People, mobility and economics: what future for roads in a sustainable world

Last Friday  21 September in Melbourne, I addressed the  IQA-CCAA CMIC 12 Construction Materials Industry Conference.

CMIC is the national conference of the Institute of Quarrying Australia  and the industry body Cement and Concrete Aggregates Australia.  Here is the text version of my talk with some extracts from the Henry Review on Australian taxation added.

“People, mobility and economics: what future for roads in a sustainable world”

Thank you George for that generous introduction and good morning everyone.  Yes, George is right I will not be talking about Green Cement.  We have a number of expert speakers to follow today who will be discussing a range of industry and technological innovation, including those in materials science.  Green cement will be one of them.

I have been asked to talk about roads.  I gave a talk a few years ago to Roads Australia about the business case for sustainability in the roads sector and I suspect that overlapping organising committees may well have resulted in this invitation today.  I will discuss some of the sustainability themes I raised at Roads Australia, but with this topic “People, mobility and economics”, I want to address the sustainability theme around issues of governance, public understanding of the issues, and a need for new business models that will underwrite effective investment in Australian public infrastructure.

There are a number of industries in the room today and you all share a common interest in the public better understanding the nature of your industries and your products and services.  When we talk about sustainability, we are talking about something that really matters that should continue indefinitely – and I would wager that is how you see your companies and your sector.  It performs essential service to the community and the economy.

The things that really matter are not getting the proper airing they deserve in our public debates.  I know Jennifer Westacott from the Business Council spoke to you yesterday.  Elsewhere yesterday she made some damning criticisms of our public policy processes and the fascination our political parties seemingly have on short term “fixes” that ignore more measured considerations of longer term interest and efficiency.  There is a dumbing down of our public processes that make more difficult the possibility of an informed public discussion about core issues like productivity, infrastructure and sustainable development.

I have just spent two weeks in China, and while development there is far from sustainable, there is a palpable sense of a strategic vision to which China is working.  It is evident in discussions with government officials, industry and academia.  I detect no such consensus in Australia and it is a shortcoming that defines the governance context for a discussion about roads and sustainability.  It’s not that we have not been told.  As long ago as December 2008 the statutory authority Infrastructure Australia in its first report to the Council of Australian Governments (COAG) outlined the issues:

• ‘Deliver better governance: inefficiencies and inconsistencies in governance adversely impact infrastructure operations and investment in Australia.
• Create competitive markets: regulatory complexity and competitive anomalies impede the operation of efficient and competitive infrastructure markets, including the development of a nationwide world-class communications network.
• One nation, one set of rules: inconsistent rules, legislation and regulations governing markets impede productivity and create unnecessary costs.
• Better use of existing infrastructure: changes in the operation, pricing or utilisation of existing infrastructure to solve problems without the need for investment in additional capacity.
• Climate change: in addition to requiring a shift to a low carbon economy, climate change is increasing the demand for improved infrastructure, such as efficient public transport systems and low carbon intensive methods of power generation’[i].

So without further ado, let’s look at the future.  Over the past few months, as a member of the Brisbane Institute’s Research Committee, I have participated in a series of future-focussed workshops conducted by CSIRO and the Institute in which Queensland organisations have been considering likely development options for that State and their businesses.

The workshops have been organised around a set of megatrends identified by CSIRO scientists as most likely to define the future – at least for the foreseeable time ahead.  These megatrends include:

1. More from less – framing future economic development in a context of depleting natural resources and      increasing demand for those resources means resource use efficiency. In a rapidly urbanising and industrialising world characterised also by  exponential growth in human population, currently just under 7 billion and  likely by 2050 to peak at 11 billion.  There are a couple of Chinas yet to arrive in fact, in the next  generation.
2. A personal touch – the continued growth of the services sector followed by second wave of innovation aimed at tailoring and targeting services toward enabled individual preferences.
3. Divergent demographics – in the OECD  countries ageing populations, diminished fecundity, and the rise of lifestyle and diet related health problems are contrasted starkly with the third world’s continuing high fertility rates, malnourishment and poverty .
4. On the move – the future human  experience will be much more mobile with greater career mobility, moving house more often, commuting further and travelling overseas more often.
5. i World –  the rise of information and digital technologies has generated digital virtual world experiential  patterns that parallel those of the natural world and which in time seem likely to converge.

As with the first theme, the other megatrends are heavily defined by technology – even the demographic disparities.  The personalisation of technology is reflecting the almost universal emphasis given these days to customisation of products and services, no less in industries like those here today.  In the demographic context, in the developed countries societies are aging, but in the global population  two thirds are still struggling to be part of the development game, and roughly a billion still go to bed each night hungry.

There are great and widening disparities which may not be resolved.  But when we talk about the sustainability of an industry sector, a community or even a country – we have to acknowledge what is happening in the broader global system if we are to consider with any concept of reality, what is likely to define the parameters of our future development.

The big one there near the bottom of the list is the mobility theme.  As George pointed out in his introduction, as a baby boomer, having worked in all levels of government, in industry, the not-for-profit sector and in academia, I have had a relatively higher number of career changes than usual for my cohort.  That is not the normal model for someone born in the middle of the 20^th century, but for todays ‘Gen Y’ers” and “Millennials” it is almost certain to be the pattern of their careers.   Our younger generations are already showing greater personal career and geographic mobility and interest in different types of work and recreation, including gap years and life as a continual learning process.

The last one on the list – the i’ world – from a sustainability point of view is of interest because of the distance from nature modern life is taking people.  More people now live in cities than in the countryside and the world of the built environment removes people from the sources of natural inspiration and understanding. The implication for all of us is that modern communities have no real understanding of what is involved in the making of their lives from food and fabric to infrastructure, a lot of people have no idea how it happens.  Instead, life is a host of techno-distractions from IPhones and IPods and texting and tweets and viral video-clips. It’s all kind of unnatural.

Now talking about roads and sustainability, especially in the Australian context, work by the Natural Edge Project in their book “Factor Five”, showed just how transport intensive the Australian economy had become over the 30 years to 2003[ii].   Particularly pertinent to discussions about national productivity is that Australia’s reliance of commodities accounts for the relatively high proportion of transport and water resource inputs to a unit of GDP here compared to the US and Europe.  It begs the question: how can we compete internationally when 43% of the cost of a loaf of bread in Australia, for example, is accounted for by transport costs[iii].  The rise of the mega supermarket chains and the incursion of foreign chains like Aldi and Costco is a reminder that for much of the metropolitan Australian marketplace, it is cheaper to import many of life’s staples than run them up and down the Newell highway.

From a sustainability perspective, significant growth in one aspect of a system, potentially at the expense of others, may weaken or make more vulnerable the system – and that is the implication for an Australian economy dependent particularly on cheap oil for viability and competitiveness.

Australians do not seem to be taking too much account of these considerations in the national productivity discussion because projections by the National Transport Commission (2011) point to more and more road freight in a country where it makes perfect sense for a multi-modal transport system anchored on efficient inter-city and country to city rail infrastructure with road transport providing the basis of distribution beyond core ports.   The trend has real impacts on our roads and constrains the upper limit of economic efficiency we might achieve in the decades ahead.

Indeed we take the whole issue of our 817,000 kilometres of roads for granted.  To have strategies for sustainability you have to know what is involved, be aware of the costs, the inputs and the impacts. And yet with our cars, we have more of them, take more trips and have fewer passengers.  In south east Queensland where I live, the number of households with two or more vehicles has increased from 43.7% in 1986 to 53.1% in 2006[iv].  The proportion of people driving their car to work has increased from 78% to 84% in the same time – because increased investment notwithstanding, urban sprawl means people are driving further to work and often it is the peri-urban communities where the impacts are felt the most.  Many people have to drive their cars to work.  But there is also no doubt that most Australians when presented with the option of public transport will decide to drive their cars.

The other dataset I want to table up front are figures reflecting on the day to day life of Australians.  Most people in our economy work in services and if we set aside the 130,000 new jobs that has come with mining boom since 2007, the biggest increases have been in healthcare and social assistance (260,500) professional scientific and technical services (130,500) and education and training (102,100).  That tells you something about the direction of the modern Australian economy and the types of life experiences people are choosing.  The biggest loser was manufacturing down 97,000 jobs.  Construction grew by just 30,000 jobs.[v]  Over 80% of our economy is in services, which are providing intangibles, far removed from the rock, steel, concrete and asphalt of your sector.  It means most people have no idea what is involved in engineering, constructing or realigning a road – and that is very material when it comes to debating national priorities.

Now you are probably beginning to wonder when is he going to talk about sustainability and roads?  Well, here is the threshold slide.  It shows the headline in yesterday’s Australian Financial Review. “Brace for falling living standards” was the banner line after economists Ross Garnaut and Bob Gregory reportedly warned of an impending bust in export prices and the commodities cycle.  I suggest this is a useful threshold point for this talk because the headline reminds us of the implications and risks of running an economy with just one egg in the basket and one major client.  China it seems is not the magic kingdom able to withstand everything else happening in the global economy.  It seems that Australia with its resources boom egg is in danger of tripping up even before it has banked nearly a decade of record terms of trade dividends in the kind of infrastructural and human capital investments that would equip the country to compete over the longer term.  This has been a failure of government of both political persuasions and reflects a polity more interested in purchasing voter support than in governing for a sustainable future.

But the other implication in this headline is that with $250 billion tied up in the resources sector, with a cyclical downturn there, more capital may be available to be directed into other investment opportunities – so long as governments innovate to make infrastructure investment both attractive and sustainable.  This has particular importance for roads which has been an under-invested sector for more than a decade.

“Can we live sustainably?” is a question I have been asking for many years.  To illustrate the point I have borrowed a July 2002 cover from The Economist magazine which asked “How many planets?” in its survey of global development.  The point made was that if all of humanity was to live like the OECD countries at least another two planets would be needed to sustain the level of resource consumption – clearly an impractical concept which reminds us of the need to live within the carrying capacities of planet Earth, because as Al Gore wrote: “…it is wrong to destroy the habitability of our planet and ruin the prospects of every generation that follows ours”[vi].

I believe the question ‘Can we live sustainably’ will be answered one way or the other during the first half of this century.  I am not certain of the answer.  Technological innovation offers much, but I expect that there will be a need for far more catastrophic and regular feedback from nature (eg climate change) before people move to change our systems of governance and indeed accept the need for cultural and personal change.  “Sustainability” is a word that is all about us as people.  It can be used to refer to natural systems too.  But the political use of the word, especially with it being caught up in so called Green Politics has seen it marginalised and disparaged.

Sustainability has to be made a mainstream concept and restored to the mainstream discussion about continuing indefinitely those things that really matter to our quality of life, community function, economic systems, and the living systems of the Earth.  We should not forget that economies happen within societies which happen within the broader envelope of the living systems of the Earth.  That is the real hierarchy, not the other way around.  Meanwhile sustainability in all systems is an aspirational goal about achieving perpetual equilibrium – and there is not a fully sustainable enterprise, community or country anywhere on the planet right now.

All systems start somewhere – they grow and strengthen, building stronger more complex connections and interdependencies in pursuit of resilience.  At some stage they optimise, achieve an equilibrium which in time will be broken by something.  At some further point in the continuum all systems decline; some renew through innovation and some die.  That’s the nature of systems from the level of the cosmos to your business.

Thinking about roads in a systems and sustainability context, I see three main points of focus.  First there are the considerations that arise from “roads as structure”.  These include things like

• Geophysical properties
• Spatial impacts and costs
• Embedded energy and materials
• Ambient environmental impacts and costs[vii].

Much of the public roads debate focuses around the spatial impacts point.  In a Not in My Backyard (NIMBY) Australia, it is pretty hard even to build a road these days – and yet we all use them and want greater efficiency from our road transport.

Then there are the sustainability considerations that arise from “roads as function” and these include things like:

• Economic functions – mobility and trade
• Social functions – mobility, settlement patterns
• Metaphorical and cultural functions – human psychology and communication
• Functional impacts – environmental and social costs.

Here the focus is on the way we use how roads – mostly inefficiently with significant environmental and social costs eg greenhouse gas emissions, noise and traffic congestion – all leaving questions of where best to innovate.

All on these lists bear on the sustainability of roads and shape their future.  But more challengingly and probably more importantly, especially for the purposes of today’s talk, there are system issues like governance, business models, asset status, and asset utilisation which will define the economics and sustainability of mobility in Australia over the decades ahead.   As the Australian Financial Review reported two years ago:  “The real cost of building roads has increased by around 65% over the past 15 years. There is also less suitable land for new roads in our cities, and evidence increasingly suggests that new roads are not in themselves a solution to congestion”[viii].

For most of the next decade, government here and overseas will face the challenge of retrenching debt and conceiving public budgets with surplus as an outcome.  It means for an underinvested sector like roads, even fewer taxes will be available to fund improvements.  Indeed as the Deputy Secretary of the Commonwealth Treasury, Jim Murphy told a conference earlier this year: “The traditional approach is proving unsustainable”.  He went on to add: “The community should be encouraged to reconsider its perception of the road network as being a pure public good. The Commonwealth has already flagged cuts to its annual $8 billion infrastructure spend by as much as 30%.  Notionally there is more than $41 billion in ports, road and rail projects underway across Australia, but 75% of this is actually slated for Victoria and Queensland – and with the Newman Government in Queensland slashing and burning public expenditures, it remains to be seen how much of the previous government’s infrastructure vision will survive.  One thing we learned through from previous experience is that governments playing catch up with infrastructure cost taxpayers a whole lot more than the alternative of prudent planning and investment – just look at the water system in SEQ.

Road and bridge transport infrastructure spending has exceeded $10 billion annually for sometime but in scale it is tinkering at the edges while traffic congestion  increasingly chokes our cities, stifles productivity, and generates wasteful carbon emissions. An Australian Government discussion paper on the future of cities reported back in 2010 that the Bureau of Infrastructure, Transport and Regional Economics had earlier (BITRE 2007) estimated “that the avoidable cost of road congestion is currently in excess of $10 billion per annum, and that this cost will continue to rise over the coming decade, reaching around $20 billion nationally by 2020 if we continue ‘business as usual’.[ix]  We could pay for the infrastructure upgrades and extensions with the gains made by reducing congestion and achieving more efficient traffic flows.

So when we talk about sustainability and roads these are the kinds of things we need to be taking account of and better managing.  Looking at the roads sector as a system with its threats and opportunities, we can draw up a list as follows:

• Public expectation re utilities & infrastructure
• Lack of full cost pricing
• Energy/materials intensity
• Peak oil
• Market asymmetry/distortions
• Lifecycle investment
• Utilities business models inc cost
• One size fits all

In the limited time I have today I will not go into these in details, but the one at the bottom – “the one size fits all” idea is one I wish to explore.  In our thinking about roads I suggest we have borrow from the way we are thinking about water, energy, rail, and aviation and begin to differentiate between types of roads and design and build as fit for purpose – rather than the one size fits all approach covering every conceivable possible user.   Differential access to various types of roads for road impacting heavy vehicles can be monitored and managed cost effectively.

Adopting a more discriminating approach to the design and delivery of road infrastructure makes perfect sense when we remember that as a percentage of GDP, infrastructure spending reduced by around 40% in the decade to 2007[x], the Institution of Engineers points to a $700 billion shortfall[xi] in infrastructure investment across the nation, and the Australian Local Government Association (ALGA) points to road maintenance and upgrade shortfalls exceeding $1.2bn annually.[xii]  BIS Shrapnel in its 2011 report on road maitenance reported an annual maitenance spend in 2009/10 of $5.67 billion nationally.  Road repair costs have grown annually since the 1970s by about 2.5%.  A key governance challenge for Australia in the decade ahead will be to define and design road infrastructure that is strongly acquitted against cost benefit analyses, optimised for return on investment and which presents top value for money because it delivers on specific purposes.  We may be a continent country but three quarters of us live in cities of more than 100,000 –  mostly in capital cities.  The strategic sustainability challenge for roads in Australia is in the cities, because a sustainable Australia will invest in rail infrastructure for bulk freight and progressively in high speed rail freight to achieve the challenges of the low carbon economy.

A rail renaissance must figure in the equation because automotive innovation will not deliver the de-carbonisation of transport required for Australia to meet its greenhouse gas emissions reductions targets.    In 2011 Australian made cars were about 3% more fuel efficient than the ones made a year earlier, but a factor 10 improvement in car emissions will be needed to meet Australia’s 2050 target.  On the demand side of the equation, so far the actions of car consumers are hardly encouraging.  An electric car charging station was opened at Brisbane’s King George Square car park yesterday, but only 49 electric cars were sold in Australia in 2011.  And while Toyota will sell more than 1 million hybrid cars worldwide this year, Australia is not matching the incentives including stricter emissions targets for motor vehicles that has driven hybrid penetration of the market to 10% in Japan and 3% in the US.[xiii]   Simple economics are impeding Australians in their consideration of alternative automotive technologies.  A Nissan Leaf may run 170 kilometres on $6 but it costs over $51,000.

In the first phase of pricing carbon the Australian Government has quite purposefully excluded the average motorist from calculation.  From the viewpoint of doing something serious about carbon mitigation, it was a curious omission given that transport accounts for 14% of greenhouse gas emissions.  Road transport accounts for 89% of GHG from the freight transport sector with rail 6% and sea 5% being bit players in the greenhouse emissions stakes.

In a world moving to a low carbon economy, sustainable roads will mean being far more discriminating in how we use road transport.  Where low carbon alternatives can do the job just as well they will be preferred.  Rail uses four times less carbon per tonne of freight carried than road transport[xiv].  And fuel represents about 30% of the cost of delivering freight on a large B double truck compared to 12% for rail[xv].

Whatever the option followed, on one thing we can be sure, the general Australian population has fairly ingrained views about who should pay – and it should be someone else.  Last year GA Research asked the question: “How do you think infrastructure should be funded?”  The strongest support (45%) was for government partnering with the private sector with government bonds coming in second as a source of funding.  Less than 15% thought raising taxes to pay for infrastructure was a good idea[xvi].  We like the idea of involving the private sector in partnerships but we don’t understand them, and we don’t like the idea of paying tolls on facilities we consider to be a public good – which essentially eliminates the business proposition for private sector involvement.  In short, Australians know we have to have key infrastructure but we don’t want to think about it too much.

We all know that when the private sector is recruited to the infrastructure partnership, government strategy is essentially to transfer all the risk and downside to the private investors with little or no risk to taxpayers.  It is not partnership and is a lop-sided arrangement that rarely works – as we have seen with toll projects in Sydney and Brisbane going bust, sometimes even before they get up and going.  Brisbane’s excellent $3.2 billion airport link project, the M7, recorded daily use of just over 81,000 vehicles in August with no tolls being applied. The tolls start in October.  Projections underwriting the project expected daily usage of 135,000 vehicles – nearly half as many more vehicles than are currently using it for free[xvii].  Even before the tolls come into play, the M7’s ten banks know that their $3bn in the project will need to be restructured long before it matures in 2018 – and that means other bank customers eventually share the burden through high banking charges and interest.

There are no free lunches and there are no free roads.  We need an infrastructure funding model to underwrite Australia’s broader socio-economic transition, especially in the cities – and if we expect the private sector to participate, it’s about time we accepted that we the user will have to pay.

So we find ourselves at the point of the sustainability paradox.  As Stafford Beer said a generation ago: “Acceptable ideas are competent no more and competent ideas are not yet acceptable”.[xviii] Of course there are things we can be doing to make roads more sustainable and the governance and funding associated with them more transparent, more rational and more efficient.

The Henry Review into Australia’s taxation system recommended a raft of changes to our system of road taxes[xix]:

Recommendation 61: Governments should analyse the potential network-wide benefits and costs of introducing variable congestion pricing on existing tolled roads (or lanes), and consider extending existing technology across heavily congested parts of the road network. Beyond that, new technologies may further enable wider application of road pricing if proven cost-effective. In general, congestion charges should apply to all registered vehicles using congested roads. The use of revenues should be transparent to the community and subject to further institutional reform.

Recommendation 62: The Council of Australian Governments (COAG) should accelerate the development of mass-distance-location pricing for heavy vehicles, to ensure that heavy vehicles pay for their specific marginal road-wear costs. Revenue from road-wear charges should be allocated to the owner of the affected road, which should be maintained in accordance with an asset management plan. Differentiated compliance regimes to enforce this pricing policy may need to be considered to balance efficiency benefits from pricing against the costs of administration and compliance for some road users.

Recommendation 63: States should improve compulsory third party insurance to better reflect individual risks.

Recommendation 64: On routes where road freight is in direct competition with rail that is required to recover its capital costs, heavy vehicles should face an additional charge on a comparable basis, where this improves the efficient allocation of freight between transport modes.

 Recommendation 65: Revenue from fuel tax imposed for general government purposes should be replaced over time with revenue from more efficient broad-based taxes. If a decision were made to recover costs of roads from road users through fuel tax, it should be linked to the cost of efficiently financing the road network, less costs that can be charged directly to road users or collected through a network access charge. Fuel tax should apply to all fuels used in road transport on the basis of energy content, and be indexed to the CPI. Heavy vehicles should be exempt from fuel tax and the network access component of registration fees if full replacement charges are introduced.

Recommendation 66: The revenue-raising component of State taxes on motor vehicle ownership and use should be made explicit, and over time only be used to recover those costs related to road provision. The administrative costs of providing government services should be recovered through user charges where applicable. Quantity limits on taxi licences should be phased out.

Recommendation 67: Governments should continue to reform road infrastructure provision, applying economic assessment to investments comparable to that for other forms of infrastructure.

Recommendation 68: COAG should develop a National Road Transport Agreement to establish objectives, outcomes, outputs and incentives to guide governments in the use and supply of road infrastructure. COAG should nominate a single institution to lead road tax reform, and ensure implementation of this agreement.

Other speakers today will cover production and utilisation efficiencies associated with road construction and management.  In this overview, all I want to do here is borrow again from the Natural Edge’s book, “Factor 5”, and suggest that we need a whole systems approach to assessing, designing and managing the resource productivity of our infrastructure.  This means, as Factor 5 outlines, we have to:

1. Ask the right questions to ensure the need or service is met
2. Benchmark against the optimal system
3. Design and optimise the whole system
4. Account for all measurable impacts
5. Design and optimise subsystems in sequence
6. Ditto to achieve compounding resource savings
7. Review the system for potential improvements
8. Model the system track technology nnovation
9. Design to create future options.

In we are to achieve Factor 5 levels of improvements in the resource productivity of roads inputs, and tenfold increases in the efficiency of motor vehicles, we will need a host of innovations sequenced and integrated in fields as diverse as materials science (eg geopolymers and fuel substitution in cement production) , fuels technology (energy efficiency, propulsion technology) and urban planning for multi-modal transport corridors, logistics hubs, and efficient segregation of road users on to different types of roads eg trucks only highways and light vehicle urban thoroughfares. And while we will always need trucks because they provide “base load” flexibility why should Australia not be looking at the utility of high speed rail freight like the Lyon to London train pictured here.

Transport sustainability requires a more complex array of infrastructure facilities and options. And in some parts of our urban landscape we will follow our American colleagues and in time knock down some of our freeways and restore former streetscapes, because we are learning that with our roads we cannot ignore the socio-cultural context of mobility and infrastructure.  Above all, roads must bring us together not isolate or physically scar and divide our communities.

In summary, the roads sustainability issue will not be resolved until several crucial factors are woven into the strategy.

• Full  lifecycle costs are understood, accounted for and paid
• Viable business models sharing risk and stimulating public and private investment are developed and accepted
• Australians understand that “public good” is not a free commodity
• Fixing inefficiency delivers short as well as long term paybacks to ensure early political momentum.

When all this is done, then we will be able to have a useful discussion about roads and sustainability.

Thank you ladies and gentlemen.