Transport fuel prices and taxes

Indicator Specification
Indicator codes: TERM 021
Created 21 Aug 2007 Published 21 Apr 2009 Last modified 12 Oct 2016, 12:36 PM
Topics: ,
This indicator considers the price of fuel in the EU, including cost price, excise duty and VAT. Definitions: ‘All petrol’ is a consumption-weighted average price of both leaded and unleaded fuel, corrected using energy-content to the equivalent amount of unleaded petrol. ‘All fuel, unleaded petrol equivalent’ is a consumption-weighted average price of unleaded and leaded petrol, and diesel, corrected using the energy content of an equivalent amount of unleaded petrol. ‘Nominal’ is the price with no adjustment for inflation. ‘Real’ is the price corrected for inflation, using 2005 as the baseline year. ‘Average, all fuel, unleaded petrol equivalent (real, weighted by consumption)’ is the consumption-weighted average of the ‘All fuel, unleaded petrol equivalent (real)’ line across the full time series.

Rationale

Justification for indicator selection

An increase in fuel prices can result in a decrease in fuel and transport demand, and greenhouse gas emissions, thereby leading to a decrease in pressures on the environment. Several different estimates of the price elasticity of demand for fuel have been made. Goodwin et al. (2004), for example, estimated an elasticity of 0.6, i.e. a 10 % increase in fuel price would lead to a 6 % decrease in fuel demand.

Fossil fuel consumption is directly linked to emissions of carbon dioxide (CO2) (a primary greenhouse gas). Links between fuel consumption and other pollutants (e.g. Nitrogen oxides (NOX), hydrocarbons (HC), particulate matter (PM), etc. and noise) depend on the vehicle technology used (i.e. EURO standards and noise classes, type of engine and fuel needed) and trip conditions, as well as the type of fuel.

Fair and efficient transport pricing is a crucial precondition for sustainable transport. It implies that users pay for the full (environmental and social) costs of transport. Therefore the price and tax levels of fuel are important for three key reasons:

  • Fuel taxation is an instrument that serves different policy objectives; one possible use is to internalise external costs. If prices and transport duties (including fuel taxes) covered all social costs, the demand for transport would be economically optimal for the welfare of society as a whole, since prices would reflect all health, environmental and infrastructure costs. However, fuel taxes are not the only means to achieve fair pricing (e.g. kilometre charging or vehicle regulation).
  • Higher fuel prices act as incentives to reduce fuel consumption, e.g. through the purchase and use of more fuel efficient vehicles, a shift to non-motorised or public transport modes, fewer trips, and less-motorised, transport-orientated patterns of settlement.
  • Differentiated fuel taxes can stimulate a shift towards cleaner fuels such as electricity or sustainable biofuels.

Scientific references

Indicator definition

This indicator considers the price of fuel in the EU, including cost price, excise duty and VAT.

Definitions:

  • ‘All petrol’ is a consumption-weighted average price of both leaded and unleaded fuel, corrected using energy-content to the equivalent amount of unleaded petrol.
  • ‘All fuel, unleaded petrol equivalent’ is a consumption-weighted average price of unleaded and leaded petrol, and diesel, corrected using the energy content of an equivalent amount of unleaded petrol.
  • ‘Nominal’ is the price with no adjustment for inflation.
  • ‘Real’ is the price corrected for inflation, using 2005 as the baseline year.
  • ‘Average, all fuel, unleaded petrol equivalent (real, weighted by consumption)’ is the consumption-weighted average of the ‘All fuel, unleaded petrol equivalent (real)’ line across the full time series.

Units

The units used in this indicator are Euros per litre.

Policy context and targets

Context description

Fair and efficient transport pricing is a crucial precondition for sustainable transport. It implies that users pay for the full (environmental and social) costs of transport. Therefore the price and tax level of fuel are key variables to monitor.

Fuel taxes are the subject of a variety of EU initiatives. The European transport White Paper (EC, 2001) proposed to "harmonise excise duty on diesel for commercial uses, which in practice would be higher than the current average tax on diesel". The aim of this harmonisation is to achieve better internalisation of external costs. Harmonisation also aims to improve the internal market by establishing a level playing field for shippers from different EU Member States and creating more stable road transport prices. However, a 2002 Commission proposal to do so was rejected by the Council. The proposal resulted in decreases in excise duty incomes for several countries – up to 50 % in the UK – while transport organisations argued against fuel tax revisions. More recently, in the European transport White Paper of 2011 (EC, 2011), the Commission proposed to “revise motor fuel taxation with clear identification of the energy and CO2 component” by 2016.

However, to date, fuel taxation is not generally used to internalise the environmental externalities of transport, possibly because a high fuel tax is not often politically viable. A new proposal to revise the Energy Tax Directive was presented by the Commission in 2011. It aimed to restructure the taxation of energy products (including those used in aviation), in order to remove current imbalances and distortions, and support the EU's wider environmental and energy goals. However, after unsuccessful negotiations between EU Member States in the Council, the proposal was withdrawn by the Commission in 2015.

Targets

The 2011 Transport White Paper suggests that EU motor fuel taxation should be restructured to clearly identify the energy and CO2 components. 

Related policy documents

  • COM (2001) 370 final. European transport policy for 2010.
    WHITE PAPER European transport policy for 2010: time to decideCOM (2001) 370 final
  • COM(2006) 314
    'Keep Europe Moving – Sustainable mobility for our continent'. Mid-term review of the Transport White Paper, published in 2001 by the European Commission: Communication from the Commission to the Council and the European Parliament of 22 June 2006. COM (2006) 314 final
  • COM(2007) 52
    ‘Proposal for a council directive amending Directive 2003/96/EC as regards to the adjustment of special tax arrangements for gas oil used as motor fuel for commercial purposes and the coordination of taxation of unleaded petrol and gas oil used as motor fuel
  • COM(2010) 2020 final, Europe 2020: A strategy for smart, sustainable and inclusive growth
    European Commission, 2010. Europe 2020: A strategy for smart, sustainable and inclusive growth. COM(2010) 2020 final. 
  • Council Directive 2003/96/EC
    Restructuring the Community framework for the taxation of energy products and electricity. EU, 2003.
  • Transport White paper 2011
    Roadmap to a Single European Transport Area - Towards a competitive and resource efficient transport system

Key policy question

Are fuel prices leading to decreased pressures on the environment?

Methodology

Methodology for indicator calculation

Fuel prices and taxes are presented weekly in a DG ENERGY Oil Bulletin (prior to 2006, data were also presented in a monthly format). Information is available for each of the EU Member States (including the EU-10 from mid-2004, and Bulgaria and Romania as of January 2008). Fuel prices are corrected for inflation using the Harmonised Indices of Consumer Prices (HICP) for each Member State. Prices are then weighted by fuel consumption to calculate an EU-28 average. 

As leaded petrol was replaced by unleaded petrol during the period studied, an equivalent price for unleaded fuel has been calculated. This is a consumption weighted average, corrected for the slightly different energy content of the two fuels.

Methodology for gap filling

No methodology for gap filling has been specified.

Methodology references

  • DG ENER Oil Bulletin The European Commission's Oil Bulletin presents weekly consumer prices for petroleum products in EU countries, in order to improve the transparency of oil prices and to strengthen the internal market, .

Data specifications

EEA data references

  • No datasets have been specified here.

Data sources in latest figures

Uncertainties

Methodology uncertainty

There is little uncertainty in the methodology used. However, information on annual fuel consumption is not currently available. 

Prior to 2006, quarterly data were used, i.e. 15/01, 15/04, 15/07, and 15/10. After 2006, weekly data have been published. The HICP only makes monthly data available, so the same HICP is used for every fuel price data point in each month. Consumption data are available annually, so calculations for the weighted average price by consumption uses the same consumption data for every week in a given year.

Data sets uncertainty

Information on fuel prices and taxes is considered to be a reliable data set.

Rationale uncertainty

No uncertainty has been specified

Further work

Short term work

Work specified here requires to be completed within 1 year from now.

Long term work

Work specified here will require more than 1 year (from now) to be completed.

Work description

Further work related to fuel prices and taxes could include gathering information and data on other transport fuels, such as jet fuel, marine fuels, rail diesel and electricity taxes, or even alternative fuels such as biofuels, liquefied petroleum gas and natural gas. However, in most cases, this information is not collected centrally by bodies such as Eurostat and can be difficult to obtain from other sources.

Resource needs

No resource needs have been specified

Status

In progress

Deadline

2017/12/31 00:00:00 GMT+1

General metadata

Responsibility and ownership

EEA Contact Info

Diana Vedlugaite

Ownership

European Environment Agency (EEA)

Identification

Indicator code
TERM 021
Specification
Version id: 1
Primary theme: Transport Transport

Frequency of updates

Updates are scheduled once per year

Classification

DPSIR: Driving force
Typology: Descriptive indicator (Type A - What is happening to the environment and to humans?)

Related content

Data references used

Latest figures and vizualizations

Relevant policy documents

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