Fuel prices and taxes
Assessment made on 01 Jan 2002
ClassificationTransport (Primary theme)
DPSIR: Driving force
- TERM 021
Policy issue: Fair and efficient pricing across modes
Trends in fuel prices are not encouraging the use of more fuel-efficient transport modes
Fuel prices are a mix of market price and taxes (excise + VAT), and fuel taxes are the simplest method for governments to influence prices. However, there is a relationship between the price set by the fuel producer and the excise duty imposed. The UK, for instance, has the highest excise duty for unleaded and the lowest cost price of EU Member States. Portugal has the lowest excise duty (with Greece) but the highest cost price. Thus tax policies to influence fuel choice can be offset by producers adjusting their selling price accordingly.
The inflation-corrected EU average price of road fuel in January 2002 was about 5-10 % lower than in the first half of the 1980s. However, some incentives have been given to reduce total fuel consumption and CO2 emissions, because the share of taxes in the fuel price has increased. The price differential between petrol and diesel has become smaller. Petrol has become about 15-20 % cheaper, diesel about 10 % more expensive, primarily due to higher diesel taxes. In rail transport, fuel taxes are much lower. Inland and maritime shipping and aviation pay no fuel tax at all.
Data for the ACs are scarce, which hinders any analysis. Data for the Czech Republic, Hungary, Poland and Turkey show that in these countries average fuel prices dropped between 1993 and 1998 (only diesel is shown in the graph below). During this period, the average disposable income in the four countries began to rise. Hence, the development of fuel prices did not give a stimulus for transport modes other than road. Since 1998, fuel prices (inflation-corrected averages) have increased sharply, and now slightly exceed (by 2-3 %) the high level in 1992-93. Diesel is about 15 % cheaper than unleaded petrol and has a 7 % lower tax rate.