External costs and charges per vehicle type

Overview of internalisation measures as provided in CE, 2007.

Note: Overview of internalisation measures as provided in CE, 2007.

Data source:

CE - Oplossingen voor milieu, economie en technologie. Methodologies for external cost estimates and internalisation scenarios. Discussion paper for the workshop on internalisation on March 15, 2007. http://www.ce.nl/4288_Inputpaper.pdf  

Downloads and more info

Road transport:

• The first key measure was the 2003 Energy Taxation Directive (2003/96/EC). The aim of the Directive was to create an EU wide system for the taxation of all energy products. The Directive is currently being revised and a stakeholder meeting was held in September 2009. Participants were invited to send comments by the end of October on the introduction of a European framework for carbon taxation.
• Directive 1999/62/EC (Eurovignette Directive) outlines heavy duty vehicle charging for the use of infrastructure. This was amended in 2006. However, one constraint of the current Directive is the requirement that revenues may not exceed related infrastructure costs. It only allows a limited differentiation of charges according to capacity or environmental criteria. The Commission is proposing to revise the Directive again in order to allow charges to take into account external costs. As part of this process, the Commission funded a study to develop a transparent and comprehensive model to assess all external costs for all transport modes. This work is known as the IMPACT study (Internalisation Measures and Policies for All external Costs of Transport).
• In December 2008, the European Commission adopted the Intelligent Transport Systems Action Plan as part of the Greening Transport Initiative. It aims to accelerate the deployment of ITS and thereby improve route planning and therefore avoid traffic congestion as well as implement interoperability of electronic toll systems.
• A taxation on private cars is currently under discussion. It proposes to restructure existing taxes in order to take CO2 emissions into account. The Commission's proposal includes three key measures: abolishing the registration tax, setting up a system for refunding it and restructuring the tax base for the registration tax and the annual road tax to establish a full or partial link with CO2 emissions.

Rail:

Directive 2001/14/EC lays down charging principles for the railways: charges must be paid to the infrastructure managers and used to fund their business. In principle, the charge for the use of railway infrastructure is equal to the cost directly incurred as a result of operating trains. The infrastructure charge may be adjusted to take account of the cost of the environmental impact of operating the trains. By way of exception to these charging principles, the Directive allows infrastructure managers to levy mark-ups, if the market can bear this, on the basis of efficient, transparent and non-discriminatory principles, while guaranteeing optimum competitiveness, especially of international rail freight. Subject to certain conditions, railway undertakings may be granted discounts on charges (Europa, 2008a).

Noise pollution is an issue for rail transport. According to the European Environment Agency, about 10% of the population in the EU15 was exposed to significant noise from rail transport in 2000. In order to significantly reduce noise emitted by freight trains, Community actions aims at retrofitting about 370,000 wagons in Europe with low noise brakes. All wagons running more than 10000 kilometres per year and with a remaining lifetime of at least 5 years should be equipped with this technology by 2014. In the course of revising Directive 2001/14/EC, the Commission will propose a mandatory and harmonised introduction of noise differentiated track access charges (Europa, 2008b).

Aviation:

While the EU's total greenhouse gas emissions fell by 3% from 1990 to 2002, emissions from international aviation increased by almost 70% (Europa, 2009). In order to mitigate the climate impacts of aviation, it will now be included in the EU emissions trading scheme (EU ETS) (Directive 2008/101/EC). Consequently, from 2012, aircraft operators will be required to surrender allowances to cover their emissions according to the "polluter pays" principle. The Directive applies not only to intra-Community flights but also to all other flights arriving at or departing from an EU airport. It caps emissions at 100% of the levels obtained during the 2004-06 reference period.

The Commission is aware that the aviation industry's impact on climate change is not just limited to its CO2 emissions and has already announced that it intends to deal with emissions of other greenhouse gases, particularly nitrogen oxide (NOx). The Commission is therefore drawing up another proposal, which is currently under discussion with the aim of reducing NOx emissions.

Lastly, on 24 January 2007, the Commission put forward a proposal for a Directive on airport charges. It will ensure that air fares are fully transparent making the disclosure of tax levied on fares mandatory and clear and include differentiated charging on the basis of environmental damage (European Commission, 2007). This was adopted in March 2009.

Maritime transport:

The International Maritime Organisation at its 59th session in July 2009 agreed to disseminate a package of interim and voluntary technical operational measures to reduce greenhouse gas emissions from international shipping; and also agreed a work plan for further consideration at future meetings of proposed market based instruments to provide incentives for the shipping industry. The Commission does, however, wish to include the maritime sector in the post-2012 agreement on preventing climate change.

Inland waterways:

There are future revision plans to internalise external costs of inland waterways as well as indicated in the NAIADES Communication (European Commission, 2006). It points out that this could revitalise inland waterway transport and would make it possible to fund infrastructure development projects in the sector.

Issues surrounding internalising external costs

The basic idea behind internalisation of external costs is that a regulatory charge is introduced that is equal to the marginal external cost and that therefore transport users take account of the external effects on one another and on others and may or may not adapt their decision, depending on whether their marginal benefit is lower or higher than the marginal external cost to others. However, it is not always straightforward as external cost levels may vary from minute to minute and therefore, transport users may not be able to take fully account of such varying taxes and charges and even then technological solutions to charge such rapidly varying taxes and charges are not straightforward either. Therefore, there may be reasons for deviating from marginal cost pricing. For any specific pricing instrument, the incentive base needs to be kept as simple as possible to avoid unnecessary complexity of the pricing scheme. Systems that are too complex may stay closer to the marginal social cost pricing, but generally also face the problem of high implementation and transaction costs (CE, 2007).

The CE 2007 study provides an overview of suggested internalisation measures. They are shown in Table 2 below.