Fuel prices and taxes

Indicator 15 (and 16): Fuel prices and taxes

Motor fuel is currently subject to a number of different taxes, including VAT, excise duty, storage levies, security levies, and environmental taxes. Fuel taxes provide means for reducing demand. Differentiation in fuel taxes influences the choice of fuel (OECD, 1998).

The Mineral Oil Directive prescribes minimum fuel taxes, differentiated between leaded petrol, unleaded petrol and diesel. All EU Member States comply with this Directive and many countries impose even higher taxes. Taxation of fuels is also an important component of the overall EU transport policy to internalise all the costs of transport including environmental costs.

Several initiatives are underway in Member States to promote the use of taxes to manage other aspects of transport – for example to reduce congestion, accidents and pollution. Differentiated vehicle taxes to improve the age profile and efficiency standard of the vehicle fleet are used in the Netherlands and are under consideration in Ireland. In Germany, the first phase of an eco-tax reform took place in 1999 with an increase in fuel tax of 6 pfennig per litre – this will be similarly incremented each year until 2003. From 2001, fuel with a sulphur content of 50 ppm and over will be subject to an additional tax of 3 pfennig per litre.

Figure 5.4 shows that fuel taxes vary greatly between Member States. They account for 65-80 % of unleaded petrol price and 60-80 % of diesel prices. The tax differentiation required in the Mineral Oil Directive is reflected in fuel prices. Leaded petrol is the most expensive in all countries (4-17 % more than unleaded petrol and up to 57 % more than diesel in 1998), and diesel is the cheapest in most countries. Tax differentiation has been a major factor in phasing out leaded petrol.

A recent report from ECMT (ECMT, 1999 draft) finds that, as tax regimes vary between countries the level of fuel excise duty raised in each does not provide a reliable indicator of the extent to which infrastructure costs are being recovered.

Figure 5.5: Price of petrol and diesel automotive fuel (1998)

Source: Eurostat

The environmental performance of both petrol and diesel cars will improve when tighter standards for new cars are introduced following EU Directive 98/69 (regulating the emissions of carbon oxides, hydrocarbons, NO_x and particulate matter from diesel cars) and as a result of EU Directive 98/70 (regulating diesel fuels, including sulphur content). The Directive comes into force shortly after year 2000 and will be strengthened (see Indicator 2).

Figure 5.6 shows changes in fuel prices since 1990. There are large variations between Member States, and no overall trend. In most countries prices have shown relatively little change in real terms since 1990. However, in the Netherlands and the United Kingdom real prices of all fuels have risen steadily, whilst in Greece diesel is more expensive than in 1990 (although it has fallen from a peak in 1993). Real prices have fallen in several countries, especially for diesel.

In 1998 unleaded fuel prices were highest in Finland, Sweden and Italy, and lowest in Luxembourg, Greece and Portugal. Diesel prices follow a similar pattern, except in the UK where the price is particularly high.

Fuel taxes are in many countries being supplemented with other transport taxes and charges (e.g. road pricing, Eurovignette, vehicle registration taxes, tolls). However, comprehensive harmonised data on transport taxes and charges is not available (see Box 5.2).

Figure 5.6: Fuel price evolution 1990-1998

Source: Eurostat

Future work

• Eurostat collects price data for road transport fuel. No information is available on the price of kerosene for aviation, either from Eurostat, or from CONCAWE (the European oil industry organisation for environment, health and safety). The significant environmental impacts of aviation suggest that kerosene prices should be monitored.
• The European Commission recently proposed a means of monitoring prices of petroleum products (CEC, 1998a).
• It is intended to extend this indicator to cover transport taxes and charges other than fuel taxes (see Box 5.2). With the exception of fuel prices and taxes, data on transport taxes and charges is still unavailable or incomplete. It is expected that ongoing work by Eurostat/OECD (regarding statistics on environmental taxes) and ECMT (on international comparison of road and rail taxation) should soon yield the necessary data to compile TERM Indicator 16 (transport taxes and charges).