Are parking prices at the airport a rip-off?

Mode share at five largest Australian airports - all users (%)

The new draft report by the Productivity Commission on Economic Regulation of Airport Services has sparked outrage among readers of The Age for its finding that parking fees at Tullamarine are “not a ripoff”. Last time I looked there were 110 comments on The Age Online, virtually every one of them dripping with vitriol.

Whether you’re happy with its conclusions or not, the thing about the Commission is that, relative to The Age’s readers, it’s put a lot of effort into this review, its assembled facts and figures, it’s made its assumptions transparent and its set down its line of reasoning. So far as I can see, none of that is true of the angry and furious readers who commented on The Age’s story.

The Commission examined lots more than parking but I’ve only had a chance to look at the chapter dealing with landside transport. It starts by acknowledging airports have the potential to raise parking prices above competitive levels and to control access to the airport by modes that compete with airport parking. It also notes the ACCC expressed concern the operator of Melbourne Airport seems to restrict entry by off-airport parking operators and private bus operators.

The Commission examined three sources of evidence for the possible existence of monopoly practices i.e. the ability of an airport to use its market power to restrict competition.

It looked first at whether there are effective substitutes for on-airport parking. The availability of alternative means of travel puts a ‘natural’ cap on what airport operators can charge. Hence all forms of transport must be taken into account. For example, at Melbourne Airport, travellers can use a private car (pick up and drop off; on-airport or off-airport parking), catch a taxi, take Skybus from the CBD, or use the 901 orbital SmartBus (which connects the Airport with Broadmeadows rail station) at standard Metlink fares (there are some other private bus operators too).

Off-airport parking is a particularly important substitute for those who drive. As the exhibit shows, this has a much larger role at Melbourne than at other airports. There are 14 private parking operators near the airport, providing 10,000 parking spaces in total. This is half the total number available on-airport. (The Airport operator is also examining a proposal for a new parking area where ‘meeters and greeters’ can wait until summoned by phone by the passenger they’re collecting).

The second issue the Commission addressed is the reasonableness of parking prices, noting that they are made up of a number of components. The obvious one is the cost of building and operating parking facilities (surface parking costs $2,000 per bay, multi-level parking stations $20,000 per bay). The total number needed is determined by peak demand (a few days at Christmas), meaning for most of the time some bays aren’t earning revenue.

Other components are the need to use price as a means of rationing demand (e.g. keeping long-term parkers out of scarcer and more valuable short-term spaces) and, finally, there’s the opportunity cost of the land used for parking – its value in an alternative use. The Commission cites a study of Sydney Airport’s international car park which found the parking charges were lower than the land could earn if developed commercially.

The third piece of evidence is more straightforward. Much as I did in this post 18 months ago, the Commission examined the claim that parking comprises a much larger proportion of Melbourne Airport’s total revenue than it does at other airports. This is taken by some as incontrovertible evidence that Melbourne Airport is engaging in monopolistic pricing.

Melbourne Airport has a lot of parking spaces (20,029). This is double the number of the next largest airport in terms of parking (Perth), so it’s not surprising it earns a lot more revenue from this source than other airports. However, Melbourne earns an average of $12.70 per bay, per day. This is the same as Adelaide ($12.20) but considerably lower than Brisbane ($16.60) and Sydney ($21.50). The importance of parking in Melbourne Airport’s revenue stream is also larger because it has the lowest aeronautical charges per passenger of any of the five airports examined. Read the rest of this entry »

Are planning regulations making retailing uncompetitive?

City of Darebin's draft Vision for Northland

I agree with Australia’s retailers and the Productivity Commission that imported internet purchases valued at less than $1,000 should be subject to GST. But I only agree in-principle.

The trouble is, as the Productivity Commission’s report on retailing released last week shows, the administrative effort required to levy the GST would cost more than the tax would raise in revenue.

But the GST is really just a distraction – the underlying malaise of Australia’s retail sector runs far deeper. The Commission says retailers operate under several regulatory regimes that reduce their competitiveness. It nominates three major restrictions which require improvement:

Planning and zoning regulations which are complex, excessively prescriptive and often exclusionary

Trading hours regulations (in some States) which interfere with the industry’s ability to adapt and compete in a more globalised market

Constraints on workplace flexibility such as obstacles to the greater use of enterprise bargaining and the adoption of best practice productivity measures

Retail hasn’t historically been trade-exposed, so it hasn’t had to work hard at being competitive. Up until now, international suppliers have even been able to practice blatant price discrimination. But the internet has changed the game. Consumers can now compare what they’re paying for many products locally with what it costs to import them from overseas markets.

The impact of planning regulations on the viability of domestic retailing is of course of particular interest to The Melbourne Urbanist. The Commission notes that the ability to maintain a competitive and healthy retail sector is vitally dependent on the ability of new retail formats to gain entry to Activity Centres. A number of studies have shown that preventing the development of new retail formats lowers productivity, reduces employment and raises prices to consumers.

The Commission finds a number of barriers to entry, including limits on the size and scope of centres, prescriptive planning requirements and excessive scope for firms to establish local monopolies and maintain them by excluding new entrants, either with the implicit cooperation of planning agencies or through the courts. The Commission recommends that:

Activity Centres should be large enough in terms of total retail floor space and broad enough in terms of allowable uses to facilitate new retail formats locating in existing business zones

Prescriptive planning requirements should be significantly reduced to ensure competition is not needlessly restricted

The impact of new entrants on the viability of existing retail businesses should not be considered at any stage in the rezoning or development assessment process. This issue should only be considered at the strategic planning stage

The focus should shift to “as-of-right” development processes to reduce uncertainty and minimise the scope for gaming of the system by commercial rivals

Courts should be able to award costs against parties who are found to be appealing for non planning reasons

It’s interesting and illuminating to read the Commission’s report and at the same time look at what the City of Darebin is proposing in this report for the future development of Northland, a “hard-top” shopping centre (mall) with nearby “big-box” retail facilities at Preston, about 11 km north of Melbourne’s CBD. The exhibit above shows Council’s proposed vision for the centre and surrounding uses. Read the rest of this entry »

Is exempting petrol from the carbon tax such a big problem?

Is transport the main game? Source: Productivity Commission: Carbon emission policies in key economies

Given Australia already has a large excise tax on petrol, exempting automotive fuel bought by “families, tradies and small businesses” from the Gillard Government’s carbon tax is not the disaster some would have us believe.

Australia has a minority government so compromise was inevitable – two of the independents, Tony Windsor and Rob Oakeshott, wouldn’t be party to any increase in the price of fuel for their country constituents. It was either put a price on most but not all sources of greenhouse gas, or have the whole idea shot down yet again.

The exemption is expected to apply to petrol, diesel and LPG. Were the tax to apply to petrol, the impact would be modest – a $25/tonne tax is generally estimated to increase the price at the pump by around $0.06 per litre. The CSIRO calculates that even a $40/tonne tax would only raise the price of petrol by about ten cents per litre.

These amounts are much less than motorists already pay via the $0.38 per litre excise tax on petrol and diesel (there’s no excise on LPG). While it might have a “sin tax” dimension in relation to cigarettes and alcohol, in the case of automotive fuel the excise is not aimed at making motorists pay for roads or for the external costs of petrol – it’s just a convenient way of raising revenue (although it’s not as good as it used to be since John Howard abolished automatic indexation of the price in 2001).

Nevertheless the excise tax is a serious deterrent to driving. The Productivity Commission’s recent report, Carbon emission policies in key economies, calculates that “in 2009-10, fuel taxes reduced emissions from road transport by 8 to 23 percent in Australia at an average cost of $57-$59 per tonne of CO2-e”. Although not put in place with the purpose of abating emissions, the excise already has a much more significant effect on driving than any level of carbon price that’s been seriously touted in the political debate. Based on the CSIRO’s estimates, it could be argued its effect is equivalent to a carbon tax of over $100 per tonne (the relationship isn’t linear – there’re diminishing returns from a marginal increase as the fuel tax gets bigger).

Thus there’s a good argument that automotive fuel is one of the few areas where consumers already pay a high level of tax over and above the GST. Indeed, if it were so minded, the Government could’ve imposed the new carbon tax on petrol and diesel and simply provided an equal offsetting reduction in the level of the existing fuel excise tax. There wouldn’t be a lot of political or economic sense in that, but it illustrates the principle. Read the rest of this entry »

Are current carbon policies cost-effective?

Marginal Abatement Cost (MAC) curves and cost effectiveness: a hypothetical illustration

The Productivity Commission’s new research report, Carbon emission policies in key economies, has important implications for the way emissions are managed, but it also has some key lessons for urban and transport policy (and other areas of policy, for that matter).

The report should remove any doubt that a price on carbon is far and away the most efficient and least-cost means of reducing emissions. The report’s findings are damning of so-called direct action policies and make it clear that “the abatement from existing policies could have been achieved at a fraction of the cost” if a carbon tax or emissions trading price were in place.

The Commission estimates Australia’s key supply side programs to reduce emission in the electricity sector — principally Renewable Energy Targets and solar feed-in tariffs — cost on average $44-$99 per tonne of CO2 abated. Electricity generated from solar photovoltaic cells is very expensive, costing between $431 and $1,043/t CO2 and contributing little to overall emissions reduction.

But here’s the money shot – the Commission calculates that the same level of carbon abatement produced by these supply side measures could have been obtained with a $9/tonne price on carbon! The report goes on:

This equates to about 11 per cent of the almost A$500 million estimated cost of the existing policies. Alternatively, for the same aggregate cost, more than twice the abatement could be achieved. One of the reasons an explicit carbon price would be expected to be more cost effective at such low levels of abatement is that, as modelled, it captures a considerable amount of low-cost abatement on the demand side.

The research also examined the use of bio-fuels in the transport sector. The implicit cost of carbon abatement from existing bio-fuels programs, both in Australia and overseas, is much higher than it is for electricity generation. The Commission estimates the cost of programs in Australia is $364/t CO2 but it is $600 – $700/t CO2 in Japan and the USA. It’s estimated that it is costing $6,105 to abate a tonne of CO2 in China using ethanol.

The accompanying exhibit illustrates notionally how Australia – and the other countries examined by the Commission – are tending to favour high cost abatement initiatives (the shaded bars) and ignore others that cost less per tonne and mostly yield more abatement.

Regrettably, there are many parallels with the way we go about designing policy for our cities. For example, I think it would be much more cost-effective to abate carbon (or reduce oil consumption) in the urban passenger transport sector by introducing policies such as road pricing or more fuel-efficient vehicles, than it would be to (say) build a rail line to Doncaster. Or, were the objective to increase the mobility of those without access to a car, spending funds on buses and better service coordination rather than on extensions to the rail network, would give a more cost-effective outcome.

The good news though is there might be grounds to be optimistic that PV module prices are starting to fall.

-Are there really limits to what planning can do?

States' and Territories responses to 23 land use planning 'challenges'

There are, but in Victoria those limits appear to be very elastic.

Because it controls the use of land, the whole complex edifice of planning regulation touches to a greater or lesser extent a lot of the things we do.

In a newly released report commissioned by COAG, the Productivity Commission gives us an insight into how the nation’s planning agencies think the land use control system influences our lives.

The report, Performance Benchmarking of Australian Business Regulation: Planning, Zoning and Development Assessments, examines the regulatory frameworks of each jurisdiction, the processes for supply of land, the bases for assessing developer contributions, compliance costs for business, and competition issues arising from planning decision-making.

As part of its investigations, the Commission asked each State and Territory to answer this question: “To what extent can government use the planning, zoning and DA system to positively influence the following challenges”?

The answers each jurisdiction provided to 23 “challenges”, graded from “no effect” through to “major effect”, are shown in the accompanying chart (copied from the report). The survey was completed between October and November 2010, prior to the Victorian State election.

Bear in mind that the survey relates specifically to the powers of land use planning agencies i.e. not transport or other agencies. Also, the planners were specifically asked about the scope to positively influence each of the challenges. There are some interesting claims here and some equally interesting comparisons between States and Territories.

There’s a consensus that, given (presumably) the right policies, land use planning can have a major positive influence on managing greenfield development, accommodating population growth, managing the transition to higher population densities, providing diverse/appropriate housing, and protecting biodiversity.

By and large I’d agree with that. My only caveat would be the understanding that some of the benefits will come from reducing rather than increasing the degree of planning intervention. A prime example is the many restrictions on constructing higher density housing within established urban areas.

Where the survey gets really interesting is outside these five key areas. Victoria in particular stands out from its peers. Read the rest of this entry »