The Commission’s Report discussed the economic costs of transport. Table 5 taken from the Report gives money values for costs imposed by the use of the transport system. The figures in brackets are estimates of the environmental costs of road transport as a whole. It was assumed that road transport gives rise to almost all the accidental costs included in these calculations and that its share of the costs of environmental damage is proportional to its share of transport-related carbon-monoxide emissions. On that basis, the quantified environmental costs of road transport are estimated to be between $ £10 $ and $ £18 $ billion or between nearly 2 per cent and over 3 per cent of GDP (Royal Commission 1994, 102).

Table 6 shows the relationship between tax revenue from road users and the combined total of infrastructure costs to which a money value has been attached. This shows that for HGVs, tax revenues fall short of combined total of costs even if environmental costs are at the lower end of the estimated range. However, the figures do not include some important environmental costs for which it was not possible to ascribe a money value, particularly infrastructure costs. The underpricing of the HGVs for the use of infrastructure and environmental pollution effectively distorts competition in favour of road freight and encourages the progressive growth in the distances over which goods are moved. The Royal Commission Report recommended an increase in fuel duty, but recognised that this would be insufficient to bridge the gap between revenue from road taxation and quantified infrastructure and environmental costs. On average fuel represents about a seventh of transport costs. The importance of freight costs as a proportion of sales income varies considerably, from up to 80 per cent for bulk materials such as aggregates, to very small percentages for high value goods. Therefore, for bulk materials, a large increase in fuel prices may induce a transfer from road to a more energy-efficient mode.

Moreover, new patterns of freight transport, for example JIT, have adverse consequences for the environment because more deliveries have to be made, than in a system with high stockholding; vehicles may not be filled to capacity, and more fuel is used. The Royal Commission Report quoted a study which found that energy consumption for transport was twice as high in JIT as in conventional logistics.

#### 2.5. International arrangements

This part of the report outlines the European regulatory framework. Authority to change the rules of domestic freight operation resides with national governments rather than the EU. However, Cooper (1995, 9) argues that it is clear that the Commission has had an indirect impact on domestic regulation as a result of successfully promoting change in the regulations governing international haulage and cabotage, and thereby creating dynamism in the EU freight sector. For many decades, markets for road freight services in Europe have been characterised by strong economic regulation affecting haulage capacity and/or prices charged (tariffs) for services. From about 1985 onwards, there was a change from strict regulation to a more liberal approach. Prior to 1985, most national markets were tightly controlled by governments often with respect to both haulage capacity and prices charged (Cooper 1995, 8). The UK and Luxembourg were the only