Designed right, road user charging can modernise how Australians move

One of the reforms set to be discussed at the federal government’s Economic Reform Roundtable is road user charging, sometimes referred to as ‘road pricing’.

The Treasurer has signalled it as a tax reform priority and the Productivity Commission Chair has come out in support of it. 

More than just a tax tweak, road user charging could be a powerful tool to boost productivity and build economic resilience.

It could also help reduce emissions in the transport sector – which is currently on track to be Australia’s largest emissions source within the next five years. 

What is the proposed change?

Right now, Australians pay fuel excise,  which in effect acts like a road user charge that users pay at the pump when they fill up.

Because the excise is paid on every litre of fuel bought,  the more road users drive – and the less fuel efficient their car is – the more they pay.

With more electric vehicles (EVs) on the road, less motorists are paying fuel excise, so the nation needs a replacement that aligns with its net zero future. 

In 2021, the Victorian Government brought in a road user charge where EV users paid the state around two cents per kilometre driven.

A successful High Court challenge to the Victorian scheme in 2023 put this reform firmly within the federal government’s jurisdiction.

The Labor Government signalled prior to the last election that it planned to introduce road user charging nationally, but it’s still not known exactly what a national scheme would look like.

Recently in Australia, road user charging has been discussed as a way of continuing to fund and maintain road infrastructure.

But if designed well, it could do far more than simply raise revenue. 

Reducing pollution and congestion 

Our research at Climateworks Centre shows the current uptake of EVs alone may not be enough to reduce Australia’s transport emissions in line with the Paris Agreement goal of limiting global warming to 1.5 degrees Celsius.

We found a more resilient approach is to invest in a diverse range of low-emissions solutions to give the sector more chances to successfully decarbonise. 

Road user charging is a key lever to do just that. 

Cities such as London, Singapore, Stockholm and Milan also use road user charging to ease congestion by charging users more to drive on busy roads.

In London, funds raised by congestion and emissions-based road user charges have been reinvested into sustainable transport options like public transport.

This gives people more – and often cheaper – transport choices that help to cut congestion and emissions.

Maintaining Australia’s EV momentum

Even with greater investment in public transport and other ‘diverse’ transport solutions, reducing emissions in line with the Paris Agreement will require most Australians to switch to EVs. 

Our modelling of a 1.5°C-aligned Australian transport sector sees EVs make up more than 50 per cent of new cars sold in Australia by 2030.

Australians need incentives to choose zero-emissions vehicles. The design and implementation of road user charging cannot jeopardise Australia’s hard-won momentum on EV uptake. 

All vehicles, regardless of the fuel or technology they use, could shift to RUC, making the road pricing transparent and comparable across different vehicle types. 

Only applying a road user charge to EVs risks making it confusing to compare EV running costs against those of ICE vehicles, which could turn away potential EV users. 

Road user charging can also account for the emissions generated by different vehicles. 

There is already an emissions element to the current fuel excise mechanism: if you have a fuel-hungry vehicle, you’ll get charged more at the pump. 

Road user charging could replace fuel excise while still being structured to incentivise the use of zero-emissions vehicles.

Social equity benefits

Road user charging can realise a number of social benefits. 

By helping to fund public and active transport, congestion- or emissions-based charging can provide more transport choice and boost liveability.

Many lower income households are in outer suburban or regional areas where people drive more and own more cars per household. The transition from fuel excise should not further disadvantage these drivers. 

Beyond this, road user pricing opens up the possibility of flexibly charging some lower income groups at different rates – something which is more difficult under the fuel excise mechanism. 

Taking the time to do this well

Australia’s road user charge needs will require careful design to maximise its social, economic and climate benefits. 

If we invest the time to design a well-thought-out road user charging scheme now, it could help cut congestion, reduce emissions, lower infrastructure costs and improve the overall efficiency of Australia’s transport network. 

The opportunity ahead of us is so much bigger than a tax fix – it is a chance to modernise how we move. 

Read more on decarbonising Australia’s transport sector: