Indicator Assessment

Transport fuel prices and taxes in Europe

Indicator Assessment

Prod-ID: IND-114-en

Also known as: TERM 021

Published 15 Dec 2008 Last modified 11 May 2021

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Topics: Transport

This page was archived on 09 Feb 2021 with reason: Other (Discontinued indicator)

While nominal prices of transport fuels have increased considerably, the real (inflation corrected with HICP, reference year 2005)) price of road fuel in the EU has increased only moderately during recent decades, apart from short periods of price increases due to political instabilities.

The nineties saw an overall rise in petrol tax of 20 % (see Figure 2). However, from 2000 petrol tax began to decrease. The period of 2000-2008 saw petrol tax drop by approximately 6 %. During the same period diesel tax has seen a slight increase of less than 1 %, a dramatic change from the period of 1990-2000 which saw an overall growth of approximately 40 %.

Information on rail transport fuel prices and charges is not available.

Commercial aviation and both inland and seaborne shipping pay no fuel tax according to the directive 2003/96/EC; amended in 2004 by directive 2004/74/EC.

TERM21 Nominal and real fuel prices in the EU-25

Note: N/A

Data source:

Data provenance info is missing.

Downloads and more info

TERM21 Fuel taxes in Europe for diesel and petrol in EU-25

Note: N/A

Data source:

Data provenance info is missing.

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The nominal prices and charges are available for EU-25 from 1980. Romania and Bulgaria joined the EU as of January 1st 2007 and data for those countries is available starting from 2008.

The inflation-corrected average price of road fuel was around EUR 1.14/litre in 2008. This is an increase from EUR 0.80/litre which was the level in 1990s (see Figure 1). Two separate peaks can be seen in 1991 and again in 2003, which may be attributed to political instability in the Middle East. The gap between petrol and diesel nominal prices (in EUR) was closing in 2008.

In the EU-15 Member States, the level of fuel prices and taxes is about 20 % below the level in the Eastern European counties (excluding Romania and Bulgaria). However, the accession of the eastern European nations in 2004 has not led to a reduction of the average fuel price, due to high crude oil prices and the limited fuel consumption in the EU-10 region. The growth of the average level of taxes has slowed down in recent years, as many countries do not increase their tax rates during high oil price periods.

As a result of differences in prosperity, location, economic structure and other issues, differences in fuel taxation levels within the EU Member States exist. Several Member States do not meet the EU minimum of 0.30 EUR/l for diesel (Luxembourg, Cyprus, Lithuania, Latvia and Malta) and 0.36 EUR/l for petrol (Cyprus, Estonia, Greece, Latvia, Lithuania and Malta). A transitional period applies for these countries to adjust their fuel tax levels to the EU minimum (2003/96/EC).

External costs of diesel vehicles are on average higher than those of petrol vehicles (see TERM25 'External Costs of Transport'). Nevertheless, in all Member States (except for the UK) diesel is taxed less than petrol. This has contributed to a shift from petrol to diesel vehicles in recent decades: The fuel mix has moved from the relatively expensive petrol to cheaper diesel fuel. In 1980, petrol accounted for about 70 % and diesel for 30 % of the fuel sales. More recently, the share of diesel was 58 % and unleaded petrol about 42 %. This is due to both a growth in road freight transport, and dieselification of the passenger vehicle fleet. From an environmental point of view, diesel has lower emissions of CO₂ compared to petrol, and therefore lower taxation reflects this benefit to some extent. Diesel fuel is also a key source of particulate emissions (PM₁₀, PM_2.5) which contribute towards human health problems and the associated costs (see TERM03 Transport emissions of air pollutants). Therefore, the duties on diesel cars do not fully offset these effects, so there is a need for other instruments to deal with this problem. With the introduction of Euro V emission standards for road vehicles, particulate emissions will be reduced, although penetration of the Euro V standards into the entire vehicle fleet will take more than a decade. A rise in the tax on diesel fuel could still contribute to a better internalisation of environmental costs of diesel cars.

An increase in fuel prices can result in a decrease in fuel demand, transport demand and GHG emissions, thereby leading to a decrease in pressures on the environment. A 10 % increase in fuel price can lead to a decrease in:

Total fuel demand by 6 %;
Total vehicle kilometres by 3 %; and
Vehicle stock by 3 % (Goodwin et al., 2004).

This implies that a 10 % increase of the fuel price will, in the long run, decrease CO₂ emissions by 4-10 %, compared to the situation where prices remain stable, and vice versa. The effect on fuel demand is larger than on vehicle kilometres since the fuel efficiency of vehicles improves. This can be exemplified by comparing the UK and the US: fuel taxes in the UK are 8 times higher than in the US: UK vehicles are about twice as fuel efficient as vehicles in the US. In the shorter term, the effects are smaller (3 %). The main effect is then on the total mileage and the mileage per vehicle.

Supporting information

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 the energy-content of an 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 2015 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

Fuel prices include cost price, excise duty and VAT and are expressed in Euros per litre.

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 (NO_X), 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.

Fuel taxation, therefore, is a potential instrument for reducing emissions from transport. In particular, it represents the best charge structure for internalising climate change related externalities, as fuel consumption (factoring carbon content of fuel) is an excellent proxy for greenhouse gas emissions. The European Commission is aiming to achieve fair and efficient pricing of transport (European Commission, 2006), which implies that transport charges should aim to reflect the external costs of transport. However, to date fuel taxation is not generally used to internalise the environmental externalities of transport, possibly because high fuel tax is often politically unviable. Phase I (from 2011 to 2016) of the European Commission’s transport White Paper strategy (2011) indicates that motor fuel taxation should be revised to take account of the energy and CO₂ component. Some Member States do, however, reduce taxation on fuels that have low life-cycle emissions.

Policies favouring the uptake of diesel fuel have succeeded in increasing diesel consumption over petrol for use in road transport. Largely, these policies were put in place in Europe because of the improved fuel efficiency (and reduced CO₂ emissions) that are attributed to diesel fuels. Unfortunately, the environmental disadvantages associated with diesel fuels were not fully realised until long after the policies were put in place. As recognised in ‘Tax Reforms in EU Member States 2014’ (EC, 2014), specific measures could be introduced such as adjusting the level and structure of fossil fuel excise duties so as to reflect the carbon and energy content of the fuels, and indexing environmental taxes to inflation.

Scientific references

No rationale references available

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 levels of fuel are important for three key reasons:

Fuel taxation is an instrument that serves different policy objectives; one possible use could be to internalise external costs. If prices and duties of transport (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 way towards fair pricing. For example, charging per kilometre or vehicle regulations could be some effective measures;
Higher fuel prices act as incentives to reduce fuel consumption, e.g. through 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 settlements; and
Differentiated fuel taxes can stimulate a shift towards alternative fuels, for example to biofuels or to electric vehicles. However, there can be unwanted side effects, e.g. the lower fuel tax on diesel, once introduced to support maritime vessels, also fostered a shift from petrol to diesel passenger cars.

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 prices in road transport. 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. Also transport organisations argued against fuel tax revision. More recently in the European transport White Paper of 2011 (EC, 2011), the Commission has proposed to 'revise motor fuel taxation with clear identification of the energy and CO₂ component' by 2016.

EU minimum levels for road fuel taxes are set out in Council Directive 2003/96/EC on the taxation of energy products. As a result, the minimum excise duty for unleaded petrol increased from EUR 287 to EUR 359 per 1 000 litres. For diesel fuel, the minimum rate increased from EUR 245 to EUR 302 per 1 000 litres in 2004, and up to EUR 330 per 1 000 litres in 2010 (EC, 2007).

The EC’s 'Europe 2020' strategy (EC, 2010) includes a positive approach to energy taxes and greening transport: 'where taxes may have to rise, this should, where possible, be done in conjunction with making the tax systems more 'growth-friendly'. For example, raising taxes on labour, as has occurred in the past at great cost to jobs, should be avoided. Rather, Member States should seek to shift the tax burden from labour to energy and environmental taxes as part of 'greening' of taxation systems'.

Targets

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

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

No methodology references available.

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 index 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 use 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.

Data sources

Road fuel excise duties in the EU
provided by European Commission
Harmonised index of consumer prices (HICP)
provided by Statistical Office of the European Union (Eurostat)
Oil bulletin prices history
provided by Directorate-General Energy (DG-ENER)

Other info

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

Indicator codes

TERM 021

Frequency of updates

Updates are scheduled once per year

EEA Contact Info info@eea.europa.eu

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Older versions

28 Oct 2003 - Fuel prices and taxes

03 Jun 2003 - Fuel prices and taxes

Geographic coverage

Austria Belgium Cyprus Czechia Denmark Estonia Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Luxembourg Malta Netherlands Poland Portugal Slovakia Slovenia Spain Sweden United Kingdom

For references, please go to https://www.eea.europa.eu/data-and-maps/indicators/fuel-prices-and-taxes/fuel-prices-and-taxes-assessment or scan the QR code.

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