Tolling in Japan: Should the U.S. Follow Its Lead?

Tolling in Japan: Should the U.S. Follow Its Lead?

August 01, 2014  | Ann Henebery

By Micah Himmel

Toll roads serve an important role in ensuring regional and national mobility in Japan, which has a lengthy history of tolling its expressways. In contrast to highways in the United States and Europe, Japan has employed tolling on its roads since shortly after World War II. Tolling in Japan successfully serves as one of several revenue sources for its national road network under what began as severe financial constraints and, thus, represents a model for U.S. policymakers to solve their own transportation financing problems.

Through reform in 2005 to improve its operations, the government restructured the tolling system to take advantage of the benefits of public-private partnerships. Combined with the adoption of technological advances, Japan’s toll highways stand ready to continue their leadership in the industry.

History of Tolling in Japan

During the 1950s, Japan prioritized construction of a road network to develop economically. To that end, the Japan Highway Public Corporation (JHPC) was formed in 1956 to construct and administer Japan’s then-nascent intercity highway system. Faced with limited resources, the legislature enacted laws that established a toll-based highway network. In stark contrast, the U.S. Congress banned tolling on interstates at the creation of the national highway system in 1956.

As originally established, tolls collected locally were used for the entire expressway network (a revenue pooling system) and were planned to end once the system paid for itself. Neither the pooling of toll revenues nor the persistence of tolls pleased the public. Over the years, interest in reform grew, which led to the privatization and breakup into regional units of the JHPC.

Private Operation

Under the leadership of then-Prime Minister Junichiro Koizumi, the Japanese government privatized the JHPC in October 2005. Concurrently, the JHPC separated into three corporations that focus on operations: the West Nippon Expressway Company, Central Nippon Expressway Company, and East Nippon Expressway Company. Additionally, Japan privatized the Metropolitan Expressway Public Corporation (Tokyo), the Hanshin Expressway Public Corporation (Osaka-Kobe-Kyoto), and the Honshu-Shikoku Bridge Authority.

While these private entities operate and maintain the toll roads, the tolling reform created a new public agency to maintain ownership and act as a fiscal steward for the expressway system. The Japan Expressway Holding and Debt Repayment Agency (“the Agency”) operates under the jurisdiction of the Ministry of Land, Infrastructure, Transport and Tourism (MLIT).

The Agency’s purview includes support of the privatized expressway system, ensuring its safe and efficient operation and maintenance, and repayment of inherited debts from the previous publicly organized entity as well as debts from new construction. The expressway companies lease the assets from the Agency; the usage fees are used for debt service.

The relationship of the expressway’s stakeholders bears similarities to a public-private partnership. To conduct its business, the Agency owns the expressways, services debt, and leases the highways to the expressway companies. From the private side, the firms manage toll collection, expressway operations, and construction of related infrastructure. The new, privately constructed assets pass from the firms to the Agency, as do leasing fees.

Through this arrangement with the Agency and the expressway companies, the Japanese people receive the efficiency benefits of private operations and the stability of publicly supported infrastructure investment.

Tolling in the U.S. Context

In the United States, the difficulties in finding politically and economically effective solutions to providing sufficient transportation funding continue to mount. These difficulties arise from a number of sources. First, the federal fuel tax for automobiles has remained at 18.4 cents since 1993. More than 20 years of inflation have eroded the purchasing power of this tax. Second, the increase in the number of fuel-efficient vehicles has also diminished the ability of the fuel tax to act as a user fee for the sustainability of the U.S. transportation system. Third, a noticeable per capita decline in vehicle miles traveled since 2008 has also contributed to lower revenues for the Highway Trust Fund.

Starving for funding, transportation in the U.S. finds few politically acceptable options. While controversial, tolling falls clearly within the “user pays” model of infrastructure finance and belongs on the menu of options to address the revenue side of transportation funding. Although the positions’ nuance varies, organizations like the National Association of Manufacturers, American Trucking Associations, and Owner-Operator Independent Drivers Association oppose tolling of existing interstates. On the other side, and with nuanced positions of their own, the U.S. Chamber of Commerce, the American Road and Transportation Builders Association, and the White House support tolling generally. Already desperate to find solutions, states such as Virginia, Georgia, Minnesota, and California have begun to experiment with tolling newly constructed sections of interstate highways.

The Future of Tolling

Not content with the status quo, Japan continues to press its lead in tolling innovation. As advances in technology and management continue, there appear to be two main developments for tolling in Japan. The first is the increased reliance on reams of data from the extensive use of transponders for toll payment. The other is an increased use of tolling to manage the flow of traffic.

The potential for big data applications using tolling information is noteworthy. In Japan, about 90 percent of highway users possess transponders for an electronic toll collection system (ETC), which employs dedicated short-range communications. This steady stream of data enables planners and policymakers to monitor traffic conditions in real-time, in turn supporting dynamic traffic management and developing new policies.

An empirical approach is critical. Earlier this year, Japan’s MLIT discontinued a 30-percent reduction of regular toll prices for daytime, off-peak travel across the three major tolling corporations, excepting the Tokyo and Osaka metropolitan areas. The off-peak discount failed to achieve a reduction in congestion, which one might have forecasted based on Kahneman and Tversky’s work on loss aversion. Quick to learn from this experience, MLIT pivoted its policy approach to one focusing on congestion tolling.

On the Shuto Expressway in the Tokyo region, information about road network status would transmit via navigation systems and the ETC to alert drivers to problematic segments of roadway, which could then be avoided. The toll road operator would accomplish that at the same time as implementing surcharges for congested road segments. The goal is to maintain conditions that support relatively free-flow conditions at 70 KPH (approximately 44 MPH). MLIT plans on finalizing the details of this program by the summer of 2015. The plan for more a widespread rollout aims for mid-2017.

In the United States, the Obama administration has proposed an important change for the future of tolling. As part of the current surface transportation reauthorization debate, the White House has proposed removing the current prohibition on tolls for existing interstate highways. Doing so would enable states to toll roads and bolster lagging transportation funding, theoretically directing revenues to the same segment of roadway network that needs improved infrastructure to handle overwhelming traffic volumes.

As the White House and Congress continue to deliberate on the means to fund and improve America’s transportation infrastructure through legislation to reauthorize MAP-21, Japan’s experience with tolling could offer a model for U.S. policymakers. The states are certainly open to the notion of increased tolling on interstates. Borrowing the spirit of the adage about states being laboratories of democracy, perhaps tolling operations in the states will lead the way for transportation policy in this area going forward—with Japan as a beacon.

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