The Mobility Revolution: Relevance for Policy-Makers

The Mobility Revolution: Relevance for Policy-Makers

The “mobility revolution” – new transport technologies — can bring dramatic benefits to citizens, increasing the ability of people to get around in cities and reducing their cost of doing so. In a time of increasing urbanization and of political pressure to deliver city solutions, the roll out of new technologies which lower costs and increase convenience can be a game-changer. The mobility revolution also has the potential of worsening congestion, reducing fiscal revenues, and creating new safety issues. This column outlines steps which government policy-makers can take to improve the benefits that states and cities derive from the new technologies, and to manage the associated downside risks.

This is the fifth and last column in a set reviewing the fast-changing landscape of transport technologies, “the mobility revolution.” Previous columns in the series have outlined the state of play of these new technologies, and the implications for investors.

What policy-makers?
For starters, this technological disruption has an interesting effect on what part of government makes infrastructure-related policy decisions. One of the striking features of the mobility revolution so far is (pun intended) “who’s driving the bus?” Infrastructure in general, but particularly transport infrastructure, has long had a prevailing culture of “built it, and they will come,” as in Kevin Costner’s Field of Dreams. It has been a culture of long-term planning, driven by public-sector engineering and procurement. The new disruptive mobility technologies have a completely different character. EVs (electric vehicles), AVs (autonomous or self-drive vehicles) and especially shared transport services are being 95%-plus driven by entrepreneurs and private companies. Individual drivers and corporate fleet managers are making the decisions behind the rapid growth in electric car adoption, while tech companies, car manufacturers and corporate fleet managers are doing the planning for driverless vehicles. And as has been the fodder of headlines throughout 2018, cities have awoken to find themselves flooded by bike-shares and electric scooters, or their streets more congested and taxi drivers protesting about ride-sharing. Most recently, the Summer of 2018 has seen the first wave of municipal government push-back on ride-sharing, and the emergence of some of the first policy and regulatory decisions relating to this mobility revolution. The question for transport policy-makers is no longer, “if you build it, will they come,” but rather “when they’ve built it, what will you get out of it?”

There is a second important aspect of the “who is driving the bus” question – especially though not only in emerging markets. It is not only that governments are responding to private sector actions, rather than planning over long periods, but that the governments making policy and regulatory decisions are increasingly local, and not national. The new technologies are almost entirely being deployed in cities (with the exception of some long-haul truck fleets). Authority of municipal governments to make decisions concerning infrastructure is in many cases being contested, notably with a series of pre-emptive legislative actions in the US at the state level seeking to limit the ability of cities to make decisions. In emerging markets, where the decision-making abilities of cities is generally less well-defined, one can foresee a number of challenges.

Upside management
There are four main areas in which governments can improve the upside for the public of the “mobility revolution,” with the caveat that this this is fast-evolving domain and ideas on the best public-policy responses are likely to continue emerging. These five areas for improving benefits include:

1. Encouraging and enabling the roll-out of new technologies
2. Ensuring availability of charging infrastructure for EVs
3. Procuring E-bus fleets
4. Facilitating Multi-modal mobility

The new mobility technologies are spreading rapidly. As for most new technologies which succeed in getting to rapid adoption, it’s because they help people do things which people want to do. Uber and other shared service car models have improved convenience and reduced passenger costs. EVs have had a first phase where they helped people feel good about polluting the environment less and saved on operational costs, and are nearing the second phase where they will save people money across the board. AVs, in a few years beyond that, will save corporate fleets money and improve asset utilization. Now bike-sharing and e-bikes, along with e-scooters, are again improving convenience and reducing costs for shorter distance urban transport, along with improving access to transport services. Reducing transport costs, improving convenience and access are all important public benefits. To date however, outside of China, only shared car services are taking off, and at that in less than 10% of emerging market urban areas. In EVs China is clearly a global leader, and India is taking its first steps to encourage roll-out, but so far that’s about it. For the developing world, the mobility revolution is still a revolution to come. This is a tremendous opportunity for emerging market governments – the technologies that can bring large public benefits are out there, and other governments are doing the trial-and-error of figuring out how to get the best balances of upside and downside. A recent McKinsey report states that cities which deploy smart-mobility applications have the potential to cut commuting times by 15 to 20 percent on average, with the highest benefits for those with the kind of extended commutes most common in emerging markets (McKinsey Global Institute, Smart cities: Digital solutions for a more livable future). But pro-activity is going to be important. Countries and cities will need a good enabling environment to capture these benefits. Municipal governments across developing countries need to educate themselves on what is emerging, on how to encourage technology providers to bring the benefits to their cities, and on how to sensibly regulate providers.

Beyond the enabling environment, two capital-intensive areas are important at this stage: charging infrastructure for EVs, and electric buses. Electric vehicles promise major improvements in local pollution and urban health, with attendant public benefits and appeal to citizens, along with imminent large cost savings. As electric cars rapidly become cheaper (see related infrastructure ideas coverage) than traditional combustion engine cars – in energy consumption, maintenance and up-front costs – making it easier for people to switch to electric cars will become a top policy priority. This will especially be the case in petroleum-importing countries, for which EVs also hold the promise of reduced import bills and improved trade balances. Charging infrastructure is without question the number-one enabler of EV adoption. While different models to deliver charging infrastructure are being tested, it is increasingly likely that commercial models will evolve – implying that EM governments may only need to facilitate the development of this capital-intensive infrastructure, and not pay for it themselves. Electric buses, meanwhile, are projected to become lower-cost than their combustion-engine counterparts even faster than for automobiles. Encouraging bus service providers to shift to electric buses is also likely to become a public policy priority across EM cities. Where new BRT (bus rapid transit) corridors are being putting in place, this will be a particularly attractive opportunity to adopt e-bus technology. As bus service PPP (public-private partnership) models are also becoming more widespread, the convergence of these trends – E-buses, BRTs and PPPs may again enable governments to be able to gain the benefits of new technology through smart procurement and regulation, while largely shifting the associated capital costs to private parties.

The underlying payment and information infrastructure is another important area for policy-makers. As urban transport options rapidly morph from a single, often limited mode of service to multiple potentially complementary modes (bus to metro, bicycle or scooter to bus, etc…), two key features of transport will grow in importance: compatibility of payment mechanisms, and availability of information. Single payments platforms working across transport modes have a huge convenience impact, as do digital signage and mobile apps which deliver real-time information about delays and next arrivals. These two features again represent major opportunities for municipal authorities to ensure that citizens maximize the available upside from the new mobility technologies. Their impact on convenience will greatly affect how the mobility revolution improves access to transport, access to employment opportunities, and urban quality of life. Mayors who make this work well are likely to be highly popular, and conversely the ones who don’t get it right will spend a lot of energy dealing with unhappy voters.

A fifth area at a lower priority now, though to become also very important in time when AVs begin to arrive in emerging markets, will be access to information. AVs are essentially mobile sensor packages, recording information about road conditions, traffic, maintenance needs and so forth – information which can greatly improve the efficiency of local governments’ road maintenance and traffic management efforts. AV providers will not automatically impart this information to governments – having access to this will be an important regulatory priority for municipal authorities – in due course.

Downside management
Along with the above areas for increasing the benefits from new transport technologies, there are four main areas where policy-makers should focus to manage the downsides of the mobility revolution:

1. Urban congestion
2. Safety and other voter concerns
3. Changing revenue patterns
4. Electricity demand

As Uber and other ride-sharing services become more widespread, concerns have grown in many cities over the impact of this new model on traffic congestion. London and other cities have recently commissioned studies indicating significant increases in the number of vehicles on city streets, and reduced average travel speeds associated with this. As ride-share competition proliferates, and average capacity utilization of individual vehicles drops, congestion increases further. Summer 2018 has seen the first moves by some cities in the area of license management (and taxation). New York temporarily halted issuance of new vehicle licenses for ride-sharing services in July. This may increasingly make sense as part of a mobility policy framework in cities. However, as Bruce Schaller pointed out in a recent article on ride-sharing posted on CityLab, it may make more sense for cities to manage and less sense to limit ride services. In a number of cities, ride-sharing is less associated with commute-related congestion, and more with nightlife districts (such as Chicago’s Near North Side and D.C.’s Dupont Circle) where reduced drunk-driving translates into safety improvement. Management tools such as pick-up and drop-off zones (already coming into use in several airports) and reserving bus lanes for mass transit may make sense. Issues are also arising on congestion from bike-sharing and e-scooters. In June, both San Francisco and Santa Monica initiated limitations on the number of e-scooter companies and scooters that could be deployed on their streets. The Santa Monica program, a one-year program with a number of evaluation criteria, is being praised as a potential model partnership agreement, with geofenced parking areas to reduce clutter, agreement on data-sharing, and encouragement for low-income options.

An issue related to traffic congestion is the availability and use of mass transit. Early studies are unsurprisingly suggesting that new mobility technologies are reducing mass transit ridership, at least in US cities. Accounting for this risk in usage and revenue projections for new BRT and metro projects will be important. And a number of sources are pointing to the potential of complementarity between mass transit and the last-mile facilitation of new mobility offerings. How best to do this remains to be worked out, but will clearly be a factor in how much the new technologies worsen – or improve – traffic congestion. A recent column in the Economist argued that cities should co-opt app-based services. Policies and regulations which make this complementarity work will also have a major effect on the equity aspects of the new technologies: while in US cities these technologies have most visibly improved convenience for millennials, in the developing world one would see much higher potential for their improving access and costs of transportation for lower-income urban residents, and those in outlying lower-income areas.

The first pedestrian death from an AV in Arizona earlier this year galvanized concerns with safety related to driverless vehicles. While this part of the mobility revolution may take somewhat longer to reach emerging markets, other resident and voter concerns may come to the fore sooner. The Summer of 2018 has seen increasing concerns in several with the side-effects of new bike-sharing and e-scooter roll-outs. This is particularly the case for “dockless” models, where bikes and scooters are left pretty much anywhere after their use. Here again, early license management can make sense, and emerging market policy-makers will benefit from observing the current trial-and-error period through which such regulations are going.

In many places, a large portion of city revenues come from taxes and fees associated with urban transport: gas taxes, taxi fees, and parking revenues. These revenue sources at a minimum will become less predictable as mobility choices in cities evolve. Taxi usage is negatively impacted pretty much everywhere that ride-sharing has launched, EVs will mean less gasoline consumption, and the combination of ride-sharing services, new bike and scooter options, and eventually AVs (which do not need to park) will reduce parking revenues. Conversely, EV charging infrastructure, licensing policies and appropriate tax policies for shared services are potential new sources of revenues. An agreement on taxing ride-sharing was reached by San Francisco in July 2018, for example. Getting the financial balance to work will be an important challenge for municipal authorities.

Finally, the impact of EVs on electricity demand will be important. McKinsey projects 200 million EVs on the road by 2030, which will significantly reduce gasoline consumption, but increase electricity usage. For countries where electricity supply is a problem, it will increase the priority of making the power sector more effective. Fortunately, this need coincides with the continued sharp decline in the costs of building new power generation capacity, and in electricity costs generally – thanks to the large drops in the cost of solar and wind generation.

For policy-makers, the advent of new transport technologies is a big deal. Lengthy, planning and capital-intensive approaches to addressing urban transportation needs are now joined – and increasingly displaced by, the need to respond to dynamic, fast-changing and private sector-driven and funded innovations. Managed well, this holds out the promise of more satisfied and productive citizens with no increase in public spending. Managed poorly, it can turn into a mess – and short tenures in office.