Friday, March 8, 2013

Why not a ‘drive less, pay less’ system?


6 Mar 2013
Anyone who wants to own a car in Singapore today faces a double dilemma.

One, cars are expensive to begin with, and last week’s announced restrictions on the financing of cars as well as the tweaks to additional registration fees have increased the upfront costs.

Two, traffic jams on the roads make it challenging to go anywhere. Perhaps it is time to think differently and look at new solutions to reduce costs and jams.

A fundamental problem is that Singaporeans drive surprisingly far, averaging more kilometres than car owners almost anywhere else in the world. Singaporeans drive an average of about 19,000 km per year, far exceeding the 10,900 km in the United Kingdom or 15,000 km in Australia — even coming close to car-crazy Americans who average about 21,600 km per year.

On a tiny island like Singapore, it might seem like car owners would drive far less simply because distances between places are short and petrol prices are high. Yet, the opposite seems to be true, as many drivers want to make the most of their high-priced cars.

As one driver told me, the high cost of his car makes him feel that he should use it every chance he gets, so he drives to the office every day rather than taking the bus that stops almost at his doorstep.
That type of relentless driving is a key reason for the traffic jams.
[This is the result of the "sunk cost fallacy". In fact, as COE prices goes up, the sunk cost goes up and Singapore car owners drive more.]

Despite the jams, more people than ever want a car and Certificate of Entitlement (COE) prices have skyrocketed. There are expectations that last week’s announcements will see COE prices fall drastically in the next round — yet the bigger upfront fees and deposit quantums mean many commuters who want a car will be priced out of the market.

While it might seem like the car ownership conundrum will only get worse, there are innovative solutions that could reduce both the cost of cars and the jams on the roads.

One option is to replace COEs with a permit that allows for a specified amount of vehicle usage. As Lee Kuan Yew School of Public Policy Adjunct Professor Paul Barter explained, bidders would purchase the right to own and operate a vehicle for a certain block of distance.

A driver could purchase a block of 25,000 km of usage, for example, and then top up with another block when they need it. Each block could cost a fraction of current COE prices.
[From the fact that Singaporean drivers drive about 19,000 km per year, 25,000 km is only about 16 months of driving. However, if we want to reduce driving, 25,000 should last 2 years, and the COE-alternative permit should be priced accordingly.

The question is, how much? About 20% of current COE?] 
Tweaks like higher costs for big cars or special limits for high-use vehicles such as taxis could help resolve the instant objections.

The usage permit could be combined with Electronic Road Pricing so that commuters still pay higher prices at peak times.

Usage-based pricing could dramatically reduce the cost of a car for people who truly only need it for short trips like driving to nearby schools or clinics.

While a switch to usage permits would not happen instantly, new technology such as GPS-based car tracking and classic solutions, such as reading odometers during inspections, can make permits feasible faster than many might expect.

When commuters see that driving less reduces their cost, they may actually not use their car as often. As Dr Barter said, usage permits could lower total vehicle costs and may also result in less total traffic, higher traffic speeds and reduced congestion delays.


Another option is to focus on what the International Association of Public Transport (UITP) calls becoming a “mobility provider”.

Rather than just planning policy based on whether commuters use cars or public transport, the target is to change people’s travel behaviour through “combined mobility” that includes car-sharing, car rentals, shared taxis, car pooling and other solutions that complement traditional options like buses and trains.

Government agencies could support this initiative with solutions such as building convenient parking spaces for rental cars, helping develop software for shared taxis or car pools and running campaigns to increase awareness of alternatives.

Commuters who know they can share a ride or rent a car for a few hours from a convenient location may drive less or even decide they do not need a car. Combined mobility can compete with privately owned cars in convenience and cost, according to UITP, so mobility might no longer be dominated by the car. Reduced demand for cars and car usage could again decrease costs and congestion.


Another solution is parking regulation. The Institute for Transportation and Development Policy found that regulating parking and charging for driving in city centres have the greatest potential to reduce traffic congestion, producing dramatic results, including sharp cuts to congestion, faster and more reliable public transportation and reductions in air pollution.

Limits on parking in new buildings, taxes on parking spaces in congested areas or other changes could again reduce driving and demand for cars, since commuters who know it is difficult or expensive to park would look to public transport instead for at least some of their journeys.
[Either BCA or URA should levy a charge on developers who provide more than the minimum car park space. This would discourage developers from providing more than the minimum, and if they do, they will have to offset their costs and levies with higher parking fees.]
While solutions such as allocating space for rental cars or approving new building regulations may take time, options like taxes on parking or even shifting to distance usage-based pricing could happen faster than many might expect.

Other alternatives may be available as well. With drivers facing ever-higher prices and traffic getting worse, perhaps it is time to think out of the box and look for innovative new solutions that can make cars more affordable and reduce congestion, rather than simply tweaking what we already have.

Richard Hartung is a consultant who has lived in Singapore since 1992.
 [With an understanding of behavioural economics, and the sunk costs fallacy, I am curious as to whether a 25,000 km block would be seen as a sunk costs or a consumable. Here is an alternative that addresses the "sunk cost fallacy". The idea is to make it an on-going decision as to whether to drive, not make a decision to drive 25,000 km at a time.]

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