Fair payment for infrastructure use: a phased approach to a common transport infrastructure charging framework in the EU - White Paper
Date: 1998-07-22
Institutions: European Commission
Subjects: approximation of laws, charges for use of infrastructure, common transport policy, competition, transport infrastructure

COMMISSION OF THE EUROPEAN COMMUNITIES 

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Brussels, 22.07.1998 
COM(l 998) 466 final 

Fair Payment for Infrastructure Use: 

A phased a·pproach to a common transport infrastructure 
charging framework in the EU 

White Paper 

(presented by the Commission) 

Executive summary 

1 

2 

3 

4 

4(a) 

4(b) 

4(c) 

Intro"uction .................................................................................................................. 1 

Transport problems resulting from existing charging systems ............................... 2 

A Community approach to infrastructure charging ................................................. 5 

A step-by-step approach to implementation ............................................................ 13 

Phase One: 1998-2000 ............................................................................................ 13 

Phase Two: 2001-2004 ............................................................................. : .............. 14 

Phase Three: beyond 2004 ..................................................................................... 14 

5 

Implementation, priority actions and modal implications ..................................... 15 

5(a) 

5(b) 

5(c) 

5(d) 

5(e) 

Development of consistent costing and accounting practices ............................. 15 

Road ......................................................................................................................... 17 

Rail ........................................................................................................................... 20 

Inland waterways ................................................................................................... 21 

Aviation ................................................................................................................... 21 

Air Traffic Services (ATS) ................................................................................................. 21 

Airports •.............................................................................................................................. 22 

5(t) 

5(g) 

6 

6(a) 

6(b) 

6(c) 

7 

Maritime ...................................................................................................................... 23 

Transport related tax policy .................................................................................. 24 

Socio-economic evaluation of the strategy ............................................................... 29 

General economic effects ....................................................................................... 29 

Distributional effects .............................................................................................. 31 

Cohesion and peripheral regions .......................................................................... 31 

Conclusion ................................................................................................................... 32 

References ............................................................................................................................... 33 

Glossary ................................................................................................................................... 35 

Annex I : Different infrastructure charging approaches .................................................... 37 

Annex II: Existing approaches to infrastructure charging ................................................ 38 

Annex III: Marginal Social Cost Charging and Recovery of Capital Costs ..................... 45 

Executive s_ummary 

The  great  diversity  of infrastructure  charging  systems  across  modes  of transport  and 
I. 
Member States undermines the efficiency and the sustainability of Europe's transport system. 
There  are  currently  nine  different  charging  systems  for  railway  infrastructure,  with  cost 
recovery  ratios  varying  between  0%  and  I 00%.  Vehicle  tax  and  road  charging  systems  are 
also  fundamentally  different;  for  example annual vehicle taxes  on trucks differ by up to  3000 
ECU and  only four  Member States  levy tolls on significant parts of their motorway network. 
Similarly the treatment in terms  of VAT imposition and  energy taxation differ widely across 
modes  and between Member States.  Moreover,  charges are  seldom  levied at  the point of use 
and they are generally not related to  environmental or other "external" costs. As a result users 
are  currently  given  only  limited  incentives  to  adjust  transport  patterns  and  technologies  to 
reduce  costs and  infrastructure managers  seldom receive  sufficient revenues  from  direct user 
charges to fund investment. 

2. 
This  situation  gives  rise  to  significant distortions  of competition within  and  between 
modes,  often  on  the  basis  of the  nationality  of the  transport  provider.  It  also  limits  the 
incentives to cut environmental costs and holds back the efficient provision of infrastructure. 

The  variety  of problems  thrown  up  by  the  diversity  of approaches  to  infrastructure 
3. 
charging  cannot  be  adequately  treated  in  isolation  from  each  other.  That  is  why  the 
Commission considers that a gradual and progressive harmonisation of charging principles in 
all major commercial modes of transport is required across the  Community to  deal with these 
problems. It is proposed that the charging system be based on the "user pays" principle, i.e.  all 
users  of transport  infrastructure  should  pay for  the  costs,  including  environmental  and  other 
external impacts, they impose,  at,  or as close as possible to the point of use.  It is  important to 
note  that  changes  to  charges  are  not  automatically  reflected  in  final  transport  prices,  as 
commercial operators may adjust their use to lower their costs.  Moreover, Member States can 
obviously  continue  to  support  the  provision  of public  services  or  services  in  the  general 
interest  through  subsidies  to  transport  operat~rs  using  the  infrastructure,  thereby  off-setting 
effects  on  prices  paid  by  final  consumers.  They  can  also  directly  compensate  infrastructure 
managers  for  wider  benefits  (e.g.  improved  land  use  planning)  that  the  provision  of 
infrastructure  generates  for  non-users.  Finally,  the  principles  do  not  impose  a  centralised 
Community charging scheme. Rather, they provide a framework within which Member States 
would  be  free  to  set  charging  levels.  The  "marginal  social  cost"  charging  principle  should 
enhance  both  the  efficiency  and  the  sustainability  of the  transport  system.  With  this  broad 
framework in place, it is possible to address specific problems effectively. 

4. 
This  approach  would  have  to  be  phased  in  gradually  in  order  to  give  transport  users 
and providers time to  adjust.  The Commission, therefore, proposes a step-by-step approach to 
implementation,  to  be  accompanied  by  an  advisory  committee  from  Member  States  experts 
and with the full  involvement of all  stakeholders. The Committee could begin its work on the 
basis  of the  available  evidence,  allowing  the  first  steps  towards  the  full  introduction  of the 
principles  to  be  taken  during  the  first  phase.  This  phase,  to  run  until  2000,  would  see  the 
in  rail  and  airports,  currently  under  discussion, 
introduction  of  charging  systems 
complementing the  charging  system  in  road  haulage  and  ensuring  that  a broadly  compatible 
structure is in place in the main modes of transport.  Charging of external costs on the basis of 
an agreed Community framework would be allowed but total charging levels would be capped 

1b 

by  average  infrastructure  costs  (which  is  the  current  rule).  The  second  phase  would  see  a 
greater harmonisation and adaptation of charging systems, especially for heavy goods vehicles 
and  rail  transport  where  a  kilometre  based  charging  system,  differentiated  on  the  basis  of 
vehicle  and  geographical  characteristics  would  be  instituted,  and  in the  ports  sector where  a 
charging  framework  would  be  introduced.  As  of this  period  charges  should  not  exceed 
marginal social  costs (including external  costs).  It  would  be  for  the  Member States to  decide 
on  how to  use  the  revenues.  Obvious  alternatives  are  to  allocate  funds  to  the  infrastructure 
operators,  to  the  general  budget - for  example  to  restructure  existing  taxes  - , or to  earmark 
some  revenues  for  infrastructure  funds,  possibly  multimodal,  on  national,  regional  or  city 
levels.  In  addition,  where  new  transport  charging  systems  are  introduced  existing  transport 
charges will have to  be amended and/or phased out The third phase would see an updating  of 
the Community framework in the light of experience gained during the first two phases. 

5. 
This  charging  principle  would  lead  to  a  much  higher  degree  of cost  recovery  from 
users  by  the  infrastructure  manager  (although  this  would  not  necessarily  represent  an 
additional  cost to  users,  since  it  could  be  offset  by  reductions  in  existing  transport  charges) 
and  should  therefore  facilitate  the  provision  and  financing  of additional  infrastructure.  In 
combination with the  subsidies paid by  Member States directly to  Infrastructure  managers to 
compensate  for  wider  social  benefits  to  non-transport  users,  this  is  likely  to  lead  to  a  high, 
possibly complete, recovery of infrastructure capital costs  at the  level  of the  transport system 
as a whole.  Should full  recovery not be reached and should Member States wish to  arrive at a 
higher level of cost recovery, then the  Commission considers that this should be done through 
the  imposition  of  additional  non-discriminatory  and  non-distorting  fixed  user  charges. 
Moreover,  at  least  in  the  short  to  medium  term,  there  are  likely  to  be  investment  projects 
where higher levels of cost recovery are required from  users  of these projects.  In these  cases, 
higher charges would  be allowed for  a sufficient period  of time,  subject to  Community rules 
safeguarding  non-discrimination  and  ensuring  that  no  monopoly  profits  are  made.  In 
summary,  the  charging  principles  proposed  in  this  paper,  necessary  for  efficient  use  of 
infrastructure networks, would also create the conditions for financing infrastructure from user 
contributions  that  could  accommodate  different  financing  models.  In  view  of the  strongly 
diverging  infrastructure  financing  systems  in  place  across  the  EU  and  in  respect  of  the 
subsidiarity  principle,  this  White  Paper  does  not  lay  down  principles  for  financing 
infrastructure. 

6. 
The  charging  system  would  enhance  the  efficient  use  of infrastructure  and  therefore 
also facilitate the efficient provision of new infrastructure, where needed.  However, to  ensure 
this  the  charging  framework  would  have  to  be  flanked  by  efficient  infrastructure  investment 
decisions based on comprehensive social cost-/benefit analysis (including those related to,  for 
example,  improved  land  use  planning  and  accessibility).  Only  projects  having  net  social 
benefits  should  be  undertaken.  In  an  integrating  internal  market,  cross-state  effects  of new 
infrastructure  projects  are  likely  to  increasingly  occur.  These  need  to  be  fully  taken  into 
account  in  the  cost-benefit  analysis  and  be  reflected  by  investment  and  financing  decisions. 
The existence of cross-state benefits is an important justification for the co-financing from the 
Community budget of Trans-European Transport Infrastructures. However, there are currently 
no  sufficient  mechanisms  in  place  to  monitor and  ensure  that  negative  cross-state  effects  of 
infiastnicture  investments  are  taken  into  account.  This  is  particularly  relevant  in the  case  of 
ports where new, publicly funded,  infrastructures could be built, partly at the expense of ports 
in  other  Member  States  that  do  not  benefit  from  similar  support.  In  addition  to  developing 
transparent  accounting,  it is,  therefore,  proposed that  information be  exchanged  on the  costs 
and benefits of public investments in this sector to  ascertain that Member States fully take the 

1c 

effects  of investment  decisions  on  other  Member  States  into  account.  The  Commission will 
take an appropriate initiative under Article  129C2 of the Treaty. 

7. 
The  various  studies which the  Commission has  carried out indicate  that the  proposed 
user  pays  approach  would  significantly  enhance  the  technical  efficiency  of the  individual 
modes of transport and greatly reduce environmental costs. Whilst some charges paid by users 
would rise, the overall costs of the transport system would fall  significantly.  An extrapolation 
on  the  basis  of available  studies  suggests  that  the  introduction  of the  user  pays  charging 
system  could  lead  to  savings  of the  order  of at  least  30-80  billion  ECU  per  year.  A  first 
assessment  also  indicates  that  the  proposed  policy  would  be  beneficial  to  both  relatively 
developed  and  economically  less  developed  regions  of  the  Community.  However,  the 
Commission  recognises  that  a  more  gradual  introduction  of  the  charging  principles  in 
cohesion regions may be needed. 

8. 
For reasons  of transport  efficiency  and  sustainability  it  is  imperative  that  we  replace 
the  current  patchwork  of  charging  mechanisms  across  Member  States  and  modes  by  a 
harmonised  Community  approach  to  transport  charging.  This  White  Paper sets  out  how this 
can be done. 

1  INTRODUCTION 

1. 
European transport infrastructure  is  of great  importance  for  economic  growth,  labour 
mobility,  consumers,  and  the  competitiveness  of the  European  Community.  It  is  therefore 
vital  that  its provision and  use  is  as  efficient  as  possible.  Achieving  this  objective  is  among 
other  questions  dependent  on  how  users  are  cha,ged  for  infrastructure  and  what  means  are 
available to  finance  investment.  Moreover,  achieving this  objective  is  becoming  increasingly 
difficult. 

2. 
Relying  on the purely public  financing  of transport infrastructure  is  becoming  more 
difficult,  as  Member  States  face  growing  financial  burdens  and  seek  to  develop  greater 
involvement of the private sector in the financing of infrastructure projects. In other cases they 
are  considering  how  to  recoup  part  of the  costs  from  users  when  developing  new  public 
infrastructure.  At  the  same  time,  current trends  in traffic  patterns  and  growth  are  also  under 
examination,  as  escalating  congestion  and  pollution  raise  doubts  about  the  sustainability  of  ' 
transport.  Transport charges  have  a  very  clear· role  to  play  in  addressing  all  these  issues,  as 
changes to  charges  alter prices,  which  in  turn  can change  transport  use.  Moreover,  transport 
users  and  providers . are  becoming  more  and  more  aware  that  differences  in  charges,  in 
different modes and different Member States, affect industry's costs and competitiveness, and 
distort the functioning of the single market. 

3. 
All three problems can be seen as  weaknesses in the European Community's transport 
market:  infrastructure  managers  are  not  always  able  to  recoup  some  of the  private  or public 
benefits of providing  infrastructure  to  recover a  large part of their capital  costs  ,  so  they  are 
reluctant to  invest;  the  market fails  to  reflect  external  costs  in its  prices,  so  the  use  of some 
modes  is  at times  excessive;  and  tax  and  charge  differentials  distort  the  price  signals  of the 
market and so  distort industry's transport choices.  All three problems can be  addressed using 
economic tools:  a Community framework  for  infrastructure  charges  can  correct these  market 
failures. 

4. 
This  White  Paper explains  how infrastructure  charging reform  can solve  many  of the 
transport sector's problems, and help develop European transport services.  It has evolved out 
of the  discussions  on the  1993  Commission White  Paper on "The future  development of the 
common transport  policy" 1,  the  1995  Commission  Green  Paper  "Towards  fair  and  efficient 
pricing in transport"2,  the  1996  report  of the  high level  group  on public  private partnership3, 
and  most  recently,  the  report  of the  high  level  group  on  infrastructure  charging,  set  up  in 
spring  1998  to  advise  on  the  development  of a  comprehensive  set  of charging  principles4. 
Finally,  the  joint  Transport/Environment  Council  in  June  1998  also  called  for  measures  to 
make  the  best  use  of the  existing  infrastructure,  to  achieve  a  shift  to  less  environmentally 
damaging  -modes  of  transport,  and  the  use  of  economic  instruments  to  reduce  fuel 
consumption, emissions, and noise. 

European c;ommission, COM(92) 494 final. 

2 

European  Commission,  COM(95)  691.  The  Green  Paper  recommended  marginal  cost  pricing,  a  higher 
degree  of cost  recovery  and  transparency  as  important  principles  for  an  efficient  transport  system,  and 
launched a wide debate on transport pricing. 

3  High level group on Public-Private Partnership,  1997.  pie high  level group report underlined the  need for a 

revenue stream from  users to facilitate the setting up of public private partnership. 

4  High level group on transport infrastructure charging,  1998. 

1 e 

The paper is structured thus: 

(a) 

the  current  problems  of  infrastructure  charging  and  the  need  for  introducing  more 
convergent charging principles are summarised; 

(b)  Community wide  charging principles are  presented and their implications in relation to 

the problems are illustrated; 

( c) 

a plan for the implementation of such principles in all modes is outlined; 

( d) 

the implications of the proposed charging regime are examined. 

2  TRANSPORT PROBLEMS RESULTING FROM EXISTING CHARGING SYSTEMS 

1. 
In  order  to  better  understand  infrastructure  charging  systems,  it  is  important  to 
consider  the  underlying  cost  structure,  summarised  in  the  following  table.  The  two  main 
categories  listed  here  are  "fixed  costs",  which  are  independent  of the  flow  of traffic,  and 
"variable costs", which do  vary with traffic levels. 

Cost  components related to the provision and use of infrastructure 

Fixed Costs 

Variable Costs 

External costs/benefits 
Costs: 

Internal Costs 
Capital Costs: 
•  Repayment of capital  Barrier effects 
•  Payment of interest 
•  Return on assets 

Deterioration of 
landscape 

Fixed Running Costs: 
•  Maintenance 

(weather  and 
related) 
•  Operating 
(lighting, 
management, 
infonnation) 
•  Administration 

costs  Visual intrusion 
time-

costs 
traffic 

Benefits: 
Improved accessibility 

Network benefits 

Increased productivity 

costs  •  local  pollutants 

Other external costs 
Air and water pollution: 

Internal Costs 
Variable running costs: 
•  Operating 
(traffic 
management, 
enforcement, 
supporting services)  •  global  pollutants  (e.g. 

•  regional pollutants ( e.g. 

particulates) 

NOX) 

(e.g. 

•  use-related 
maintenance 
(resurfacing, 
replacement, 
repairs) 

CO2) 

costs 

rail  Accidents (partly) 

Noise and vibration 

Congestion (partly) 

Source: based on the high level group on transport mfrastructure chargmg, June  1998. 

In  an  efficient5  and  competitive  transport  sector,  these  different  costs  are  taken  into 
2. 
account  in  decision  making  on the  provision  and  use  of infrastructure.  For the  provision  of 
infrastructure to  be efficient it should be based on a full  social cost-benefit analysis, taking all 
private  and  broader public  benefits  and  costs  into  account.  Effects  in  fellow  Member  States 
should  also  be  included  in  the  analysis.  Given  a  particular  level  of infrastructure  provision, 
efficient  transport  use  is  promoted  when  the  variable  costs  are  reflected  in  the  final  prices 
faced  by transport operators  and users.  However where  charges  for  infrastructure cease to  be 
cost  related 
transport  use  is  no  longer  efficient _and  the  competitiveness  of the  European 
transport sector is reduced.  Where charges are too low, excessive demand is likely, generating 

5 Toe tenn "efficient" or "efficiency" is used throughout this paper. It means a situation where the total costs are 
minimised  for  a  given  level  of benefits.  This  implies  that  all  the  consequences  of transport  decisions  are 
considered ( externaVinternal,  user/non-user)  and no  improvement  in  the  allocation  of resources  or in  transport 
choices is possible. 

2 

higher costs than benefits, and individual operators have less incentive to reduce the costs that 
they impose on society.  Where charges are too high, some users who would be able to pay the 
costs  they  impose  would  be  discouraged  from  using  the  infrastructure,  thereby  reducing  its 
social benefit. 

3. 
In  Member  States,  charges  or  taxes  have  long  been  levied  on  the  transport  sector 
without bearing much relation to costs at all.  They have been used as a part of a broader fiscal 
policy to  raise  government revenues,  but also  to  alter prices to  reflect  industrial,  social,  and 
environmental  policy  considerations.  Such  charges  and  taxes  often  do  not  reflect  costs  and 
vary between mode and Member State. This gives rise to a number of problems: 

(a) distortions of competition between Member States (e.g. competing ports); 

(b)  distortions of competition between modes  and within modes  (most notably road  and 
rail freight); 

( c)  the  failure  to  consider  social  and  environmental  aspects  of transport(so  the  relative 
environmental  impact  of different  ways  of making  the  same journey is  not  reflected  in 
prices); 

( d)  and  difficulties  in  funding  infrastructure  investments  ( with  transport  users  often 
paying considerable amounts in tax, disconnected from the financing of the network). 

4. 
These distortions are  often thought of as  specific problems isolated one  from  another, 
such  as  modal  imbalance  ( excessive  use  of roads  and  under  utilisation  of railways,  inland 
waterways or short sea shipping for instance), congestion ( either in urban or inter urban areas) 
and pollution. The following examples illustrate the seriousness of the problems and also how 
they are in fact interrelated. 

5. 
Different  charging  structures  between  Member  States  favour  some  operators  at  the 
expense of others. This is clearly illustrated in the roads sector: Only one Member State levies 
registration taxes on heavy goods vehicles.  Five Member States levy road tolls, six others use 
the Eurovignette scheme for heavy commercial vehicles, one other applies a different form of 
user  charge and three others do  not charge for road use at all. All Member States levy annual 
vehicle  taxes,  but  these  vary  by  up  to  3000  ECU,  and  diesel  fuel  excise  duties  vary  by  as 
much  as  3 3 0  ECU  per  1000  litres.  The  result  of such  variations  is  that  road  hauliers  from 
different  Member  States  can  face  vastly  different  costs  and  unfair  competition.  Instead  of 
organising  haulage  along  the  most  efficient  routes  and  locations,  hauliers  may  locate  their 
business where ownership taxes are lowest, refuel where fuel taxes are lowest and, where they 
have  a choice,  choose routes  where  road  tolls  are  lowest.  ~hoices made  by  road hauliers  are 
distorted  by  the  absence  of a  harmonised  charging  regime  and  the  efficiency  of the  road 
haulage sector is undermined. 

6. 
Current  charging  practices  can  also  allow  some  infrastructure  operators  to  take 
advantage of a  monopolistic situation. In the aviation sector, strategically located airports can 
exploit their quasi monopolistic position and charge airlines prices that do not reflect the costs 
of services provided.  This  could lead to  unnecessarily  high air transport  costs  and  adversely 
affect the competitive position of Community airlines in the world market. 

Moreover,  when  different  modes  are  charged  according  to  different  principles  the 
7. 
modal  balance  is  distorted.  For  instance,  railway  infrastructure  charging  practices  across  the 

3 

Community  include  two  part •tariffs,  multi-part  tariffs,  social  marginal  cost  based  charging, 
negotiation  based  on willingness  to  pay  and  zero  charges.  The  level  of cost  recovery  varies 
from  zero in some Member States to  100%,  in principle,  in other Member States, and there is 
no uniformity about what services are provided for the charge being levied or what parameters 
are  to  be  taken  into  account  in  setting  charges.  Complex,  opaque  charges  confuse  the 
operation  of the  market.  The  complexity  makes  it  hard  for  users  merely  to  understand  the 
structure  and  level  of  the  charge,  and  can  frustrate  competition.  It  discourages  the 
development of international  services,  particularly for  freight  traffic  which  crosses  a  number 
of rail  networks.  The  different  charges  also  inhibit  the  user  from  responding  to  charging 
signals:  whereas  one  set of charges  may  encourage  short trains  on minor routes  travelling  at 
night,  another may  encourage  the  opposite.  As  rail  freight  is  often  in competition with road 
its  more  complex  charges  raise 
haulage, 
administrative  costs,  make  it  slower  to  bid  for  business  and  so  less  competitive.  The  other 
obvious  inter  modal  concern  is  that  railways  do  not  fully  benefit  from  their  relatively  low 
external costs since this is not reflected by the relative infrastructure charges levied on users. 

inland  waterway  and.  short  sea  shipping, 

8. 
A further example of distorted inter modal competition as a result of differing charging 
systems, is the English Channel crossing.  Here, for  both passenger and freight traffic, there is 
the  choice  of using  road,  rail,  sea or air transport.  The  flurry  of competition that  began after 
the  opening  of the  Channel  Tunnel  was  clearly  and  strongly  influenced  by  the  charging 
regimes  of  the  different  modes:  port  charges,  rail  and  tunnel  access  charges,  unpriced 
connecting roads, airport charges, even duty free  regulations, all  constrained in different ways 
the  means  by  which  the  different  modes  and  routes  could  compete.  And  as  the  transport 
market  is  liberalised,  infrastructure  improved  and  integrated  through  the  Trans-European 
Transport  Network  examples  of such  intensifying  competition,  between  all  modes,  would 
increase as would the need to reduce distortions arising from divergent charging structures. 

9. 
Another important example of distortion to  competition is  the  effect of charges  in the 
maritime  ports  sector.  Current port charging  arrangements  are  quite  diverse  and  government 
subsidies  can  allow  ports  to  reduce  prices  and  attract  business  from  other  ports.  Inter  port 
competition clearly exists,  and is  also  affected by hinterland and  maritime access to  the port, 
so  the  charging  structures of shipping,  road  and  rail  freight  have  a clear impact on the  ports 
sector. Conversely, more concentrated use of more heavily subsidised ports may lead to much 
higher use of road or rail infrastructure in certain areas, and increased congestion. 

10. 
In  summary,  different current charging principles  distort  competition,  while  common 
charging  principles  would  create  a  level  playing  field  and  correct  intra  and  intermodal 
imbalances. 

Furthermore,  current  charging  schemes  seldom  promote  clean  technologies.  The 
11. 
shipping  sector  for  instance,  produces  a  considerable  proportion  of emissions  of sulphur 
dioxide  and  nitrogen  oxide,  and  emissions  could  be  significantly  reduced  by  greater  use  of 
low  sulphur  bunker  fuel  and  of catalytic  converters.  If the  polluter  pays  principle  is  not 
applied, however, and emissions not charged for,  shippers face  no encouragement to take such 
measures.  An  emissions  charging  scheme  would  give  operators  the  incentive  to  consider 
reducing environmental pollution, as the reduction in emissions is rewarded by lower charges. 
When  the  charges  are  higher  than  the  costs  of reducing  emissions,  shippers  would  reduce 
emissions, and in socio-economic terms, the efficiency of the  sector would be  improved.  The 
same result would apply to other modes of transport. 

4 

the 

.Finally, 

transport  sector  faces  problems 

12. 
in  securing  financing  for  new 
infrastructure investments.  The  growing  difficulty of securing public-sector financial  support 
for  investment in transport. infrastructure has brought about an  increasing interest in charging 
and  in  public-private  partnerships  (PPP)  for  financing  infrastructure  projects,  particularly 
those  at  a  national  and  Community  level,  such  as  those  belonging  to  the  Trans-European 
Transport Network. As has  been clearly recognised by the high level  group  on PPP  financing 
of TEN transport projects, private sector participation will be detennined by the prospect of an 
acceptable  level  of profitability and  a  suitable revenue  stream,  subject to  an  acceptable  level 
of uncertainty. But, at present, less than 10% of road infrastructure costs and less than 3 0% of 
rail  infrastructure costs are  recovered through direct user charges that accrue to  infrastructure 
managers. Direct charging of the traffic would therefore help provide a revenue stream for the 
development of PPPs, which could reduce the need for public subsidy. 

13. 
A  number  of existing  Community  policies  and  rules  already  address  some  of these 
problems.  For example,  there  exist  a  Directive  that  to  some  extent  harmonises  heavy  goods 
vehicle  taxes  and  charges  (for  example  Directive  93/89/EEC  harmonises,  to  some  extent, 
heavy goods vehicle taxes  and  charges)  and a  Council  Regulation (2978/94)  on  port  charges 
for segregated ballast oil tankers has clear environmental and safety objectives. Moreover, the 
Commission  has  actively  pursued  infringement  proceedings  relating  to  divergences  from 
Community  charging  regimes  and  closely  monitors  State  Aids  in  transport.  However,  the 
existing  frameworks  do  not  address  distortions  arising  from:  certain  transport  charges  and 
taxes  being  related  to  the  place  of registration  of means  of transport  ( e.g.  annual  vehicle 
taxes),  the  absence  of a  framework  for  taking  external  costs  into  account  in  a  harmonised 
manner  across  all  modes  of transport  and  the  significantly  different  levels  of infrastructure 
cost  coverage  across  modes  of transport.  These  insufficiencies  are  widely  recognised  by 
transport  operators  and  several  Community  Institutions  who  have  repeatedly  called  on  the 
Commission to come forward with proposals to address these problems. 

14.  Moreover, these problems are  likely to  worsen as  transport markets  are  progressively 
liberalised.  Given  the  full  liberalisation of the  road  haulage  and  the  air  transport  markets  in 
1998  and the advent of complete market opening · in sectors  such as  inland waterways  (in the 
year  2000)  and  the  efforts  to  further  open  up  the  rail  market,  it  is  imperative  to  urgently 
address  the  question  of  harmonising  charging  frameworks.  Taken  together,  the  lack  of 
correspondence  between  costs  at  point  of use  and  charges  levied,  differences  in  charging 
schemes ·between  modes  and  Member  States,  distortive  governmental  interventions  and  the 
existence  of monopolistic  charging  make  the  European  transport  syst~m  much  less  efficient 
than  it  need  be.  This  leads  to  rising  transport  and  environmental  costs  in  general,  which 
reduces mobility, economic activity,  economic  growth,  and  harms peripheral areas  of the  EU 
in  particular.  The  potential  for  improvement,  and  the  cross-frontier  dimension  of charging 
policy, creates a clear need for a Community approach to transport infrastructure charging. 

3  A COMMUNITY APPROACH TO INFRASTRUCTURE CHARGING 

A  Community  approach  to 

1. 
infrastructure  charging  should  address  the  major 
shortcomings  of  the  existing  systems  analysed  in  Chapter  2.  The  basic  purpose  of  the 
proposed Community approach on infrastructure charging would, therefore, be to improve the 
overall efficiency  of the  provision and use  of European transport  infrastructure,  promote fair 
competition,  safeguard  the  single  market  and  enhance  the  sustainability  of  the  transport 
system 

5 

2. 
At  the  same  time,  the  development  of  a  Community  approach  to  infrastructure 
charging  should take  full  account of the  subsidiarity principle.  More  particularly, this  means 
that the  system should provide a framework  based  on common principles  for  all  commercial 
modes of transport within which Member States to  a great extent would be  free  to  set charge 
levels.  The  approach  should  also  safeguard  transparent  and  non-discriminatory  schemes 
which  should  apply  equally  to  private  and  public  entities.  However  current  concessions 
should not be affected by the new rules. 

The principles underpinning the  charging approach proposed for  commercial vehicles 
3. 
could  usefully  be  extended  to  passenger  cars  and  this  would  render  the  overall  charging 
system more  efficient.  However,  the  Commission  considers  that,  for  reasons  of subsidiarity, 
·this decision is best left to the Member States. But the development and implementation of the 
common charging  system as  it affects  commercial  passenger transport would obviously have 
to dovetail with decisions taken on passenger cars in order to  avoid undermining the position 
of public transport and other commercial passenger services6. 

4. 
it is clear that there is a need for the development of such a framework for commercial 
transport at  Community level.  This is  because infrastructure charges affect the  conditions of 
competition in the internal market; they can have a bearing on market access and they have  a 
significant influence  on the  development of international transport.  In order to  achieve  these 
objectives outlined, the approach should be based on the following basic concepts: 

(a)  The same fundamental  principles  should be  applied to  all  commercial  modes of transport 
in each Member State of the European Union,  while  recognising that the  resulting  structures 
may differ  by  mode  and  the  level  of charge  may  differ  by  location to  reflect  different  needs 
and circumstances. 

(b)  Infrastructure  charges  should  encourage  greater  efficiency  in  the  use  of  transport 
infrastructure  and,  therefore,  be  based  on  the  "user  pays"  principle:  all  users  of transport 
facilities should be charged for costs they impose at, or as close as possible to the point of use. 

( c)  Charges should be directly related to  the  costs that users  impose  on the  infrastructure and 
on  others,  including  the  environmental  and  other  external  impacts  caused  by  the  users. 
Charges  should  only  differ  when  there  are  real  differences  in  costs  and  service  quality  and 
should  not  discriminate  between  users  on  the  basis  of nationality  and  residence/business 
location. 

( d)  Charges should promote the efficient provision of infrastructure. 

The only charging approach that fully  satisfies these criteria is  marginal  social cost charging: 
charging  users  for  the  costs,  both internal  and  external,  they  impose  at  the  point  of use  ( see 
box). 7  This  would  give  users  incentives to  adjust transport behaviour in order to  reduce  total 

6 In addition,  it is  worth noting that the Commission has already tabled a proposal to improve the functioning of 
the  internal  market  by  addressing  cro·ss-frontier  problems  with  registration  and  taxation  of passenger  cars 
arising  from  private  individuals  shifting  residence  from  one  Member  State  to  another.  Moreover,  the 
Commission also  intends to come forward  with  a  Communication  in  1999  on  a  Community framework  for 
the taxation of vehicles. 

7  When the term marginal  cost is  used  it  refers to  social marginal costs  including environmental externalities 

etc. 

6 

costs to  society whilst maximising private benefits,  thereby  maximising economic and  social 
welfare. 

In combination with the  subsidies paid by Member States directly to  Infrastructure  managers 
to  compens_ate  for  wider  social  benefits  to  non-transport  users,  marginal  infrastructure  cost 
charging (including congestion costs, but excluding other "external" cost components is likely 
to lead to a high, possibly complete, recovery of infrastructure capital costs at the level of the 
transport system as  a whole.  Should full  recovery not  be  reached  and  should  Member States 
wish  to  arrive  at  a  higher  level  of cost  recovery,  then  the  Commission  considers  that  this 
should  be  done  through  the  imposition  of additional  non-discriminatory  and  non-distorting 
fixed user charges. 

In  summary,  the  charging  principles  proposed  in  this  paper,  necessary  for  efficient  use  of 
infrastructure networks, would also create the conditions for financing infrastructure from user 
contributions  that  could  accommodate  different  financing  models.  In  view  of the  strongly 
diverging  infrastructure  financing  systems  in  place  across  the  EU  and  in  respect  of the 
subsidiarity  principle,  this  White  Paper  does  not  lay  down  principles  for  financing 
infrastructure. 

A  transport  undertaking  that  faces  the  real  costs  would  have  clear  incentives  to  adjust 
transport choices, for instance: 

- using vehicles that cause less road damage, are less polluting and are safer; 

-

changing routes and logistics to those with lower  levels of road damage,  congestion, 
accident risks, and environmental impacts; 

or switching to a mode with less impacts. 

5. 
Similarly, the  charging  system would also  give  incentives to  promote transport safety 
through  a  range  of responses:  transport  users  can  purchase  or  switch  to  safer  means  of 
transport  and  operate  transport  systems  more  safely,  whilst  infrastructure  managers  would 
have  incentives  to  improve  the  safety  characteristics  of their  networks.  Whilst  this  may 
increase the  direct costs,  it would  lead to  even larger benefits through reductions  in accident 
related  costs.  Even transport  operators  that  do  not  adjust  their  transport  patterns  would  still 
gain  from  changes  made  by  others  such  as  less  congested  traffic  conditions,  decreased 
accident  risks  and  so  on.  All  in  all,  when  charges  are  introduced  that  better  reflect  in  a 
balanced  manner  real  costs  at  point  of use  in  parallel  with  the  abolition  of certain  existing 
charge schemes or reductions certain other charges or taxes, most users would benefit. 

6. 
It  is  also  important to  stress  the  fact  that the  marginal  social  cost  charging  principle 
ties in with and balances other policy measures.  Marginal social costs of transport are already 
reduced by existing safety and environmental regulations.  Emission standards on vehicles and 
aeroplanes  reduce  external  costs,  weight  restrictions  for  heavy  goods  vehicles  (HGVs)  and 
railway wagons reduce infrastructure damage costs and safety standards reduce accident costs 
for  all  modes.  Since  the  standards  reduce  the  costs,  the  charges  would  be  lower  than  they 
otherwise  would have  been.  Thus,  in  general,  a mode  where  effective  standards  are  in place 
will be compensated through lower charges.  This type  of infrastructure charging  is  also  fully 
consistent with the provision of services of general interest; notably public passenger transport 
services.  The  charging  principles  only  directly  affect  public  transport  operators,  not  final 
consumers and governments fully  retain the possibility of subsidising these transport services. 
Where, in the absence of direct charging systems, governments currently pay for infrastructure 
costs,  sufficient  financial  means  will  be  available  upon  the  introduction  of new  charges  to 

7 

offset  any  impact  on  public  transport  operators.  Finally,  where  governments  finance 
infrastructure  investments  for  other  than  pure  transport  reasons  (e.g.;  to  unlock  peripheral 
regions) then marginal social cost charging is  likely to  lead to low charging levels since users 
would  not  have  to  pay  for  the  capital  costs  associated  with  the  capital  costs  of  these 
investments (also see paragraph 8). 

7. 
Similarly,  the  development  of  a  common  charging  system  on  the  basis  of  the 
principles proposed in this  White  Paper would also  facilitate  consistent  land use planning  at 
different  policy  levels.  By  improving  the  efficiency  of the  transport  system,  transport  links 
between different locations would be  enhanced and this  would assist· in making rational  land 
use planning decisions. The common transport infrastructure charging system also ties in with 
the  development  of the  European  Spatial  Development  Perspective  (ESDP)  which  seeks  to 
enforce transport and cohesion goals by identifying the  need for  improved accessibility and a 
more sustainable use of infrastructure at EU level. 

A PRACTICAL DEFINITION OF MARGINAL SOCIAL COSTS 

Marginal costs are those variable costs that reflect the cost of an  additional vehicle or transport unit using 
the  infrastructure.  Strictly  speaking,  they  can  vary  every  minute,  with  different  transport  users,  at 
different times, in  different conditions and  in  different places.  Moreover for the last extra carriage on the 
train,  car  on  the  road,  or  ship  at  sea,  marginal  costs  can  often  be  close  to  zero.  Clearly  such  a  strict 
definition  is  of no  practical  use,  and  like  all  other  charging  arrangements  in  the  commercial  world,  a 
degree  of  approximation  and  averaging  is  necessary  to  develop  understandable,  practical  charging 
structures.  Marginal  costs  may  at  times  merely  reflect  an  average  of variable  costs.  More  usefully,  they 
should  reflect  infrastructure  damage,  congestion  and  pollution  costs,  and  so  would  vary  according  to 
factors  like unit weight or number of axles, peak times, urban travel, and engine emissions. 

Marginal cost components can  include: 

•  Operating costs: energy, labour, some maintenance costs. 

• 

Infrastructure  damage  costs:  maintenance  costs,  wear  and  tear  of the  infrastructure,  reflected  by  such  as 
resurfacing of roads, rails and runways. 

•  Congestion and scarcity costs:  The cost of time delays to other users or non users,  resulting from congested 
traffic  flows  (on  roads,  queues  for  airports  or  railway  stations).  Moreover,  a  transport  operator's  use  of 
infrastructure may prevent another operator from using it (e.g. an airport runway). 

•  Environmental costs:  air, water, and noise pollution. 

•  Accident costs: Costs in terms of material damage, pain and suffering and production losses. 

8. 
The Commission proposes that a framework  should be  drawn up that would introduce 
this type  of charging in all  modes at Community level.  Clearly, the  system would have to  be 
developed  gradually  and  progressively,  and  not  all  cost  components  could  be  included  from 
the outset. These issues are discussed in Chapter 4. 

· 

It  can  also  be  demonstrated  that  marginal  social  cost  charging  is  an  important  pre 
9. 
requisite  for  efficient decisions  on  infrastructure  provision.  Only  when  investment  decisions 
are  based on efficient, current and future,  levels  of infrastructure use will  they themselves be 
fully  efficient.  As  the  high  level  group  on  infrastructure  charging  confirmed,  investment 
decisions should be based on a full  social cost-benefit analysis covering all  costs and benefits 
to  society, public and private.  Since some of the benefits of  individual projects might accrue 
to  non-users  of the  network,  for  example,  reduced  pollution resulting  from  replacing  a  dual 
carriage way  by a motorway or increased land values in cities connected to a High Speed Rail 

8 

line,  it  could  be  highly  inefficient  to  require  all  the  costs  of every  individual  investment 
project to  be recovered from  direct users.  If that approach had been followed,  very  few  High 
Speed Rail  lines would have  been built in Europe.  Imposing full  cost recovery at the  level  of 
individual  projects  would  therefore  not  only  lead  to  major  inefficiencies  in  transport  use,  it 
could also lead to significant distortions in  investment decisions. 

MARGINAL SOCIAL COST CHARGING iND RECOVERY OF CAPITAL COSTS 
Marginal social cost charges are not related to capital costs since the latter do not vary with transport use.  This 
raises  the  question  whether  a  marginal  social  cost  charging  approach  can  recover  infrastructure  costs  from 
users. 

It  can  easily  be  demonstrated  that  in  the  absence  of benefits  to  non  users  this  depends  on  the  amount  of 
infrastructure  capacity  and  the  cost  of  expanding  it:  with  efficient  investment  based  on  a  cost-benefit 
approach,  charging  for  marginal  infrastructure  costs  only  (i.e.  including  congestion  charges,  but  excluding 
other external costs) will fully  recover infrastructure costs if there are no economies of scale  in  infrastructure 
construction (Newbery,  1988,  Winston  1985  and Annex III).  However,  some  infrastructure  investments have 
other  technical  characteristics.  Available  studies  based  on  segments  of the  European  transport  network 
suggest that for  the  transport system  as  a whole,  such  charges would  ensure  a high  degree  of cost recovery. 
The  result  mainly  derives  from  the  fact  that  efficient  levels  of  infrastructure  provision  are  generally 
characterised by some scarcity, implying that the congestion element in  efficient charges is  positive.  As  far as 
road infrastructure is concerned, this depends  critically on the inclusion of passenger cars. 

However,  in reality,  not all  provision  of infrastructure  is  efficient.  And there  are  benefits  to  non users which 
suggest that some costs cannot be recovered from  users.  On the other hand, the proposed charging framework 
would also incorporate external costs. 

Available evidence ( e.g.  Roy  1998, ECMT 1998) suggests that a consistent application of the marginal social 
cost  charging  principle  advocated  in  this  White  Paper  would  in  the  current  circumstances  lead  to  a 
significantly higher degree  of infrastructure cost recovery from  users  in  all  inland transport modes  in  the  EU 
than  is  currently the case.  Moreover,  at the  level  of the  transport system  as  a whole,  revenues  from  efficient 
charges are  likely to be  close to  levels  required for  full  infrastructure  cost recovery  from  users.  Thus,  whilst 
the proposed approach would not guarantee cost recovery for every individual infrastructure project,  it would 
generate  sufficient  revenues  to  fund  the  transport  system's  infrastructure  capital  costs  and  pay  for  further 
investments. 

Having said that marginal  social  cost charges for  transport infrastructure  are  likely  to 
10. 
produce  revenue  sufficient  to  pay  for  total  infrastructure  costs  at  the  level  of the  transport 
system  as  a whole,  of course,  it is  for  the  Member States to  decide how to  use  the  revenues. 
Obvious alternatives are to  allocate funds to the infrastructure operators, to the general budget 
- for  example to  restructure  existing taxes  - , or to  earmark some  revenues  for  infrastructure 
funds,  possibly  multimodal,  on  national,  regional  or  city  levels.  In  addition,  where  new 
transport charging systems are  introduced existing transport charges will have to  be  amended 
and/or phased out. 

11. 
Charges  will  be  collected by  infrastructure  managers,  be  they  public  or  private.  This 
raises  the  question  of the  allocation of these  revenues  to  different  bodies  ( e.g.  infrastructure 
manager,  the  State)  and the  use  to  which they  are  put.  Naturally,  the  infrastructure  manager 
would  keep  that  part  of the  charges  that  are  related  to  infrastructure  costs  ( covering  both 
infrastructure  damage  and  scarcity/congestion8).  Charges  related  to  other  cost  components 

8  Obviously,  high  congestion  charges  indicate  capacity  scarcity  and  the  desirability  of expansion  through 
investments. Decisions on this should be made on the basis of a Social Cost Benefit Analysis (see paragraph 

9). 

9 

would  more  logically  accrue  to'  the  State.  The  high  level  group  on  transport  infrastructure 
charging  recommended  that  revenues  related  to  external  costs  should  be  used  to  reduce  the 
external  damage  caused,  by  reducing  or  preventing  the  extemality,  or,  where  this  is  not 
possible,  to  compensate  those  affected  in  some  way  (whilst  respecting  rules  on  State  Aid). 
Whilst such an allocation may  be  desirable,  the  Commission considers  that,  in keeping  with 
the subsidiarity principle, such dedsions are best left to the Member States. 

12.  Whilst the analysis presented in the box on marginal social cost charging and in Annex 
III  indicates  that  marginal  social  cost  charging  would  lead  to  much  higher  revenues  from 
direct  user  charges  than  is  currently  the  case,  the  situation  is  likely ·to  vary  across  different 
(parts of) infrastructure networks.  Where marginal infrastructure costs are above average costs 
(for  instance  where  capital  costs  are  a  low  proportion  of total  costs  and  where  capacity 
constraints  are  being  reached),  then  charging  at  marginal  costs  will  both  result  in  the  most 
efficient  use  of  the  infrastructure  and  lead  to  an  over-recovery  of  costs  through  the 
infrastructure  part  of transport  charges  based  on  marginal  social · costs.  This  will  provide  a 
signal  that  there  is  a  shortage  of capacity  mid  provide  a  surplus  of funds  to  deal  with  the 
problem. Where marginal costs are below average costs, then the reverse is true: revenues will 
be insufficient to cover costs. In cases where such infrastructures are part of networks that are 
also  partly  characterised  by  capacity  shortages,  the  infrastructure  managers  are  likely  to  be 
able to "average out" deficits  and surpluses across their networks.  Where  this  is  not possible 
and  there  are  wider  benefits  then  there  would  be  a  strong  case  for  government  subsidy, 
regardless·  of whether the  infrastructure  is  publicly  or privately  owned.  It  has  to  be  pointed 
out, however, that, at present in the Union, there are hardly any infrastructure projects that are 
fully  privately financed without any financial  support from  the  State.  The proposed approach 
will,  therefore,  significantly  reduce  the  need  for  relying  on  direct  government  subsidies  for 
covering infrastructure costs. 

13.  Whilst  the  development  of  marginal  cost  charging  systems  for  all  transport 
infrastructure,  including  all  modes,  terminals  and  related  information  and  communication 
systems  offers  significant  advantages,  there  are,  at  least  in  the  short  to  medium  run,  cases 
where there  should  be  scope  for  a  higher  degree  of cost  recovery  from  users  at  the  level  of 
individual infrastructure projects.  A higher degree of cost recovery may be required to  ensure 
that desirable investments, public, mixed and private, can be made and clearly the framework 
must cater for such projects. 

S?w projects 

14. 
Funding  the  provision  of new  infrastructure  is  a  key  concern  in  European  transport 
policy  and  may  need  to  influence  the  charging  scheme  for  new  infrastructure.  This  is 
particularly true  for  expensive  facilities  like  bridges  and tunnels.  Public  sector provision has 
traditionally  been  the  most  common  approach.  However  as  government  budgets  are  under 
increasing  spending  pressures,  this  is  no  longer  the  automatic  route,  for  reliance  on 
exclusively public financing  can unduly constrain the  level of provision of infrastructure  and 
so increase inefficiency. 

15. 
For  this  reason,  and  to  benefit  from  other  efficiencies  in  the  private  sector,  public 
private  partnerships  are  increasingly  used  to  provide  new  infrastructure. 9  However  private 

9  High-level group on Public-Private Partnership,  1997. 

10 

businesses need to  secure revenues to  recover all  their costs,  and depending  on the degree of 
public  subsidy  available,  this  can  imply  charges  which  may  be  higher  than  marginal  costs, 
especially at the  beginning of a project when use is relatively low and scarcity related charges 
are likely to be negligible.  Whilst charges above marginal costs are likely to reduce the socio 
economic benefits of a project,  this may  be necessary if public  finance  constraints mean that 
the alternative is not to build the project at all. 

16. 
Given  that  the  differentiation  inherent  in  marginal  cost  charging  should  lead  to  the 
most  efficient  result,  these  supplementary  charges  should  have  as  limited  an  impact  as 
possible  on transport use,  either  in  terms  of total  transport  volume,  or inter- or  intra- modal 
competition.  To  achieve  this,  the  charges  should  ideally  be  of a flat  rate  nature  in  the  sense 
that they do not vary with the use of the infrastructure, but for practical reasons they may well 
have to  vary  between  classes  of vehicle  types  or transport  units.  In practice,  the  appropriate 
design  would  differ  between projects.  For  example  a  vignette  scheme  may  be  a  practicable 
design  for  flat  rate  charges,  whereby  users  pay  a  fixed  "entrance  fee"  to  use  a  defined 
infrastructure  for  a fixed  time  (two  part tariffs).  Alternatively  market  segmentation  could  be 
applied  with  higher  charges  for  market  segments  with  a  low  price  sensitivity  (so-called 
Ramsey pricing). 

After a period of years,  long enough for  supplementary charges to  recover investment 

1 7. 
costs and an appropriate return on capital, they should be discontinued. 

18.  Moreover, Member States need flexibility to define "new infrastructure projects" to fit 
local  conditions.  For example,  it typically would be  appropriate to  define  a whole  motorway 
link as  a new project when a lane  is  added  and  consequently  charge  equal  fees  on all  lanes. 
The  possibility  of including  some  existing  connecting  or  parallel  links  as  a  part  of a  new 
project  for  charging  purposes  should  not  be  excluded  either.  However,  it  is  clearly 
inappropriate and inefficient to extend the project definition too broadly. 

Equally, one of the uncertainties facing potential PPP investors is over future charging 
19. 
regimes (for their own mode, but also for potentially competing modes), since this determines 
traffic flows,  revenue and therefore profitability:  by providing a clear framework for charging 
one barrier to the development of PPPs will be removed. 

Competing infrastructure 

20. 
The  case  where  infrastructure  projects  or  sectors  are  in  direct  competition  at  the 
European  level  applies  predominantly  to  terminals  and  interchanges  such  as  major  ports, 
combined transport terminals,  and  even  airports  within the  same  catchme~t  area.  As  long  as 
Member States are entirely free to  decide on infrastructure investment and J:'J.ot  take the effects 
of their  decisions  on  other  Member  States  into  account,  the  introduction -of a  marginal  cost 
charging approach at Community level might well  not suffice to  avoid significant distortions 
in infrastructure provision.  This  is  because some Member States, perhaps to  secure purported 
local  benefits,  would  invest  more  than  is  desirable  from  the  point  of view  of the  transport 
system  as  a  whole.  Such  investments  could  lead  to  competing  excessive  investments  in 
neighbouring Member States  in  order to  keep  up  their market share.  At a  Community  level, 
the net result is an over provision of infrastructure leading to a waste of scarce resources. 

21. 
For  major,  competing  terminals  therefore,  the  marginal  cost  charging  principle  also 
needs  to  be  complemented  to  permit  higher  cost  recovery,  reflecting  the  level  of the 
investment.  Such  an  optional  provision  would  not,  however,  exclude  the  possibility  of the 

11 

creation  of over  capacity.  Additional  policy  instruments  are  therefore  required  and  this  is 
discussed in section 5(h). 

Conclusion 

22. 
The  co-ordination  of transport  charging  and  the  development  of efficient  charging 
levels  is  expected to  provide  significant net  benefits  for  the  whole  of society.  It  should  lead 
directly to improved technological, op·erational, and organisational efficiency; produce a small 
desirable  change  in  modal  balance,  and  a  small  reduction  in  the  growth  of demand  for 
mobility.1°  Commission studies also  suggest that introducing  a policy of marginal  social cost 
charging  at  EU  level  would  lead  to  overall  welfare  benefits  of the  order  of at  least  30-80 
billion ECU per year (see section 6a). 

23. 
The  charging  system  outlined  here  would  directly  address  most  of the  problems 
discussed  in  Chapter 2.  It  would  promote  fair  competition  within  modes  by  linking  charges 
exclusively  to  the  costs  imposed  by  transport  operators,  independent  of their  nationality  or 
business  location.  When externalities  and  other costs  are  properly  charged  for,  the  operators 
who  invest  in  cleaner  or  less  damaging  vehicles  or  ships  are  rewarded  by  reduced  charges. 
Such investments  would then pay  off rather than harm businesses'  capacity  to  compete.  The 
proposed charging principles would also lead to  a fairer  competition within and across modes 
as  a  result  of which  transport  choices  would  be 
influenced  by  fair  competition  rather  than 
distortions  in  charging  systems.  When  the  same  basic  principle  are  applied  in  all  Member 
States, operators equitable conditions of competition would result and artificial relocations of 
transport businesses to  States with favourable  tax regimes  woµld  be  avoided.  When charging 
. schemes  are  harmonised  and  implemented  in  a  transparent  manner,  the  administrative  costs 
for  transport  operators  would  be  reduced  and  the  ease  with  which  the  costs  of different 
transport  options  can  be  compared  would  be  greatly  enhanced.  The  current  disadvantages 
resulting from complicated and non-transparent rail charges constitute would be removed. 

24.  Marginal  cost  charges  would  also  raise  considerable  revenue.  In  many  cases  this 
would need to  be  offset by reductions  in transport-related charges.  At the  same time the new 
charging system would lead to  a more efficient use  of the  infrastructure and thereby,  to  some 
extent, reduce the need for new investment. 

For certain projects an exemption would allow  charges above marginal cost when this 

25. 
is needed to finance important and socio-economically beneficial infrastructure projects. 

The  link  between  charges  and  costs  would  prevent  some  terminals  profiting  from 
26. 
local,  monopolistic  market conditions,  while  at the  same  time  steps  can  be  taken  to  prevent 
unfair  competition  in  infrastructure  provision  leading  to  wasteful  over  capacity.  A  further 
detailed examination  of the impact of these proposals is contained in chapter six. 

IO  ECMT  1998. 

12 

4  A STEP-BY-STEP APPROACH TO IMPLEMENTATION 

to  be 

The  proposed  charging  approach  will  have 

1. 
introduced  gradually  and 
progressively.  This  is  because  it  must  take  into  account  the  different  starting  points  of the 
various modes· of transport in respect of existing European transport legislation,  the  complex 
issues  involved  in  developing  new  charges,  and  other  constraints,  such  as  revenue  raising 
requirements.  Sometimes  current  charges  may  serve  as  a  reasonable  proxy  for  particular 
marginal  costs,  and  so  no  immediate  change  may  be  necessary.  For  example,  the  current 
Directive  on charging  of HGV s  and  the  planned  Directive  on  airport  charges  have  already 
established  the  base  for  developing  charges.  In  other  modes,  however,  no  such  foundations 
have been laid. Moreover, decisions on the design and the coverage of new charging systems, 
both in terms of infrastructure networks and categories of means of transport, will have to take 
full  account of the costs of operation and implementation ("transaction costs"). 

The  Commission  proposes  a  three  phase  approach.  In  phase  one,  the  charging 
2. 
framework  should  be  established.  In  phase  two,  the  Commission and  Member  States  would 
begin to  adapt  charging  regimes  to  implement  the  framework.  In  phase  three,  the  transition 
would  be  completed,  and all  modes  of transport would  be  subject to  marginal  cost charging. 
The key characteristics of each phase are summarised immediately below, greater detail of the 
priority actions  being set out in chapter five. 

4(a)  Phase One:  1998-2000 

3. 
During the  first  preparatory phase,  agreement should be  sought  on methodologies  for 
measuring  marginal  costs  and  to  promote  the  idea  of charging  at  point  of use.  In  line  with 
current legislation, charges up to average costs would generally be accepted. 

4. 
In order to  pave the  way for  the  implementation of marginal cost charging principles, 
common methods  to  estimate  marginal  costs  including  external  costs  have  to  be  developed, 
for all modes of transport. The Commission, will, therefore, propose to  set up a Committee of 
Governments experts on charging for the use of infrastructure" and  this Committee should be 
given an effective  advisory  role.  The terms  of reference  for  the  work will  be  to  develop  and 
advise the Commission on Community guidance on methods to  estimate the marginal costs of 
tr~sport; develop practices to promote transparency of accounts; promote the development of 
"transport accounts"  at  Member State  level;  and  to  advise  the  Commission on statistical  and 
research  needs  and  priorities.  The  Committee  will  be  supported  by  the  use  of independent 
experts  and  other  stakeholders,  involving  transport  operators,  users,  industry,  consumers, 
transport  workers  and  other  interested  parties.  Obviously,  it  will  be  for  the  Commission  to 
come forward  with the necessary legal proposals,  in  the  drawing  up  of which  it will  take  full 
account of the work of the Committee. 

5. 
The  1998  proposal  for  railway  infrastructure  charging  would  need  to  be  adopted  as 
soon  as  possible  to  ensure  that  a  Community  framework  exists  for  the  two  main  modes  of 
inland  transport. 11  The  Commission's  proposal  for  a  Council  Directive  on  airport  charges 
should be implemented and a framework for port charges should also be developed.  Finally, a 
proposal for the revision of Regulation  1107 /70 on State aids in inland transport will be made 

11  Road transport is covered already in Dir. 93/89/EEC. 

13 

later in  1998  and consideration given to  the need for  further refinement of State aid  rules and 
guidelines  for  other  modes.  As  well  as  developing  infrastructure  cost  based  charges,  the 
Commission  would  encourage  the  development  of charges  based  on  external  costs  for  all 
modes  provided  that  this  does  not  lead  to  charges  higher  than  average  infrastructure  costs. 
Such charges are already under discussion in the Council in the context of its deliberations on 
the  modification  of the  existing  Directive  on  heavy  goods  vehicle  charges  and  should  be 
charges. 
permitted 

infrastructure 

proposal 

under 

new 

rail 

the 

on 

The Commission believes this first phase should run until the end of 2000. This should 
6. 
allow  the  second  phase  to  begin  in  200 I  with  broadly  compatible,  basic  charging  systems 
being  put  in  place  for  road,  rail,  ports  and  airports  as  well  as  the  above  State  aids 
provisions. 

4(b)  Phase Two: 2001-2004 

Having  established  the  charging  framework  and  methodological  approaches,  the 
7. 
second phase would involve adapting particular charges better to reflect the new approach and 
to  harmonise  charging  systems  between  modes.  In  this  phase,  it  is  proposed  that  charges 
should  in  general  be  set  at  total  social  marginal  costs,  that  is  marginal  infrastructure  and 
external costs.  Charging levels for externalities having a Community dimension should be  set 
at  Community  level,  probably  at  an  agreed  low  rate  to  begin  with.  The  revenues  would 
obviously accrue to Member States. Other charges by Member States for congestion and other 
local externalities would be  encouraged and  should,  when introduced,  be  based on an  agreed 
Community  framework  methodology,  to  be  developed  in  the  Committee.  As  well  as 
continuing  to  examine  charging  methodologies,  the  Committee  should  begin  reviewing 
charging practices with potentially significant cross border impacts. 

8. 
Changing, to  charges  reflecting  the  use  made  of the  infrastructure  should  lead  to  a 
higher degree of cost recovery directly from users.  However, Member States would be free  to 
levy supplementary charges to  reach an even higher degree of infrastructure cost recovery for 
new infrastructure projects if they so wish.  These additional charges should ideally be flat rate 
(subscription type - two  part tariffs).  Revenues  from  charges  imposed to  cover external  cost 
charges  can also  be  used to  finance  further  investment.  However charging  levels  in different 
modes  should,  under  no  circumstances,  exceed  the  sum  of average  infrastructure  costs  and 
external costs. 

The  introduction  of  new  transport  charges  would  not  only  need  to  be  part  of  a 
9. 
restructuring  of the  existing  tax  and  charges  structure  in  the  transport  sector  but  would  also· 
have to be consistent with the development of the general tax policy.  Such an approach would 
permit further reforms to be implemented in a budget neutral way as regards the economy as a 
whole 12 . 

4(c)  Phase Three:  beyond 2004 

I 0.  Whilst lessons would be drawn from experiences during the first and second stages,  in 
general,  the third phase would be  to  further  implement harmonised charging  principles,  both 
in  terms  of the  marginal  cost  basis  and  the  consistency  of cost  estimation.  The  level  of 

12  The  Commission  has  already  proposed  the  relevant  provisions  regarding  fuel  taxes  in  COM(97)  30  final. 

This issue is discussed further in section 5 (g). 

14 

Community wide  charges for  externalities should also  be  reviewed.  Consideration could also 
be  given  to  requiring  mandatory  charging  structures,  but  not  levels,  for  local  externalities. 
Such an approach would alleviate pressure on Member States to  reduce  local  charges because 
of international competition. 

Maximum 

Overview of charging ruJes 
Second phase 

First phase 
varies  by  mode,  but  generally, 
average infrastructure costs4 

marginal infrastructure plus 
local and Community wide 
external costs 1 
3 
2
•
•

Third phase 

Marginal social 
2
3 
cost charging 1
• 
•

Minimum 

External costs 

Varies  by  mode,  between  zero  and  marginal infrastructure plus 
average infrastructure costs4 

Community wide external 
costs 1
2.J 
•

Differentiation allowed 1 
1 on the  basis of agreed parameters/methodologies 
2 supplementary charges for new projects allowed subject to a maximum of average  infrastructure and  external costs 
3 balanced by  reductions in existing taxes and charges. 
4 This reflects the existing minimum and maximum levels  in different modes of transport 

5 

IMPLEMENTATION, PRIORITY ACTIONS AND MODAL IMPLICATIONS 

1.  This chapter focuses  on priority actions during the  first  two  phases of the  implementation 
process. Separate descriptions are provided for the different modes. 

5(a)  Development of consistent costing and accounting practices 

To  implement  the  charging  principles  outlined,  a  number  of issues  concerning  cost 
2. 
estimation  must  to  be  analysed.  There  is  a  need  to  develop  practical  cost  estimation 
methodologies, and there is much to be gained by co-ordinating the work on this matter of the 
Commission and Member States.  To address these.questions and assist the Commission in its 
work  in  connection  with  infrastructure  charging  the  "Committee  of Government  experts  on 
charging  for  the  use  of transport"  ("the  Committee")  should  begin  to  work  effectively,  and 
would be chaired by the Commission. 

The  terms of reference  for _the  Committee  should be  updated.  It would be  made  clear 

3. 
that the Committee covers all modes and five  specific purposes would be identified. 

(1)  Develop Community guidelines on methods to estimate the marginal costs of transport. 

The  recent discussions  in  Council on the  Alpine dimension of the  Eurovignette regime  have 
demonstrated  that  there  is  an  unacceptably  wide  variety  of approaches  to  calculating  and 
charging  for  the  costs  of  road  infrastructure.  There  are  a  number  of  potential  methods 
available  to  estimate  the  different  marginal  costs  of transport  infrastructure  use  and  a  lot  of 
research has been completed in this field.  The Committee need not necessarily seek to identify 
one single method to measure a certain cost category, but define how different cost estimation 
or  valuation  methods  can  be  properly  applied.  Whilst  the  ideal  outcome  would  be  an 
intermodal  approach  to  methodology  development,  differences  between  modes  may  well 

15 

justify  some  mode  specific  variations.  The  estimation  of infrastructure  damage  costs  and 
congestion  costs  should  be  given  first _priority,  but  the  Committee  should  also  consider  the 
valuation of environmental  impacts  and accident risks.  As  to  fixed  costs,  a Community-wide 
approach  to  estimating  capital  costs,  including  depreciation  methods,  also  needs  to  be 
developed. 

(2)  Develop practices to promote transparency of accounts and develop "transport accounts at 

Member State level. 

To  facilitate  the  implementation  and  the  enforcement  of  charging  and  State  aid  rules, 
particularly for terminals,  transparent accounting practices must be developed.  On this point, 
the Committee's work should be to  identify best practice on cost accounting. The forthcoming 
inventory  of current  charging  principles  for  sea  ports  should  be  a  starting-point  for  the 
assessment. 

The  Committee  should  also  advise  on methods  for  determining the  level  of cost recovery  at 
modal and transport sector level  and promote the establishment of transport cost and revenue 
accounts at the level of single Member States. The Committee should advise the Commission 
on  a  possible  revision  of  Regulation  1108/70  on  introducing  an  accounting  system  for 
expenditure on infrastructure in respect of all modes of transport. 

(3)  Review charging practices 

When  Member  States  begin to  implement  charges  based  on the  principles  explained  in  this 
paper,  the  Committee  has  an  important  role  to  play  in  reviewing  charging  practices  and 
advising the Commission on issues related to  compliance with the charging principles' set out 
in  this  paper.  It  should  assess  whether  marginal  cost  charges  are  based  on  appropriate  cost 
estimates,  given  the  national  or  local  context;  whether  a  proposed  two  part  tariff (levied  to 
achieve  cost  recovery) 
is  reasonably  non-distortive;  and  whether  charges  are  non 
discriminatory and sufficiently transparent. 

( 4)  Advice on statistical and research needs and priorities. 

The  estimation  of  marginal  costs  and  the  development  of transport  accounts  should  be 
supported by further research.  The Committee would therefore ensure that full  use is  made of 
existing  Community  funded  research  on  transport  charging  and  advise  on  issues  related  to 
future research within the 5th  framework programme of the European Community for research, 
technology development and  demonstration activities.  Special  attention would  be  paid to  the 
CAPRI-project,  a  concerted  action  on  transport  pricing  research  including  guidance  on  best 
charging  practices.  In  addition research  would  also  concentrate  on existing  gaps  in  the  theory 
and on the appropriate allocation of responsibilities  between different  levels  of Governments 
(local, regional, Member State, Community). 

In  order  to  estimate  marginal  costs  and  develop  transport  accounts,  improved  transport 
statistics  are  needed.  Efforts  to 
improve  statistics  should  be  co-ordinated  with  the 
Commission's  current  activities  on  the  improvement  of data  sources  on the  costs  and  other 
economic and social data of the transport __ sector.  Together with Eurostat, the  Commission has 
already  identified  some  areas  where  data  improvement  is  necessary,  including  investment  in 
the transport sector. 

4. 
The  Committee  of Government  experts  on  the  charging  of transport  infrastructure 
should  be  flanked  by  a  wider  forum  consisting  of independent  experts  and  representatives 

16 

from  relevant  organisations.  Based  on  recommendations  from  the  Committee  and  the  wider 
forum, the Commission should develop guidelines and legislative proposals when appropriate. 

ACTION: 
•  Make effective use  of the  Committee of governments  experts  on  charging  for  the  use  of 
transport  infrastructure  to  assist  the  Commission  in  the  development  of  methods  to 
estimate  marginal  costs  of transport;  promoJ_e  the  development  of transport  accounts  at 
Member  State  level;  develop  accounting · practices  to  safeguard  cost  recovery  for 
terminals;  advise  on  statistics  and  research  needs  and  priorities  and  review  charging 
practices. 

•  Launch  research  within  the  5th  framework  program  concerning  estimation  of marginal 
costs,  measurement  and  valuation  principles  regarding  transport  accounts  and  charging 
regimes in order to fully recover infrastructure costs. 

•  Develop  a  comprehensive  approach to  common transport  statistics.  Consider  revision  of 
Regulation (EEC) No  1108/70 on an  accounting system  for  expenditure  on  infrastructure 
in respect of all modes of transport. 

5(b)  Road 

The  main  long  term  objective  is  to  improve  the  efficient  use  of the  European  road 
5. 
network,  promote  sustainable road  transport,  and  encourage  appropriate  investment  in  Trans 
European  Networks.  To  achieve  this,  the  Commission  intends  to  develop  a  comprehensive 
road  charging  scheme  for  HGVs  and  commercial  passenger  transport  that  would  aim  to  be 
compatible with urban road pricing schemes. 

6. 
In the  first  phase,  the  Committee  should  review  cost  methodologies  to  determine  an 
agreed  basis  for  setting  charges  based _on  infrastructure  and  congestion  costs.  This  would 
include the development of common accounting  and costing methodologies.  Those measures 
should be  flanked  by  efforts to  develop  standards  for  charging  technologies.  Member  States 
would  then be  encouraged to  harmonise  or  adopt  interoperable  systems  for  road  pricing  for 
HGVs  either  through  existing  toll  or  Eurovignette  systems  or,  preferably,  through  the 
development of more cost related electronic kilometre charges.  The Commission expects that 
this  would  be  considered  by  many  Member  States  as  an  attractive  alternative  to  systems 
having no  use-related charges  at  all  or only time  based  user charges.  It  would  also  lead  to  a 
much  greater  degree  of distance  related  charging  across  the  Community.  The  Commission 
will  also  develop  a  proposal  for  the  environmental  classification  of HGVs  to  facilitate  the 
development of charges that can better reflect the different costs of environmental impacts due 
to vehicle use.  Finally, Member States are  encouraged to  develop urban road pricing schemes 
to  deal  with  the  external  costs,  including  congestion  costs,  of  urban  transport.  It  is  not 
appropriate that such schemes be organised at Community level, though the  Commission will 
continue  to  fund  research  and  demonstration  projects  related  to  urban  road  pricing.  Any 
Community  legislation  that  may  harm  the  implementation  should  be  reviewed  with  the 
ambition to remove such obstacles. 

In the  second  phase,  distance  related  charges  should  be  extended  to  include  external 
7. 
costs  in  addition  to  infrastructure  costs.  Such  charges  would  apply  also  to  new  road 
concessions,  allowing  cost recovery  charging where  new investments are  anticipated.  Efforts 
should  also  be  made  to  further  promote  the  implementation  of urban  road  pricing  schemes 
which are interoperable with HGV charging. 

8. 
In the third phase, the  common scheme should become mandatory.  Thus, harmonised 
marginal  cost  based  charges  for  HGV s  and  commercial  passenger  transport  should  replace 

17 

existing  charging  schemes  on  the  basis  of a  variety  of instruments  including  tolls  and  user 
charges. 

Electronic charging13 

It is now technologically possible  and  economically  feasible  to  implement electronic 
9. 
road  charges  that  can  reflect  with  reasonable  accuracy  the  marginal  costs  of road  use.  The 
main technologies are microwave technology where an on board unit communicates with road 
side equipment and satellite positioning and navigation systems and GSM where the on board 
unit communicates with a satellite and mobile telephony is used to collect payment. A number 
of microwave based systems have been introduced on specific routes,  and although CEN pre 
standards have been adopted further effort is needed to  establish European standards for these 
technologies.  Compared  to  microwave  based  systems,  GPS  and  GNSS  have  the  advantage 
that they demand no  road side equipment and  in the  long run might prove less costly.  Indeed 
technology that makes it possible to  implement highly differentiated charges is  already being 
deployed  for  other  purposes  such  as  fleet  management  and  will  soon  be  introduced  in  new 
vehicles as the electronic tachograph  (to  monitor driving  and rest times)  becomes mandatory 
under Community law .. 

The  charging  system  for  HGVs  is  a particular priority for  the  European  Commission 
10. 
as the sector is  distinctly international  and  such traffic  is  very important for  the  development 
of the  single  market.  A  developed  Community  scheme  for  charging  of HGVs  would  be  an 
important step for  implementing charging principles. The system should be developed so that 
it would dovetail with schemes being developed by cities and regions  for  urban road pricing. 
Indeed  an  electronic  charging  scheme  for  trucks  is  emerging  as  the  natural  successor  to  the 
current Eurovignette system. To promote such a development the option of standard electronic 
charging should be added to the relevant Community legislation. However, this would require 
further analysis of technical aspects, harmonisation and administrative issues. 

Other measures 

11. 
In  the  meantime,  the  Commission  would  encourage  Member  States  to  develop  and 
implement electronic fee collection systems in a harmonised manner. The way forward will be 
presented  in a  Communication  on  Interoperable  Electronic  Fee  Collection  in  Europe.  Based 
on the findings  of this  Communication every consideration will  be  given to  the technological 
and administrative interoperability of the systems to  ensure unconstrained mobility across the 
Community.  Building on this  the  Commission will  also  put forward  a proposal  on electronic 
fee  collection convergence. 

13  These  issues  will  be  further  developed  in  a  Commission  Communication  on  Interoperable  Electronic  Fee 

Collection in Europe. 

18 

Possible kilometre charge for heavy goods vehicles 

HGVs  impose  a range  of costs  which they  often do not currently  directly pay  for.  These  include road damage, 
noise  and air pollution,  all  of which  vary with the size,  weight,  engine,  and type  of vehicle.  Imposing  a charge 
based on these costs,  at point of use,  according to  vehicl(!.type,  would therefore  give  a clear signal to  hauliers, 
and the costs would be paid for.  Secondly, as  road haulage  is  an  international industry,  it  is  important to charge 
the vehicle at the point of use so that the principle of territoriality is respected. 

A range  of  technical options, both electronic and non electronic, are available for Member States to charge  for 
road use.  Digital, electronic tachographs which measure kilometres travelled will be required  in new vehicles 
within two years from now and on board global positioning systems (for example GPS) have been developed so 
distance,  time,  location,  vehicle  class,  and  road  type  can  all  be  detected  and  recorded  electronically.  Such 
systems are already being used for fleet management purposes. 

The cost of the more sophisticated electronic on board units  is  roughly 500 ECU per vehicle and the experience 
of Sweden suggests that administration costs for a similar scheme are quite  low,  at about 2.6% of revenues.  The 
level of charge per kilometre could be  based initially on the marginal infrastructure costs  per km  and marginal 
inter urban congestion costs. A recent study for the Commission has roughly estimated the costs of HG Vs for all 
roads  in  different  Member  States.  The  marginal  infrastructure  cost  estimates  range  from  0.02  ECU  per km  in 
Spain to 0.08  ECU  in  Germany,  and the  congestion  costs  range  from  0.02  ECU  to  0.3  ECU depending  on  the 
density  of traffic  and  differ largely  as  a  result of different values  for  time.  The  charges  would clearly  need to 
differ with vehicle classes,  road types  and Member State,  to reflect the  different costs.  However charging  on  a 
consistent basis would remove distortions to the current European road haulage market. 

For vehicles without the  equipment making occasional journeys, a simple time  based or route  specific  (paper) 
permit system is possible. Such a permit could be bought in advance, and could contain information on location, 
vehicle  type  and  category,  and  the  distance  or route  of travel  permitted.  The  system  should  however  only  be 
used for a limited number of vehicles mainly from countries not yet deploying an electronic system. 

The impact of km  charges has also been studied. The charge could lead to more efficient use of HGV  capacity 
and  a  positive  net government bugetary effect allowing  the  revenues  to  be  used  to  reduce  other,  less  efficient 
charges or taxes. 

The  European  Commission  also  has  a  role  to  play  in  funding  road  pricing  related 
12. 
research, development and demonstration projects.  Social issues,  including "user acceptance" 
should  be  given  a  high  priority,  and  resources  for  this  purpose  will  be  reserved  within  the 
Fifth framework research programme. 

13. 
The  Commission  will  continue  to  promote  the  exchange  of best  practice  for  road 
charging  across  the  Community,  and  also  supports  urban  road  charging  demonstration 
projects.  In order to  facilitate  the  implementation of such  schemes  the  Commission plans to 
co-operate  with  cross-national  groups  of urban  or  regional  authorities  that  are  seriously 
considering  implementing  road  pricing.  It  will  off er  a  co-ordinated  approach  to  ensure  that 
these groups can take full  advantage of the Commission's research and technical work in this 
area, including the experience accumulated to date. 

14. 
One  important  step  in  the  development  of  charging  schemes  is  the  creation  of 
harmonised  cost  accounting  methods  for  determining  road  infrastructure  costs.  As  noted 
above,  this is  an area the  Commission feels  early joint discussions could contribute to  agreed 
methodologies for potential application across the EU. 

19 

15. 
A  further  initiative that the  Commission supports  is  analysis  of the 'treatment of road 
accident costs in charging for transport use. The costs of traffic accidents is a complicated area 
in  theory,  empirically,  and  ethically.  To  some  extent  the  costs  are  met  directly  by  the 
individual  or through the  insurance system.  However some costs are  still "external",  and  not 
faced  by  transport  users.  Ensuring  that  prices  better  reflect  accident  costs  would  give 
infrastructure  managers  and  transport  users  incentives  to  improve  safety  which  would  drive 
down  accident  costs.  The  Commission  proposes  that  further  work  be  carried  out  examining 
the scope for better internalising the cost and risk of accidents through insurance schemes, and 
the  need for  government action in this  area.  To  consider this  issue  and  develop  best practice 
guidance, the Commission proposes establishing a group of experts drawn from the  insurance 
industry,  academia and consumer interest groups to  advise on best practice on motor liability 
msurance. 

16. 
Regulation  1107/70  on  State  aid  will  be  revised  in  line  with  the  charging  principles 
outlined in this  paper.  The  new  State  aid  rules  would  contribute to  the  establishment  of fair 
competition. 

ACTION: 
•  Communication on interoperable electronic fee collection systems in Europe. 
•  Proposal on electronic fee  collection convergence and standards. 
•  Further develop a proposal on charging for HGVs and commercial passenger transport. 
•  Set up  groups  of urban  and  regional  authorities  seriously  considering  implementation  of 

road pricing. 

•  Set up an advisory  group to  develop  a best practice  on  motor liability  insurance  schemes 

and internalisation of road traffic accident risks. 

•  Revision of regulation  1107 /70 on State aid in inland transport. 

5(c)  Rail 

17. 
The- need  to  promote  efficient  use  of railway  infrastructure,  fears  of distortions  to 
intermodal competition particularly from  road transport and the need to  fund  new investment 
are the main problems for the rail sector.  Charging the use of railway infrastructure according 
to  marginal  costs  would  send  appropriate  price  signals  to  railway  undertakings  about  the 
actual cost of each journey. Future charging regimes should be based on marginal costs and if 
necessary  to  extend  charges  for  new  infrastructure  in  a  way  that  least  distorts  these  price 
signals. 

18. 
To  ensure that the two  principal modes  of land transport are  on a similar footing,  the 
Commission is  putting forward  a proposal  for  a Directive on railway  infrastructure  charging, 
basing charges on marginal infrastructure costs.  This should be adopted in phase one.  In the 
proposal,  cost recovery  charges  are  permitted when the  operation of the  infrastf1:1cture  would 
not otherwise be viable.  Such charges should be implemented in a non distorting manner,  for 
instance,  by  achieving  a higher  degree  of cost  recovery  from  less  price  sensitive  passenger 
services.  Differentiation of charges to take accC?unt  of external costs would also  be permitted, 
as rail transport has lower external costs than some other modes. 

19. 
A  more  efficient  solution  would  require  charging  for  the  marginal  external  costs. 
Therefore  as  part  of  phase  two  and  the  development  of  charges  for  externalities,  the 

20 

Commission  will  investigate  implementing  noise  related  environmental  charges  for  the 
railways in parallel with charges for other external costs in other modes. 

20. 
Demand for particular routes, lines, sections of lines, and stations, varies with the time 
of day,  the  nature  of the  traffic,  and  the  scope  for  alternative  routes.  In  principle  therefore, 
railway undertakings should pay differing amounts for different routes and times to reflect the 
scarcity of capacity and to  ensure that allocation is more  efficient.  Charges  of this nature are 
put fonvard in the Commission proposal. 

In  phase  three,  consideration  would  be  given  to  rendering  the  allocation  of  rail 
21. 
infrastructure  capacity  more  efficiently.  However  further  research  is  needed  for  this  and  a 
project is being funded  under the  Fourth framework programme of the  European Community 
for research, technology development and demonstration activities. 

ACTION: 
• 
•  Revision of regulation  1107 /70 on State aid on inland transport. 

Proposal for a Council Directive on rail infrastructure charging and capacity allocation. 

5( d) 

Inland watenvays 

22. 
The  Commission  supports  the  development  of  more  transparent  and  consistent 
charging  principles  in  all  modes  of transport.  So  in  inland  waterways  as  in  other  modes, 
objectives  include  the  development  of  common  standards  for  charging,  and  common 
accounting and costing methodologies for determining the cost of infrastructure. The marginal 
costs of inland navigation are  very  low,  and transportation  is  only one of the  several  uses  of 
the  inland  waterways,  others  largely  relating  to  water  management  and  supply,  so  any 
calculation  of inland  waterway  charges  should  reflect  this.  Moreover  both  the  financial  and 
the environmental costs of inland waterway traffic are amongst the lowest of all modes. 

23. 
Given the low level of costs, and the absence of evidence that current charging policies 
are  producing  any  significant  distortion  of competition,  the  Commission  is  of the  view  that 
reform  of inland  waterway  navigation  charges  should  be  considered  by  the  Committee,  and 
changes developed for proposal for the third phase. 

ACTION.· 
•  Revision of regulation  1107 /70 in state aid. 

5(e)  Avi~tion 

Air Traffic Services (ATS) 

Current charges for the use of Air Traffic comprise mainly en route charges which are 
24. 
levied according to  aircraft weight and flight distance; when terminal area control charges are 
levied they  do  not  include  the  distance  factor.  They  are  used  to  recover  total  costs,  not just 
variable  costs,  and  do  not  consider  fully  environmental  or  congestion  costs.  Principles 
governing  A TS  charges  are  established  by  international  organisations,  such  as  ICAO  and 
Eurocontrol. Within the latter, a multilateral agreement has been signed by 27 European States 
(including  all  EU  Member  States  but  Finland)  to  adopt  a  common  policy  in  respect  of the 

21 

calculation  of the  charges,  of their  cost  base  and  of their  collection.  By  that,  revenues  are 
collected by Eurocontrol, using a so called "unit rate" calculated by dividing the total costs for 
ATS by traffic volume. 

25. 
Given the  comparatively  high  degree  of harmonisation  and  differentiation  of current 
charges,  and since as  present charging mechanisms reflect the actual  infrastructure costs,  and 
partly the congestion ones, this is not an area in need of immediate action by the Commission. 
To  develop  more  efficient  charges  based  on  the  principles  of user  pays  and  polluter  pays, 
charging structures should e,xpand to also reflect: 

•  engine/fuel  type  (to  reflect  emissions,  and  noise  costs,  which vary  with  engine  size) 

and 

• 

time of travel ( as peak times raise sector operating costs). 

26. 
If charges  can reflect these  different costs  in  a  significant way,  so  that  airspace  users 
pay  for  the  services  they  use  and  the  costs  they  impose,  and  no  more,  then  such  users  can 
respond by changing routes, times, aircraft, fuel,  engines, and so on. 

27. 
The Committee would be invited to  consider the possibility of greater cost relatedness 
of charges,  particularly  to  reflect  the  emission  costs  of air  transport.  When  charges  reflect 
infrastructure, external and congestion costs, it is expected that air traffic services will achieve 
full cost recovery, and so further enable their ongoing commercialisation. 

28. 
The current Commission position on the taxation of aviation fuel  is that such taxation 
should be  introduced  as  and  when the  international  legal  situation allows  the  Community to 
levy  such a tax on all  carriers  including those  from  third  countries.  This  policy  was  adopted 
following  a  review  and  subsequent  report  on the  existing  obligatory  exemption.  In  order  to 
. provide more  information on the  effects  of this  policy  and  in response  to  a request  from  the 
Council, the Commission has launched a comprehensive study on the effects of such taxation. 
The results will be  available  in autumn  1998.  This  study will  be  used as  the  basis  for  further 
discussion in the  Council of the  European Union and the  European Parliament in the  context 
of the Commission Proposal for the taxation of energy products. 

ACTION: 
•  Communication on air transport and environment. 
• 
Follow up to the study on taxation of aviation fuel. 
•  Analyse  possibilities  to  link  A TC  charges  to  pollution  levels  rather  than 

develop a separate scheme for the purpose. 

•  Green paper on financing of air traffic management infrastructure. 

Airports 

To improve the use made of airports, and reduce the possibility for excessive charging, 
29. 
the  Commission's proposal  for  a Council  Directive  on airport charges  proposes  applying  the 
principle of "cost-relatedness". This implies that airport charges should be based on the costs 
of facilities  and services provided by  the  airport,  allowing  for  a reasonable  return  on capital, 
the  proper  depreciation  of assets,  as  well  as  the  efficient  management  of capacity.  The 
proposed Directive also proposes developing the transparency of airport accounts, establishing 
mandatory  consultation procedures.  In  addition,  the  proposal,  if adopted,  would  include  the 
options  of  implementing  congestion  (peak/off-peak)  charging,  possibilities  for  modulating 

22 

airport charges  in terms  of the  environment ( e.g.  noise)  as  well  as  provisions  for  monitoring 
airport efficiency 

30. 
Complementing this approach, consideration will have to be to given to improving the 
slot allocation process ..  The Commission therefore intends to revise the current Regulation on 
slot allocation. In the longer term a further alignment with the general charging principles set 
out in this White Paper would be desirable. 

ACTION: 
•  Adoption of Council Directive on airport charges. 
•  Communication on air transport and environment. 
•  Communication on air transport market. 
•  Communication on airport capacity and  airport cost developments  in  the  EU  (inc.  policy 

options to relieve congestion). 

5(f)  Maritime 

Maritime shipping 

31.  Maritime  shipping  has  comparatively  low  infrastructure  and  external  costs,  although 
emissions  of sulphur  dioxide  and  nitrogen  oxides  are  significant  and  give  rise  to  concern. 
Preparatory actions in the first phase should therefore include consideration of emissions from 
shipping  in  the  context  of  ongoing  international  discussions  on  the  matter.  At  present 
Community legislation provides for  a mandatory tax exemption for  fuel  used  in ships.  In the 
second phase, consideration would be given to the introduction of minimum standards for fuel 
quality  and the  Commission  should  consider the  possibilities  for  levying  environmental  fuel 
charges that vary  in respect of emissions.  Alternatively,  fairway  charges could be  introduced 
that would be differentiated on the same basis.  Again,  however,  all  such changes would have 
to  be  compatible  with  international  agreements  in  this  area.  Discussions  on  adjusting 
standards and charges will therefore also take place in international forums such as MARPOL. 

Ports and maritime infrastructure 

32. 
As set out in the Commission's Green paper on Ports and Maritime Infrastructure, the 
Community's ports  policy  should  aim  at  creating  equitable  conditions  of competition  across 
ports in the  EU whilst maximising the  efficiency of the  use  of the  ports sector as  a whole.  A 
Community  framework  for  port  charging  can  make  an  important  contribution  to  the 
achievement of this  objective.  In line  with the  general  principles  set out in  this  White  Paper, 
the  Commission,  therefore,  considers  that  port  users  should  pay  for  the  costs  they  impose. 
However,  it  is  recognised  that  marginal  cost  charging  would  not  always  suffice  to  fully 
recover  infrastructure  costs  from  users.  Higher  charges  should,  therefore,  be  allowed, 
provided  they  are  non-distortive.  The  Community  framework  in  this  field  would,  therefore, 
require cost-related charging with marginal costs as the minimum. 

3 3. 
The  debate  on the  green paper has  shown that there  is  a broad consensus  on the  need 
for  improved transparency of port financing.  Accordingly,  as  a first  step,  an  inventory  of the 
systems  under  which  the  community's  main  ports  are  financed  needs  to  be  established 
showing how public and private sources of finance  are used.  The Commission should take the 
necessary steps for  the establishment of such an  inventory as  a priority matter,  including any 
modification  of accounting  and  reporting  requirements  that  may  be  needed.  Considerable 

23 

interest has  also  been  shown  in the  possibility  of further  clarification of the  extent to  which 
the  Treaty  rules  on  State  aid  impact  on  investment  decisions  in  the  ports  sector.  This 
possibility  should  also  be  pursued  in  parallel  to  the  establishment  of the  inventory.  Both 
exercises would be pursued in close contact with the organisations representative of the ports 
sector whose close co-operation can make a decisive contribution to this early realisation. 

34. 
For  reasons  explained  further  below,  State  aid  rules  would  not  provide  a  complete 
solution to the  problems of the  sector  since  by  their nature  they  apply  only to  payments that 
favour  particular  enterprises,  not  to  the  provision  of public  infrastructure  to  which  all  have 
equal  access.  Accordingly,  it would  also  be  necessary  to  continue  work  on  a  framework  for 
port  charges  as  part  of  the  more  general  approach  to  co-ordination  of  investment  in 
infrastructure  described  in  section 5(h).  The provision of maritime  infrastructure outside the 
port would also be addressed in that context. 

Inventory of port finances and transparency of accounting practices. 

ACTION: 
• 
•  Evaluation of need for further clarification of State aid guidelines in ports sector. 
•  Development of a framework for port charging. 

5(g)  Transport related tax policy 

Clearly,  the  introduction  of the  infrastructure  charging  framework  would  have  to 
3 5. 
dovetail with the development  of existing frameworks  at  Community level  for  VAT and  fuel 
excise duties. 

VAT  is  governed  by  a  Community  wide  regime  under  the  Sixth  VAT  Directive 
36. 
(77/388/EEC). It is constructed as a general consumption tax for revenue raising purposes and 
it  is  therefore  not  an  appropriate  or particularly  effective  instrument  for  pursuing  non-fiscal 
goals  such  as  environment  protection  or  transport  policy.  However,  there  are  significant 
differences  in the  way  that passenger transport is  taxed  by  different  Member  States  and  also 
some  significant  differences  in  the  way  that  different  modes  of transport  are  taxed  within 
Member  States.  In  some  cases,  the  differences  in VAT  treatment  create  distortions  between 
competing modes of transport. 

3 7. 
Recognising this  problem, the  Commission launched  a study  on the  VAT regime  and 
its  effects  on competition in the  field  of passenger transport.  Later this  year the  Commission 
will  issue  a  formal  consultation paper  that will  present  options  for  change.  The  options  will 
need  to  ensure  that  EU  based  transport  operators  are  not  disadvantaged  in  comparison  with 
non-EU based operators and also  that,  as  far  as  possible, different modes of transport are  not 
disadvantaged  in  comparison  with  their  competitors.  Proposals  for  change  arising  from  the 
consultation  procedure  will  need  to  be  prepared  and  considered  in  the  light  of  the 
development  of the  future  common  VAT  system.  Moreover,  VA)'  should  not  impede  the 
development  of  public  transport  services.  Clearly,  the  development  and  phasing  in  of 
Community rules and guidelines on taxation as  applying to transport and the phasing in of the 
proposed  transport  charging  approach  should  fully  respect  this  and  lead  to  the  creation  of a 
truly balanced pricing system for all modes of transport. 

38. 
There  exists  Community  legislation that lays  down minimum  rates  of excise  duty  on 
motor fuels.  Member  States  are  free  to  apply  rates  above  these  minima and  most  do.  On  12 
March  1997,  the  Commission  adopted  a  proposal  for  a  Council  Directive  restructuring  the 

24 

Community framework for the taxation of energy products (COM (97)30). The broad thrust of 
the  new  proposal  is  to  extend  the  scope  of the  existing  Community-wide  system  beyond 
mineral  oils  to  other  competing  fuels.  Under  the  new  proposal  the  Community  minimum 
levels  of taxation  on,  inter  alia,  motor  fuels  ( agreed  in  1992  and  therefore  in  many  cases 
substantially below the rates applied by Member States) are  updated.  The proposed increases 
in minimum rates are spread out over a period of four years. It is proposed that in the first step 
the  minimum  tax  level  on  unleaded  petrol  should  be  increased  by  45%.  A  corresponding 
increase of 27% is proposed for  diesel.  Today most Member States  apply  tax rates  far  above 
EU minimum rates.  Therefore, the effect on most national tax rates of the proposal would be 
limited.  The  new  framework  would  provide  Member  States  with  greater  freedom  to 
differentiate duty rates above the  minima.  It would also  allow Member States who  introduce 
new direct road pricing instruments, under specific conditions, to  reduce the  level of taxation 
that they apply to motor fuels,  even if this leads to  levels of taxation that are lower than those 
contained  in the  new  Directive.  Adoption  of this  Commission  proposal  would  improve  the 
situation with regard to differences in tax rates on diesel fuel. 

39. 
In  the  field  of vehicle  taxation  the  Commission  has  carried  out  a  major  review  of 
current situation in the European Union and intends.to - based on the findings of this review -
address the problem in this field during  1999. 

Efficient provision of infrastructure 

To develop efficient levels of infrastructure investment, rigorous  cost benefit analysis 
40. 
is  required,  that considers  all  costs,  including  capital  costs,  in  making  investment  decisions. 
New infrastructure that is  built  should  then be  charged  in accordance  with the  marginal  cost 
charging principle, unless higher charges are needed to recoup capital costs for the building of 
the  infrastructure  to  be  possible.  This  provision  should  allow -a  greater  degree  of private 
financing of infrastructure or even public funding which is required to earn a return. 

A lack of co-ordination in the assessment of prospective investments can lead to major 
41. 
distortions.  For example, the non-inclusion of some benefits to  non-national EU citizens may 
lead to  the  underestimation  of total  benefits  of viable  projects  and  to  the  under provision of 
TENs transport  infrastructure.  This  is  one  of the justifications for  the  TENs  budget  line  and 
intervention at Community level.  Conversely, when Member S_tates do not include the costs of 
new infrastructure projects to other Member States an over provision of infrastructure is likely 
to occur. These costs can result from  a substitution from  existing facilities to  the new project; 
a development which is especially likely to occur when prices in the new facility are low.  This 
is  particularly  relevant  to  internationally  competing  transport  terminals,  notably  ports  and 
combined transport terminals. 

42. 
State aid rules  can have  application in the  field  of investment in  infrastructure and  so 
eliminate distortions where the provision of public finance  favours  certain undertakings or the 
production  of  certain  goods.  For  example,  where  public  finance  is  used  to  provide 
infrastructure  for  a  particular  transport  operator,  giving  it  an  unfair  advantage  over  its 
competitors,  the  State  aid  rules  apply.1 4  Likewise  recent  years  have  seen  increasing 
involvement of private capital and/or management in infrastructure projects. In these cases the 
view · has  been  taken  that  there  is  a  potential  advantage  to  the  undertaking  concerned  if 

14  Aviation State aid guidelines, OJ No C 350,  10.12.94, p.  5, paragraph  12  (2) 

25 

compensation  provided  by  the  State  is  greater  than  necessary  to  achieve  the  purpose 
concerned.  A  non-discriminatory  tender  is  one  clear  way  to  ensure  the  compensation  is  no 
greater than necessary 15 •  In the absence of such a tender this has to  be ensured through extra 
careful scrutiny of the financial arrangements by the Commission. 

43. 
On the other hand, where transport infrastructure  is  directly financed  and managed by 
public  authorities  and  is  open  to  all  users,  actual  and  potential,  on  equal  terms  and  in 
conformity with applicable Community legislation, no particular enterprise or production may 
be readily shown to  be favoured  over others in a  way  which distorts  competition and affects 
trade  between  Member  States  within  the  meaning  of Article  92(1)  EC.  For  this  reason, 
investment  in  transport  infrastructure  has  traditionally  been viewed  as  a  general  measure  of 
economic policy normally not falling within the State aid rules. 

44. 
However,  State  aid  rules  have  an  increasing  role  to  playas  the  Member  States  turn 
more  to  private  undertakings  for  the  purpose  of  developing  and  managing  transport 
infrastructure.  It is,  therefore,  necessary  to  define  comprehensively  where  public  finance  for 
infrastructure  favours  particular  enterprises  in  a  way  which  distorts  competition  and  affects 
trade between Member States.  The Commission intends to  clarify and update  its  approach to 
State Aid for  infrastructure in inland transport by revising Regulation  1107 /70,  implementing 
Article  77  of the  Treaty.  It  will  also  evaluate  the  need  for  further  clarification  of State  Aid 
guidelines,  particularly  as  regards  ports  and  other terminals.  But  other  means  are  needed  to 
ensure that public investments, particularly large ones, do not lead to inefficient over capacity 
and  unfair  competition  with  others.  The  Commission  considers  that  in  the  first  instance  a 
voluntary  investment  co-ordination  initiative  at  Community  level,  possibly  based  on Article 
129c,  par.  2,16  could  make  a  major  contribution  to  meeting  this  objective.  The  need  for 
further  measures  of  a  binding  nature  in  the  area  of  investment  co-ordination  would  be 
assessed in the light of the results of these developments. 

45. 
The voluntary investment co-ordination initiative will  need to  build on two  elements: 
some convergence of methodologies for  social cost benefit analysis, so that co-ordination has 
a reliable foundation,  together with procedures for co-ordination.  Since the nature  of the cost 
benefit analysis  for  this  purpose  is  very  much  in  line  with that required  to  identify  the  trans 
European benefits of TENs projects, work on methodologies will need to  be taken forward in 
the  context  of preparations  for  the  forthcoming  review  of the  TENs  Transport  Guidelines, 
which will be addressing the issue of trans European benefits. 

ACTION: 
•  Voluntary investment co-ordination initiative (Article  129c, par. 2.) 
•  Evaluation  of need to  clarify  State  aid  guidelines,  particularly as  regards  ports  and  other 

terminals. 

•  Revision of Regulation  1107 /70 on State aids in inland transport. 

l5  See COM(97) 453  final,  section 2.2 

16  Member States shall,  in  liaison with the  Commission,  co-ordinate amongst themselves the  policies pursued 
at  national  level  which  may  have  a  significant  impact  on  the  achievement  of the  objectives  referred  to  in 
Article  129b. Toe Commission may,  in  close co-operation with the Member State, take any useful  initiative 
to promote such co-ordination. 

26 

Summary: Community rules ( and actions •) on infrastructure charging in transport 

Second Stage (2001-
2004 ):  consolidate 
consistent charging basis 
for road, rail, airports and 
ports. 
As for phase one plus the 
review of charging 
practices. 

Third Stage:  complete 
transition. All modes 
of transport subject to 
the same charging 
principles. 
Operate 

Promotion of harmonised 
electronic  charging 
schemes ( e.g. EFC 
schemes) Charge limit 
raised to average infr. 
Costs and external costs. 
( structure based on 
marginal infr.  and external 
costs) .. 
•  Further develop 

possible schemes, 
standards and 
convergence proposals 
for electronic charging 
forHGVs. 

•  Follow up to liability 
advisory group. 
•  Examine options for 

reductions in transport 
related charges and 
other taxes. 

• 

Investigate possible 
noise charges. 

Cost related charges 
for commercial 
operators mandatory. 

•  Update, and 

propose extension 
of marginal cost 
charging regime to 
passenger rail 
operators covering 
infrastructure costs 
and externalities. 

Infrastructure 
charging directive 
covering 
infrastructure costs 
and externalities. 

Committee 
Experts 

of 

First  (current)  stage  (1998-2000):  define  and 
establish detailed charging approach. 

to  assist 

•  Make  effective  use  of  the  Committee  of 
Governments experts on charging for the use 
of  transport 
the 
infrastructure 
Commission in the  development of methods 
to  estimate  marginal  costs  of  transport, 
promote 
transport 
the  development  of 
accounts  at  Member  State  level,  develop 
safeguard  cost 
accounting  practices 
recovery  for  terminals,  advice  on  statistics 
and research needs and priorities. 

to 

Roads 

Promote 
road  pricing.  Specifically,  allow 
differentiation  of  charges  on  commercial 
transports  ( e.g.  vehicle  type,  marginal  cost 
related), but limited to average infr.  Costs. 
Communication  on  Interoperable  electronic  fee 
collection systems in Europe. 

•  Set  up  an  advisory  group  to  develop  a  best 
insurance 

liability 

practice  on  motor 
schemes. 

•  Urban road pricing R&D. 

•  Demonstration projects, city road pricing. 

•  Facilitate  the  introduction  of km  charging 

forHGVs. 

Railways 

•  Proposal  for  a  Council  Directive  based  on 
distance  related charging  for  marginal costs, 
optional  additional  charges  for  passenger 
services  (maximum  level:  average  costs), 
and  compensatory  payments  for  uncovered 
external costs of competing modes. 

Inland Waterways 

27 

traffic 

Air 
services 

First  (current)  stage  (1998-2001):  define  and 
establish detailed charging approach. 

Current  charges  are  (roughly)  cost  based  and 
use related. 
•  Communication  on 

transport 

and 

air 

environment. 

•  Communication on air transport market. 
•  Follow  up  to  the  study  on  taxation  of 

· aviation fuel. 

•  Analyse possibilities to link en route charges 
to  pollution  levels  rather  than  develop  a 
separate scheme for the purpose. 

•  Green  Paper  on  financing  of  air  traffic 

management infrastructure. 

Third Stage: complete 
transition. all modes of 
transport subject to the 
same charging 
principles. 
Update 

Second  stage:  consolidate 
consistent  charging  basis 
for  road,  rail,  airports  and 
ports. 

and 

directive 
Charging 
allowing  charges  for  infr. 
Costs 
externalities 
( although  external  costs 
also  proxied  by  airport 
charges) 

Airports 

charging  Directive  making 

Infrastructure 
charges cost related. 
•  Adoption  of  Council  Directive  on  airport 

Charg!.l1g  for external costs 
1'ecomes  mandatory  ( e.g. 
Swedish landing charges). 

Update 

charges. 

•  Communication  on 

air 

transport 

and 

environment. 

•  Communication on air transport market. 
•  Communication  on  airport  capacity  and 
airport  cost  developments  in  the  EU  (inc. 
policy options to relieve congestion). 

•  Examination  of  options  for  reducing  fuel 

• 

emissions. 

Maritime 
shipping 

Improve 
standards. 

international  Update 

charging  Update 

•  Community  instrument 
implement 

to 
standards. 
Infrastructure 
Directive,  making  charges 
cost  related,  with  marginal 
costs  related  to  both  infr. 
and external costs. 
port 
Implement 
• 
infrastructure  charging 
directive. 

extension 

Consider 
structure  to  all  modes  of 
transport. 

of  Update 

•  Develop 

state 

aid 
guidelines for ports and 
airports. 

Further harmonisation. 

Further harmonisation. 

and 

Ports 
maritime 
infrastructure 

• 

Inventory  of public  funding  and  charging 
practices in ports. 

.,.~ 

State Aid 

Energy 
taxationN AT 

Clarify  and  up  date  State  aid  rules  permitting 
co-ordination  of inland  transport  under  Article 
77.  Exemptions,  inter  alia,  for  compensatory 
payments  for  uncovered  external  costs  of 
competing modes. 
•  Modification  of  Regulation  1107 /70  State 

aid guidelines. 

•  Voluntary 
initiative. 

investment 

co-ordination 

•  Evaluation  of  need  to  clarify  State  aid 

guidelines. 

•  Taxation 

should  not  distort 
transport 
decisions  or inhibit development of efficient 
transport  charges.  Adoption  of  energy 
taxation proposal 

•  Consultation  paper,  possibly  followed  by  a 
proposal for a Directive on VAT in transport 

28 

6  SOCIO-ECONOMIC EVALUATION OF THE STRATEGY 

6(a)  General economic effects 

The development of a Community approach to  transport charging  based on  efficient 
1. 
charging  levels  is  expected  to  provide  significant  net  benefits  for  the  whole  of society.  It 
should  lead  directly  to  improved  technological,  operational,  and  organisational  efficiency; 
produce  a  small  desirable  change  in  modal  balance,  and  a  small  reduction  in the  growth  of 
demand  for  mobility.1 7.  The  Commission  has  carried  out  numerous  studies  (for  it)  into  the 
effects  of such  charging  systems  on  the  economy,  on  industry,  consumers  and  on  cohesion 
and  peripheral  regions 18.  The  basic  conclusions  of such  analyses  is  that  efficient  charging 
frameworks  would generally lead to  benefits in terms of all  these policy objectives, provided 
revenues are put to efficient use. 

2. 
From a general economic perspective, the long term effect of the policy is expected to 
have  little  or no  direct  effect  on  GDP  growth,  but  it  permits  secondary  benefit  through  the 
recycling  of revenues.  Moreover,  since  common  charging  rules  would  reduce  potentially 
harmful tax competition the restructuring of tax systems in order to reduce distortive taxes and 
charges would be  facilitated.  Partly depending  on related tax reforms  a new charging  system 
would have  a positive effect on  employment when  some  revenues  are  redistributed  as  lower 
labour taxes.  Finally, by switching from taxes to  charges, it should provide a clearer transport 
revenue base, improving conditions for private investment and operation of infrastructure. 

3. 
More specifically, the internalisation of environmental costs would increase efficiency 
from  an environmental perspective:  when charges reflect the marginal costs of emissions,  the 
level  of emissions  should  fall  to  the  point  where  the  cost  of further  abatement  equals  the 
marginal  benefit.  Moreover  by  implementing  more  direct  and  distance  related  charges,  each 
trip is more likely to be assessed according to its own costs and benefits. As all costs would be 
considered, each trip  should provide a net benefit.  So  from  a social  perspective, welfare,  not 
the number of trips, is maximised. 

From  a  financial  perspective,  the  more  efficient  use  of the  transport  system  should 
4. 
the  need  for  government  expenditure  on  infrastructure,  healthcare,  and  the 
reduce 
environment  (although  direct  financial  benefits  should  ideal~y  be  recycled  via  lower  taxes). 
The  net  effect  on  the  commercial  sector  should  be  positive,  as  the  direct  effect  of higher 
transport  charges  are  countered  by  reductions  in  costs  associated  with  congestion  and 
accidents,  and  from  any  possible  tax  cuts  made  by  governments.  There  may  be  some 
shrinkage  of transport  intensive  industries,  but  this  would  be  small,  as  the  overall  price 
increase  in  transport  would  be  modest,  and  as  firms  would  first  adjust  their  logistics  and 
operations 19. 

17  ECMT 1998. 

18  See for example the analysis presented in the Green Paper on Fair and Efficient pricing (notably Chapter 8) 
and the analysis presented in the explanatory memorandum of the Commission's proposal on a modification 
of the "Eurovignette" Directive (93/89/EC). 

19  ECMT 1998. 

29 

5. 
For  each  mode,  the  relative  price  changes  would  differ  from  country  to  country 
depending  on  cost  structures  as  well  as  on the  initial  tax  and  charge  structures.  A  Swedish 
study20  has  estimated  the  effects  of the  internalisation  of marginal  social  costs  of accident, 
environmental, and infrastructure costs on the different modes of transport, given that existing 
transport taxes are phased out.  (Although importantly, the study does not consider congestion 
costs and noise.)  The study showed that when the  marginal  costs  in  question are  internalised 
and  balanced by  tax  reductions,  charges  on petrol,  cars  and  cargo  vessel,  would  fall,  and  on 
other modes  should rise.  The  study  concludes  that  the  main  effect  would  be  to  improve  the 
competitive position of shipping.  The  study also  indicates that final  transport prices would be 
influenced  less  than  the  charges,  as  businesses  would  respond  to  the  new  charges  by 
modifying transport patterns  and vehicle  fleets  - by  reducing  their  costs,  rather than passing 
all the charge on to consumers. 

6. 
To  understand  the  impacts  of the  more  obvious  and  likely  changes  to  transport 
charges, the Commission has undertaken a great deal  of analysis through a number of studies 
and  research  projects.  The  "TRENEN"  project  exams  the  implementation  of  efficient 
charging regimes  in  four  urban  settings  (Amsterdam,  Brussels,  Dublin and  London)  and two 
inter urban settings (Belgium and Ireland).  And the  project "EUNET"  studies  the  impacts of 
different  charging  policies  in London  and  the  south  east  England,  the  Helsinki,  Naples,  and 
Basque  regions.  The  general  finding  of these  studies  is  that  net  welfare  improves  for  the 
consumers  in  all  four  cities  and  in  the  two  regions  examined  when  efficient  charging  is 
implemented.  This happens  because the benefits of the  reduction in  congestion and pollution 
achieved,  combined with the  reimbursement  of tax  payments,  outweighs  the  "loss" resulting 
from the price increase of certain transport services. 

7. 
In  the  urban  studies,  the  price  changes  were  found  to  induce  positive  technological 
improvements,  urban peak time  traffic  volumes  fell  by  between  19%  and  33%,  and  external 
costs fell  by between  13% and  35%.  In the  inter urban models,  private car use  decreases and 
public  transport use  increases  in  London and  south  east  England,  and  in  the  Basque  region. 
The  number  of traffic  accidents  falls  by  20%,  and  the  average  time  spent  in  a  car  in  peak 
periods falls by  16%.  The EUNET and TRENEN studies indicate that introducing a policy of 
marginal social cost charging at EU level could lead to  overall welfare benefits of the order of 
at least 30-80 billion ECU per year. 

8. 
A  further  study  of the  Commission  examines  the  introduction  of one  of the  first 
possible  measures  and  priorities:  a  road  freight  tax  across  Europe.  The  study  models  the 
introduction  of charges  based  on  the  tonne-kilometres  of HGV s  throughout  the  European 
Union21 .  In  the  model,  the  charges  are  introduced  gradually  to  reflect  the  average  external 
costs of road freight,  excluding  congestion,  and the  revenues  from  the  charge are  returned to 
the  economy  as  reductions  in labour taxes.  The  key  results  of the  study  reflect the  impact of 
the charge on a base line scenario for 2010: 

•  GDP increases by 0.3% and industrial production by 0.21 % 
•  Employment increases by 0.5% 
•  Road freight traffic declines by 6.6% 

20  Per Kageson,  1998. 

21  Barker, T  and Kohler, J.  The EU is defined as the  12 EU countries of 1995  excluding Greece. 

30 

9. 
By  returning  the  charge  revenues  to  the  economy  as  reductions  in  labour  taxes, 
production, employment, and economic growth are all encouraged, and these effects outweigh 
the impact of higher road transport costs. 

6(b)  Distributional effects 

10. 
The  aim of changes to  transport charges  is  to  improve the ·efficiency  of the  transport 
sector.  If this  leads  to  an  undesirable  distributional  effect,  then  there  is  a  need  to  off er  a 
is  generally 
compensating  policy.  In  general  however,  "consumption"  of  transport 
progressive, that is, richer households spend more of their income on transport.  Consequently, 
a  rise  in  transport  charges  may  have  a  progressive,  rather  than  regressive  distributional 
effect22 •  The  final  distributive  effect however,  would  very  much depend  on  which  sectors  or 
types of transport face  increased costs,  and what type  of compensatory package is  offered by 
the Member State.  Finally, the above-mentioned study on effects of the introduction of a road 
freight  tax  suggests  that  such  a charging  scheme  would  have  positive  effects  for  all  income 
groups. The real personal disposable income would rise for every socio-economic group. 

6(c) 

Cohesion and peripheral regions 

The  effect  of changes  in  transport  prices  on  peripheral  or  less  developed  areas  also 
11. 
needs  to  be  examined.  Such  charges  would  be  differentiated  so  that  regions  with  less 
congestion  and  pollution  would  be  less  affected.  Where  there  is  little  infrastructure  and 
congestion  in  rural  or peripheral  regions,  charges  reflecting  these  costs  would,  therefore,  be 
low,  so  there  is  no  reason  to  believe  that,  as  a  general  rule,  peripheral  and  less  developed 
regions  would  be  adversely  affected  by  the  application  of a marginal  cost  charging  scheme. 
Moreover,  as  highlighted  above,  the  system  is  likely  to  generate  significant  overall  benefits 
which would also accrue to economically less developed regions. 

12. 
In  those  instances  where  there  is  some  concern  that  certain  higher  transport  user 
charges  could  impede  the  economic  development  of  peripheral  or  economically  less 
developed  regions  or , there  may  be  a  case  for  flexible  and  very  gradual  implementation of 
price reforms, provided it does not result in distortion of competition. This may particularly be 
the  case where  certain facilities  are  the  only  link to  the  rest of the  Union  and/or constitute a 
significant  centre  of activity  for  the  local  economy  On  the  other  hand,  where  the  level  of 
transport  infrastructure  is  relatively  poor,  and  sizeable  investment  is  needed  to  improve 
accessibility  and/or  meet  forecast  increases  in  traffic,  there  may  be  a  need  for  charging 
strategies that lead to a higher degree of cost-recovery. 

13. 
Differentiated  pricing  systems  will  result  in  a  shift  in  the  pattern  and  distribution  of 
transport costs.  By improving efficiency, it will lead to  reduced transport costs for the whole 
of society.  It will  also  lead to  reduced  direct  costs  for  some  producers.  However,  for  those 
producers that are not able to adjust sufficiently their behaviour in response to the new pricing 
systems, transport costs may rise.  As  already mentioned, transport costs are  in general a small 
proportion of overall  production  costs.  However,  at  least  in  the  short term,  such  producers 
could  be  particularly  affected  if they  are  located  in  peripheral  areas,  dependent  on  a  single 
mode  of transport,  and  selling  over  long  distances  to  the  major  markets  at  the  centre  in 
competition  with  local  producers.  This  may  justify  the  introduction  in  the  Community 

22 

(partly depending on the type of increase), R !ten et al.  1998. 

31 

framework  of specific provisions aimed at addressing this problem.  In addition to  that,  whilst 
respecting  State  Aid  rules,  some  peripheral  regions  may  therefore  wish  to  take  steps  to 
promote  the  competitive  position  of such  producers  in  central  markets,  for  example,  by 
helping them to  adapt production structures in favour of products with higher value to  weight 
ratios and by improving the quality and diversity of major transport systems,  supported where 
appropriate by the Structural F!.mds and Cohesion Fund. 

7  CONCLUSION 

1. 
The  Commission's  proposed  three  phase  approach  to  fair  and  efficient  charging  in 
transport  would  ensure  that  an  efficient,  cost  related  approach  is  taken  to  charging  for 
infrastructure  use,  in  all  Member  States,  and  across  modes.  Using  a  "Committee  of 
government experts", the  Commission would develop detailed and practical guidance on best 
practice  for  charging  for  infrastructure  use,  congestion,  and  external  costs,  and  new  or 
amended  legislation  ( outlined  in  4.1)  would  ensure  that  this  consistent  approach  is  adopted 
(by  2004  for  priority  modes,  and  shortly thereafter  for  all  modes).  By  ensuring  that  charges 
are  based on specific and agreed costs, the Commission expects that a general  understanding 
of the  need  to  link  charging  for  use  to  would  become  accepted,  and  the  efficiency  of the 
European transport sector would improve as a consequence. 

32 

References 

Barker, T and Kohler, J,  Charging for road freight in the EU, Cambridge Econometrics, May 1998. 

CERTE,  CES,  SESO,  What  do  the  Trenen  II  case  studies  tell  us  about  the  reform  of European 
transport pricing? Document for Workshop March 25  1998. 

DIW,  INFRAS,  Dr  Herry,  NERA,  Infrastructure  capital,  maintenance  and  road  damage  costs  for 
different heavy goods vehicles in the EU,  1998. 

ECMT, Efficient Transport for Europe - Policies for the internalisation of external costs,  1998. 

ESPO, Report of an enquiry into the current situation in the major Community sea ports,  1996. 

EUNET, Socio-economic and spatial impacts oftrarisport. Working paper 1998. 

European Commission,  The future  development of the  common transport policy - A  global approach 
to  the  construction  of a  Community  framework  for  sustainable  mobility,  Bulletin  of the  European 
Communities, Supplement 3/93, COM(92) 494 final. 

European  Commission,  Towards  fair  and  efficient  pncmg  in  transport  - Policy  options  for 
internalising the external costs of transports in the European union, Green Paper, COM(95) 691  final. 

European Commission,  Proposal for  a  Council directive  on the charging of heavy goods vehicles  for 
the use of certain infrastructures, COM(96) 331  final. 

European Commission, Proposal for a Council  directive on Restructuring the Community Framework 
for the taxation of energy products, COM(97) 30 final. 

European Commission, Proposal for a Council directive on airport charges, COM(97)  154 final. 

European Commission, Green paper on sea ports and maritime infrastructure, COM(97) 678 final. 

European Commission, DGXXI, Vehicle taxation in the EU 1997, Background paper,  1997. 

High  level  group  on  Public-Private  Partnership,  Report  of the  High  level  group  on  Public-Private 
Partnership  Financing  of  Trans-European  Networks  Transport  Projects,  European  Commission, 
DGVII/3 21 /97. 

High  level  group  on  transport  infrastructure  charging,  Report  of the  High  level  group  on  Transport 
infrastructure charging, European Commission, June  1998. 

Iten  R,  Banfi  S,  Kohler  J,  Social  and  Regional  Distributive  Impacts  of Ecotax  proposals",  working 
paper 4 June 1998, EFR, European Commission, DGXII. 

Jansson J 0, Lindberg G,  Summary of transport pricing principles, PETS Project, March 1998. 

Kageson  P,  Konkurrensen  mellan  transportslagen  efter en  intemalisering  av  de  extema kostnadema, 
1998. 

Matas  A,  Asensio  J,  Rendeiro  R,  Direct  user  charges  for  transport  infrastructures  in  the  European 
Union,  1997 

NERA, An examination of rail infrastructure charges,  1998. 

33 

Newbery, Road user charges in Britain, Economic Journal (Conference Papers) 90, pp.  161-176,1988. 

Roy R,  Infrastructure cost recovery under allocatively efficient pricing, March  1998. 

Winston  C,  Conceptual  developments  in  the  economics  of transportation:  an  interpretive  survey, 
Journal of Economic Literature, 23,  1985. 

34 

Glossary 

Average costs 

Capital costs 

Congestion 

Congestion 
costs 

Cost approach 

Cost recovery 

Average costs consist of the total costs of infrastructure divided by a measure of output, such 
as  vehicle-kms  or  flight  hours.  They  therefore  show  the  costs  of road  provision  per unit  of 
traffic.  They  are  particularly  relevant  for  cost-recovery,  since  prices  which  are  set  equal  to 
average costs will ensure that total costs are recovered (because total costs include both fixed 
and variable costs). 

Capital  costs  comprise  the  consumption  of fixed  capital  and  interest  payments,  and  often 
represent  a  high  share  of total  infrastructure  costs.  They  are  different  from  annual  capital 
expenditure, which may or may not cover all the  costs.  (If expenditure  is  less than the  costs, 
the quality and value of the infrastructure will deteriorate. 

Congestion  arises  when  traffic  exceeds  infrastructure  capacity  and  the  speed  of  traffic 
declines.  It can  be  defined  as  a  situation  where  traffic  is  slower  than  it  would  be  if traffic 
flows were at low  levels. The definition of these "low levels" (reference level) is  complicated 
and varies from country to country. 

Congestion  costs  comprise  direct  costs  (time  costs,  operating  costs)  and  indirect  costs  (the 
opportunity  cost of the time  lost,  costs  occurred to third parties  due  to  delayed  deliveries  of 
goods, environmental costs). 

The  cost-based approach  to  measuring  infrastructure  finances  is  to  determine  values  for  the 
capital  (using  depreciation  methods)  and  operational  structures.  (The  alternative  is  an 
expenditure based approach). 

This  is  an  approach  to  infrastructure  charging whereby the  costs  of infrastructure  (fixed and 
variable)  are  recovered  in  full  or partially, through  infrastructure charges.  Such  an  approach 
is  usually  based  on  costs  and  helps  raise  revenue  for  the  investment  and  provision  of 
infrastructure. 

Cost relatedness  This  is  a  term  developed  in  Article  4  of the  proposal  for  a  Council  Directive  on  airport 
Gharges,  and  applies  generally  to  terminals.  It means  that  charges  should  as  a  minimum 
recover  marginal  costs,  and  the  operator  should  be  able  to  demonstrate  that  charges  are 
related to marginal costs.  It also relates to cost recovery,  as  it  implies that operators may add 
additional non-distorting charges in order to achieve (up to) full  cost recovery. 

Depreciation 

Expenditure 
approach 

External costs 

Depreciation  is  an  accounting  charge  for  the  decline  in  value  of an  asset  spread  over  its 
economic  life  (life  expectancy).  The  depreciation  is  a  part  of deriving  capital  costs  from 
existing road capital values. 

Some Member States assess infrastructure values on the basis of  their annual expenditure on 
infrastructure.  This will often include both annual  investment (for new  infrastructure  and  for 
enlargement  and  replacement  of  assets,  · and  not  capitalised)  and  running  costs  (for 
maintenance, operation and administration). For assessing transport finances,  a cost approach 
is preferable. 

External  costs  are  those  costs  which  the  user  of a  good  or  service  (such  as  infrastructure) 
does  not pay for.  they  include  infrastructure use  where  use  is  free,  damage,  pollution,  noise, 
health  costs  associated  with  transport  use  and  accidents.  Failure  to  acknowledge  such  costs 
results in excessive use of the good or service. 

Fixed costs 

Fixed  costs  are  those  costs  which  are  independent  of  the  flow  of  traffic.  (Including 
infrastructure building, lighting). 

Flat rate charge  A charge for the use of infrastructure, often used in conjunction with variable charges, which 
does not vary with use.  Annual license fees,  entrance fees  or access  charges are  all  examples 
of flat rate charges. (Synonymous with fixed rate charge.) 

Harmonisation. 

The  co-ordination  and  possible  merging  between  states  of regulations,  codes  of conduct, 
methods of estimating costs, vehicle classifications, sign posting etc. 

Internal costs 

Internal costs are those which the  user pays for. 

35 

Interest 

Investment 
expenditure 

Maintenance 

Marginal costs 

Interest charges  are  a  part of the  capital  costs  of infrastructure.  They reflect the  opportunity 
cost of capital (if not  invested  in  infrastructure the  funds  could be  invested  elsewhere  in  the 
country).  The  interest rate  is  usually  comparable  with  the  refinancing  cost  for  governmental 
loans. 

This reflects yearly expenditure for infrastructure with durable characteristics - with a lifetime 
of more than one year (for example new construction of infrastructure).  Such expenditure has 
to  be "capitalised" with a depreciation rate and an  interest rate reflecting the opportunity cost 
for the capital invested. 

Maintenance  costs  reflect  the  costs  which  are  necessary  to  maintain  existing  infrastructure. 
One  can  distinguish  between  ordinary  mainten~ce,  for  example  cleaning  and  winter 
maintenance  which  is  independent  of use,  and  maintenance  which  is  dependent  on  traffic 
volume  ( e.g.  surface  dressing).  Being  both  variable  and  traffic  dependent,  these  latter 
maintenance costs are marginal costs. 

Marginal costs are specific variable costs relating to the use of existing infrastructure (without 
considering a capacity increase).  They reflect the  additional costs of an  additional vehicle or 
other transport  unit,  and  include  use  related  infrastructure  maintenance  and  operating  costs. 
When the marginal cost term  is used in this paper it refers to  social short run marginal costs, 
which  are  specific  variable  costs  relating  to  the  use  of  existing  infrastructure  (without 
considering  a  capacity  increase).  Long  run  marginal  costs  additionally  include  the  costs  of 
future  increases  in  capacity.  They  are,  however,  very  difficult  to  measure  in  transport. 
Moreover,  linking charges to  long run marginal costs would lead to  significant inefficiencies 
in transport use during periods where capacity increases are not considered. This is  why most 
economists agree that short run marginal cost pricing is more appropriate for transport. 

Operating costs 
or expenditure 

These are expenditures which are necessary to operate existing infrastructure ( administration, 
police,  traffic  signals,  cleaning).  These  costs  are  running  costs  and  thus  do  not  have  to  be 
capitalised. 

Purchase costs 

The costs of buying a good or service. 

Replacement 
value/ cost 

Running costs 

The  cost  of replacing  a  particular  asset  of a  particular  quality  with  an  asset  of equivalent 
quality.  Replacement  cost may  exceed the  original  purchase  co_st  because  of changes  in  the 
prices of the assets. 

The  costs  necessary  to  keep  a  particular  asset  in  operation,  but  which  do  not  enhance  the 
value  of  the  asset.  For  infrastructure,  running  cost  expenditures  will  be  those  annual 
expenditures  necessary  to  ensure  that  the  infrastructure  provides  an  acceptable  quality  of 
service  (including  operating costs),  but do  not maintain that quality  beyond a  limited period 
of time.  They  include  items  such  as:  sweeping and  cleaning;  cutting  of grass  verges;  winter 
maintenance (snow clearing and gritting); lighting; and policing. 

Standardisation 

Fixing of uniform technical approaches, technologies and standards amongst Member States. 

Structural 
maintenance 

sunk CQStS 

total costs 

Maintenance  of  a  capital  nature.  A  good  example  of  structural  maintenance  is  the 
reconstruction  of  road  pavements  and  resurfacing.  The  benefits  of  this  expenditure  are 
received  over a number of years,  rather than just in  the  year  in  which  the  road  pavement  is 
improved. 

The cost of assets which have exceeded their official lifetime and so have no formal capital or 
re-sale value left is  said to be zero. 

The  sum  of fixed  costs  and variable  costs,  or of capital  costs  and running  costs.  Total  costs 
therefore give the total annual cost of providing the  infrastructure. 

Variable costs 

Those  costs  which vary with  traffic  levels.  Examples of variable  costs  include wear-and-tear 
to infrastructure, congestion costs. 

36 

Annex I : Different infrastructure charging 3:pproaches 

Marginal cost charging 

Marginal costs are specific variable costs relating to the use of existing infrastructure (without considering a 
capacity  increase).  They  reflect  the  additional  costs  of an  additional  vehicle  or  other  transport  unit,  and 
include use related infrastructure maintenance and operating costs. 

In  the  long  term  (e.g.  50  years)  all  costs  (even  investment  and  capital  costs)  become  variable,  and  so 
marginal costs tend to converge with average costs (because the distinction between fixed  and variable costs 
is  abolished).  When  the  policy  focus  is  efficient  use  of existing  infrastructure  however,  it  is  the  short  run 
version of marginal costs which is  important. 

Whilst MC  charging will  lead to efficient use of infrastructure,  for  sectors with economies of scale (such as 
railways) it will not recover all costs.  Second, other objectives such as development, safety and mobility may 
lead  to  investments  above  the  theoretical  optimum  and  so  marginal  cost  charging  may  again,  not cover all 
costs.  Third,  stepped,  rather than  finely  graded  charges  are  all  that  is  feasible  at  the  moment,  so  marginal 
costs may not be perfectly reflected.  (See charge discrimination.) Fourth,  imperfect markets elsewhere,  may 
call for the implementation of an adjusted marginal cost scheme. 

Average cost charging 

Average costs consist of the total costs of infrastructure divided by a measure of output, such as vehicle-kms 
or  flight  hours.  They  therefore  show  the  costs  of road  provision  per  unit  of traffic.  They  are  particularly 
relevant for  cost-recovery,  since  prices which  are  set  equal  to  average  costs  will  ensure that total  costs  are 
recovered (because total costs include both fixed and variable costs). 

Whilst  average  cost charging  is  a  good  simple  approach,  it  can  lead  to  significant  inefficiency,  with  some 
transport users paying too much (when their marginal costs are low, such as small passenger cars), and some 
too little. 

Ramsey pricing 

This theory suggests that the degree to which a firm  raises prices above marginal costs should depend on the 
sensitivity  of demand  to  changes  in  price  (its  elasticity).  It is  better  to  raise  the  price  of a  product  where 
demand  is  insensitive to  either its  price  or the  price of other goods,  than to  impose  the  increase  on  a good, 
demand for which will  change significantly with the price change.  For infrastructure,  demand for passenger 
transport is less elastic than for  freight.  So Ramsey pricing implies that passenger transport prices should  be 
higher  and  a  producer can  cover more  of his  costs  and  limit the  efficiency  losses.  Such  analysis  however 
presupposes  market  segmentation  is  possible  and  acceptable,  and  does  not  take  account  of  income 
distribution or wider welfare effects. 

Price discrimination 

According to  this  strategy  users  are  charged  differently  depending  on  their  willingness  to  pay.  Users  with 
marginal  benefits considerably higher than the  marginal  cost are also charged more,  while  users with  a  low 
valuation  are  charged  for  their  marginal  cost.  In  practice  however  it  is  very  hard  to  design  such  schemes. 
One  problem  is  that users  have  no  reason to  reveal  their real  willingness to  pay.  Charge  schemes  based  on 
negotiation is a theoretical possibility but may conflict with the principle of transparent charges. It may also 
be questioned whether such approaches are fair. 

Two part tariffs 

In  a  two  part tariff scheme  marginal  cost  charging  can  be  combined  with  a  flat  rate  charge  such  as  those 
commonly in  use  (e.g.  registration  fees),  to  help cover costs.  Decisions about individual journeys are  taken 
according  to  marginal  costs,  a  flat  rate  charge  has  the  potential  to  raise  extra  revenues  without  distorting 
efficiencies.  However  if the  charge  does  affect decisions,  by  lowering  incomes  or changing  perceptions  of 
the cost of transport, it will also distort the market. 

37 

Annex II: Existing approaches to infrastructure charging 

The  following  table  indicates  the  disparity  in  the  size  of charges  between  modes  for  fuel 
taxation charges: 

Table 1. Fuel excise duties in the EU, across modes, January 1997, ECU. 

Mode 

Leaded petrol  kilolitres (kl) 

Unleaded petrol kl 

Diesel kl 

LPG/ tonne 

CNG/methane  tonne 

Motor fuel,  lowest 

Motor fuel highest 

Aviation fuel 

Rail (mineral oil) 

Shipping 

396 

617 

0 

349 

576 

252 

501 

0 

776 

0 

776 

0 for international flights 

varies across Member States• 

0 

0 

0 

0 

Inland waterways 

0 on the Rhine (where over 70% of European traffic takes place) 

*A, D, G, L:  Moter fuel  rate;  P, S,  DK, I:  exempt;  UK, Ire: heatmg fuel  rate 

Source: DGXXI 

Road 

Community  legislation  adopted  in  199223 ,  fixed  minimum  rates  for  excise  duties  levied  on 
road fuel throughout the Community. A year later24  the 93/89/EEC Directive set a framework 
of rules  concerning  vehicle  taxes  and  road  specific  charges  (such  as  tolls  and  user  charges) 
levied on HGVs. 

The taxation of road traffic differs considerably between Member States, as the following tables 
show.  As  illustrated  in table  2  a  few  Member  States  tax  diesel  fuel  only  slightly  above  this 
level  (Luxembourg;  Greece;  and Spain).  The table  illustrates considerable  differences  among 
Member States. 

Table 2:  Excise duties on diesel fuel, as  of January 1998, ECU. 

Member State 

1000 l 

EC MINIMUM 

· 

LOWEST TAX RA TE 

HIGHEST TAX RA TE 

DIFFERENCE 

245 

248 

585 

333 

Table  3  illustrates  the  types  of vehicle  tax  structures  across  the  EU.  Whilst  there  is  some 
commonality of structure across Member States, tax levels differ by very large margins. 

23  Council Directive 92/82/EEC, O.J.  L 316/19 of31.10.1992 

24  Council Directive 93/89/EEC, O.J. L 279/32 of 12.11.1993 

38 

Table 3:  HGV taxes in Member States as of 1 January 1998. 

User 
charges 
(Euro-
vignette 
etc.) 
* 
* 
* 

Member State 

Annual 
taxes 
Vehicle 
tax 

Taxes on  motoring 

Tolls on 
roads or 
bridges 

Excise 
duty on 
motor 
fuels+ 
VAT 
* 
* 
* 
* 
* 
* 
* 
* 
* 
* 
* 
* 
* 
* 
* 

* 
* 
* 
* 
* 
*I 

Belgium 
Germany 
Denmark 
Spain 
Greece 
France 
Italy 
Ireland 
Luxembourg 
Netherlands 
Austria 
·  Portugal 
Finland 
Sweden 
United Kingdom 
1)  Tolls applied so far are private charges rather than taxes. 

* 
* 
* 
* 
* 
* 
* 
* 
* 
* 
* 
* 
* 
* 
* 

* 
* 

* 
* 

* 
* 

* 

Table 4 covers HGVs as well as passenger cars and indicates the different emphasis placed on 
different forms of charge. Some of this variation may not distort, and merely reflects differences 
in costs. However it is unlikely that the variations discussed above are deliberate, or that they 
reflect different cost structures. 

Table 4:  Comparison of taxes levied on all road transport I (1993,1995, or 1996) %. 

Country 

Austria 

Finland 

Germany 

Italy 

Portugal 

Spain 

UK 

Fuel 

62% 

55% 

83% 

67% 

73% 

83% 

80% 

Vehicle 

32% 

45% 

17% 

32% 

21% 

8.5% 

20% 

Tolls 

6% 

-
-

1% 

6% 

8.5% 

-

1  All  road vehicles. Proportion of taxes collected, excluding revenues from  the  Eurovignette user charge. Fuel taxes exclude VAT; 

vehicle taxes comprise annual vehicle taxes and purchase taxes. Source: DGVII 1998. 

Rail 

Council  Directive  95/19/EC  contains  broad  rules  which  set  the  Community  framework 
governing  the  charging  of  railway  infrastructure  fees.  There  are  substantial  differences 
between the  approaches  to  rail  infrastructure  charging  adopted  so  far  by  individual  Member 
States.  Systems  vary  from  a  tariff  matrix,  two  part  tariffs,  social  marginal  cost  charging, 
elements  of negotiation,  to  zero  charges.  The  systems  reflect  significant  differences  between 
the market structures and the  nature of the  rail  network in each Member State,  and also  clear 

39 

differences between government policies in relation to  public transport and the availability of 
public funds.  Nevertheless, most of the  existing charging frameworks  can be assigned to  one 
of two broad approaches: 

• 

• 

the  "Scandinavian"  approach,  which  features  a  relatively  simple  charging  system,  based 
on SRMC, but adjusted to take account of more general transport policy priorities; 

the "Adjusted Average  Cost"  approach,  which seeks to  raise  a target  amount of revenue, 
mainly  through  variable  charges.  Although  these  variable  charges  may  be  adjusted  to 
reflect  a  number of cost  and  market  factors,  and  a small  proportion  of revenues  may  be 
raised  through  flat  rate  charges,  this  approach  often  leads  to  variable  charges  which  are 
substantially  higher  than  SRMCs,  depending  also  on  the  level  of state  contributions  (if 
any) available. 

A  key  difference  between  these  two  approaches  is  the  direction  of the  causal  relationship 
between state contributions to rail infrastructure and the level of infrastructure charges.  Under 
the  Scandinavian  approach,  the  level  of infrastructure  charges  ( and  hence  the  total  income 
from  these  charges)  is  determined  mainly  by  cost  conditions  and  comparisons  with  other 
modes of transport,  so  that the  level  of state contributions required is  then determined by the 
difference  between  total  rail  infrastructure  costs  and  the  revenue  raised  from  infrastructure 
charges.  In  contrast,  under  the  Adjusted  Average  Cost  approach,  the  amount  of  state 
contribution (if any) to rail infrastructure is generally determined in relation to wider decisions 
on public  spending priorities,  and  infrastructure  charges  therefore  need to  generate  sufficient 
revenues to cover the difference between state contributions and total infrastructure costs. 

The  approach  adopted  in  Great  Britain  does  not  fit  easily  into  either  of these  categories.  It 
combines  the  focus  on  SRMCs  of the  Scandinavian  approach  with  the  high  degree  of cost 
recovery  more  typical  of the  Adjusted  Average  Cost  approach.  Alone  among  the  Member 
States,  some  access  charges  in  Great  Britain  are  determined  by  negotiation  between  train 
operators  and  the  infrastructure  manager,  and  the  charging  framework  in  Great  Britain  also 
appears to be significantly more complex than those applied in many other Member States. 

The following tables roughly suminarises the differing financial situation of railways in 
Member States, and the different charging approaches applied by Member States: 

Table 5. Rail transport costs and subsidies 1989 (£M, 1989). 

Country 

Total cost of railways 

Total government subsidy 

Ratio of "revenues" 1 to cost 

GB 

France 

WGennany 

Italy 

Belgium 

Holland 

3,591 

6,201 

8,763 

7,226 

1,309 

834 

636 

3,194 

3,611 

6,059 

761 

377 

82% 

48% 

59% 

16% 

42% 

55% 

1  revenues=costs-subsidy. 

Source: OEIL 1997 

40 

Table 6. Indicative railway charges in various Member States (ECU, 1997). 

Country 

Annual Charge 

Distance Charge 

Weight Charge 

Cost coverage 

Austria 

9, 700-18,900/km 

0.73 /train km 

0.001/tkm 

26% 

Belgium 

Denmark 

200-400/km 1 

• 
2. 7-3/trainkm 

Finland 

France 

Germany 

Sweden 

UK 

I From  1999 

38-1,680/km 

0.13-l 5/trainkm2 

2.5-12.6/trainkm3 

• 
• 

0.0027-0.1  /train km 
• 
3 varying with route 

2 varying with time of travel 

0.0015-0.0017/gross tkm 

20-25% 

15% 

Source: NERA 1998 

(In remaining Member States, railway infrastructure charges are not yet developed.) 

Inland waterways 

Roughly  7.6%  of European  transport  occurs  using  inland  waterways.  Of this,  over  70%  of 
traffic occurs on the  Rhine,  where,  under the  Mannheim  Convention,  charges  are  prohibited. 
For most other waterways, Member States levy charges on a variety of principles. 

In  contrast  to  the  Mannheim  Convention,  several  Member  States  (Luxembourg,  France, 
Germany  (under the  Mosel  convention),  Belgium,  Finland, the  UK  (largely  for  leisure  craft) 
and The Netherlands), apply quite  sophisticated charges,  levied according to  type  and  size of 
vessel, type and volume of cargo, number of passengers, frequency  of travel,  and time of day 
(each  country  has  its  own  particular  approach).  The  charges  contribute  to  a  variety  of 
maintenance, operating, and capital costs, but demand appears to be quite sensitive to changes 
in the charge, and so charges are difficult to raise. 

In Germany,  fewer  charges are  levied,  with no  navigation charges  applied  on  the  Rhine,  the 
Elbe,  the  Oder or the  Danube.  On  other waterways  (with considerably  less  than 20%  of all 
traffic)  charges  are  levied  (for  example,  under  the  Mosel  convention)  similar  to  those 
described above.  Such charges  recover up  to  25%  of the  operating  and  maintenance  costs  of 
the waterways. 

Some  countries  (particularly  France  and  the  UK)  charge  other  users  of the  canal  networks 
(non  transport  users  such  as  water  companies,  industrial  and  agricultural  users).  These 
organisations  make  more  use  of the  canal  than  transport  (the  split  is  roughly  80/20)  and  in 
these  countries,  contribute  significantly  to  the  costs  of the  infrastructure.  By  and  large, 
charges  for  the  use  of inland  waterways  in  Member  States  conttjbute  to  but  do  not  cover 
variable  infrastructure  costs.  Government  subsidies  are  still  required  to  some  extent  in  all 
Member States. 

The following table summarises the different approaches applied in different Member states: 

41 

Table 7. Inland waterway costs and cost recovery, 1998. 

Country 

Type of charge 

Recovery of costs 

Note 

Belgium 

France 

variable 1 

Variable 

7.5%  of investment 

It should be borne in mind that 

10%  of receipts 

only 20% of the use of inland 

Germany  Variable for 20% of traffic 

13%  of running costs 

water ways is thought to be 

UK 

Finland 

Variable 

Variable 

8.75%  of maintenance costs  attributable to navigation. 

21 % of maintenance and 
development costs 

1 variable charges tend to change according to weight, distance, boat type, type of travel 

Source: DGVII Questionnaire. 

Airports 

Airport charging systems cover a wide variety of charges related to  different airport facilities 
and services.  These include landing, lighting, parking, refuelling and storage facilities as well 
as  aircraft,  passenger and  freight  services.  As there  is  no  standard use  for  the  different airport 
charges, they do not always cover identical facilities or services. Airport charges are based on a 
number of criteria,  which vary from  one charging system to  another.  Some criteria, however, 
are in common use. These include: 

• 

• 

• 

• 

• 

the  origin  or  destination  of the  flight,  with  frequent  distinction  between  domestic  and 
international flights for landing, passenger and lighting charges; 

the  mass  of  the  aircraft,  often  the  maximum  take-off  weight,  for  landing  and 
parking charges; 

the noise category of the  aircraft for  the  noise  charge  or,  if no  such charge exists,  for  the 
landing charge when modulated according to the noise emissions of the aircraft; 

the  parking  time,  sometimes  modulated  in  accordance  with  the  flight  schedule,  for  the 
parking charge; 

the  number of passengers,  their age  and  sometimes  the  distance  flown  for  the  passenger 
charge; 

• 

the freight tonnage loaded or unloaded for the freight charge. 

The level  of airport charges varies significantly from  one Member State to  another and often 
even from one airport to another within a single Member State. 

Air traffic services 

The  overall  EUROCONTROL  charge  exacted  by  a  State  equates  to  the  sum  of individual 
charges for  flights  which have entered the  airspace  of that  State.  The  individual  charge  for  a 
flight  is  calculated by multiplying the  national  unit rate  of charge  by  the  number of "service 
units"  of that  flight.  For each  country,  the  national  unit  rate  of charge  is  fixed  each year  by 
dividing the national en-route facility "cost-base" by the total number of "service units"  in that 
country's airspace in that year.  The calculation of "service units"  is  a function  of the distance 
flown by an aircraft ( expressed in terms of one hundredths of the great circle distance between 

42 

the  point of entry  into  the  country's  airspace  and the  point  of exit  from  it)  multiplied  by  the 
weight  factor  of the  aircraft  ( expressed  as  the  square  root  of its  maximum  certified  take-off 
weight).  "Unit rates of charge" for a year are fixed at the end of the previous year, on the basis 
of actual  costs.  There  is  a  mechanism  that  allows  any  consequent  disparities  to  be  adjusted 
subsequently.  Finally,  these  values  must  refer  only  to  chargeable  flights.  (Some  flights  are 
usually  exempted  - such  as  those  by  aircraft  under  2  tons,  State  aircraft,  search  and  rescue 
flights, military tlights, training flights,  and navaid check flights.) 

The calculation of the "cost-base" is  made  in accordance  with generally  accepted accounting 
principles  for  investment  expenditure  and  operating  costs.  Investment  expenditure,  on 
equipment and buildings,  is taken into  account by amortising  its final  cost on the basis of its 
expected  operating  life.  The  two  components  of this  cost  are  depreciation  (the  amount  of 
capital  actually  in  service);  and  interest  (which is  related  to  the  net  value,  in  terms  of cost  -
depreciation,  of  the  capital  invested).  Operating  costs  are  those  for  air  traffic  services, 
communications, meteorological services, aeronautical information services, each classified in 
terms of maintenance, operations, training, research and administration.  All charges are  levied 
by EUROCONTROL and redistributed to the Member States according to traffic volumes. 

The present approach reflects the reality of production costs and enables their full recovery. 

Sea ports 

The  sea  ports  sector  often  functions  on  commercial  lines,  and  has  a  high  degree  of 
competition:  sea ports both within one Member State and in different Member States compete 
strongly for  customers.  There is  a discernible trend towards even greater private participation 
in  port  activities,  particularly  those  of a  predominantly  commercial  nature  such  as  cargo 
handling.  As  a result,  financing  of port facilities  for  such  purposes  is  increasingly  becoming 
the  responsibility  of the  private  sector,  while  the  port  authorities  tend  to  restrict  themselves 
more  and  more  to  their  "landlord"  role  and  the  financing  and  operation  of those  facilities 
which are essential to the safe and efficient operation of the port as a whole. 

· 

Charging  systems  in  the  Community  differ  considerably  between  European  sea ports.  They 
nevertheless  include  certain  basic  elements  such  as  a  description  of the  port  facility  and 
services  covered  by  each  type  of port  charge,  the  basis  of the  individual  charges  and  the 
method  of calculation.  In  general,  three  types  of payment  can  be  distinguished25  -
those 
related to  the  provision of services  and  facilities  to  enable  a ship  to  enter  safely  and  use  the 
port;  payments for  specific  services  or supplies rendered;  and  rents  or charges  for  the  use  of 
land or equipment owned by the port. 

Most sea ports charge for  goods  loaded and unloaded and  some  also  charge  for  vehicles  and 
passengers using the port.  Revenue  is  earned by  renting out equipment,  buildings and land to 
port  operators  and  from  the  direct  provision  of services.  In  most  countries,  port  dues  and 
charges  are  still  subject to  approval  by  the  Government  or Municipal  Authorities.  However, 
the  general  aim  for  most  sea ports,  both public  and  private,  is  to  ensure  that  sea ports  cover 
their costs. 

25  ESPO,  1996. 

43 

Maritime shipping 

There  are  no  charges  for  operating  ships  on  the  open  sea,  however  some  Member  States 
charge  for  fairway  use.  From  1  January  1998  Sweden  has  introduced  environmentally 
differentiated fairway charges. 

44 

Annex III: Marginal Social Cost Charging and Recovery of Capital Costs 

Marginal  costs  charges  are  not  directly  related  to  fixed  infrastructure  costs.  However,  when 
the  provision  of infrastructure  is  efficient,  then,  provided  a  number  of conditions  are  met, 
fixed costs can be covered by the congestion or scarcity component of the marginal social cost 
charges. 

From  an  efficiency  perspective  and  on  the  basis  of  a  social  cost/benefit  evaluation  of 
infrastructure projects,  it is  seldom justified to build capacity to  provide free  flow conditions 
(available capacity) also during peak-hours. Indeed capacity should be geared towards normal 
demand  levels.  The  incremental  benefits  of  avoiding  congestion  at  all  moments  of  the 
day/year  would,  typically,  be  lower  than  the  additional  costs  of the  required  infrastructure 
investments.  In  other words,  the  efficient  provision  of infrastructure  normally  implies  some 
scarcity and congestion during certain periods. 

The  proposed charging  approach would  comprise  a  congestion/scarcity  element.  Since  these 
charging  components  do  not  reflect  any  out of pocket  spending  for  infrastructure  operators, 
they  can  be  used  to  finance  fixed  costs.  Congestion  charges  would  generally  make  up  for 
fixed  infrastructure  costs  in  such  an  optimal  system  if there  are  constant  returns  to  scale 
(implying that average costs would equal marginal costs and that marginal cost based charges 
would  fully  recover  fixed  costs).  However,  the  existence  of  economies  of  scale  and 
indivisibilities may complicate the situation. 

Economies of scale imply that the unit costs of providing capacity decrease the more capacity 
is provided, implying that the  marginal  costs  are  below the  average  costs.  Indivisibilities,  on 
the  other hand,  mean that there  is  a limited flexibility  to  chose capacity  levels.  For example, 
the options are to build a single or a double rail  track,  but there  are no  possibilities to  choose 
intermediary  capacity  levels.  Due  to  conditions  of  this  kind  an  efficiently  designed 
infrastructure may  be  characterised by  capacity  levels where there  is  no  scope  for  congestion 
or scarcity charging to  fully  recover fixed  costs.  On the  contrary,  decreasing  returns  to  scale 
(marginal  costs  above  average  costs),  which  are  typically  found  in  densely  populated  areas, 
physical limits on expanding capacity or situations where indivisibilities lead to relatively low 
levels  of capacity  would  imply  congestion  charges  that  are  relatively  high  and  typically 
recover more than full cost. 

The  different  transport  modes  cannot  be  easily  classified  on  the  basis  of the  different  cases 
discussed  above  and  there  is  a  significant  variation  between  projects.  However,  in  very 
general  terms,  it  can  be  concluded  that  large  parts  of the  road  infrastructure,  larger  airports 
and air traffic services often tend to face constant returns to scale, whilst rail infrastructure and 
inland  waterways  are  characterised  by  economies  of scale.  This  is  one  reason  for  expecting 
lower levels of cost recovery from rail and inland waterways than from roads and aviation. 

All  in all  it is clear that marginal infrastructure cost charging (including a congestion/scarcity 
element, but excluding external costs) will not always  imply cost recovery  for  all  parts of the 
network  in  question,  but  under-recovery  for  some  parts  would  generally  balance  over 
recovery  for  others.  This  balance  is  particularly  obvious  concerning  roads.  Research  funded 
by  the  Commission  for  instance  suggests  that  marginal  cost  charges  would  demand  price 
increases in the order of 200 per cent on some urban roads in Belgium and cover far more than 

45 

the  total  costs of these  roads.  At the  same  time  it  is  clear that  marginal  cost charging  would 
lead to very limited contributions to fixed costs in sparsely populated rural areas. 

This  paper  indicates  that  revenues  from  the  scarcity  component  of  marginal  social  cost 
charging could be  used to  cross-finance  infrastructure  through  infrastructure  funds  at modal, 
regional or national levels.  Moreover,  it has also  been pointed out that evidence suggests that 
marginal  infrastructure  cost  charging  is  likely  to  lead. to  high  levels  of cost  recovery  at  the 
level  of the transport  sector as  a whole.  From  an  infrastructure  financing  point of view,  this 
represents an important improvement over the existing situation. 

The  charging  components  for  other  externalities  would  lead  to  additional  revenues.  As 
indicated  in  the  main  text,  seen  from  an  equity  perspective,  it  may  be  desirable  to  use  the 
money  to  compensate  individuals  who  are  affected  or  to  finance  measures  to  limit  future 
impacts.  But,  of course,  if these  funds  were  in  stead  allocated  for  general  infrastructure 
purposes even higher rates of cost recovery would be achieved.  The analysis presented in Roy 
(1998)  suggests  that  total  revenues  for  the  transport  system  as · a  whole  would  outstrip 
infrastructure costs. 

46 

ISSN 0254-1475 

COM(98) 466 final 

DOCUMENTS 

EN 

02  07  06  10 

Catalogue  number  CB-CO-98-493-EN-C 

ISBN  92-78-38617-0 

Office for  Official Publications of the European Communities 

L-2985  Luxembourg