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Indicator 19 (and 17): Internalisation of external costs
Figure 5.8: Proportion of external and infrastructure
costs covered by revenues in transport (1991) Objective Definition Note: External costs are those that transport users inflict on others, such as noise, air pollution, accidents, climate change, congestion, and infrastructure costs. With improvements in data and method they could also include the use of land, solid waste generation, water pollution, fragmentation of human and animal communities, and the aesthetic impacts of infrastructure and traffic. |
Policy and targets
An important aspect of the EU transport policy is the concept of fair and efficient pricing, described in the Commission Green Paper on Fair and Efficient pricing (CEC, 1995). This proposes to apply the polluter-pays principle to ensure that transport users pay all the costs they impose on others. External costs should be recovered via taxation, and these taxes should be differentiated according to the environmental performance of each mode.
Internalisation is a policy instrument to correct market imperfections and the resulting inefficient allocation of resources that can occur when costs are not borne by those who incur them. Internalisation of external costs such as those related to air pollution, noise and accidents should also reduce the environmental costs of transport by providing incentives to reduce demand.
It is widely accepted that transport prices do not recover external costs, but there is less agreement about the extent of the shortfall. Any move towards internalising costs should however produce significant social and community benefits. The recent ECMT report on policies for internalisation concludes that the main response to internalisation is likely to be significant technological and operational efficiency improvements. The overall effect on demand for mobility and modal shares is likely to be relatively small. But the increase in transport costs will be offset by efficiency improvements and there will be opportunities for reducing non-transport-related taxes. So the impact on GDP growth or industrial competitiveness is likely to be small (ECMT, 1998).
Findings
The external costs of transport in the EU caused by environmental damage (noise, local air pollution, and climate change) and accidents are estimated to be around 4 % of GDP (ECMT, 1998).
In 1991, cost recovery (Figure 5.8) was generally higher for rail (39 %) than for road transport (30 %) (with the exception of the Nordic countries and Ireland). This is partly due to rail infrastructure subsidies being used to encourage greater use of rail transport. Overall, the degree of internalisation remains below 50 %. The highest cost recovery rates are found in France, Austria, Denmark and Spain, while Belgium and Portugal show the lowest.
It is estimated (see Figure 5.9) that of total EU external transport costs:
Figure 5.9: External costs of transport per capita
(1991)
Source: UIC, 1994
Currently, it is impossible to calculate internalisation percentages for inland shipping and aviation, as data on taxes and charges is not available. Also no levies are imposed on the River Rhine, which includes the bulk of inland navigation in the EU. Similarly, aviation is exempt from excise duties and VAT.
Finally, another important issue in considering the policy of internalisation is the role of public transport subsidies. In the short term, before full internalisation has been achieved, subsidies can provide another way of promoting less environmentally harmful transport modes. Some governments subsidise passenger train services in order to provide an alternative to car transport and to help ensure social equity.
Box-5.3: Peak car reference prices and costs In the TRENEN II STRAN research project urban and interregional models were developed to assess pricing reform in transportation in the European Union. The models were applied in six urban case studies and three interregional case studies. Although some methodological and data problems remain, the project findings shows that the discrepancy between current prices and external costs in congested urban conditions are often considerable. Figure 5.10 gives, for some of the case studies and for 2005, the expected generalised prices and marginal social costs of a small petrol car driven in the peak period by a lone inhabitant who does not pay for his parking at destination. The figure shows that peak car use covers only one-third to half of its full marginal costs. There are two main sources of error: unpaid parking and the omission of some external congestion costs (e.g. the time costs that each user imposes on others). Unpaid parking distorts prices in the peak and off-peak. Its importance varies across cities: parking costs are much higher in London and Amsterdam than in Brussels and Dublin. The external costs shown in the figures cover congestion air pollution, accidents and noise. In the inter-urban passenger transport case studies (results for Belgium and Ireland in the figure), the difference between current taxes and charges and external costs were found to be less important than for urban transport. Figure 5.10: Peak car reference prices and costs (expected situation
for 2005 with unchanged pricing policies) |
Future work
Data |
||||||||||
External costs |
Infrastructure costs |
Total costs |
Revenues |
Cost recovery |
||||||
road |
rail |
road |
rail |
road |
rail |
road |
rail |
road |
rail |
|
Austria |
6 665 |
112 |
3 713 |
1 283 |
10 378 |
1 395 |
2 613 |
729 |
25.2 |
52.3 |
Belgium |
8 680 |
126 |
1 152 |
600 |
9 832 |
726 |
664 |
351 |
6.8 |
48.3 |
Denmark |
3 424 |
120 |
1 338 |
171 |
4 762 |
291 |
2 467 |
90 |
51.8 |
30.9 |
Finland |
3 208 |
94 |
3 068 |
283 |
6 276 |
377 |
1 829 |
46 |
29.1 |
12.2 |
France |
34 998 |
335 |
22 853 |
4 265 |
57 851 |
4 600 |
19 407 |
2 604 |
33.6 |
56.6 |
Germany |
61 846 |
1 445 |
25 049 |
4 724 |
86 895 |
6 169 |
22 583 |
2 008 |
26.0 |
32.5 |
Greece |
3 240 |
29 |
687 |
112 |
3 927 |
141 |
756 |
65 |
19.3 |
46.1 |
Ireland |
1 572 |
35 |
800 |
48 |
2 372 |
83 |
955 |
28 |
40.3 |
33.7 |
Italy |
34 795 |
832 |
20 649 |
2 439 |
55 444 |
3 271 |
22 288 |
1 424 |
40.2 |
43.5 |
Luxembourg |
340 |
9 |
284 |
28 |
624 |
37 |
149 |
16 |
23.9 |
43.2 |
Netherlands |
7 829 |
139 |
4 142 |
522 |
11 971 |
661 |
4 920 |
305 |
41.1 |
46.1 |
Portugal |
5 445 |
118 |
676 |
133 |
6 121 |
251 |
590 |
78 |
9.6 |
31.1 |
Spain |
20 702 |
293 |
7 082 |
1 718 |
27 784 |
2 011 |
5 934 |
1 003 |
21.4 |
49.9 |
Sweden |
5 527 |
69 |
2 947 |
5 216 |
8 474 |
5 285 |
5 047 |
690 |
47.9 |
13.1 |
United Kingdom |
38 508 |
538 |
13 142 |
2 132 |
51 650 |
2 670 |
19 750 |
1 245 |
38.2 |
46.6 |
EU15 |
236 779 |
4 294 |
107 582 |
25 255 |
344 361 |
29 549 |
109 952 |
10 682 |
30.3 |
39.1 |
Note: external
costs include cost of accidents Source: EEA, 1999 using data from UIC, 1994 and ECMT, 1998 |
For references, please go to https://www.eea.europa.eu/publications/ENVISSUENo12/page025.html or scan the QR code.
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