February 14, 2005

PAYD? PAYP? An idea for the Dutch situation

Today, I thought up a way of implementing PAYD in the Netherlands. It may seem outlandish, and it straddles somewhat from the exact research goal I set myself, but maybe it is worthwhile mentioning it here anyway. I call it: PAYP, Pay As You Pollute. That may sound negative at first, but I stumbled on this thought while thinking: consumer freedom of choice should be enhanced, not limited, by mobility pricing measures, mobility prices should better reflect costs, preferably also those costs which are at present for the greater part external (ie, not reflected in the prices paid for the products purchased).

I closed my eyes and dreamt up a situation in which the effects of mobility were truly reflected in transport cost. I imagined a consumer, buying a vehicle, buying insurance for it, and being asked: how much kilometres do you expect to drive this year? The answer could be: 20.000. Then he or she would be told: ok, the car you just bought runs 10 kilometres on 1 litre of fuel on average, so here's your insurance card, which doubles as a gasoline station credit pass, with credits for 2000 litres of fuel on it. Go drive your car, pay for fuel with your petrol card, and at the end of the insurance year, we will provide clearance with you based on the amount of fuel you will have purchased. If you will have purchased more, we will bill you, if you will have purchased less, we will credit you. Have fun with your new car!

The car-owner would like to drive economically in terms of fuel efficiency, and would like to avoid being in traffic jams or in city traffic too much, because those are situations in which fuel economy would be below the average on the basis of which his or her fuel credit balance is calculated. He or she would be able to buy additional fuel credits with the insurer, or simply pay with other means at the pump, when perceived as a better option than to forgo mobility.

The incentive for him or her to stick with consuming fuel credits provided by the insurer would be that the government levies less tax on fuel purchased in that way. Consumer choice would remain free, only the purchase of fuel outside the insurer's credit scheme would be more costly.

Then I opened my eyes. I realised that all of the technical infrastructure needed to enable such a system is already in place: The Netherlands have a sophisticated debit card system that is already being used for executing schemes as outlined above, only that use is made by car-leasing companies that, at present, offer all-you-can-eat service with respect to mileage and/or fuel consumption.

Also, the integration of offering a car lease contract and providing insurance for the leased vehicle is a very common phenomenon in the Netherlands.

So, if car-lease contracts could be fashioned this way, a special version of PAYD, namely PAYP, could be realised with very low additional implementation costs. Lease/Insurance packages of this type could be offered to companies, thus offering them an opportunity to reduce their transport costs in the most cost-effective way possible, that is by giving their employees an incentive to rationalise their mobility behaviour.

Well, pie in the sky this may be. But I think it would be worthwhile to try the idea, not least because the costs of trying it are small.

Christof

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