Pricing, Incentives, and Taxation
These strategies use monetary signals to achieve such pre-defined public goals as revenue generation, fostering the use of emerging technologies, or demand management, among many others.
Freight road pricing has been recommended to reduce freight traffic by promoting a better utilization of transportation capacity (Ogden 1992; City Ports 2005; BESTUFS 2007; Allen and Browne 2010; PIARC 2011). In theory, the increase in transportation costs produced by the toll would lead to a reduction in truck traffic. The empirical research conducted indicates, however, that in the case of cordon time-of-day pricing concludes that, in competitive markets, this is not the case. Carriers cannot unilaterally change delivery schedules and have limited power to transfer the toll costs on to their customers. For example, following the 2001 toll increases enacted by the PANYNJ Time-of-Day Pricing Initiative, only 9% of the carriers were able to pass the toll costs on to the receivers (Holguin-Veras et al. 2006b). If no price signal reaches the receivers, cordon time-of-day pricing will not impact their behavior. In both the PANYNJ case and in London, England, cordon time-of-day pricing had no noticeable impact on peak hour truck traffic. This reflects the brutally competitive market conditions produced by truck over-supply. As a result, carriers tend to absorb the toll costs and to avoid any operational changes that could upset their customers and lead to loss of business.
Although cordon time-of-day tolls do not change freight demand—because the toll is a fixed cost that most carriers find difficult to pass on—time-distance-pricing tolls could be passed on to the customers as a variable cost that enters into their distance-based contracts (Holguin-Veras 2011). For time-distance-pricing tolls to change receiver behavior, however, the tolls have to be very high, which may not be politically acceptable. The current thinking is that cordon time of day tolls road pricing is of limited effectiveness for freight demand management, though it could play a key role in revenue-generation.
Parking pricing is intertwined with the allocation of curb space among all potential users. A proper amount of spaces, and the locations of the spaces allocated to freight vehicles are essential to program success. The main issue is that often cities fail to allocate enough parking for freight activity, which results in significant parking violations and fines (Jaller et al. 2012). In New York City, for example, most carriers spend between $500-$1000/month per truck on parking fines (Holguin-Veras et al. 2007; Holguin-Veras et al. 2008b). Given a fair and proper allocation of curb space, parking pricing can play a key role in a sustainability initiative, protect historical areas, and improve traffic conditions (PIARC 2011) by increasing turnover, reducing parking dwell times, and generating revenues for infrastructure and mobility improvements (City Ports 2005).
In Copenhagen, Denmark, differential parking charges were set in the medieval part of the city to reduce pollution and foster the use of environmentally friendly vehicles. Similarly, the NYC DOT’s Commercial Parking/Congestion Pricing program uses parking prices to foster turnover and a better use of curb space.
These programs seek to foster sustainable practices by incentivizing one or more participants in the supply chain, using both monetary and non-monetary incentives. In this context, combining the power of incentives and regulations is likely to have a meaningful impact on the behavior of freight agents. The public sector can provide incentives to foster adoption of environmentally friendly vehicles, while charging penalties to carriers using inefficient vehicles, and regulating minimum environmental standards.
Incentive programs can be enhanced by promoting sustainable practices among stakeholders. Citizens and end-users/consumers should be involved, as they have the power to reward best practices with their purchases, potentially influencing behavior throughout the supply chain. The “CarrotMob” concept provides an interesting model of a program that could play a transformative role, by using the power of consumers to foster change in the urban freight system (Diziain 2013)
Recognition programs use the power of public acknowledgement of outstanding achievements to indirectly encourage others to follow suit. Unlike certification programs, however, recognition programs do not necessarily assist other companies with the means—advice, plans, or benchmarking systems—to achieve the level of performance necessary to receive recognition (Noise Abatement Society 2013). Not much literature exists on the effectiveness of public recognition programs or how to structure them. One of the very few research efforts is related to the Off Hour Delivery (OHD) project in New York City (Holguin Veras et al. 2013c), where econometric models have shown that public recognition does increase the likelihood of participation in unassisted OHD. Recognition of good behavior fosters good behavior. Moreover, such programs tend to improve relations between the private and public sectors, which can pave the way for other more challenging implementations and cooperation.
These programs recognize participants that achieve a minimum level of performance and follow a clear path to certification. These schemes can be structured in various ways, depending on the metrics and attributes considered, and who is participating and/or included in the system. Comprehensive programs aim to address the majority, if not all, aspects of a company’s operations (Transport for London 2013b), such as driver skills and driver management, vehicle maintenance, transport operations, and performance management. In most cases, these are voluntary programs that set specifications for reaching different achievement levels such as bronze, silver, or gold. Area-specific recognition programs often concentrate on environmental impacts. Other focus areas include managing driver skills, safety, and the use of information technology to enhance operations (Freight Transport Association 2013; U.S. Environmental Protection Agency 2013b).
This group of strategies provides operational incentives to carriers, such as preferential access to restricted areas, to foster use of electric/low emission vehicles (BESTUFS 2007). For example, urban consolidation centers (UCCs) in Norway use “clean vehicles” for last-mile deliveries to take advantage of priority lane policies. In Germany, the city of Bremen provides preferential access to choice parking places to freight vehicles that meet the strictest environmental standards (PARFUM 2009). The allocation of a scarce public good, like parking, in such a way could foster sustainability of urban freight operations. In New York City, Green Loading Zones are considered a solution to incentivize the adoption of electric vehicles, as they provide curb space exclusively to electric trucks (New York State Department of Transportation 2014).
Taxation is routinely used to raise revenues and foster behavior changes that will lead to public benefits. Examples include tax incentives for consumers who buy electric vehicles or for companies that use energy efficient equipment (City Ports 2005; U.S. Environmental Protection Agency 2013). For the most part, because of compliance verification considerations, tax incentives or penalties are usually tied to purchases that are easy to verify. A central principle of these efforts is to ensure that the tax signals reach the key decision maker. In this regard, the important role of the receiver has been overlooked. If properly designed, a mix of incentives and penalties could be more effective than solely punitive policies, and would be more likely to be accepted by the public and business community.
Tax-incentive programs geared to carriers could accelerate the adoption of electric/low emission vehicles, as has been seen in the Netherlands, the United Kingdom, and France (BESTUFS 2007). The Hong Kong Environmental Protection Department (2011) has a number of incentive programs: a $3.2 billion program to help operators replace non-compliant vehicles with new ones that comply with the latest emission standards; tax incentives by which carriers can deduct capital expenditures on environmental-friendly vehicles; and the “Pilot Green Transport Fund” to encourage freight carrier operators to test out green and low-carbon transport technologies. In the United States, some federal and state incentives exist for electric trucks (e.g. Plug In America 2013), including the Environmental Protection Agency’s SmartWay finance program that assists small carriers by providing access to low-cost financing for SmartWay verified technologies and clean trucks (U.S. Environmental Protection Agency 2013).
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