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A fast track to fund Autonomous Vehicles: Governments seek financing models to build AV infrastructure

A fast track to fund Autonomous Vehicles

Government agencies must accept that AVs are a fast-approaching reality. Now is the time to consider how to respond to the demand, serve the public proactively, and invest resources | 🕒 6-min read.

Richard Threlfall

Partner, and Global Head of Infrastructure

KPMG in the UK


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Private vs public illustration

Generations of auto enthusiasts have admired those futuristic sketches of self-driving pods careening down curvy, high-speed tracks. With autonomous vehicles (AVs) soon expected to be a common sight, governments realize that their traditional roles must evolve, in terms of how they view, operate and pay for the vast networks of transportation infrastructure.

Indeed, governments must evolve their own ‘clockspeeds’ – just as auto-makers have embraced faster clock speeds of production and performance, as detailed in KPMG’s The Clockspeed Dilemma report. Picking up on the themes in Autonomous Vehicles: The public policy imperative, we now discuss potential strategies for governments to fund the sophisticated AV infrastructure that will soon be in urgent demand.

A clearer view of the future

To give policy makers a sharper image of the kind of AV infrastructure landscape that may soon be a reality, imagine this scenario: AVs now dominate the roads thanks to their convenience, low cost and comfort. Despite higher traffic volumes, they operate efficiently on narrower, cheaper-to-maintain roadways equipped with fiber optic lines, sensors and transmission towers to exchange vehicle data and ensure safe, congestion-free travel.

Much of this new infrastructure was funded by the auto and tech industries who were eager to bring their innovations to market. Governments saw the benefit of these public/private sector alliances, and now such partnerships help public agencies maintain and monitor roads and operate customized transit systems. Governments increasingly focus on policy-setting and regulation, depend less on classic financing models like gasoline taxes, and rely more on licensing and usage fees and other new revenue streams.

Transport funding models under pressure

While the above depiction might still sound like science fiction, governments today see a number of factors becoming reality. Auto industry ingenuity is accelerating, bringing AVs to streets sooner than expected, and technology innovation is creating consumer demand for greater connectivity and mobility at their fingertips.

At the same time, government treasuries are starting to appreciate how the rising adoption of electric vehicles will cause fuel tax revenues to decline, creating a funding gap just as governments must build the new generation of road networks and transportation services.

This is driving governments to explore new funding models, many of which could shift costs from consumers to producers and providers. For example:

  • Vehicle Miles Travelled (VMT) (PDF 124 KB): Many industry analysts see fees on vehicle miles travelled, paid by individual drivers or the operators of AV fleets, as a promising replacement for fuel consumption taxes. Similarly, electricity consumption by vehicles could be charged under a utility model dedicated to the infrastructure they utilize. Pilot programs are underway in the US and Europe to study and refine such approaches.
  • Vehicle licensing: With large numbers of AVs expected to hit the roads, annual per vehicle license tariffs could become an important revenue source and offset the foreseeable extinction of driver’s licensing fees.
  • Monetization of right-of-way and data: Since AVs will depend on an intricate backbone of roadside communication technology, governments may discover that the ‘right-of-way’ over, under, and alongside transport routes will be a valuable asset. They could levy fees on companies that need to install equipment in these areas or lease this prime real estate. The data yielded from these arrangements will not only serve government purposes to help plan and provide public services. It may also become a highly-coveted commodity that governments could sell to the private sector, once privacy and security concerns are addressed.
  • Land Usage: AVs will dramatically increase throughput, require less roadway to meet public transportation needs, and not require as much parking, given the potential of Transportation as a Service (TaaS). Thus, municipalities will have to decide how to utilize this excess space to meet their strategic objectives, including commercialization, housing and civic services.
  • Secondary revenue sources: Government finance departments could employ a variety of other creative funding avenues, from selling advertising that targets AV passengers, to introducing new goods and service fees along the AV value chain, from vehicle sales to insurance.
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Better ways to get it built

While there are intriguing, future sources of ongoing revenue from AVs, governments must first find the best way to fund the initial investments to repurpose the infrastructure in place.

The answer might be gleaned from US telecom sector efforts in the late 1990s, when those companies eagerly paid to install fiber networks across public lands, after negotiating rights with governments, often in return for access to the new data networks. Today, highly-motivated automotive and tech companies may readily fund or construct the necessary infrastructure, from which they can harvest handsome revenues. Currently, their ambitions may be constrained by slow movement in the public policy realm.

Similarly, private sector stakeholders in the transportation field could be ideal partners to help governments pilot new funding models. For example, a major car rental company, an inter-state trucking association or a big box retailer with thousands of delivery vans may agree to test new financing methods in return for first-adopter access to the technology and data.

Paving the way for private/public partnerships

If public/private alliances are the optimal means to accelerate AV roll-out, governments should take steps to prepare for this new era of infrastructure building, delivery and maintenance.

First, government officials must develop a clear understanding of the current and future public needs, so they can decide how best to apply public assets to meet those demands. This involves listening carefully to the next generation of citizens who are hooked on smart phones, favor ride sharing apps, and expect their government to deliver a commensurate on-demand, more responsive service.

Governments must then perform a thorough assessment of the latest technologies to understand the potential of AVs from a number of perspectives, including existing policy frameworks, data governance, the role of right-of-ways, and the impact on current infrastructure funding models. This will help identify key policy gaps to fill to enable transport innovation, clarify the government’s role in this evolution, and continue to serve the public needs.

Along the way, government agencies must embrace internal transformation, by introducing new technology and organizational capabilities along with hiring the next generation talent. This will make them more nimble and adept at forging public-private partnerships to catch up with the fast-moving technology landscape.

This process won’t occur overnight, since governments must resolve a number of barriers, such as established business practices, safeguarding security and privacy of AV data, and legislative and administrative rules and regulations. However, impressive examples of collaboration to date between governments and industry, on various Future and Smart Cities initiatives and testing of VMT models, shows that public agencies can respond to change, build coalitions, gain stakeholder buy-in, and design innovative solutions.

To get started, government agencies must accept that those futuristic sketches of AVs are a fast-approaching reality. Now is the time to deeply consider how to respond to the demand, serve the public proactively, and invest resources in these exciting advancements.

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