Indicator Assessment

Internalisation of external costs

Indicator Assessment
Prod-ID: IND-116-en
  Also known as: TERM 026
Published 12 Jan 2011 Last modified 11 May 2021
21 min read
This page was archived on 08 May 2015 with reason: No more updates will be done

There has been some progress in restructuring transport charges towards better internalisation of external costs though this has been slow. Urban (congestion) charging schemes and distance related charging are expanding, and several countries have modified or introduced vehicle charges. Environmentally-weighted passenger vehicle related taxes are also growing in popularity (excluding petrol/diesel tax). Further, the Eurovignette directive - which aims to ensure road usage better reflects its true social impact by proposing  a "user pays" and a "polluter pays" principle for heavy lorries in Europe - was sent to parliament on 15th October 2010.

The differentiation of user charges has in the past been structured around air pollution in the road freight sector, noise in the aviation sector and CO2 emissions for passenger cars. However, there is a growing trend for CO2 based differentiation of user charge across all modes, such as aviation becoming included in the EU Emissions Trading Scheme, and CO2 regulations (already in place for cars) are being planned for vans and are likely also for HGVs in the future.

Tax breaks for low-sulphur fuel are slowly disappearing as its use becomes more common and mandatory standards are imposed (for example <10ppm sulphur petrol and diesel road fuel has been mandatory since 2009) under the amended Fuel Quality Directive (98/70/EC).  At the same time reduced excise on biofuel, LPG, CDG and ethanol is being more widely applied in Europe. Many countries have already adopted regulations for reduced car sales duties and road tax for electric vehicles, hybrids and hydrogen vehicles.

This indicator is no longer being regularly updated

This indicator records the introduction and extension of regulations for non-fuel related vehicle taxes and charges (road, rail, air and waterborne transport) as well as for reduced excise on certain vehicles and fuels. The effect of transport on the environment is important and should be reflected in relevant taxes and charges. This indicator gives a qualitative overview of the effectiveness of such taxes and charges in terms of their ability to internalise environmental costs from transport activity. Although there are many examples of good internalisation initiatives, it must be noted that in general they fall short of the level of the externality. The factsheet on infrastructure prices and taxes (TERM 22 ‘Transport taxes and charges’) outlines the development of user-dependent transport charge levels.

The levels of transport infrastructure taxes and charges follow the ‘Polluter Pays’ principle and are dependent on local and temporal circumstances; as a result it is hard to reflect externalities in charge levels. In practice, existing taxes and charges aim to achieve this by differentiating charges based on environmental characteristics such as:

  • level of air pollution in the road freight sector, 
  • tax reductions for fuel efficient and hybrid passenger cars, and
  • noise in the aviation sector. 

Very few measures have been implemented to internalise costs of congestion on the road (some aviation and rail charges, and some urban parking fees are exceptions), rail and road noise, or climate change and air pollution costs of aviation. In urban areas, the internalisation of external costs is still far from complete. Some rail, aviation and motorway charges are differentiated according to the time of day and/or week, which can be considered to address congestion. It is, however, difficult to monitor consistently the aim of specific charges. Rail transport also faces the scarcity on dispatched services. Urban parking charges that vary with time of day and/or proximity to central business districts also address congestion. They have not been included in table 1 as they only cover specific local areas.


Vehicle Taxation

Several European countries are modifying their vehicle charges, which demonstrate that the national taxation policies are aligning, though not necessarily with the aim to encourage more sustainable behaviour.

At present, seventeen EU Member States weight passenger car taxes by CO2 performance. France’s bonus-malus scheme (“Bonus malus voiture”) is an example of a passenger car taxation policy which has proven successful since its implementation in 2008. The scheme aims to accelerate the market penetration of lower-emission vehicles by providing financial incentives for people buying lower emission cars (bonus) whilst at the same time penalising the purchase of vehicles with greater CO2 emissions (malus).

In addition.  fifteen governments provide tax incentives for electrically-chargeable vehicles.  Incentives for electrically-chargeable vehicles are now provided in all western European countries with the exception of Italy and Luxembourg. Examples of policies include tax reductions and exemptions, as well as bonus payments for the purchasers of electric vehicles.

EURO standards are increasingly becoming very high profile amongst the newer member states due to the high priority attached to air pollution. The EURO standards aim to reduce transport’s contribution to air pollution and encourage use of newer, more efficient engines.

Austria successfully introduced a kilometre charge on its motorways in 2004, varying from EUR 0.13 to EUR 0.27 depending on the number of axles of a vehicle, but without any environmental differentiation. The German kilometre charging for HDV on motorways was launched in 2005, linking charges per vehicle-kilometre to the number of axles as well as the Euro emission class. The Czech government introduced electronically calculated tolls on main roads from 2006, charging vehicles over 12 tonnes (plans to extend the scheme for LDV charging exist). Slovakia also has similar intentions. Toll rings have existed in Norway since 1987, within which charges vary depending on the day of the week (e.g. in Trondheim, Stavanger and Oslo). Stockholm has also introduced a time sensitive congestion charging scheme, which came into operation in August 2007.

In many other European countries public private partnerships (PPPs) have been an important means to fund infrastructure. In France, Spain, Portugal, Italy and Greece on large parts of the motorway network distance related toll charges apply. On the A1 motorway near Paris an additional congestion tariff is levied. During peak hours (Sundays between 16:30 and 20:30), traffic volume decreased by between 4 to 10 percent.

In February 2003 London introduced a congestion-charging scheme to improve the accessibility of the city centre, air quality and liveability. Vehicles fuelled by alternative sources of energy are exempted from any charge. Since its introduction, congestion within the zone in London has decreased by 30 % and emissions of NOx and PM10 from road traffic by approximately 12 %. Research suggests that the charge has had a broadly neutral impact on overall business performance in the charging zone. In February 2007 the charging area was extended to the west of the UK’s capital – although this may be returned to a free zone in December 2010. There are now plans to introduce congestion charging or a low emission zone in Manchester. In Italy, Rome and Genoa both have city charging schemes. 

In Poland an environmental fee system has been in use since 1990 which applies to companies in all industries as well as the transport sector. A fee is charged related to emissions of HC, CO2, NOx, Pb (lead), SO2 and particulates. In practice, the fee is estimated on the basis of fuel consumption and a pre/post Euro 2 classification with low charges. 

The ‘Eurovignette’ Directive (Directive 2006/38/EC) was adopted in May 2006 with the aim of improving the structure of road freight distance based charges and also to shift freight from roads onto other less-polluting modes of transport such as rail and waterways. Under the Directive, the Eurovignette allows EU Member States to levy charges on heavy goods transportation vehicles of more than 3.5 tonnes. The Eurovignette also gives Member States extra flexibility on how to levy tolls or charges. In particular, these can now be raised on the entire road network, not just motorways. Furthermore, the most recent proposals for the revision of the Eurovignette include  allowing Member States to charge heavy lorries to cover the costs of environmental impacts (air pollution and noise pollution from traffic emissions) through road tolls paid by lorries, which will also raise money for reinvestment into sustainable transport research.


Aviation Taxation

With respect to air transport, the majority of countries have noise surcharges and schemes in place to curb night time noise linked to airports. The UK, Sweden, Switzerland and Germany have all recently introduced emission surcharges at airports. Sweden introduced an environmental tax on airline tickets which came into affect in July 2006. The Netherlands introduced a surcharge on airline tickets as of 1 July 2008 differentiated on the basis of the distance of the flight to reflect environmental effects. France, the UK, Norway, Cyprus, Luxembourg and several over countries outside the EEA-32 have proposed to raise funds for development aid by introducing a tax on airline tickets. The French air ticket tax to reduce emissions of greenhouse gases and other pollutants entered into force on 1 July 2006.


Shipping Taxation

Shipping taxation linked to environmental performance is very limited. Only two countries (Sweden and Finland) differentiate ship emissions. 

There is a Green Award for seaborne ships being administered by the Green Award Foundation, which has been established in 1994 on the initiative of the Rotterdam Municipal Port Management and the Dutch Ministry of Transport (independent since January 2000). A Green Award specifies that a ship meets high, but manageable technical and managerial requirements. An increasing number of ports and nautical providers recognize the value of Green Award, such as in Lithuania, Netherlands, Portugal, Spain, Belgium, the UK and more (

Supporting information

Indicator definition

Overview of all non-fuel related charges and internalisation policies for EEA countries


In national currency or EUR (if information is available).


Policy context and targets

Context description

For more than 10 years, internalisation of external costs has been on the agenda of European transport and environment policy, and is increasingly accepted as a target for transport policy. The European Commission stressed this in three policy papers; the Green Paper on fair and efficient pricing (European Commission, 1995), the White Paper on fair payment for infrastructure use (European Commission, 1998), and the White Paper on European transport policy for 2010 (European Commission, 2001). More recently, the EC published a Communication on a strategy for the internalisation of external costs (EC, 2008a). This strategy stresses “the need for a transport pricing system that is more efficient and more accurately reflects the true costs involved”. In order to achieve this, a range of economic instruments are suggested, including taxation, tolls and CO2 emissions trading. The general principle for internalisation of external costs is ‘social marginal cost charging’, whereby transport prices should correspond to the additional short-term cost generated by one extra person/vehicle using the infrastructure, ensuring fair treatment of both transport users and non-users and would create a direct link between the use if shared resources and payment on the basis of the ‘polluter-pays’ and ‘user’ pays’ principles. This same principle is expected to be used across the various modes of transport, but with varying instruments: 

  • Road haulage sector – a new ‘Eurovignette Directive’ has been proposed in October 2010 to enable internalisation of external costs. Proposals for an Intelligent Transport System Action Plan aimed at increasing the use of technology, and adopting Decisions to implement interoperability of electronic toll systems.
  • Urban mobility – Commission will start to implement actions on sustainable urban mobility based on debates following the publication of the Green Paper in urban transport. 
  • Passenger cars – passenger car related tax proposals are being considered, including the restructuring of existing taxes in order to take CO2 into account. 
  • Rail transport – the internalisation of external costs are already covered by Directive 2001/14/EC under certain conditions. A communication on noise reduction measures has also been published. 
  • Air transport – proposals have been put forward to include CO2 emissions from the aviation sector in the European ETS. Further proposals are being prepared aimed at reducing nitrogen oxide emissions. A Directive on airport charges, potentially including differentiated charging on the basis of environmental damage, is also being put forward. 
  • Maritime transport and inland waterways – possible proposals may be put forward to include the maritime sector in the ETS. It is recognised that the internalisation of external costs could revitalise inland waterway transport, given the energy efficiency of this mode of transport. 
  • Use of revenue – it has been recognised by the Commission that there is a considerable need for funding to make transport sustainable, e.g. research, innovation, infrastructure, development of public transport etc. Therefore, revenue that is generated by internalisation should be earmarked for the transport sector and the reduction of external costs. 
Toll Related Charging 

In 2006, the EU  amended a Directive on the principles of road infrastructure charging, the so called ‘Eurovignette Directive’ (first version of 1999/62/EC) on the basis of a 2003 proposal by the Commission (European Commission, 2003). Directive 2006/38/EC defines the conditions under which Member States are allowed to levy tolls on the Trans-European Transport Networks (TEN-T) and on roads in direct competition. Tolls initially only reflected infrastructure costs, and applied to all freight traffic over 3.5 tonnes. Tolls can be differentiated with respect to Euro emission standards (including PM10 and NOX), and with respect to time of day and type of day/season. Mark-ups are allowed for particularly sensitive regions and congested roads, the revenues of which must be used for cross financing investment costs of more environmentally friendly transport infrastructure. Therefore, users may thus be faced with incentives to reduce their financial and environmental burden by choosing the less polluting vehicles, itineraries that are less ecologicallu sensitive, less congested periods or safer vehicles. 

A further proposal for the revision of the Directive was implemented on 15th October 2010, which paved the way to the ‘polluter pays’ principle for road transport. Members States will be allowed to charge tolls on heavy-duty vehicles (12 tonnes and over) to cover the external costs associated with the road transport of goods, including air pollution and noise. These ‘external costs tolls’ will be in addition to the existing transport infrastructure charges that are allowed under the current Eurovignette Directive. The scope of the tolls has also been expanded to included the entire European network (30,000km), twice the extent of the current Eurovignette Directive, which is limited to the TEN-T network (15,000km). The proposal states that the revenue generated from the road charges should be allocated to the transport sector to contribute to its sustainability. 


Environmental Taxes

In 2005 the Commission published a proposal for the adaptation of passenger car related taxes (European Commission, 2005a). Apart from the voluntary commitment by the car industry (pillar I) and consumer information (pillar II), fiscal measures were the third pillar of the Community’s strategy to reduce CO2 emissions from passenger cars to 130 g CO2 per km by 2010 at the latest (now superseded by mandatory regulation of new passenger car CO2). It was proposed that, by 2008, at least 25 % of the total revenue from annual circulation taxes and registration taxes shall come from a CO2 based element in the tax structure. By 2012 this should account for 50% of the total revenue raised, thus providing a strong financial incentive for drivers to purchase more fuel efficient vehicles. Furthermore, registration taxes are to be abolished from the beginning of 2016 to eliminate double taxation. 

In September 2005 the Commission published a communication on aviation and climate change (European Commission, 2005b). It identifies emissions trading as the most promising economic instrument to limit emissions growth in aviation. In 2008 the decision was made to include intra-EU aviation in the European Union Emission Trading Scheme (EU-ETS) from 2012, making it necessary for the aviation sector to either decrease greenhouse gas emissions or to buy greenhouse gas allowances on the market up to a certain cap. For 2012 that cap is set to 95% of the average emissions during the years 2004 to 2006.

A study for the Directorate-General for Energy and Transport (DG TREN) on the mid-term review of the EC Common Transport Policy White Paper (Transport and Mobility Leuven, 2005) concluded that ‘the biggest failure in implementation of the White Paper proposals is the failure to implement Social Marginal Cost Pricing for all transport modes’. Advancement of effective charging for transport at the level of the European Commission and EU-15 was judged as poor, whereas advancement for the EU-10 was judged as non-existent (assessment of situation in 2005).

The transport user currently does not pay for the external costs (air pollution, climate change, safety problems and infrastructure damage) that a trip causes. By moving towards a differentiated charging scheme that is closer to the Polluter Pays principle, the environment will benefit, since environmental aspects will be better taken into account in transport related decisions by users. Variable transport pricing can provide an incentive to reduce environmental pressure and might have a positive impact on load factors, logistics, overall transport safety, accessibility, air pollution and climate change. It could eventually lead to either a modal shift, or to a net reduction of transport volume, and hence to less negative impacts of transport.


Research and future infrastructure charging schemes development

Differentiated vehicle ownership and circulation taxes can be used to guide consumers to purchase vehicles that make use of technology advances to improve fuel efficiency rather than power, weight or comfort (OECD/ITF, 2008). Over the last few decades conventional (gasoline) vehicle technology has shown a natural rate of efficiency improvement of around 1% a year. This improvement alone will not enable a reduction of greenhouse gases to the targets set in Europe.

In Europe, vehicle ownership and circulation taxes are increasingly being differentiated according to CO2 emissions. National labelling systems for vehicle fuel efficiency are frequently based on an entirely different segmentation of the market (by size, price and function). There is a clear role for international coordination to harmonize the way the market is structured. Again, for tax differentiation, a formula to link tax rates to CO2 emissions rates rather than by steps or ranges of engine volume avoids the problem (OECD/ITF, 2008).

The impact of transport pricing on transport volumes was a subject of study under the sixth Framework Programme of the European Commission called GRACE - “Generalisation of Research on Accounts and Cost Estimation” ( Important findings have been developed through the project, some of which are:

  • Optimal charges for the use of rail and road transport infrastructure will be below average maintenance and renewal costs for road, and a long way below for rail, wherever there is spare capacity and little environmental impact;
  • Most of the evidence suggests that charges should be higher for low quality, less heavily used road and rail infrastructure, as the low quality nature of the infrastructure makes it more susceptible to damage;
  • Airports produce substantial environmental costs which are not usually internalised in charges;
  • There are major differences in the marginal social cost of time, space and vehicle type that have not been internalised in existing charges;
  • Data shortages exist in some Member States, but perhaps the most important implementation barriers result from policy maker’s unfamiliarity with the accounts methodology, a lack of resources and problem perception, organisational opposition against change, fear of undesirable results, and lack of an organisation responsible for national transport accounts. Overcoming these barriers requires institutional reform and more dissemination of best practice;
  • The costs of implementing the most complex charging regimes for roads appear likely to outweigh the benefits, whereas a simpler scheme is likely to yield higher net benefits;
  • All member countries with important transit transport flows have an interest to misreport their marginal external costs if their tax and toll cap is a function of their report. In practice, there will be incentives to over-charge and under-charge in different parts of Europe.

Findings of this research can help to improve infrastructure charging across Europe. They can also help to link fuel taxation, external costs of transport charging and infrastructure maintenance cost recovery schemes, thereby supporting climate change prevention.


No targets have been specified.

Related policy documents

  • COM(2003) 488
    Proposal for a Directive of the European Parliament and of the Council amending Directive 1999/62/EC on the charging of heavy goods vehicles for the use of certain infrastructures, COM(2003) 488
  • COM(2005) 261 final
    COUNCIL DIRECTIVE on passenger car related taxes
  • COM(2005) 459 final
  • COM(2008) 433
    Communication from the Commission to the European Parliament and the Council on Greening Transport, COM(2008) 433 final, Brussels, 8 July 2008.
  • COM(2008) 435
    Strategy for the internalization of external costs. Communication from the Commission. COM(2008)435
  • COM(2008) 436
    Proposal for a Directive of the European Parliament and of the Council amending Directive 1999/62/EC on the charging of heavy goods vehicles for the use of certain infrastructures COM(2008) 436
  • European transport Policy for 2010: Time to decide.
  • Fair payment for infrastructure use
    A phased approach to a common transport infrastructure charging framework in the EU, White Paper
  • Towards fair and efficient pricing in transport
    Policy options for internalising the external costs of transport in the European Union


Methodology for indicator calculation

The indictor is based on qualitative information collected through the annual questionnaire (EEA) and other sources (studies, research projects and publications).

Methodology for gap filling

Verification with the EEA member countries via annual questionnaires.

Methodology references

No methodology references available.



Methodology uncertainty

Information about the structure of tax incentives is available, but it is more difficult to find or verify data about the levels of transport taxes and charges. 

No time series are available. Comparison between countries requires detailed insight information on all aspects of price structures and also levels for transport in the Member States, which is currently lacking.

Only data about tax structures and not tax levels is available — information on both transport price levels and structures should become available in order to fully answer the question of whether we are moving towards the internalisation of external costs in transport.

Data sets uncertainty

Data completeness cannot be guaranteed because some sources are based on voluntarily submitted information. The information used in the fact sheet is the most recent information available to the EEA — it could be that more internalisation measures are implemented, which are not known to the EEA and therefore not reported.

Where a policy is included in the previous TERM 26 questionnaire response, but is not included nor explicitly removed from the latest TERM 26 questionnaire response, it has been left in with affixed comment: “Status Uncertain”. Where a country did not respond in 2010, it has also been labelled “Status Uncertain”.

Rationale uncertainty

No uncertainty has been specified

Data sources

Other info

DPSIR: Response
Typology: Policy-effectiveness indicator (Type D)
Indicator codes
  • TERM 026
EEA Contact Info


Geographic coverage

Temporal coverage



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