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1.2.4 The Strategy to Internalize the External Costs of Transportation

The aim of this document was to propose a common methodology for the internalization of transportation-related external costs (EC, 2008c). Internalization intends to give the right price signal; so that users bear the costs they create and thus have an incentive to change their behaviour in order to reduce these costs.

In theory, the “social marginal cost charging,” i.e. the additional short-term cost created by one extra person using the infrastructure, is the appropriate price setting mechanism that does not lead to overexploitation of resources (through underpricing), and at the same time does not damage the transportation sector or ultimately the economy (through over-pricing). However in practice, marginal costs cannot be calculated easily, as they vary according to time and place. Furthermore, for some costs, such as those relating to noise, the method for estimating the marginal costs is very complex, and average cost pricing is used instead.

It should be mentioned that external costs, which are internalized according to the 'polluter pays' principle, should not be confused with infrastructure costs that are funded according to the 'user pays' principle.

After setting the principles, the document proposed a methodology adapting the overall strategy of external cost internalization to the characteristics of each mode of transportation.

For the road sector, Directive 1999/62/EC on the charging of Heavy Duty Vehicles (HDVs) precluded incorporating any of the external costs when calculating tolls. It was amended by Directive 2006/38/EC to allow different tariffs to be applied depending on vehicles' environmental characteristics. However, with the exception of mountainous regions, and then only in certain circumstances, toll revenues could not exceed infrastructure costs. This was the case even in more congested regions or regions with higher levels of pollution. The Commission, therefore, proposed to revise Directive 1999/62/EC in order to enable Member States to integrate in tolls levied on HDVs an amount which reflects the cost of air pollution and noise pollution caused by traffic. During peak periods, it would also allow tolls to be calculated on the basis of the cost of congestion imposed upon other vehicles. The amounts would vary with the travelled distance, location and time of use of roads to better reflect these external costs (EC, 2008d).

An interesting feature of the proposed revision was that the proceeds would have to be used by Member States for making transportation more sustainable through projects such as research and development on cleaner and more energy efficient vehicles, mitigating the effect of road transportation pollution or providing alternative infrastructure capacity for users. The charge would have to be collected through electronic systems which do not impede the free flow of traffic and which can be extended to other part of the network at a later stage without significant additional investments.

In addition, the proposal extended the scope of the current Directive beyond the TEN-T network to avoid inconsistent pricing schemes between major corridors and other interurban roads.[1] The same charging principles could also be extended to private cars.

For the rail sector, Community action was suggested to reduce the exposure of citizens to rail noise by retrofitting freight wagons with low-noise brakes. To overcome the financial burden of retrofitting, the Commission analysed different measures and concluded that a combination of noise-differentiated track access charges, noise emission ceilings and voluntary commitments is the most appropriate solution (EC, 2008e).

• In the framework of a revised Directive 2001/14/EC12, which harmonises charging principles including noise, a system of noise-differentiated track access charges could be introduced. Three basic models could be used as an incentive:

– a cost-neutral bonus-malus system with reduced charges for silent wagons and higher charges for noisy ones,

– a bonus system in the form of economic incentives for the wagon owners to

retrofit their wagons in the start-up phase, and

– a malus system consisting of increased charges for noisy wagons.

Infrastructure managers would be in charge of the installation of identification systems and the necessary ICT tools.[2]

• The noise emission ceiling limits the average emissions within a determined period at a certain location along the line. Such schemes leave it to the rail sector to find optimal solutions and can comprise the second step after the initial retrofitting programmes have been completed.

• Voluntary commitments by the rail sector can guarantee the effectiveness of differentiated track access charges and help to speed up their implementation even before legal requirements enter into force.

As for the maritime transportation, the Commission expressed its wish to include it in the post-2012 agreement on preventing climate change. If IMO would not make sufficient progress, the Commission suggested taking action at European level; with one of the possible options being to include the maritime sector in the EU ETS.

Before changing subject, it should be mentioned that in order for internalization to be effective, the transportation user must be price sensitive. Sometimes this is not possible for specific reasons, such as the lack of credible alternatives, insufficient competition with regard to a particular mode of transportation, insufficient incentive to innovate and switch to clean vehicles, etc. Internalization is a necessary step in itself, but it must be accompanied by other measures intended to create greater elasticity of demand, i.e. greater sensitivity to price variations, to make the supply of certain services more attractive or to speed up technological innovation. In order to reduce the external costs, we therefore need a strategy that includes various other elements in addition to internalization, elements such as providing infrastructure, encouraging technological innovation, competition policy and setting standards.

  • [1] The proposal was adopted in 2011 as Directive 2011/76/EU amending Directive 1999/62/EC on the charging of heavy goods vehicles for the use of certain infrastructures
  • [2] Directive 2012/34/EU establishing a single European railway area (recast of the first railway package) was adopted on 21 November 2012. A provision for non-mandatory noise-differentiated track access charges is included as Art. 31(5). In addition, the Commission shall adopt implementing measures by 2015 setting out the charging modalities for the cost of noise effects enabling the differentiation of infrastructure charges to take into account, among others, the sensitivity of the area affected
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