Sao Paulo’s Innovative Proposal to Regulate Shared Mobility by Pricing Vehicle Use

How to regulate and manage the emerging services of shared and on-demand mobility? This was a topic of much debate during the most recent Transforming Transportation event, a major global conference of transport professionals organized by the World Bank and the World Resources Institute in Washington DC in January 2016. 

One recent development from Sao Paulo stands out as a worthwhile effort to balance the objectives of promoting innovation by Transportation Network Companies (TNCs, such as Uber, Lyft, EasyTaxi, 99Taxi, and others) and ridesharing services (such as BlablaCar, Caronetas, Tripda and others) with the interests of the city and its residents. 

The Municipal Government of Sao Paulo has published for public comments until January 27, 2016  a draft decree to charge TNCs an upfront fee based on an estimate of vehicle-kilometers, also referred to as “credits”, to be used by its fleet of passenger cars in a two month period, plus a surcharge if credits are exceeded.   The idea is that any registered TNC could bid in an online public auction to purchase credits periodically and with certain limitations to ensure competition.  This approach would create a market for these credits and be aligned with the principle commonly known in the vehicle insurance industry as “pay-as-you-drive”, and would allow the city to receive a fee from TNCs for the commercial use of its public road infrastructure, which can then be used to better manage and maintain it.   The decree would exempt free ridesharing services which the city believes would help reduce the total number of vehicle-kilometers on its congested road network.

This proposed regulation is an improvement over the recent and pioneering regulation put in place in Mexico City, which charges a flat 1.5% fee per trip from shared mobility services.  It would also give Sao Paulo more flexibility in designing and pricing incentives for TNCs to deliver services that complement public transport and taxis in off-peak periods, particularly in underserved areas, and for underserved populations.  Furthermore, the decree requires TNCs to provide Sao Paulo with data on trip origins and destinations, times, distances and route of travel, price and service evaluation.  These anonymous and secure data are invaluable if provided in real-time and if the city has the capacity to analyze them to make better use of the roadway network and transport services it regulates. Fortunately, Sao Paulo has established an analytical laboratory for urban mobility (MobiLab) with transport professionals, computer and data scientists for this task. 

Combining the proposed regulation with real-time data and analytical capacity should permit Sao Paulo to vary the fee for TNCs according to the best use of the public road infrastructure while maximizing the social benefits of the services.  Although not detailed in the proposed regulation, city authorities would have all the tools to design and enforce a differentiated fee for vehicle-kilometers used in congested areas or during peak hours, and to discount the fee for credits to serve disabled passengers, underserved areas or late-night hours.  The regulation will also allow Mobilab to monitor TNC services and how passengers respond to price changes.   Ideally, an independent technical evaluation of the impacts of this approach would be performed in relation to private vehicle ownership, complementarity options with public transport, accessibility in underserved areas, road safety and security (including drunk driving), vehicle emissions and other externalities from road vehicle use. 

Municipal governments also aspire to level the playing field between emerging and traditional transport services—particularly taxis which have complained in Sao Paulo and many other cities around the world that TNCs compete unfairly because they do not have same regulatory oversight and associated costs.   The proposed regulation also mentions minimum requirements for safety, comfort, hygiene and quality of TNC vehicles and drivers but does not specify them in the draft decree.  It does specify, however, that 15% of the purchased vehicle-kilometers credits be utilized for female drivers. 

If passed, the outcomes of this new regulation will ultimately hinge on many such details and on how the fees for the TNCs are actually administered and used to drive the correct incentives for improving shared mobility.  But the overall approach taken by Sao Paulo is another step in the right direction and, if it succeeds, may become a model for other large cities.