GLOBAL FUEL ECONOMY INITIATIVE GFEI Indian Symposium 25th November 2009 The Ashok Hotel, New Delhi, India

1. GLOBAL FUEL ECONOMY INITIATIVE GFEI Indian Symposium 25th November 2009 The Ashok Hotel, New Delhi, India

2. Presentation by T. K. Malhotra President Federation of Indian Automobile Associations FIAA

3. MINIMIZING FUEL WASTAGE IN URBAN TRANSPORT

4. PROBLEM STATEMENT • To Compare the relative merits of increased road fuel taxes, tolls and electronic road pricing as a means of reducing Urban Traffic Congestion, thereby saving costs. • Why is the price elasticity of demand for private car- transport a problem ? • What could be done to increase the price elasticity of demand?

5. REASONS FOR TRAFFIC CONGESTION • Increasing Population. • Increasing Purchasing Power. • Finite network of Roadways. • Due to constantly increasing demand and static resources, the traffic congestion is going up exponentially.

6. POSSIBLE SOLUTIONS TO REDUCE TRAFFIC CONGESTION • By Increasing Infrastructure. • By improving road maintenance and road standards to match the traffic growth. • One of the possible solutions to the problem is by imposing additional tax on the consumers/commuters.

7. Vehicle Growth Acute Problem Delhi (last 16 years) Population growth – 2 fold Vehicle Growth – 9 fold Congestion causes : Increase in Travel Time Pollution - Global Warming Noise Pollution Health Issues But hardly any driver would care for all this

8. How to Map Social Externalities To The Actual Cost of Journey So that people would care for it

9. MARGINAL SOCIAL COST OF JOURNEY MSC = Road Damages + Social Costs + Environmental Costs + Time Costs + Other Costs We need a dynamic pricing system where each consumer should be charged amount = the marginal cost of his presence on road

10. COMMON FORMS OF TAXING • Road Tax • Toll Tax • Fuel Tax • Congestion Pricing • Electronic Road Pricing

11. ROAD TAX • Road Tax, Vehicle Excise Duty are the taxes paid to acquire a vehicle to drive on public roads. These are one time taxes imposed when purchasing a vehicle. ADVANTAGES • Reduces the demand for vehicle to some extent DISADVANTAGES • No substantial effect on road congestion

12. FUEL TAX • Also known as fuel duty. • It is a sales tax mainly on Gasoline, Petrol and CNG • ADVANTAGES • Due to inelastic nature of use of fuels, it is a source of revenue in short run, in long run it will cause reduction in the use of fuel and the consumer will look for alternate means of travel. Thus reducing congestion. • DISADVANTAGES • It is not economical for the poor. • It is imposed irrespective of road congestion.

13. TOLL TAX Tax imposed for passing a particular stretch of road • ADVANTAGES • Adds to the revenue of the government. • Toll roads have less congestion as people switch to toll free roads. • Traffic inflow to congested roads can be controlled by changing the toll price. • DISADVANTAGES • Cost to state for infrastructure. • Manual toll collection wastes time. • Increases congestion on toll free roads.

14. CONGESTION PRICING Congestion on roads lead to massive wastages both in terms of time and fuel. A pricing system based on the marginal social cost of presence on roads for the commuters is a solution.

15. GURGAON TOLL PLAZA Fuel worth Rs 1.2 crores wasted in long queues, daily. Waiting time during peak hours between 15 – 25 minutes. Each vehicle spends more than 1.5 litre additional fuel, accounting for a massive daily loss of Rs 18 lakh to state exchequer in fuel subsidies. The expressway built at a cost of Rs 1000 crores for use of 80,000 vehicles daily. However, about 2 lakh vehicles are using the toll plaza, causing massive traffic snarls. (Source CFTI)

16. Average time spent daily by a vehicle in congested traffic: 90 minutes Waste of fuel in traffic jams per day : 2.5 litres (0.75 litres for two-wheelers) Cost of fuel wasted by cars in city in a day : Rs. 7.5 cr Cost of fuel wasted by two – wheelers in city in a day : Rs. 2.5 cr Govt. subsidy on wasted fuel : Rs.1.5cr (Source: CTI)

17. ELECTRONIC ROAD PRICING Automatic/Electronic Toll collection ADVANTAGES • No daily purchase of toll tickets • Manual error is highly reduced • No time wastage to buy ticket • Leads to Efficient Road Usage- e.g. Spreading of traffic to off-peak hours • Latest Technology : Use Statistical data to predict congestion in next 1 hour and vary the toll prices accordingly. DISADVANTAGES • Infrastructure cost high

18. PRICE ELASTICITY DEMAND FOR PRIVATE CAR TRANSPORT

19. Why Inelastic?? Compulsory Usage No Close Substitute

20. PROBLEMAT HAND Demand for Private Car Transport is highly price inelastic. EFFECTS (Price Hike) • In short run, the purchase of expensive new car may be delayed. • In long run, lack of better means of transport and the status symbol attached to ownership creating a need for new car.

21. INCREASING PRICE ELASTICITY OF PRIVATE CAR TRANSPORTMETHODS By introducing more substitutes, the demand can be made elastic by following ways: 1. Improving Public Transport Facilities • Introducing bus and metro services i.e. Low Cost transport • Improvement in infrastructure, comfort and qualitythereby reducing fuel usage • Reduction in bus/rail fares lead to transfer of passengers from private to public vehicles

22. METHODS ………… 2. By Introducing eco-friendly policies • Promoting use of cycles by providing special lanes for cyclists • Promoting car pooling 3. Parking Restrictions • High parking fares • Less parking spaces 4. By introducing tedious & costly license acquisition process

23. So Whatever We do We’re not able to effectively deter People from opting for Private Car Transport

24. Because…….. • They have a tendency to become habitual. • People adopt to these taxes, which become a source of revenue for the government, rather than a deterrent for people E.g. Fuel tax just means that fuel is expensive

25. Some Congested Pathways are a vital link – people would have to use them anyways. A toll on these roads give a direct impact and commuters make a switch.

26. REMOVE THE COMPULSORY NEEDS Restructure our society to be able to bypass the need for travel – work from home wherever possible

27. BEHAVIORAL ASPECTS • Car Travel is not only need based but also serves as a status symbol • People are not yet accustomed to things like : • Internet Shopping • Car Pooling

28. Initiatives to diffuse traffic congestion : • Creation of No-parking Zones • Dedicated Parking Zones (High Parking Charge) • Cycle Lanes and Pedestrian Lanes • Design of Parking Spaces to deter car usage and promote other modes • Cycle parking near public transport places

29. If nothing else Increasing Road Space : Multilevel Roads 2. Designing roads to make flow easier and faster for traffic

30. CONCLUSIONS • Say in a city like Delhi • We can invest either to build several • flyovers to improve traffic flow or • we can invest more into developing and • improving public transport systems which • will help to reduce congestion and save fuel • Effects of former can be nullified very quickly • due to population increase • The latter is a more workable strategy

31. THANK YOU Please mail your questions to tkmalhotra@aaui.org