Transport: Reducing negative externalities

As part of my vision for the Transport Union reducing #externalities was one of the key drivers. As the mandate of the Juncker Commission is ending I am providing some insight in things done during my time as Commissioner for Transport.

Key results

1. Vision 0 on track for no paper in transport networks and services by 2050.
2. Full-scale report on costs and externalities in transport: €1 000 billion annually for transport – close to 7% of EU GDP.
3. Reduction of emissions: Strategy, Action Plan; investments: total of €18 billion in 381 projects linked to decarbonisation via CEF, innovative financial tool to support electric buses and green shipping.
4. Reducing road traffic accidents: adoption of a ‘systems approach’, Valletta Declaration (containing commitments and targets on road safety), new EU rules on safer vehicles and infrastructure, strategic action plan on road safety.

1.   Why prioritise negative externalities?

One of the key objectives of the Transport Union is to deliver Vision 0 for negative externalities from transport by 2050.

This means:

• Vision 0 for emissions and pollution;
• Vision 0 for accidents (fatalities and serious injuries);
• Vision 0 for congestion (improved standard of living).

A comprehensive study was completed in June 2019, identifying levels of negative externalities from transport, as well as the infrastructure costs, across all EU Member States and all Transport modes. The results are compared with the taxes and charges paid by users.

2.   What are the externalities of transport?

For the EU28, the total external costs of transport are estimated at almost €1 000 billion annually, close to 7% of EU28 GDP. These external costs relate to accidents, environment (air pollution, climate change, the costs related to energy production, i.e. the well-to-tank emissions, noise, habitat damage) and, only for road, congestion costs of more than €250 billion[1]. These external costs are a quantification in monetary terms of non-market items, merely expressed as a percentage of GDP to provide an idea of size.

Road users generate the overwhelming majority of such costs. The high share of road transport activity compared to other modes certainly contributes to this outcome but, in general, road modes also show the highest average external costs (in €/passenger-km or €/tonne-km).

Figure 1 – Share of the different transport modes’ total external costs in 2016 for the EU28 (incl. road congestion)

Environmental costs account for almost half of the costs mentioned above. Congestion and accident costs are also very significant, at around €270 and €280 billion respectively. 

Figure 2 – Share of the different cost categories of total external costs in 2016 for the EU28

The extent of external costs is significantly higher than previously quantified for most categories. This is driven by an increase in activity that has not been accompanied technological development to reduce costs. It also reflects a different, updated methodology. New research results have been taken into account, and other developments such as the real-life emissions can now be factored in. 

For road, rail and inland waterway transport, the total infrastructure costs in the EU amounted to almost €270 billion for 2016. Such costs include both fixed and variable costs. Passenger cars and heavy goods vehicles cause the lion’s share of these costs. Alongside road transport, rail also has substantial infrastructure costs. Almost three quarters of such costs are created by passenger transport[2].

Figure 3 – Total infrastructure costs in 2016 for road, rail and inland waterway transport in the EU28 (billion €, PPS adjusted)

3.   Do users pay for these costs?

Comparing these results with the level of taxes and charges paid by transport users shows that they do not cover the total costs generated by transport: the total revenues from land modes amount to €370 billion. The revenues for aviation and maritime transport are about one order of magnitude smaller, and even though total costs are also lower than for land modes, the revenues for the selected (air)ports roughly cover infrastructure costs, but not external costs.

The figure below exemplifies this: the road sector pays back the most – taxes and charges cover 44% of total external and infrastructure costs. But road is, at the same time, the mode passing on the highest bill to society. Rail users pay back 20% of the total costs they generate, while aviation covers almost 30%. Waterborne modes pay back around 5% of their total costs[3].

Figure 4 – Total external and infrastructure costs vs. total taxes and charges

These findings should be put in context. First, there are methodological caveats and necessary approximations. Second, there are good reasons for which users should only pay for a part of infrastructure costs, i.e. the ones for which they are directly responsible (wear and tear costs). The following figure illustrates that, excluding fixed costs, rail users pay the highest share of the costs for which they are responsible, i.e. almost 70%. This can be explained by the very high fixed costs necessary to build the railway network, compared to other modes. Road users pay around 55% of their total external and variable infrastructure costs, while for aviation this cost-coverage ratio is around 36%. Waterborne modes still pay the least.

Figure 5 – Total external and variable infrastructure costs vs. total taxes and charges 

4.    What have we done to reduce the negative impacts of transport?

The Treaty on the Functioning of the European Union sets out that the polluter should pay. European transport policy has been formulated with this in mind for many years, and the proposal to introduce a harmonised European Electronic Tolling System (EETS) follows this approach.

Costs that are not internalised must be borne by someone, and it is society that pays. Social fairness implies that those responsible for the costs should also bear the burden, although we need to take care of socially disadvantaged groups who will need help if far-reaching internalisation measures are implemented. Moreover, to ensure social acceptability, it is important to emphasise that internalisation does not have to lead to an overall higher tax burden, it can be implemented rather by shifting existing taxation towards internalisation measures.

While internalisation is not a silver bullet for the negative impacts of transport, it could be complementary to non-pricing measures targeting a reduction in negative externalities, e.g. through regulation (such as safety). 

5.   Next steps

• Further progress towards Vision 0 (no paper by 2050).
• Act based on the report into the internalisation of external costs.
• Development of a full lifecycle approach to investment.
• Improve governance model that connects negative externalities with the cost of medical services, rehabilitation, premature deaths and emotional devastation of families

[1] A significant part of the total external cost of congestion is already internalised by the willingness of the users to travel in congestion.

[2]  As for aviation and maritime transport, infrastructure costs are estimated for a selection of (air)ports, no total infrastructure costs figures for the EU28 level are available.

[3] There are however greater uncertainties for maritime and inland waterway transport than for other modes