Reader mailbag: really long tunnels edition

I'd been wondering about the proposal to dig a really long tunnel to route through traffic away from Wellington's central city. 

It seems the kind of thing that you might decide to do, after running congestion charging for a while and seeing that the project is warranted, rather than deciding on ahead of having that information from revealed preferences and prices. The thing won't be cheap. 

So I was happy to see this in my inbox this afternoon to help me think through it. 

The Wellington Long Tunnel could be a transformative project to take enough traffic out of the city, especially Te Aro, but also the Quays along the waterfront and Oriental Bay, to improve amenity, relieve congestion at bottlenecks at the Terrace and Mt Victoria Tunnels and make it easier to walk and bike, as well as move buses, delivery vehicles (and cars) within central Wellington. Plenty of other cities of broadly have taken traffic out of their downtowns through purpose-built bypasses, such as Bergen, Antwerp, Basel and Tampere. Bergen is paying for some of the cost of its bypass with a toll.

Saving 15 minutes between the airport and the Hutt, Porirua and the rest of the region seems worthwhile, but both the travel time (and fuel) savings, and uplift of amenity would come at considerable cost. In 2021 Let’s Get Wellington Moving estimated the project might cost $3.1b, but we know how reliable such forecasts have been lately.

Yet it poses the obvious question. If Wellington got time-of-use pricing (congestion pricing) introduced during weekday peaks, focused on the CBD (leaving SH1 out of it as a bypass to a cordon), would the change in behaviour it enabled be enough to relieve congestion on SH1, and so determine then if the Long Tunnel idea was still worthwhile?

The answer is probably yes, although high-level modelling of a cordon pricing option by LGWM suggested that travel times southbound on SH1 would worsen, it would appear because the Terrace Tunnel has insufficient capacity in that direction (one-lane) to accommodate the traffic redirected around the CBD off of the Quays. That could be addressed by putting a higher price on that traffic which could justify building more capacity at that bottleneck.

However, it’s one thing to think of how the roads might be run as a rational business, but reality has some complications:

1. The Long Tunnel is about more than traffic. Arguably it can unlock property value uplift by removing a lot of traffic from existing streets, including taking a lane each way off of the waterfront route to enable a second public transport corridor along it, and more development along the waterfront, as well as removing much of the blight of traffic from Te Aro. The value of all of this is unknown, but as the Long Tunnel is as much about amenity as transport, it is important although caution needs to be taken around exaggerating these benefits (as much as applies to those pushing light rail’s benefits).
2. Congestion pricing for Wellington should probably exclude SH1 for public acceptability, at least at first. A downtown cordon is relatively easy to implement, as trains and buses pretty much all converge on it, and most drivers have reasonable alternatives. Having a good bypass helps to encourage traffic to flow more efficiently around the priced area (this has been seen in Stockholm and Oslo), although it would be wrong to wait until the Long Tunnel is built before introducing congestion pricing.
3. Politics around use of the money. Greens want congestion pricing to raise money to pay for public transport boondoggles, it seems likely National wants it to pay for road boondoggles. Arguably, a road boondoggle that at least benefits those paying the congestion charge is a better waste of money than one that doesn't. It would be better to use pricing revenue to offset rates funding of roads, or enable lower off-peak pricing of roads (if RUC was set by location), or just used for the best projects to upgrade roads in the region, but no jurisdictions do this.
4. The politics around building a Wellington bypass. For over thirty years the issue of fixing the route between the motorway and the roads approaching the airport has been highly politicised.  The current road layout generates congestion all-day during weekdays and much during weekends, and is clearly inefficient as it encourages diversions along routes not well suited to through traffic. The Basin Reserve is the biggest part of that problem, and indeed past BCR assessment of proposals to upgrade it indicate that fixing the Basin Reserve is worthwhile. If the Basin Bridge had been approved by the Key Government, then we probably wouldn’t be talking about the Long Tunnel, but the politics around putting a bridge between Mt Victoria Tunnel (including a new one) and the Arras Tunnel (and maybe a new one to take eastbound traffic off of Vivian St) are complex.

The Greens and Mt Victoria Residents who want nothing built. In Wellington, stopping the “motorway extension” was a cause celebre in the 1990s for the Greens (in their formative years) that succeeded largely due to fiscal constraints, and we are where we are as a result. However, there are also allies in friends of the Basin Reserve who love that cricket ground. The Minister for Infrastructure is one of those people.  The below ground conditions at the Basin are not conducive to tunnelling underneath because of the geology including an underground stream, so it’s a bridge there or a deep tunnel somewhere else. The Minister of Infrastructure is likely to not look friendly upon a bridge (although I wonder if putting a artificial hill to the north of the Basin to conceal a bridge might fix that). 

Unfortunately, the politics around "build no new road projects because cars are bad" from most of the Greens, encourages the Nats to go the opposite "quick build a big project so they can't stop it, and when it opens everyone loves it”.  This transport culture war (which Labour tended to not be a part of, as seen by the road building under the Clark Government) generates a reflex response to build more and bigger.

If there were a more rational, bi-partisan approach, then Wellington could get congestion pricing, a bridge at the Basin Reserve, and perhaps more incremental improvements to SH1 built as merits stack up.  Of course, that wouldn’t deliver the “big bang” amenity transformation of a single big tunnel, but it would likely deliver most of the travel time benefits, many of the amenity benefits, with the only question being whether the costs of disruption and construction in building a cut-and-cover tunnel between Vivian Street and the Arras Tunnel start to rival the Long Tunnel.

This is where the focus of NZTA’s investigation should be in the coming months:

1. Model Wellington traffic with congestion pricing to the downtown (and then again on SH1)

2. Estimate the costs and benefits of the Long Tunnel vs. incremental upgrades to the existing alignment, and whether the transport user benefits and amenity/property uplift benefits are worth it.

I still like the structure that was set out in the 1998 Better Transport, Better Roads proposal. 

Afternoon roundup

The closing of a few tabs. 

• Tim Harford's cautionary tale about the Sydney Opera House and how megaprojects bring heartbreak is a must-listen. One bottom line: if you're not real clear at the outset just what problem you're trying to solve, you're going to be causing problems. 
• My weekend column in the Stuff papers compares the current draft Government Policy Statement on Transport to the old 1998 proposed reforms - Better Transport Better Roads. The column also echoes a lot of what turned up in my submission on the draft GPS - which I don't think is yet on our website.
• Central Banking covers The Initiative's proposals around RBNZ: split prudential regulation off into its own separate institution, focus the monetary authority on inflation-alone, and not go ahead with deposit insurance. With comments from former RBNZ Chair Arthur Grimes and Mike Reddell. 
• Labour promises rebates for rooftop solar. Weird thing to promise when there's a lot of grid-scale solar going in without subsidies. The balance between grid-scale and rooftop shouldn't depend on subsidies to the latter. 
• Great piece in Quilette on the 2003 BMJ controversy over passive smoking and mortality. I remember having pointed at this literature when the Helen Clark Labour Government was banning smoking in pubs; I'd figured it should be for the venue owner to decide, especially where the risks from second-hand smoke really seemed nebulous. Not a popular view it turned out. The trendy 'let's get more government grants' people had banked their wins on second-hand smoke and were trying to argue that third-hand smoke (residue on surfaces, basically) was its own new terrible thing that needed a lot of grants. Ah well. 
• Kainga Ora is doing some really neat work in getting construction cost and build times down. The kind of thing that you'd normally expect the private sector to have led ages ago. But when councils allow very little building, who'd have the scale to front that fixed cost in process systems? Nobody would have invented automotive assembly lines if the global market for cars was a thousand a year...

Afternoon roundup

The closing of the tabs...

• When I tweet my columns, probably best to thread them with the link to the column coming late in the thread, and maybe a screenshot of part of the column in the lead tweet. Twitter's downweighting tweets with links. 
• Meta pulls back from news in Europe. There was so much wishful thinking among the bien pensant about the ability to extort platforms to pay for news. I think NZ media still believe it. It won't end well. 
• Is there a betting market on the John Bates Clark? I'd be putting some money on Seamus's former student David Baqaee. 
• Immigrant entrepreneurship in Canada and location choice. Canada's just so well-placed to take advantage of American xenophobia.
• New York bans AirBnB. NZ's hoteliers would very much like to pull this kind of trick too. 
• Man but Works in Progress are putting out great stuff. Judge Glock (that's just his name, he's not a judge) on local government anti-growth incentives in the US. And Sarygulov & Arslanagic-Wakefield on understanding the Baby Boom (hint: housing costs matter). 
• Great long essays from Scott Wilson on NZ Land Transport Policy. Part 1 on the history. Part 2 on what's wrong with the current system. Part 3 on fixing the mess. I had a podcast chat about some of this with Scott, in context of the Government Policy Statement, late last week. 

Evening roundup

Another closing of the tabs:

• "This is troubling because the government is spending hundreds of millions of dollars in subsidy money to improve a recycling rate it can’t even measure." 
• Pattrick Smellie on state of play in NZ craft brewing. 
• I've a column on infrastructure funding and financing in the Local Government Business Forum newsletter.
• Michael Reddell on inflation forecasts and RBNZ monetary policy.
• More grid-scale solar coming in - Genesis to have 500 MW of new solar by 2026. 
• A follow-up on Tamaki redevelopment. It's a neat one. Started under National, completed under Labour, seemed to work...
• Ugh. If Semour here means that dairies would have an easy time getting a liquor licence, rather than even more restrictions on where vapes could be sold, that would be ok. But I don't think he means that.
• On the plus side, on-farm sequestration that stacks up will be included in the ETS. On the downside, another two-year delay on emission pricing for ag methane. 
• On the plus side, National would have better targeting of prescription drug subsidies. On the downside, they'd also have more political direction of which drugs get funded - a list of cancer drugs.
• ACT supports a Carbon Tax Refund - basically a carbon dividend. 
• Scott Wilson with some history of NZ's land transport funding system. A really excellent post, the first of a promised series. 

Transport GPS

The draft Transport Government Policy Statement is out for consultation.

That statement lays out the government's intentions around transport. 

One thing that stood out was the number of times it talks about an imperative to reduce Vehicle Kilometers Travelled. 

Now reduced VKT could well be an outcome of rising carbon prices, but it should hardly be an objective for the agency charged with building and maintaining roads - acting on behalf of drivers. 

I'd hope an incoming better government would get rid of that. NZTA ought to be responding to their best guesses at transport demand as carbon prices rise, not throttling private vehicle use.

But another thing stood out. 

When the government set the petrol excise holiday, the Taxpayers Union wanted it to be permanent on basis of that some money gets spent from the National Land Transport Fund on non-road stuff. But the Crown also throws money into the roads from outside the NLTF and it looked like it was roughly a wash. At least at the time.

Here's what it'll look like over the coming decade.

I'll class state highway maintenance, local road maintenance, state highway improvements, local road improvements, and safety, as all being basically stuff that benefits road users who pay road user charges into NLTF, whether through RUC or through Fuel Excise Duty. Count investment management in there too, just to be safe.

Inter-regional public transport, coastal shipping (?!?), walking and cycling improvements, public transport infrastructure and public transport services aren't generally things that benefit road users directly. There's a second-best case for funding public transport options out of charges on road users in the absence of congestion charges. Basically, every driver is probably willing to pay a little bit to reduce the number of other drivers on the road.

And you can make the same second-best case for widened roads for cycleways, or for new off-road cycleways. I'd be willing to pay something, at the margin, for a widening of Onslow Road so that there could be an uphill cycleway. Cars and busses get stuck behind very slow-moving cyclists on the uphill section and it isn't safe to pass around the curves. Willingness to pay to not have to deal with that: more than zero.   

The Crown puts about $2 billion of general tax revenue into roads. It would be a lot cleaner if it didn't do that, and if roads were funded by road users. But the government also siphons money out of the NLTF for non-road stuff. If that siphoning is around $2b, then it's a wash and possibly not that big a deal. 

But it looks like between $4.7 and $8.7 billion siphons out from the NLTF into public transport, rail, walking & cycling, coastal shipping, and inter-regional public transport. 

Siphoning from NLTF into public transport alone is larger than the entire NLTF spend on local road maintenance and improvements. 

Does it seem likely that drivers get that much greater benefit from NLTF spend on public transport as compared to local road maintenance and improvement? If you surveyed drivers and said, "For every dollar of your fuel excise that goes into maintaining local roads, how much do you think should go to public transport to help reduce congestion?", do you think they'd be likely to say $1.27? Or $0.50? 

The proposal has about $1.27 going from NLTF into public transport for every dollar going from NLTF into local road maintenance and improvements. 

The case for this kind of public transit subsidy has always been second-best, based around the failure to implement congestion charging.

When I search the NTP for the term 'congestion', I see mention of public transport and active travel as ways of mitigating congestion, policies that reduce the need to travel long distance. Congestion charging seems absent from the document - apart from a brief line in Figure 4 noting potential for demand-side measures like supporting mode shift or road pricing to reduce congestion at peak times. 

If congestion charging is implemented, there's far less case for using RUC/FED to subsidise public transport. But the forecast range goes out to 2033/34 and there's only increases in spend on public transport services over that horizon.

Are they expecting that congestion charging won't happen over the next decade? Or are they saying that economic second-best stuff was never what was really driving cross-subsidisation of public transport?

New NIMBYs

We're all used to standard NIMBYs. 

But now the Ministry of Education and NZTA have gotten into the game.

Fulton Hogan wants to turn an end-of-life quarry into a new development.

Well, that just doesn't fit the plan.

Early plans had shown more than 500 residential sections would be in the development and there would be space for shops and a restaurant/bar.

Waka Kotahi said in its submission it considered the proposed location of the site was quite remote from the existing main urban environments within the Central Otago district.

The Waka Kotahi submission said the subdivision would be about 10km from Cromwell, 40km from Alexandra and 45km from Wānaka and, since there was no public transport, heavy reliance on the use of private vehicles was expected.

It also said the proposed development was outside the future growth areas identified in the Cromwell spatial plan.

The area was not identified for future residential zoning recently notified in plan change 19 of the Central Otago district plan. The spatial plans were developed to manage urban growth in a manner that promotes an accessible walking and cycling town.

It also highlighted further consideration had to be made for carbon emissions and potential climate change effects for the future development.

It said the development of the site was unlikely to result in a significant uptake of active transport modes such as walking and cycling nor a reduction in a reliance on private vehicle trips. There was no provisions made for public transport.

...

In its submission, the Ministry of Education said the proposal would place pressure on schools in Cromwell with an influx of people coming into the region.

“The boost in dwellings constitute a sudden large addition to the number of total dwellings and total rating units, at a scale and pace that is larger than projected numbers. This growth is at a faster rate than that anticipated by the Ministry of Education,” it said.

Nothing can be allowed to grow faster or slower than the Ministry of Education projected. 

And even though transport emissions are fully covered in the ETS so residents of car-dependent places will have to pay for their own emissions, NZTA doesn't want to let it happen. 

What a mess.  

Morning roundup

The morning's worthies:

• iPredict's PredictIt gets another stay of execution
• Kainga Ora has been making great progress in streamlining builds. So long as they don't get burned down. Perhaps it would help if nearby owners could reasonably expect Kainga Ora's tenants to be better neighbours. It's the rare prominent cases that create reputations.
• Jason Sorens says that bad zoning leads to dysfunctional housing markets and high prices, leading to bad ideas about how to fix the problem. A variant on Caplan's Idea Trap.
• Problems that wouldn't exist under proper road pricing and if debt for new roads could be backed by road-user revenues.
• I wish for a world in which Andrew Leigh were a Labour MP rather than a Labor MP. 
• Resale price maintenance. It is still fun to think through the conditions under which it's efficiency-enhancing substitute for vertical integration or otherwise efficient rather than potential indication of cartel-type mechanisms. The typical presumption is the latter, but it isn't necessarily the case. 
• ComCom price regulation of the proposed 3-waters entities will follow standard drill utility regulation. EnergyNews rightly points out that prohibitions on water suppliers earning a profit (remember that standard state-owned enterprises and council-owned enterprises can!) will "limit the extent to which profit can reward and incentivise efficiency and innovation". 
• NZ mayors pushing for city deals. Seems antithetical to Labour's current centralising DNA. Maybe some future better government will dust off the report we'd written back in 2015.

Roads and PPPs

Had a chat with RNZ's Wallace Chapman and The Panel this afternoon on the ACT Party's proposal for reform to how roads get built and maintained.

I usually put a few notes together for myself ahead of these things, mainly to sort out my own thinking rather than to be able to convey every nuance for a light afternoon radio talk. 

Those notes are here, in part so I can find them again next time I need to think about this stuff. 

Biggest-picture: there is need for fundamental restructuring to get to a system that’s responsive to user-demand and is consequently able to deliver projects where road users are willing to pay the cost of the service and to bat back projects that aren’t cost-effective. 

First, summary of ACT’s proposal:

1. 30-year plans for major infrastructure set by local, central, and infrastructure commission. Sets out expected timelines for NLTF projects and which could be fast-tracked if PPP;
2. Public consultation on draft plan;
3. Private sector bids to deliver kit, with tolling on the road, are entertained – they’d have to beat public sector timelines/spec;
4. Then Waka Kotahi has to get consent and acquire land;
5. Public sector could reconsider a proposed route if private sector gives it a pass at toll rates that users find acceptable;
6. Could add tolls to existing roads to help cover maintenance, with a focus on congested roads to help spread traffic to other routes;
7. Not in the ACT proposal here but mentioned by Simon Court on LinkedIn: shifting ownership of the state highway system to a new SOE, Highways NZ, which would be expected to be operationally self-funding out of user fees and deliver a return on capital to the government. 

Big picture things this gets right:

1. Funding for land transport and its management are currently a mess that contribute to poor quality roads. NLTF increasingly a bucket for sundry transport funding and spending rather than dedicated mechanism for user-pays
2. Getting price signals into the mix would be really useful. Far too much transport debate ignores it. Is a second harbour crossing a good idea and who should be able to use it (car, bus, bike, pedestrian) ought to depend on whether the kit can pay for itself through user fees collected over the decades of its life, like the Auckland Harbour Bridge, rather than who can make the most convincing case to a Minister. Benefit-cost ratios can be a useful proxy for this, helping to figure out user priorities. If traffic volumes are high enough to justify the cost of collecting tolls, that’s even better. 
3. Toll roads get us closer to user-pays, and it is better to be closer to user-pays. Remember though that RUC for cars is 7.6c a km, and petrol excise averages that. Neither vary by time or location – though RUC could get there for heavy commercial on telemetrics. 
4. Reducing admin costs of running a tolling system would also be very helpful. But it’s a big hurdle. RUC has collection costs of about 3%; tolls have been closer to 30% [at least according to the experts I've talked with]. You need high traffic volumes on a road to justify the kit for monitoring and billing. Those costs could come down as tech improves. But it’s still a high hurdle unless there is a lot of traffic on the road. 
5. Setting interest in running a PPP as one market test of a roading proposal is one way of knocking back bad projects and making sure very valuable ones get built. But there will be others where the cost of tolling, relative to RUC, could prevent good but not superb projects from going ahead.

Potential fishhooks:

1. Acquiring the land for routes only after extensive consultation can make it a lot more expensive to run projects at all. The Infrastructure Commission has pointed to some of these problems in its own work on corridor designation. Normal drill has been that land is only designated and acquired when the project is ready to go, which means that the value of the project gets bid into the price of that land, which makes everything more expensive. Early corridor designation can help, and 30-year horizons could help with that as well. Option contracting on potential routes, ahead of designations, could help. Corridor designation can be done much earlier, well in advance of any project being viable, so the option is maintained. 
2. Rather than 30-year plans, long-term corridor designation and flexibility to press ahead whenever circumstances warrant could do more good. Right now, one of Tauranga’s larger housing growth areas is being held up because nobody’s allowed to build to the density that makes sense because the roads aren’t currently up to it, but the SH29 overhaul isn’t planned until 2050. Housing demand can shift more quickly than 30-year horizons. Lots of lead time in designating corridors, and flexibility to build/upgrade as demand comes into the system, may be a better mix. 
3. The proposal conflates user charging with congestion charging, making the toll charge do both jobs. It’s better to keep the separate objectives separate, even if charges wind up being collected through the same system. A user charge or toll is set to cover the cost of the road – its building and maintenance. A congestion charge should be set to maximise traffic throughput: it should be zero when there is no traffic, and potentially high when there is a lot of traffic. The congestion charge should be designed to encourage changes in times of travel. A dynamic toll that can vary by time of day might be able to do both. But keeping the two separate keeps the incentives clearer and provides other alternatives for dealing with potential equity considerations.  
4. Consultative processes risk leading to gold-plating requirements that make routes unviable. The proposal has the consultation process in place as a way of gauging real user demand. But that could also be done by setting congestion charges on existing roads and seeing what actual willingness to pay looks like. The example I love to use is a second Mt Vic tunnel in Wellington. I have no clue whether a second tunnel makes sense. But imagine if we had a congestion charge on the existing tunnel set to make sure that the thing doesn’t get plugged. If it only took a $0.50 charge to clear congestion and nobody saw any way of building a second tunnel that could cover its costs on a $0.50 user charge, then it would be dumb to build a second tunnel. But if it took a $5 charge to clear congestion, and if that charge would be enough to cover the tunnel’s cost over time, then that could be a reasonable option – noting you’d also want congestion charging over alternative main routes – or a downtown cordon.

Potential alternatives: 

1. ACT’s proposals are a step in the right direction. But it’s high time the overall system be reconsidered. 
2. NLTF is meant to cover road building and maintenance out of payments by road users. But excise is increasingly disconnected from road use / burden imposed. Would be simple to shift away from petrol excise and put everything onto RUC. Note that excise is also increasingly inequitable: a new hybrid imposes no more burden on the road than an old Toyota Estima, but the latter pays a hell of a lot more for the same amount of road use and road burden. There’s weird status-quo bias where people freak out about equity implications of any change from status quo, but never question the biases built into the existing system. But it would also require tighter enforcement of RUC – potentially integrated with WoF. 
3. ACT is looking at toll charges as one way of alleviating congestion, with public feedback mechanisms aimed at improving social license. If people were worried about equity, you could instead run congestion charges cleanly on their own basis – and use the collected revenues to fund a congestion dividend that rebated collected fees to road users irrespective of their time of use. There is already cross-party agreement for congestion pricing in Auckland/Wellington. 
4. In 1998, the government proposed substantial transport reform under Maurice Williamson. “Better Transport, Better Roads.” A lot of what was proposed was before its time – the tech wasn’t there for low-admin-cost road user charge collection, and we’re still not 100% of the way there yet. But the system was elegant. Rates would no longer fund roads. Road use levies would be paid into Transfund, a Crown-Owned entity, responsible for recommending road use rates to Minister of Transport. Regional road companies would take over running local roads; a Crown-Owned company would run the state highways and motorways – and this part sounds like what Simon Court had suggested on LinkedIn. It was a straight user-pays system. Transfund would commission roads based on user needs; the public road companies would operate them. The link between user payments and what they get from those payments would be a lot clearer. 
5. Under the 'Better Transport, Better Roads' option, the road companies would introduce pricing as cost and feasibility were demonstrated – rather than it being a political decision for ministers.
6. Currently, a PPP can help solve two different problems: infrastructure delivery & management, and financing. If the government instead issued debt tied to specific roading projects, so that road users could pay those costs off over time through either tolls or road user charges, that would be a more direct way of solving the financing problem. And then PPPs would only be chosen if the road companies [Under something like 'Better Transport, Better Roads', or Highways NZ under ACT's extended proposal], or Waka Kotahi under the status quo, thought it would be better value. 

I'd also recommend Liberty Scott's excellent thread on all of this. 

Everyone is stupid except me: Auckland harbour crossing edition

The Labour government has put up options for a second Auckland Harbour crossing. All of them look terribly expensive. None of them have any kind of business case, yet. Prior versions of similar options had costs well in excess of benefits.

National's critiques, as observed on Twitter, are that Labour's never been able to build anything so why trust them to build any of these. Of course, if none of them are worth building, then this isn't much of a critique. 

The Greens want any crossing to be climate-friendly, with a focus on mass-transit, and walking/cycling. Whether any of those options make more sense than building none of the options doesn't seem to have been checked. 

All of it is backward.

We don't know whether a second crossing is warranted, let alone how it should be configured. Parliament is incredibly poorly placed for figuring this out. 

There is a much simpler way.

1. Set congestion charging. If you can end congestion across the crossing at a low price, you don't even need to start thinking about a second crossing. 
2. Look at the price that clears congestion. It can help inform whether a second crossing could cover its own cost. 
3. Let NZTA, or a new Auckland Harbour Second Crossing Board, or private investors, build whatever crossing they like if they think they can recoup the cost of the thing from charges on users of that crossing. Return to the kinds of revenue-bond financing that was used to build the first Auckland Harbour Bridge, financed over decades by charges on users of the bridge. 

Governments back white elephant projects with our money.

Investors are more careful about business cases and the likelihood of earning a return. They'll be less likely to be swayed by fashion, ideology, or wishful thinking about what the best mode for any crossing might be. And if they screw up and spend tens of billions on a project that doesn't wind up paying off, they lose their own money. True if it's investors putting in equity and owning the bridge; true if it's bondholders buying the debt that funds the bridge and expecting user fees to finance the payments over time. 

Done. 

It was two years ago that the last round of cruddy business cases came through. And we're back at it again.

Get this stuff out of Parliament's hands. If a crossing can pay its own way through charges paid by its users over time, it should be built. If it can't, it shouldn't. That's it. 

And if it turns out that multiple projects actually could be viable and that they're mutually exclusive, set a bidding process for the right to build it. The one with the highest expected earnings over time will win, and that's the one that should be built. 

Transport Maths

Transport projects run their own version of benefit-cost accounting. It's weird to the sector, but apparently common internationally. 

Normally you'd want to go ahead with a project if it provides net benefits, where benefits are counted comprehensively and costs are counted comprehensively. If a project provides net benefits, it'll also have a benefit-to-cost ratio that's greater than 1. 

I never much worried about it whether they were using BCRs or net benefits.

But transport BCRs aren't really benefit-to-cost ratios. 

They're instead something a lot more like a "net benefit per dollar of transport expenditure" measure. Costs that aren't financial costs to NZTA wind up as disbenefits that are netted from benefits in the numerator of their ratio. 

And that difference can matter.

Imagine two projects, each of which would result in one statistical life-saving valued at $5m. That’s on the benefit side. Neither project has any other benefits. 

Project A would impose $4m in costs on drivers through reduced speed limits (increased travel time) and a $100,000 financial cost to NZTA in changing speed limit signs. So it has net benefits of $5m - $4m - $0.1m = $900k. 

Its true benefit-cost ratio, where all benefits are counted on the benefit side and all costs are counted on the cost side, is 1.2:1. NZTA’s 'net benefit per dollar spent' measure would have it as 10:1. 

Project B would spend $1m on median barriers and impose $100,000 through visual disamenity costs and hassles while the barriers are being installed. It has net benefits of $5m - $1m - $0.1m = $3.9m. The true benefit-to-cost ratio, where all costs are weighed against all benefits, is 4.5:1. NZTA’s 'net benefit per dollar spent' measure would have it as 4.9:1. 

In this example, project B has much higher net benefits, and a much higher true BCR. 

But a transport ranking would prefer project A. 

It's a made-up example with made-up numbers, but I wonder how many real-world cases wind up with this problem. 

If NZTA were mainly weighing up projects that had comparable bundles of financial and 'disbenefit' costs it probably wouldn't much affect things. But where more of the options, like blanket reductions in road speeds, mainly have costs that get netted from numerators while having trivial financial cost to NZTA, it could be a problem. 

It might be worth NZTA checking whether their method remains fit for purpose or whether it's likely to cause issues. Alternatively, it would be a fun student project.

Afternoon roundup

A closing of some of the browser tabs:

• Eli Dourado on NEPA - America's equivalent to the RMA. Superb seeming primer on how it all works, though I would not be one to notice any holes in it. 
• Road-building is going to get harder, thanks to a court interpretation around water consenting. Minor bits of drainage are going to hit large hurdles. 
• Chris Snowdon in conversation with Marewa Glover on New Zealand's tobacco and vaping regime. 
• Possibly the best approach for "glue ourselves to things" protestors: leave them there.
• Lindsay Mitchell picks up another aspect of the Perry child poverty report: substantial differences across regions in foodbank uptake, sorted by material deprivation. 
• "Rather than address the workforce crisis it inherited, Labour instead resorted to restructuring the health system to put it under greater central government control and make it more vertical. This was a fatal error." 
• NPR's Darian Woods and Wailin Wong on America's blocking Chinese access to higher-tech chips.
• Government may be preferring government-built housing in easing RM constraints. That, as a pattern, will make it harder to get necessary RM reform - if govt can exempt itself from the worst effects of bad RM rules...
• Older piece now, but I want to be able to find it again. Cato's critique of the US Jones Act, which prohibits foreign shippers from transporting goods between US ports. NZ shippers often want this kind of rule here too. It's been doing particular harm in Puerto Rico lately. 
• Sex work legalisation in NZ included measured aimed at protecting temporary migrants from exploitation; those rules may be doing more harm than good.
• Youth justice facilities overwhelmed by numbers.
• Emergency rooms overwhelmed by numbers and want of staff.
• Mental health system overwhelmed by numbers and want of staff.
• One reason the new Rings of Power series may not be as faithful to The Silmarillion's account as it could be: copyright. 
• Wellington: for, by, and of connected insiders. 
• MBIE is running a review of space policy. Wish there were a one-click submission option "Just leave it alone and don't break things." There are just so many submission processes on...
• Yet another area in which NZ could do well by simply recognising standards in use in other places. This time, car safety. 
• It looks like the prescription guidelines for medicines for ADHD have been designed around avoiding Ritalin flowing out into other uses rather than helping patients. And the one doctor who prescribed in accordance to patient needs rather than guidelines is in trouble for it. 

Afternoon roundup

Minor notes on the closing of the browser tabs:

• Andre Brett asks good questions about Auckland rail. Don't agree with some of the conclusions, but they're good questions. 
• The Onion's Amicus Brief in favour of parody is excellent.
• The tertiary education union is going on strike, seeking an 8% cost of living increase. Perhaps a bit difficult for the universities to avoid declining real wages for staff when tuition fee increases were capped at 1.7% for the year and international students might still be trying to figure out how to get visas. 
• There are way fewer nuclear warheads now than there were in the late 1980s. Dropped from over 60,000 to about 10,000. It's still a lot, and Russia has about half of them. 
• Charlie Gates interviews perennial Christchurch local government candidate, and eccentric, Tubby Hansen. 
• Stefanie Stantcheva explains how to run surveys, if you want to create identifying variation. 
• Oooh, yeah. That'll matter. Productivity measures can be upward-biased if some of the labour cost has shifted onto customers: pumping own fuel, supermarket self check-outs. It has to be more efficient than having paid staff do it, or else it wouldn't be done, but the full labour cost of producing the output includes the customer's time. 
• Dileepa Fonseca wishes we had more ghost houses. It would mean there is a surplus of houses, rather than a desperate shortage. He is absolutely correct. It's on the back of a report finally showing that there really aren't that many of them.
• John Cochrane reminds central banks that there are risks out there other than climate change. 
• British power companies are pelletising wood from old-growth forests for use in power generation. I don't know whether the economics would stack up for shipping pine pellets from NZ, but we might wind up seeing more of that kind of power generation here. 
• "What made JASON possible was the convergence of two factors: a competent research community willing to strictly act as advisors, and political officials who wanted that advice to be truthful rather than convenient." When elite physicists advised Washington.
• Inflate grades or get fired at NYU. 
• Oliver Hartwich reminds us that, unlike Truss, Thatcher started by balancing the budget. 
• Jonathan Milne on problems at Ports of Auckland. 
• Between ownership and rangatiratanga: Thomas Cranmer on the Three Waters reforms

Morning roundup

The morning's worthies, on the closing of the tabs:

• Simon Bridges on an odd proposal to stop counting travel time savings when running CBAs on new roading projects. There's a good case that congestion charging is the first-best way of dealing with congestion, but travel time matters. 
• In praise of the Auditor General
• I really hope the final version of the Future for Local Government's reform paper is stronger than is here signalled. 
• Richard Harmon on the GST change that didn't happen. It's such a strange one. You'd have thought they'd have lined up the 'like clean tax' people on the right to have a supporting case ready. 
• If I've read this right, it's setting up some horrible incentives around Tranche 2 "Better off" funding. Projects with local benefits unrelated to water get loaded into the debt taken on by the new amalgamated water services entities?

Afternoon roundup

It's been a busy few days. The tabs, they've accumulated. Some worthies:

• Bans on paying surrogates are a bad idea. 


• California might break the internet. 


• Where Rob Campbell is Chair of Health NZ, do we even still pretend that we have a politically neutral public service?


• BusinessDesk on Effective Altruism in New Zealand. 


• A Newsroom roundup on population and immigration, including a bit on Clive Granger's visa difficulties. If I remember right, they'd figured they had no chance of getting through Immigration New Zealand's points system because of age, so were deterred from applying in the first place rather than being turned down after applying. If anything, that's a worse problem - who knows who else might have been deterred from even trying?


• A suggestion that learning Te Reo will become necessary for getting to the front of the queue for working in the public sector. I do remember those sorts of policies causing no small amount of discord in Western Canada, and being part of what got us the Reform Party. 


• Simeon Brown is not wrong about problems in transport policy.


• If the Rail and Maritime Transport Union is right that "KiwiRail is not going to make a profit, not in my lifetime - and probably never", isn't that an argument for ending the thing?


• Sounds like it's time to flip all vehicles onto RUC, including electrics that currently get a free ride.


• The Building Code is bigger than you thought. 1500 pages, plus 20,000 more web pages and documents. 


• The new Google News showcase is decent. Lots of coverage of regional papers I'd otherwise have missed. 
  
  

Morning roundup

The morning's worthies:

• Treasury are the heroes in this story, where Daalder paints them as villains. Treasury tried to stop the dumbest of the climate spend. GIDI, which either pays companies to invest in tech they were already going to buy, or subsidises them to invest in cost-ineffective ways of mitigating emissions, is such a rort. 


• Justin Giovannetti left New Zealand because of our housing policy disaster. He tells Canadians about the problems.


• Dileepa Fonseca suggests council rates should be apportioned only over land value, rather than land plus capital. I agree - at least for urban councils. For rural ones that don't use user-fees for services provided in towns, there will always be temptation for the townies to screw over the farmers by loading them with costs for services they rarely use. 


• Auckland Council bans people from building infill housing in places where people want to live through special character designations. Allowing infill housing where people want to live is the single most cost-effective thing that councils can do to reduce demand for carbon emissions. Meanwhile, Auckland Transport puts up aspirational plans of how many people they'll force out of cars. If you run a comprehensive price on carbon, you don't need this micromanaging BS. But those who know they are your betters want to dictate how you live. Just letting prices work within an ETS with a binding cap isn't good enough for them. Instead, NZTA is advertising for a Principal Advisor on reducing vehicle kilometres travelled. That just shouldn't be a goal. NZTA should be making sure that road users pay the costs of their road use rather than try to stop it. Maybe the advisor will suggest even worse maintenance on the roads, so the threat of broken axles will discourage driving. 


• Meanwhile, Minister Wood thinks breaking the public transport contracting model is needed to push up wages for bus drivers, among other worthy-sounding outcomes. It's all nonsense. Greater Wellington set a contracting model with trivial penalties for cancelled services and then was shocked! and aghast! that the bus companies ran lean staffing models, eating the fees for cancelled services rather than paying enough for staff to ensure reliable services. Council could have contracted for different outcomes, if it had been willing to pay for them. It'll be interesting to see what they do when they no longer have a scapegoat I suppose. 


• The Auditor General warns about some implications of the proposed 3 Waters Reforms.

Afternoon roundup

Another long-overdue closing of the browser tabs:

• Tower Insurance is now offering parametric flood insurance. I'd love to know more, including the maximum sum insured and how they've dealt with regulatory issues. 
• New Zealand doesn't have any price gouging laws. Suppose that you can't keep up with demand for your product - everyone in the country is short of it. Normal drill would be to increase prices, right? Surely it's better to ration by willingness-to-pay than by queuing and leaving people short. Alas.
• The Climate Commission notes that, at a carbon price of $150, rebating 54% of ETS revenues back to households as a carbon dividend would fully offset the median increase in food and fuel costs. See Section 5.8. Now imagine the politics of carbon prices if they dispersed 100% of it, instead of letting Grant Robertson use it for industry subsidies. 
• Germany's fantasy energy policy. The Gods of the Copybook Headings limp up to explain it once more. 
• In praise of Corsi-Rosenthal boxes
• The short-term effects of a minimum wage hike may differ, substantially, from the longer-term effects. Hurst, Kehoe, Pastorino and Winberry over at NBER. 
• The Lake Onslow project: an analog solution in a digital age? I still wonder about allowing Korean-style small modular nuclear reactors. If an investor wanted to stick some at Huntley to plug into the existing distribution grid, would it be possible? 
• Minister David Clark wanted to push through a government flood reinsurance scheme. Subsidising people to live on flood plains encourages more people to want to live on flood plains. And then you wind up in stupid second-best worlds where Councils try to zone to keep people from living in places where they wouldn't be living in the absence of that insurance subsidy, or try to pay for flood-protection works that developers would have had incentive to put in on their own so that properties would be insurable. Dodged a bit of a bullet if that one's been avoided. 
• Remember how I said that the RUC discount scheme for diesel drivers invited rorts? The predictable has happened. 
• Take blood, run gene sequencing, predict height, BMI, educational attainment and more. 
• The CDC is failing in its response to Monkeypox. 
• Roger Bootle on the return of the Gods of the Copybook Headings in inflation.
• Smell loss seems the best current predictor of long-term post-covid cognitive impairment. Makes sense to this non-physician: the olfactory nerve is a direct pathway to the brain, right?

Petrol excise holidays and inflation

The extended petrol excise holiday is bad for a lot of reasons. But we shouldn't pretend it fights inflation. 

It results in a CPI level that is a bit below where it would have been, for the period that it is in place. Year-on-year changes in CPI are our going target measure for inflation. 

So think about things a bit harder.

Suppose the holiday is made permanent and land transport funding is permanently shifted from a user-fee basis to a general-tax-revenue basis. When the one-year anniversary of the petrol excise holiday comes around, we will again be comparing CPI figures that are set on like-for-like basis. The effect of the holiday in muting the underlying trend will be gone. 

Or suppose instead that the holiday ends in December. Come the March quarter, we'll be comparing a no-subsidy petrol cost CPI quarter 2023 with a no-subsidy petrol cost CPI quarter 2022, so we get a one-off jump from the prior quarter's artificial depression of the inflation figures, then we'll get an artificial jump in measured inflation when we start comparing a no-subsidy petrol cost CPI June 2023 quarter with the with-subsidy 2022 June quarter.

In either case, the Reserve Bank has the same job in fighting underlying inflation. It should look through the road use charge changes in either case, except to the extent that it flows through into other prices - and even that will be transitory. 

My column in Newsroom this week, reminding that RBNZ in 2010 helped keep inflation expectations anchored by posting inflation projections with and without the effects of the 2010 GST increase. 

While the petrol excise holiday does affect headline Consumer Price Index results, it does not really affect the inflation that the Reserve Bank should care about in setting monetary policy. The Consumer Price Index will be somewhat lower than it would have been for a bit longer. But inflation remains largely unaffected.

Consequently, we should look through the effects of the policy when looking at headline inflation. And if we do, then you need to look back 34 years, to March quarter 1988, to find a higher inflation figure.

When considering the petrol excise changes, it's helpful to reflect on the GST increase in 2010. In 2010, John Key’s National government increased GST from 12.5 percent to 15 percent. Overnight, on 1 October, the price of everything went up. Something that had cost $112.50 on 30 September would cost $115.00 the next day.

But was the move inflationary?

The Consumer Price Index would certainly be higher than it otherwise would have been. For one year.

Annual inflation is the percentage change in the CPI compared to the same quarter in the previous year. So long as each quarter’s CPI was compared to a CPI figure before the GST increase, annual inflation would look higher than otherwise. But by December 2011, inflation would be measured against a baseline with a higher GST rate.

So unless something else changed, the GST increase would not affect ongoing inflation.

The Reserve Bank worried about whether that ‘something else’ might matter.

Monetary Policy Statements in 2010 talked about the potential for the CPI increases to pass through into wage increases, which could affect ongoing inflation figures. At the same time, energy began facing a carbon price in the Emissions Trading Scheme, which would also affect headline CPI. And a sequence of hefty tobacco excise increases began.

So the Reserve Bank checked with industry to see whether those CPI increases were feeding into wage settlements, and they checked against surveys of inflation expectations. They also looked at what happened in the last GST increase.

They saw little cause for concern, noting that “monetary policy would act to offset any pick-up in medium-term inflation expectations.”

But the Bank also provided important assistance in keeping inflation expectations anchored.

The December 2010 Monetary Policy Statement provided measures of both CPI and projected future CPI. One forecast included the effects of policy changes that affected CPI; a second stripped out those effects.

They didn't know. That's why they couldn't answer.

Newsroom's Jo Moir had been frustrated that Minsters at press briefings wouldn't give a straight answer on how the fuel tax holiday would apply to diesels.

The simplest explanation seemed almost certain to be the correct one: they didn't have any clue, because they'd given officials no time at all to think about it. It was a politically driven policy, not one that made any darned sense. It was a knee jerk response to the combination of rising fuel costs with the war in Ukraine, and declining polling numbers. 

Why would you ask officials' advice if the ones who'd have to implement it were likely to tell you the policy was just stupid and shouldn't be undertaken?

So I figured that nobody had bothered asking NZTA for advice about it. They'd be the ones stuck figuring out how to apply the fuel tax holiday to diesels, which pay Road User Charges rather than excise - for the obvious reason that the per-litre cost they impose on roads is far more variable than is the case for petrol vehicles. Petrol vehicles don't vary all that much by weight. Diesels span the range from tiny mini trucks to enormous transport units. And NZTA would likely point out all the difficulties in applying it to RUC.

Their response was fulsome. A hefty amount of correspondence about costing and then applying the road use discount - which began just before 3 pm on the Sunday afternoon before the government announced the policy. NZTA wasn't asked for advice. They were just asked to cost it. 

It was my column in Newsroom last week. I should have blogged it earlier - sorry. I also threaded the timeline from the hundred-odd pages of released correspondence. You can read the full OIA results if you like: their letter of response which includes a restatement of my request; their first set of documents covering the Sunday and Monday; and, the second set of documents where they start working things through after the announcement. 

This really is how the way the OIA should work - rather than getting tons of blank pages withheld as free and frank advice. We here get to see exactly how policy is made under the Labour government, and what officials have to do in the background.

From the conclusion to my column - but please do read the twitter thread laying out the entire timeline so you can judge it for yourself. 

A diesel subsidy equivalent to the petrol excise discount could have been simpler. But the press release from the Beehive had already announced a cut to road user charges, before anyone had had time to think about it.

So we wound up with a high-trust system and many potential stockpiling issues.

NZTA did an admirable job, under circumstances that should not be faced except under real emergency.

There was no emergency that required inventing policy on less than 24 hours’ notice to officials, forcing them to work past 11pm on a Sunday night.

There was only a political emergency caused by Labour’s drop in the polls, resulting in a ruined weekend for officials, extensive and imperfect backfilling of details afterwards, and theft from the Covid fund to cover road costs.  

It is a terrible way to run a country.

Jo Moir followed up with the Minister, who claimed officials had been given more than 24-hours notice. It's likely he'd chatted with the Ministry of Transport - which is supposed to be the policy shop. But NZTA would have to run implementation on it, and would be far more able to see the obvious problems in applying it to RUC. And they started work on the thing about 20 hours before the cabinet meeting, and 25 hours before the policy was announced.  

We're heading into some worse economic times. I do not expect it will lead to better policy. Rather the opposite. 

A permanent petrol holiday?

Just a terrible dynamic here.

Transport NZ CE Nick Leggett argues for an indefinite extension of the road user charge discounts.

New Zealand’s road transport industry has today called on the Government to extend the reduction in fuel excise and road user charges (RUC) indefinitely.

“Extending the reduction is vital in order not to increase the pressure on hardworking families and struggling businesses,” says Ia Ara Aotearoa Transporting New Zealand Chief Executive, Nick Leggett.

“Many kiwis are only just keeping their heads above water at the moment and we need the Government to do what it can to help them through.”

The current fuel excise reduction scheme is set to come to an end in the coming months.

Mr Leggett said 93% of New Zealand’s freight travels on the back of a truck and the road transport sector continually strived to drive efficiencies in their businesses.

And the railways want a subsidy to compete with the now-subsidised trucks, and the ports will want the same. Nick Leggett is helping to push us back to the bad old days of a government-directed transport system. 

A clean system would start from user-pays. Roads would be built when they could pay their way. Users would cover their costs. Goods would ship by rail when that was the most cost-effective, as judged by users, facing the real costs of transport. And same for coastal shipping. 

There's some work to get there. Congestion charging, with fees set to maximise system throughput, would help. It would also provide a price signal about places where more investment might cover its cost. Flipping petrol excise over to RUC, and then looking at getting more tolls on roads as a way of financing the things. 

But Leggett's path doesn't lead to any sensible system. If you run land transport out of general revenues or the Covid fund instead of out of fees from users, why should the system even care about driver demand? If government decides to ban trucking between places that could be served by coastal shipping, regardless of cost, what principled leg does Leggett have to stand on?

The best thing that happened in the 80s reforms was that businesses all agreed to stop doing this kind of thing. Leggett is trying to push us back to a rent-seeking equilibrium, and probably has no clue that he's doing so. 

Cash for CluNZkers

The US Cash for Clunkers programme was a mistake. Intended as stimulus programme for the auto industry, it failed. 

Almost all of the effect was a bringing forward of purchases that would have happened anyway, so the effect was very short-lived. 

It also failed as an environmental programme. Looking only at the CO2 reductions, the cost-per-ton was $106-$335, USD, 2009. Inflation, exchange rate, tons to tonnes: that's $245-$772/tonne in current NZD. Or between three and ten times the going price of carbon abatement in the ETS.

The US didn't and doesn't have an ETS, so the scheme could reduce net emissions - albeit at very high cost. NZ has an ETS, transport is in the covered sector, and there's no domestic auto industry to stimulate even if you wanted to, so a cash-for-clunkers scheme here would be especially stupid. 

Richard Meade had a chat with Sean Plunket over on The Platform yesterday. 

Sean had got wind of that a cash-for-cluNZkers scheme is here in the offing, and could be announced at the budget. 

It'll be fun to see how the legislation handles this one, and whether they even try putting a cost-per-tonne on it. 

Whoever drafted the leg will have to have lots of things to think about. On a few short chats with others on it:

Could I buy a clunker now, expecting a voucher that's worth more than the cost of the car? Should the legislation anticipate that and restrict the voucher to cars purchased at least a year ago? 

Sounds like it'll be means-tested: only poorer households can do it. But they can on-sell any EV they buy to a higher income household right? And that higher-income household might help them front the rest of the cost? 

If you have a university-aged kid, could you strike a deal with that kid's household? Like, buy the kid the clunker now, let her turn it in for the voucher, loan the kid the rest of the money for the car (or top up a zero percent student loan), and have occasional use of the car that would, for convenience, be regularly parked at your house? It could quickly undo all the effort at means testing, and policing could be interesting. 

It'll also be fun to watch the price of used cars, and of EVs, given supply chain issues. 

Oh - and remember - because the ETS has a binding cap, the scheme achieves precisely nothing for emission reduction. The only thing that cuts net emissions covered by the cap is a reduction in the cap. The regulations aren't necessary to cut the cap, and cutting the cap is sufficient to reduce net emissions - and presumably does so for a fraction of the cost of a Cash-for-CluNZkers scheme. 

It just keeps getting stupider.