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It’s not just energy transformation – it’s taxation transformation

 

 

Widespread expansion of road charging is inevitable - and the game is on

December 9, 2020

The transition to clean fuels gathers pace – and brings a headache

Two things are certainties. First, whether or not the US re-commits to the Paris Climate Accord, governments across the globe will accelerate energy transition towards cleaner fuels. Second, that transition will leave a gaping hole in public finances and a major headache for both transport and finance ministries worldwide.

The gap in public finances has to be filled, and the options for filling it are – to say the least – limited. Any significant taxation of either cleaner fuels or zero-emission vehicles would constitute political suicide. So we believe that immediate public finance options boil down, ultimately, to just one.

The Excise Duty Black Hole

Taking Europe as an example, Eurostat figures suggest aggregate annual fuel excise duty revenues to European Union treasuries were €200 billion in 2018:

While the European Commission is preparing a set of “Green Deal” proposals (including revision of its Energy Taxation Directive) aimed at revising energy and electricity taxation, this revision falls far short of answering the fundamental questions posed as an indirect consequence of Green deal measures: dramatic decreases in excise duty collection.

Electrification of corporate fleets and passenger vehicles, and the use of liquefied gases in the commercial transport sector, are a given. So too is the hole in the treasury pocket.

The only clear way that hole gets filled is through the widespread deployment of road charging.

What happens next?

As governments and aligned trading blocs consider the deployment and implementation of road charging, some tricky factors will have to be taken into account. These will include:

  • figuring out coherent and implementable “pay-per-use” systems;
  • calibrating road charging models to ensure revenue stability and predictability;
  • using road charging to minimise congestion, adapting charging models to geography, time of day and specific vehicle type/use, and
  • ensuring the social acceptability of the decided political measures in EU countries.

Challenges and opportunities in implementation

Governments will be looking closely at available technologies to capture and collect road charges - fast. Vehicles in all sectors are rolling off production lines with advanced geolocation, telematics and connectivity. Payments technology is going mobile, with the smartphone sweeping all before it. Toll and road charge interoperability is becoming a “sine qua non” in complex trading blocs like the European Union (“EETS”). Multi-source transaction data can be handled through omni-channel cloud payment gateways.

We therefore expect a “lively” market to develop for the deployment and operation of road charging services – with tolls operators, fuel card issuers, payment gateways and integrated mobility service providers positioning themselves for their slice. Relative success or failure in the new competitive landscape will be determined by a combination of existing market footprint, technological elegance, the ability to integrate different elements of the road charging value chain, and payments processing capability. At the same time, we expect few service providers will currently have the agility to link relatively clear road charging services to other forms of carbon tax currently under consideration to fill the void in excise duty.

Tolls and road charging: future value up for grabs

At the very highest level, massive opportunity exists for firms with road charging infrastructures and propositions – wherever they sit in the value chain - to increase shareholder value substantially, and quickly.

Maximising that shareholder value - and driving up potential multiples – will come down to clear vision, bold strategy and almost certainly to the forging of creative and impactful strategic alliances. We may see mergers, acquisitions or joint ventures playing to the public finance galleries.

One thing is crystal clear: the black hole needs to be filled. While, in the longer term, governments may introduce broader and more imaginative carbon tax regimes, there are some quick wins to be had in road charging, and significant increases in value available to tolls and road charging operators.

To find out more about how Pannell Hayes Consulting’s team of energy, transport and mobility specialists can support your business in maximising opportunities from “filling the excise duty black hole”, start a conversation with our experts by getting in touch via contact@pannellhayes.com

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