Does this proposal contribute
to the internalisation of external costs?
68. As shown above (paragraph 54), the Commission's
proposal to harmonise commercial diesel fuel at 350/1000
litres entails a downward harmonisation relative to the
current weighted average in the EU. The unanimous conclusion of
the expert evidence received by the Committee was that, other
things being equal, this is the opposite of what is required.
The conclusion of the ECMT Secretariat"Reducing fuel
tax in isolation would have a strong negative effect on congestion
and the environment" (p 22)was echoed by the CfIT
and by Professors Goodwin, Nash and McKinnon.
69. Professor Goodwin pointed out that harmonisation
per se, irrespective of whether it is upward or downward, represents
"an almost complete abandonment" of the principle of
"Transport prices for freight, in the name of
'harmonisation' between states, would become less harmonised
with the variation in costs in specific circumstances. A tooladmittedly
rather bluntnow available to national or indeed sometimes
local administrations to take external costs into account, would
not be sharpened, but blunted even further" (p 28).
70. This corresponds to the findings of the recent
research cited in paragraph 61 and paragraph 65, which show that,
whilst optimal pricing would require an overall increase in taxation
in the UK, France and Germany, it would deliver a reduction in
the case of uncongested Finland.
In contrast, the Commission's proposal would impose reductions
in fuel duty in the UK, France and Germany at the same time as
imposing an increase in Finland.
71. In regard to the UK, the Government, English,
Welsh and Scottish Railway (EWS) and expert witnesses all referred
to the impact of so large a reduction in fuel duty on the modal
balance between road and rail. The Government have modelled the
impact of reducing duty on diesel to the harmonised level set
out in the Commission's proposal. They conclude that "the
lower cost of road freight transport would result in a 23% fall
in freight carried by rail (in terms of tonne kms) and a 12% decrease
in the share of freight carried by both road and rail. The Commission's
proposal would therefore reverse modal shift".
72. The Committee did not receive evidence on
the quantitative impact of the Commission's proposal in regard
to the taxation of petrol and "non-commercial" diesel.
Butas was noted in paragraphs 57 and 58the Commission's
proposal for a minimum rate of 360/1000 litres for the excise
duty on petrol has been made entirely redundant by the agreement
on the Energy Tax Directive; and the effect of the proposal for
an increase in the rate of excise duty on diesel fuel used for
"non-commercial" purposes has been significantly reduced
to requiring only a 9% increase in 8 of the 15 Member States and
no increase at all in the four largest Member States.
Key conclusions on the environmental
impact of the proposal
73. The Commission's proposal to harmonise
diesel fuel taxation does not contribute to the required internalisation
of the external costs of transportfor the EU as a whole,
it moves taxation in the opposite direction. The proposal would
therefore have a negative overall impact on the environment.
74. The Commission's proposal would lead to
a significant reduction in the volume and share of freight carried
by rail in the UK.
18 COM (2002) 410 Final, p 2. Emphasis in original. Back
ibid., p 8. Professor Goodwin explained that the environmental
damage caused by transport "is substantial, and growing,
with a wide range of impacts from the most local effects on air
quality, noise, and the disruption of habitat and communities.
In addition, when traffic increases faster than capacity, there
is generally an increase in congestion, in duration, intensity
or geographical spread, which itself has substantial economic
costs, imposed not only on specific vehicles but ramifying throughout
an economy. These wider costs-sometimes called 'social' or 'external'
costs-are real, cause economic burdens and inefficiencies, and
are generally only partly taken into account, or not at all, by
the companies and individuals making transport decisions."
(p 28) Back
The Commission Green Paper Towards Fair and Efficient Pricing
in Transport: Policy Options for Internalising the External Costs
of Transport in the EU (COM(95)691). Back
COM (2002) 410 Final, p 7. Back
See EESC, "Opinion on the Proposal for a Council Directive
amending Directive 92/81/EEC and Directive 92/82/EEC to introduce
special tax arrangements for diesel fuel used for commercial purposes
and to align the excise duties on petrol and diesel fuel",
CESE 73/2003, Brussels, 22-23 January 2003, paragraph 2.8, p 4. Back
Any anticipated future changes in the pre-tax price of fuel are
irrelevant to assessing the impact of the proposal. For the purpose
of this assessment, the impact of the proposal must be judged
to be, on average, a reduction in taxes and prices for road freight
These rates are to be implemented in most Member Sates as early
as January 2004. Back
See Optimal Transport Pricing, Final Report of the ECMT/EC
DG-TREN research project comparing current transport taxes and
charges with an optimal pricing benchmark, London, February 2003,
prepared as Chapter 2 of the forthcoming ECMT Report, Efficient
Transport Taxes and Charges 2003, OECD Publications, Paris,
2003, p 6. Back
See Tom Sansom, Chris Nash, Peter Mackie, Jeremy Shires (Institute
for Transport Studies) and Paul Watkiss (AEA Technology Environment),
Surface Transport Costs and Charges: Great Britain 1998,
Final Report for the Department of Environment, Transport and
the Regions, Institute for Transport Studies, University of Leeds,
Leeds, July 2001, Executive Summary, Table B. Back
See Lorry Track & Environmental Costs, A Report for
DETR, prepared by NERA, AEA Technology & The Transport Research
Laboratory, London, April 2000, Appendix B. It is true that the
FTA's conclusion holds if the phrase "environmental grounds"
is interpreted in a narrow sense; the point, however, is that
the NERA study implies the need for an overall increase in taxes
and charges to reflect all relevant external costs, including
See Optimal Transport Pricing, op. cit. Back
See Optimal Transport Pricing, op. cit. Back
Memorandum by Mr. John Healey MP (p 8). Submissions from the road
industry (see the Memorandum by the Road Haulage Association and
the Supplementary Memorandum by the FTA) have argued that price
is not the main factor in determining the performance of the rail
freight sector. But no quantitative evidence was submitted to
suggest that the Government's estimates are wrong. Back