Fuel Taxes & ETS Effective But Regressive – European Parliament Study

A study requested by the European Parliament’s Committee on Transport and Tourism was published on Friday, February 10. The research was completed by Arno Schroten, Julius Kiraly and Peter Scholten. It explores the topic of pricing instruments on road transport CO2 emissions, how the instruments are used in the EU and analyses the main legal frameworks within this field.  

The research is based on existing literature and aims to provide an overview of the different instruments on the road transport carbon dioxide (CO2) emissions that are currently present in the European Union (EU). Furthermore, the study aims to conclude the developments and impacts these instruments may have on the transport sector and society, as well as further recommendations on general criteria for effective pricing instruments.  

Current use of pricing instruments in the EU

Pricing instruments are largely used in the EU’s road transport sector and can either be directly or indirectly linked to CO2 emissions of road transport. The study by Schroten et al. (2022), explores further into the three types of taxes and charges which are; energy taxes, vehicle taxes and infrastructure charges.  

Energy taxes are directly linked to CO2 emissions, this is because a direct connection is found between energy consumption and CO2 emission road vehicles. In some countries, specific carbon taxes are included as part of fuel excise duties – these countries include Finland, France, Denmark, Ireland, Luxenberg, Portugal and Sweden. Similarly, both vehicle taxes and infrastructure charges may be considered directly linked to CO2 emissions in some cases, however non-CO2 vehicle taxes and infrastructure charges may only impact CO2 emissions indirectly.  

The key findings for this section suggest that pricing instruments are generally enforced in the EU road transport sector. According to Schroten et al. (2022), there are wide differences between Member States depending on which instruments are based on CO2 emissions and the level of charging applied. The findings also show that CO2 emissions of cars are more heavily charged than LCVs (light commercial vehicles) and HGVs (heavy goods vehicles) due to higher excise duties on petrol than diesel. Generally, CO2 emissions from road transport are heavily charged compared to other transport modes.  

EU Legislative Framework  

This section of the study suggests that transport pricing is mostly a Member State competence. The EU’s current legislative framework aims to harmonise the design of national instruments through two directives, which are; the Energy Taxation Directive (ETD) and the Eurovignette Directive – both these directives mainly cover areas of infrastructure charging and energy taxation. Additionally, as part of the ‘Fit for 55’ policy package, the European Commission has given proposals for the introduction of a new emission trading system for road transport as well as the revision of the ETD.

Impacts of pricing instruments

The pricing instruments reduce CO2 emissions in the road transport sector – fuel taxes are vital in this case as they encourage all possible decarbonisation options. CO2 vehicle taxes are important in speeding up the update of low and zero-emission vehicles. In the EU countries, road taxes contribute to tax revenues, if market shares of low and zero-emission vehicles increase, then this may reduce the income from fuel taxes and CO2 based taxes.  

Schroten et al. (2022), conclude by highlighting a key issue in regards to the social and political acceptance of pricing instruments in their distributional impacts. Indeed, generally, CO2 based pricing is regressive – causing a financial burden for low-income households to be much higher compared to those with high income. 

Consequently, the study’s authors suggest that the EU should  introduce a balanced mix of instruments, including fuel taxes and an ETS, and that these instruments should be introduced within the context of a broader package of measures which should be regularly monitored and re-adjusted in order to increase efficacy and social acceptance.