influences behaviour. The period in which heavy
vehicle charges prices will be reviewed and determined.
Road user charge
The road user charge is imposed by the Commonwealth on
heavy vehicles and comprises a component of the diesel fuel
excise. The road user charge represents the difference
between the fuel excise (currently 38.143 cents/litre) levied
against all road users, and the rebate (fuel tax credits)
available to heavy vehicle operators.
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Appendix C: Explanation of heavy vehicle segment definitions
Segment
Illustrative Example of a Truck in the Segment
NTC Naming
Convention for
Example Truck
Rigid truck
2 axle rigid truck
Rigid truck
4 axle rigid truck
Articulated
truck
6 axle articulated
truck
Heavy truck
trailer
3 axle rigid truck with
4 axle trailer
Multicombination
vehicle
B-Double
combination
Multicombination
vehicle
Double Road Train
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