Abstract
Selected Issues
Options for Carbon Mitigation and Transportation Policy in the Netherlands1
The Netherlands is developing ambitious plans for mitigating carbon dioxide (CO2) emissions and broader environmental costs of transportation. There is much at stake in the choice and design of policies to implement these plans.
Mitigation policy. To strengthen mitigation incentives, improve cost effectiveness, raise more revenue and improve policy credibility, policymakers might consider:
Introducing a carbon surcharge for emissions in the Netherlands covered by the EU Emissions Trading System (ETS), and a carbon tax for emissions in the Netherlands outside of the ETS sector, with emissions prices ramped up predictably and progressively from the near term onwards (and ultimately harmonized across the two sectors);
Complementing pricing with selected measures to (i) strengthen mitigation while containing (politically challenging) impacts on energy prices (e.g., revenue-neutral ‘feebates’ or tax-subsidy schemes to promote fuel switching in power generation) and (ii) enhance the effectiveness of pricing (e.g., infrastructure for clean technologies).
Transportation policy. To more effectively reduce road congestion, accidents, wear and tear, air emissions, and carbon emissions, while stabilizing revenue, policymakers might consider:
A longer-term transition from fuel to (electronically-collected) distance-based tolls for light-duty vehicles (LDVs), implemented either at the local or national level, with toll rates varying with the severity of prevailing congestion;
Promoting (through fiscal incentives) a market-driven transition to pay-as-you-drive automobile insurance to raise the marginal costs of driving, especially for dangerous drivers (without a new tax burden on the average motorist);
Aligning (upcoming) distance-based charges for heavy goods vehicles (HGVs) according to their contribution to road damage, air emissions, congestion, and accident risk, with charges varied according to the location and timing of driving;
Avoiding tensions between fiscal and environmental objectives, and hard targets for electric vehicles, by replacing the current system of CO2-related vehicle registration taxes with: (i) an ad valorem tax on imported vehicles (to maintain revenue) and (ii) a continuous (rather than discrete) revenue-neutral feebate or sliding scale of taxes/subsidies for relatively high/low emission vehicles; and
Implementing a feebate scheme to reduce carbon emissions from HGVs, though levied on the in-use fleet and with fees/rebates scaled by a vehicle’s annual kilometers (km) driven.
A. Background
1. The new Dutch government fully embraced the Paris Climate Agreement and committed to an ambitious climate change policy. The European Union (EU) has pledged to reduce CO2 and other greenhouse gases (GHGs) by 40 percent relative to 1990 levels by 2030. The Netherlands is planning to go further, increasing its own GHG reduction target for 2030 to 49 percent below 1990 levels. Existing policies designed to meet the EU pledge include: (i) the EU Emissions Trading System (ETS) reducing power generation and large industrial emissions 43 percent below 2005 levels by 2030; (ii) national-level targets for non-ETS emissions—for the Netherlands a 36 percent reduction below 2005 levels by 2030;2 (iii) EU goals for energy efficiency (a 30 percent improvement by 2030) and renewables;3 and (iv) EU standards for vehicle CO2 emission rates. The new government agreement contains substantial policy measures to cost-effectively reduce emissions including: introducing a minimum price for CO2 emissions from power generation on top of the ETS; shifting taxes off electricity and onto gas generation; phasing out coal plants and natural gas for new buildings by 2030; subsidizing carbon capture and storage (CCS); and expanding offshore wind power.
2. The Dutch authorities are also considering major reforms to transportation policy to complement emission reduction efforts and to address other environmental costs. These reforms include full penetration of electric vehicles into the new car fleet by 2030; adoption of km-based (i.e., distance-based) taxation for HGVs; stiffer penalties to deter dangerous driving; and infrastructure upgrades to alleviate traffic congestion. The first policy will progressively erode traditional revenue sources from LDVs—fuel taxes and CO2-related vehicle taxes—posing the question of what revenue-raising instruments could replace them.
3. This Selected Issues Paper analyses reform options for carbon mitigation4 and transportation policy. The focus is on: (i) reforms that might meet CO2 objectives with lower costs, more revenue, and enhanced credibility; and (ii) reforms to more effectively reduce the environmental costs of road transport while stabilizing revenue. The analysis uses an IMF spreadsheet tool5 for mitigation policy, and Dutch and IMF estimates of the environmental costs of road vehicles.
B. CO2 Mitigation
4. Mitigation policies are evaluated using a spreadsheet tool parameterized to the Netherlands. The model starts with use of fossil fuel products and other fuels in the power generation, road transport, industry, and household/commercial sectors. Fuel use is projected forward in a ‘business-as-usual’ (BAU) case, accounting for previously implemented mitigation policies (implicit in recent fuel use data)—but not planned mitigation policies—using assumptions about: (i) GDP growth; (ii) income elasticities (i.e., the responsiveness of energy demand to higher GDP); (iii) autonomous rates of technological change (e.g., that improve energy efficiency and the productivity of renewables); (iv) future international energy prices; and (v) the price responsiveness of fossil fuels in different sectors. An ‘envisioned policy’ reference case is then developed with a simplified representation of the EU ETS, regulations (represented in the model by implicit or ‘shadow’ prices) to meet requirements for energy efficiency, vehicle emission rates, and the Netherlands target for non-ETS emissions. Various reforms to envisioned policies that replace regulatory approaches with pricing policies, while preserving emission targets, are then considered. The impacts of policies largely depend on how they affect fuel prices (explicitly or implicitly), fuel price responsiveness, and environmental impacts (carbon emissions, local air pollution mortality, etc.) of fuel use. Various data sources are used to parameterize the model, including the IMF (for GDP growth and domestic environmental impacts); the International Energy Agency (for fuel use data by sector); Dutch authorities (for current fuel prices and taxes); and empirical evidence/results from energy models for fuel price responsiveness and rates of technological change.6 For given (long-run) impacts of policies on fossil fuel use, the CO2, fiscal, and economic welfare costs7 predicted by the model should approximate those from more sophisticated (but computationally intensive) models.8
5. Currently envisioned policies effectively reduce emissions but lose revenue. Collectively, currently envisioned policies reduce nationwide CO2 emissions in the Netherlands by an estimated 26 percent below BAU levels in 2030 (and BAU emissions are already 10 percent below 2005 levels). National policies reduce emissions 9 percent, the ETS9 and energy efficiency policies for the ETS sector both reduce emissions 6 percent, energy efficiency policies for the non-ETS sector reduce emissions 4 percent, and the vehicle emissions rate standard reduces emissions 2 percent (Figure 1a). Envisioned policies reduce revenue by 0.25 percent of GDP in 2030 (Figure 1b, lower set of bars) because energy efficiency policies erode the bases for fuel and electricity taxes and this more than offsets revenue gains from ETS allowance auctions which raise 0.15 percent of GDP, assuming half of allowances are auctioned.
Netherlands: Impacts of Mitigation and Transportation Policies
Citation: IMF Staff Country Reports 2018, 131; 10.5089/9781484357866.002.A004
Sources. IMF staff, Parry and others (2014), Ricardo-AEA (2014), Schroten and others (2014).Netherlands: Impacts of Mitigation and Transportation Policies
Citation: IMF Staff Country Reports 2018, 131; 10.5089/9781484357866.002.A004
Sources. IMF staff, Parry and others (2014), Ricardo-AEA (2014), Schroten and others (2014).Netherlands: Impacts of Mitigation and Transportation Policies
Citation: IMF Staff Country Reports 2018, 131; 10.5089/9781484357866.002.A004
Sources. IMF staff, Parry and others (2014), Ricardo-AEA (2014), Schroten and others (2014).6. A series of emissions-neutral reforms could raise new revenues, close to 2 percent of GDP, but would increase energy and emissions prices and could be politically challenging. Replacing vehicle emissions standards with higher road fuel taxes (holding road emissions fixed) raises 0.4 percent of GDP but requires a fuel price increase of €0.60 per liter.10 Extending a uniform carbon tax to all non-ETS emissions (while keeping non-ETS emissions fixed and removing the extra road fuel tax) raises revenues of 1.1 percent of GDP but requires a price of €170 per tonne of CO2. Fully auctioning ETS allowances would raise an additional 0.15 percent of GDP in revenue. Introducing a CO2 surcharge for the ETS sector (while removing other CO2-related policies) raises revenues of 0.2 percent of GDP but requires raising the CO2 price by €52 per tonne. Harmonizing prices across ETS and non-ETS sectors (keeping nationwide emissions fixed) loses a modest amount of revenue and implies an economy-wide price of €136 per ton of CO2 (upper set of bars in Figure 1b).
7. Although the costs of envisioned polices are not too large (around 0.6 percent of GDP in 2030—lower set of bars in Figure 1c), pricing reforms could significantly lower these costs while generating domestic environmental benefits. The biggest source of costs, 0.35 percent of GDP, is for meeting the national level targets for the non-ETS sector (assumed here to take the form of regulations reducing the intensity of use of fossil fuels by households, commerce, and small industry), while other policy costs are moderate—about 0.15 percent of GDP for the vehicle emissions standard, 0.1 percent for energy efficiency policies within the ETS sector, and around 0.03 percent of GDP each for the ETS and (EU level) energy efficiency requirements for the ETS sector. Costs are moderately lower (0.45 percent of GDP overall) when domestic environmental benefits (primarily reduced air pollution mortality) are netted out. Various pricing reforms (just mentioned) could lower economic costs to 0.4 percent of GDP, or costs net of environmental benefits, to 0.1 percent of GDP (upper set of bars in Figure 1c). The largest cost savings are from carbon taxes for the non-ETS sector.
8. Carbon surcharges and carbon taxes could follow similar policies in the UK and France/Ireland. The UK imposes a variable carbon tax on top of the ETS emissions price (for power generators) where the tax rate equals any prevailing difference between a target for the combined tax/ETS price and the ETS price.11 To avoid continuous changes in the tax rate, a similar scheme for the Netherlands might specify a fixed tax rate (rising predictably over time) leaving the ETS price component variable. A Dutch surcharge for ETS emissions would have no direct impact on EU wide emissions (as they are fixed by the ETS cap), unless the Dutch government were to simultaneously purchase ETS allowances and withdraw them from the market—though a Netherlands tax might spur similar measures in other member states, increasing pressure for reform of the ETS (to keep it binding). France and Ireland have introduced carbon taxes for non-ETS emissions from fossil fuels, in the former case slated to rise sharply from €31 per tonne in 2017 to €65 in 2020 and €86 in 2022, while the carbon tax in Ireland is currently fixed at €20 per tonne.
9. To make headway on more ambitious (national level) emissions targets, carbon pricing might be combined with selective, fiscal measures to further major mitigation opportunities without a large impact on energy prices and infrastructure investments to enhance the effectiveness of pricing. One potential complementary mitigation instrument is ‘feebates’ (fee-rebates) for the power sector, involving charges for emissions-intensive generators in proportion to their output times the difference between their emission rate and a ‘pivot point’ emission rate and subsidies for non-emissions-intensive generators in proportion to their output times the difference between the pivot point and their emissions rate.12 The charges/subsidies establish a uniform, implicit price on CO2 emissions, and if the pivot point is set at the industry average emission rate the feebate will be revenue neutral and therefore have only a modest impact on electricity prices (as there is no first-order pass through of carbon pricing revenue or rents). The feebate is more flexible than the proposed natural gas/electricity tax shift as the feebate rate is easily adjusted over time to de-carbonize the power sector at the desired rate (without raising tax burdens on the power sector) and it strikes the efficient balance between gas and other emitting fuels like coal with CCS. Other complementary mitigation measures might include fiscal incentives for the adoption of CCS at industrial plants (as included in the government agreement) and fiscal analogs of regulations (e.g., progressively tightening natural gas standards for new buildings but with the possibility of paying out-of-compliance fees if standards prove costlier than anticipated). Targeted infrastructure investments can also enhance the effectiveness of carbon pricing (thereby lowering the prices needed for emissions objectives), such as modifications to the grid to accommodate more renewables and pipelines for CCS.
10. Targets for emissions prices, rather than quantities, are generally preferred on economic grounds. Quantitative emissions targets can provide more certainty over future emissions, but may result in highly uncertain (explicit or implicit) emissions prices (e.g., emissions prices will vary with future energy demand, fossil fuel prices, future technological changes affecting the costs of low-emission technologies, etc.). This price uncertainty may deter market investments in clean technologies (especially those with high upfront costs and long-range emissions reductions) and may significantly undermine cost-effectiveness in a dynamic sense (to the extent that emissions prices, and incremental mitigation costs, vary from year to year with economic conditions). Economists generally recommend carbon price targets because they provide more certainty for investment and can better accommodate uncertainties (e.g., abatement is automatically greater in periods when incremental mitigation costs are relatively low and vice versa when incremental costs are relatively high). Prices can be set with the expectation of meeting a given emissions target on average over time.
11. The more urgent priority may be establishing robust near-term carbon prices than fine-tuning more distant emissions targets. Establishing full credibility for distant targets may be challenging—for example, market participants may believe there is some possibility that distant emissions targets in the Netherlands or EU could be scaled back in the interim if other countries fail to make sufficient progress on their Paris mitigation pledges, as seems a distinct possibility.13 In fact, establishing more aggressive carbon prices in the near term—through minimum prices for CO2 emissions, carbon surcharges, taxes and the like—not only strengthens near term mitigation but might also enhance the credibility of longer term targets.
C. Road Transportation: Reducing Environmental Costs and Stabilizing Revenue
The starting point for evaluating an economically efficient tax system for road vehicles is estimates of their environmental, or more precisely, ‘external’ costs.14 External costs for gasoline vehicles (Figure 1d) totaled €1.58 per liter in 2013 according to Dutch sources or €1.10 per liter according to IMF sources.15 Both studies put congestion at, by far, the biggest cost (€0.88 and €0.85 per liter respectively), followed by traffic accidents (€0.44 and €0.17 per liter respectively, global warming (€0.21 and €0.08 per liter respectively16), and local air pollution (€0.05 and €0.01 per liter respectively). External costs for diesel vehicles (Figure 1e), averaging over use in LDVs, HGVs, and buses, are either about the same or somewhat lower, totaling about €1.12 per liter in 2013 in both studies. Congestion is still the largest component by far (€0.59 and €0.77 per liter respectively), followed by accidents (€0.15 and €0.13 per liter respectively) or global warming (€0.24 and €0.09 per liter respectively), air pollution (€0.14 and €0.13 per liter respectively), with a small contribution from road damage (€0.01 and €0.02 per liter respectively).17
12. Gasoline vehicles are mostly charged for externalities through existing fuel excises but not diesel vehicles. In computing efficient taxes, externalities that vary with changes in driving (i.e., congestion, accidents, road damage), but not fuel efficiency, are multiplied by the fraction of the tax-induced fuel reduction that comes from reduced driving (assumed to be 0.4 in Figures 1d and e). Current gasoline excises, €0.77 per liter, are about equal to, or fall somewhat short of, efficient taxes (€1.07 or €0.70 per liter according to Dutch and IMF estimates respectively) while current diesel excises, €0.49 per liter are well short of efficient taxes (€0.83 or €0.77 per liter implied by Dutch and IMF estimates respectively).18 This does not necessary mean diesel fuel taxes should be increased however, as diesel vehicles are subject to higher annual road taxes and vehicle registration fees than gasoline vehicles. And possibilities to refuel vehicles across the border limit the room for unilaterally raising gasoline and diesel taxes.
13. Congestion is far more efficiently addressed through peak period pricing of busy roads, administered at the national or local level. Severe traffic congestion is confined to the relatively modest share of total driving occurring in densely populated areas during peak period.19 Effectively reducing it (for given road capacity) requires charges for vehicle km driven on busy roads, progressively rising and falling over the course of the rush hour.20 A national-level system would involve recording annual km driven by motorists and levying charges on each km varying according to when and where driving occurs to reflect prevailing congestion costs. Administratively, the system could be implemented by requiring all vehicles have Global Positioning Systems technology which both informs motorists of the charges for their route and transmits information on their driving behavior to an independent billing agency. 21 Local systems for individual urban centers could also charge by the km according to route within the network and time of day, and could match most of the gains from the more comprehensive national-level approach (at least if systems applied comprehensively across urban centers). To date however, local schemes have been far more limited in scope, taking the form of charges for driving in the downtown area (e.g. London, Stockholm, Milan) or on individual highways. There is a tension between keeping the charging system simple and easy for motorists to understand, and a more finely-tuned, but complex, system with rates varying by each major road in a network and over time of day, though systems can start simple and be progressively refined as acceptability and understandability improves over time.
14. Accidents are more effectively reduced through distance-based charging related to accident risk, either through explicit taxes or pay-as-you-drive (PAYD) insurance. In principle the efficient tax for traffic accidents is levied on a km basis, with rates scaled to both driver risk (e.g., based on rating factors from insurance companies accounting for age, prior crash record, etc.) and vehicle risks (e.g., higher for larger vehicles posing greater risk to other road users). These fiscal instruments have yet to be introduced in any comprehensive way, but a promising alternative is a voluntary, market-driven transition from current lump-sum annual insurance payments to PAYD insurance where payments are directly proportional to km driven, with per km charges scaled by drivers’ rating factors. Public opposition to PAYD should be muted as there is no new tax burden on the average motorist—in fact, low-km drivers are better off under PAYD as their annual payments decline, and this would increase rates for remaining drivers, in turn providing them with more incentives to switch to km-based insurance. Tax incentives may be needed to kick-start the transition however, as an individual insurance company does not capture the benefits to other insurance companies due to the reduced risk of multi-vehicle collisions.
15. Road damage is most efficiently incorporated in upcoming distance-based charges for HGVs, but ultimately charges should account for other environmental costs and vary by location and time of day. Ideally, the road damage charge would vary with axle weight22 and the vulnerably of roads where driving occurs, as this would encourage truckers to use fleets carrying goods with more axles and choose routes with hardier road surfaces. Analogous to the above discussion, HGV charges should also include components for congestion and accidents, and, if levied in proportion to local air emission rates, could also provide targeted incentives to for adoption of abatement equipment and shifting to cleaner fuel vehicles. According to illustrative calculations in Figure 1f, efficient tolls vary from about €0.45 per vehicle km in rural areas (where road damage is significant but other environmental costs are small) to about €2.60 per vehicle km for peak urban driving (primarily due to congestion, though air pollution damages are also higher).23 At present, surrounding countries charge roughly €0.15 per HGV km and EU legislation caps charges at €0.40 per km, so charges in the Netherlands would need to be phased in gradually, and increased in coordination with other countries and revisions to maximum EU rates. Diesel fuel taxes could be lowered to contain new tax burdens for trucks (with incentives for low-carbon vehicles preserved through feebates—see below).
16. Modification of vehicle registration fees for imported (new and used) passenger vehicles could avoid the inherent tension between environmental and fiscal objectives in current taxes and uncertainties associated with hard targets for electric vehicles. The present registration fee system allocates new vehicles into one of five CO2 emission rate brackets, varying from below 73 gram/km to above 162 gram/km, and imposes an escalating system of fixed charges (€356 for the lowest emission rate bracket and €12,593 for the highest bracket) and variable charges (equal to the difference between the emission rate and the emission rate at the lower bound of the bracket, times a charge rising from €2 per gram/km for the lowest bracket to €458 per gram/km for the highest bracket). 24 This system raises less revenue the more successful it is in shifting people to lower emission vehicles (either within a bracket or to a lower bracket). In addition, it violates the principle of providing uniform incentives to reduce emissions and instead creates a bunching of vehicle demand at the top of the next lowest emission bracket. Both problems could be addressed by combining an ad valorem tax on vehicle sales prices set to meet fiscal objectives with a continuous feebate, where fees or rebates are applied to vehicles in proportion to the difference between their CO2 gram/km and a common pivot point gram/km equal to that averaged across the imported vehicle fleet.25 The feebate component provides a uniform incentive to reduce emissions (i.e., the incremental reward for a reduction in gram/km is the same for all vehicles) and its rate can be chosen to maintain (or strengthen) existing incentives for low emission vehicles, without eroding the revenue base for the ad valorem tax. Feebates can also provide strong incentives for electric vehicles, but without forcing them into the market regardless of their future costs and public acceptability.26
17. A feebate could effectively reduce the carbon intensity of HGVs, though it should be applied to the in-use fleet, scaled to annual km, and integrated into the upcoming charging system. Applying feebates to the in-use HGV fleet, with the fees and rebates for each vehicle scaled in proportion to its carbon emission rate (averaged over annual vehicle trips with and without freight) and multiplied by the truck’s annual km driven, would provide comprehensive incentives for reducing carbon intensity of the on-road fleet, and would be administratively straightforward, as the fees and rebates could be easily integrated into the prospective HGV charging system. 27 Varying the pivot point in the feebate with truck class (i.e., setting it equal to the average among trucks within a given weight classification like large tractor trailers versus delivery vans) may be warranted to avoid overly penalizing large trucks which have scale economy advantages28 over small trucks.
References
Ares, E. and J. Delebarre, 2016, The Carbon Price Floor, Briefing paper No. CBP05927, House of Commons Library, London.
European Commission, 2016. EU Reference Scenario 2016: Energy, Transport, and GHG Emissions Trends to 2050. European Commission, Brussels.
International Energy Agency, 2017. CO2 Emissions from Fuel Combustion Highlights, International Energy Agency 2017.
Jonkman, Carlijn and Jan Takens, 2011, “Het Nederlandse wetsvoorstel kilometerprijs: hoe was het gedacht?”, Documentatieblad, Federale Overheidsdienst Financiën België, 71,113–138.
Krupnick, Alan J. and Ian W. H. Parry, 2011, “Is a Clean Energy Standard a Good Way to Move U.S. Climate Policy Forward?” Issues Brief, Resources for the Future, Washington, DC.
Parry, Ian W. H. and others, 2014, Getting Energy Prices Right, IMF, Washington, DC.
Parry, Ian W. H. and others, 2017. “Refining EU Climate Policy: Assessing Some Possibilities.” Selected Issues Paper, Euro Area Article IV Consultation.
Ricardo-AEA, 2014, Update of the Handbook on External Costs of Transport – Final Report, Report for the European Commission.
Schroten A. and others, 2014, Externe en infrastructuurkosten van verkeer – Een overzicht voor Nederland in 2010
UK DOT, 2014. WebTAG Data Book. UK Department of Transport, London.
WBG, 2017. State and Trends of Carbon Pricing. World Bank Group, Washington, DC.
Prepared by Ian Parry and Ruo Chen. The authors are grateful to helpful comments and suggestions from staff of the Ministry of Finance and Ministry of Economic Affairs and Climate Policy.
CO2 emissions in the EU were 3 percent lower in 2005 than in 1990, and in the Netherlands were 6 percent higher, therefore the needed reductions relative to 2005 levels are not too different for those relative to 1990 levels (IEA 2017, pp. 94).
Renewables policies are not analyzed below because updated country-level targets for 2030 have not been finalized.
The discussion is limited to fossil fuel CO2, which is the principle source of GHGs and the easiest to monitor, rather than other sources (e.g., process CO2 emissions, non-CO2 GHGs from agriculture).
Similar tools have been used by IMF staff to evaluate a wide range of carbon mitigation policies in China, India, and the Euro Area.
For example, it is assumed that each 1 percent increase in fuel price reduces consumption of that fuel by 0.6 percent, with two-thirds of the response due to implicit adoption of more fuel-efficient or cleaner technologies and one-third from reduced intensity of use of products requiring that fuel.
These reflect burdens on households and firms from reducing their use of fossil fuels below levels that would otherwise be efficient in the absence of mitigation policies.
For example, EC (2016) provides state-of-the-art modelling for all EU countries on the impact of policies as adopted by end-December 2014.
The allowance price is assumed to be €47 per tonne in 2030, which splits the difference between estimates in EC (2016) and Parry and others (2017). All prices are expressed in year 2015€.
This reform is more of theoretical than practical interest, as vehicle emissions standards are set at the EU level and cannot be removed unilaterally.
The tax (out to 2021) is set equal to the difference between £18 (€20) per tonne and the EU ETS emissions price (see Ares and Delebarre 2016).
That is, fees/rebates would be determined by t.
For example, at present the global average CO2 price is only about €1 per tonne (WBG 2017). In fact, expectations that EU climate goals in 2030 might be scaled back could be one reason for the currently very low EU ETS emissions price (€5 per tonne).
An external cost is one that individuals or firms impose on others but do not consider in their own decisions, for example, motorists do not consider the impact of their driving on adding to congestion and increasing travel delay cost for other road users.
The studies use different methods and approaches. See Ricardo-AEA (2014), Schroten A. and others (2014), Parry and others (2014) (with updated estimates for the latter in www.imf.org/external/np/fad/subsidies/data/subsidiestemplate.xlsx).
The Dutch and IMF estimates assume CO2 damage values of €85 and €32 per tonne respectively.
Diesel vehicles can produce significantly higher air pollution costs, but to the extent heavy vehicles drive fewer km per liter of fuel use, a given congestion and accident cost per vehicle km translates into a smaller cost per liter of fuel.
Gasoline and diesel fuel are also subject to a modest stockholding fee of €0.008 per liter.
For example, estimates for the UK suggest marginal congestion costs (i.e., costs one driver imposes on other road users through slowing their travel speeds) varied from about 1 to 10 pence per vehicle km in 2015 on roads where the volume to capacity ratio is less than 75 percent (which account for 91 percent of total traffic), to about 80 to 170 pence per vehicle km on roads where the volume to capacity ratio approaches 100 percent (9 percent of traffic). See UK DOT (2014).
This policy exploits all possibilities for drivers to alter behavior to alleviate congestion, including flattening the distribution of trip departure times within rush hour periods, shifting from peak to off-peak travel, encouraging alternate modes (e.g., carpools, public transit, walking, cycling), reducing trip-making (e.g. via telecommuting or combining trips), shifting to less congested routes, changing job or residential locations.
The Netherlands was preparing to introduce distance-based charges, and in a later stage congestion charges, for trucks and for cars in 2009 but ultimately decided against it. See Jonkman, and Takens (2011).
Road damage increases exponentially with axle weight and therefore is almost entirely caused by heavy vehicles.
Road damage costs are based on EU-wide average estimates from Ricardo-AEA (2014); congestion costs are based on the UK estimates of marginal congestion costs noted above, averaging across road classes within urban and rural classifications and doubling them to account for the greater road space of trucks; accident costs are taken from the IMF nationwide estimates, increased/decreased by 50 percent for rural/urban driving; and air pollution costs are from Ricardo-AEA (2014).
That is, fees/rebates are determined by t.
For example, a zero-emission vehicle currently pays a fixed fee of €356 while a vehicle with 100 gram/km pays a fee of €2,355 (fixed and variable fees of €2,077 and €278 respectively), or about €2,000 more. A feebate rate of €20 per gram/km would preserve the current difference in taxes between these vehicles (for a given purchase price), assuming the pivot point is 100 gram/km, while a feebate rate of €40 per gram/km would double the current tax difference.
In contrast, applying feebates to HGV sales only would be administratively challenging given that manufacturers often build specific components (from truck bodies to engines) rather than complete vehicles and it would be considerably less effective (as it would not apply to used trucks which have very long lifetimes).
That is, carrying a given amount of freight by one large truck rather than two smaller trucks uses less fuel.
