Commission staff working document accompanying the communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions - Strategy for an internalisation of external costs and the proposal for a directive of the European Parliament and of the Council amending Directive 1999/62/EC on the charging of heavy goods vehicles for the use of certain infrastructures - Summary of the impact assessment on the internalisation of external costs {COM(2008) 435 final} {COM(2008) 436 final} {SEC(2008) 2208}
Date: 2008-07-08
Institutions: European Commission
Subjects: charges for use of infrastructure, common price policy, common transport policy, fixing of prices, impact study, transport price

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COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 8.7.2008 
SEC(2008) 2209 

COMMISSION STAFF WORKING DOCUMENT 

accompanying the 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

Strategy for an internalisation of external costs 

and the 

Proposal for a 

DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 

amending Directive 1999/62/EC on the charging of heavy goods vehicles for the use of 
certain infrastructures  

Summary of the Impact assessment on the internalisation of external costs 

{COM(2008) 435 final} 
{COM(2008) 436 final} 
{SEC(2008) 2208} 

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COMMISSION STAFF WORKING DOCUMENT 

Impact assessment on the internalisation of external costs 

When amending Directive 1999/62/EC on charging heavy goods vehicles (HGV) for the use 
of infrastructure in May 2006, the European Parliament and the Council stipulated that: “No 
later than 10 June 2008, the Commission shall present, after examining all options including 
environment, noise, congestion and health-related costs, a generally applicable, transparent 
and  comprehensible  model  for  the  assessment  of  all  external  costs  to  serve  as  the  basis  for 
future calculations of infrastructure charges”. The amending directive adds that: “This model 
shall  be  accompanied  by  an  impact  analysis  of  the  internalisation  of  external  costs  for  all 
modes of transport and a strategy for a stepwise implementation of the model for all modes of 
transport. The report and the model shall be accompanied, if appropriate, by proposals to the 
European Parliament and the Council for further revision of this Directive”. 

The  present  impact  assessment  focuses  on  the  internalisation  of  external  costs  of  noise,  air 
pollution,  climate  change,  congestion  and  accidents  from  heavy  goods  vehicles  and  other 
transport means through market based instruments such as charges, taxes or tradable permits. 
It analyses the options for internalising external costs in HGV tolls in order to revise Directive 
1999/62/EC and the options for internalising external costs in other modes of transport such 
as railways, aviation, maritime and inland waterways. 

1. 

PROBLEM DEFINITION 

Transport activities produces nuisances which have a cost for others. Most of the time, these 
costs are external, meaning that they are not borne by those who generate them, but by other 
transport users (congestion, accidents) and society (environmental costs). 

Given its environmental externalities, transport is already exposed to a number of regulatory 
measures. In addition, transport activities, including vehicle purchase, ownership and use, are 
subject  to  numerous  taxes  and  charges,  which  may  overall  compensate,  and  in  some  cases 
maybe even over-compensate, for some of their social costs. It is therefore is necessary to take 
into  account  the  existing  situation  to  avoid  double  charging  for  the  same  external  cost.  The 
question, however, is to ascertain to what extent existing measures allow external costs to be 
internalised, in other words whether the price signals given by these existing charges, taxes or 
subsidies incite the development of new technologies, new ways of transportation or a change 
in consumer behaviour.  

Although  there  is  some  evidence  that  some  degree  of  internalisation  of  external  costs  is 
already in place, transport users do not bear all these costs or they pay in ways not related to 
external  costs.  In  most  cases,  government  measures  are  fragmented  and  do  not  tackle 
explicitly these market failures. The problem is that the structure of existing levies does not 
give a price signal efficient enough to influence the mobility behaviour. 

Leaving  the  situation  unchanged  would  mean  that  transport  would  continue  to  generate 
nuisances that would not be borne by transport users. However, this is not to say that nothing 
would  be  done  as  there  are  other  instruments  either  in  existence  (e.g.  vehicle  taxes,  Euro 
classes) or being discussed at the EU institutions (e.g. ETS for aviation, CO2 and cars rules) 

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to fight external costs. Without internalisation, transport price would continue to give a wrong 
signal  to  users  who  would  not  have  enough  incentives  to  use  cleaner  vehicles  and  avoid 
congested routes at peak times. 

2. 

OBJECTIVES 

The  general  objective  for  the  EU  is  to  “ensure  that  our  transport  systems  meet  society 
economic, social and environmental needs whilst minimising their undesirable impacts on the 
economy, society and the environment". 

However,  this  impact  assessment  is  only  concerned  with  a  specific  objective  of  the 
Commission which, following the precise request of the legislator, is to propose a strategy to 
internalise  external  costs  generated  by  transport.  By  internalising  external  costs,  transport 
prices  are  expected  to  give  the  right  signal  to  transport  users,  to  improve  the  efficiency  of 
infrastructure  use  and  contribute  to  reducing  negative  externalities  such  as  congestion, 
accidents and environmental emissions. This objective should not hamper the competitiveness 
of the economy and should avoid any undue burden on transport.  

The following operational objectives are to: 

–  propose a stepwise strategy to promote the internalisation of external costs for all modes of 
transport, creating incentives for users to make efficient use of transport infrastructure.  

–  as a first step, and taking into account the fact that a proposal for introducing an ETS in air 
transport has already been formulated enable and encourage Member State to implement in 
a  consistent  way  on  motorways  and  other  roads  efficient  road  usage  charges  leading  to 
more sustainable mobility. This would lead to the revision of Directive 1999/62/EC.  

3. 

POLICY OPTIONS 

A set of policy options has been analysed, also with the help of modelling tools.  

The reference  scenario (no new actions) does not consider any new proposal to ensure the 
internalisation  of  external  costs,  but  takes  into  account  the  forthcoming  measures  aimed  at 
reducing environmental nuisances. These relate mostly to climate change external costs; they 
are  not  part  of  a  comprehensive  strategy  for  internalisation  and  do  not  cover  all  modes  of 
transport.  

The  second  scenario  analyses  the  impact  of  charging  for  external  costs  in  road  freight 
transport. This policy option would lead to a revision of Directive 1999/62/EC. Three variants 
have been analysed:  

–  charging for air pollution and noise costs,  

–  charging for air pollution, noise and CO2,  

–  charging for air pollution, noise and congestion.  

A third scenario would ensure that external costs can be charged for, not only in road freight 
transport  as  in  Policy  Option  2,  but  also  in  all  other  modes  of  transport,  i.e.  rail,  aviation, 

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maritime and inland waterways in order to ensure equal treatment in all modes of transport. 
Two variants have been analysed: 

–  charging  for  air  pollution  and  noise  costs  in  all  modes  of  transport,  charging  for  CO2  in 

maritime, inland waterways and railways,  

–  charging for air pollution, noise and CO2 in all modes of transport. 

4. 

ANALYSIS OF IMPACT 

In  all  policy  options,  internalisation  of  external  costs  does  not  hamper  mobility  in  Europe 
although charging modifies the choice of transport users and influences modal split. However, 
it  appears  that  charging  for  congestion  in  road  transport  leads  to  more  positive  effects  as  it 
contributes to saving time while decreasing fuel consumption and environmental nuisances.  

The  economic  impact  of  internalising  external  costs  is  negative  in  the  short  term  as  the 
increase in transport costs outweighs the other effects. However, the share of transport costs 
varies in industrial sectors and would probably lead to an increased efficiency in the transport 
of goods. On the whole, there are grounds for believing that the reduction of external costs – 
congestion, environmental costs, and the reduction of fatalities will improve Europe's overall 
competitiveness  as  these  costs  are  currently  borne  by  European  society  at  large.  Moreover, 
charging for congestion induces time savings which will be translated into productivity gains 
for business.  

The  implementation  of  a  charging  scheme  leads  to  an  overall  reduction  in  environmental 
external costs of about 1 billion euros per year. The strong reduction of CO2 emissions in the 
case of congestion charging is mostly due to the reduction of fuel consumption. According to 
some  studies,  vehicle  fuel  consumption  increases  by  approximately  10-  30%  under  heavy 
congestion.  

The  distributional  impacts  of  internalisation  are  quite  modest  and  do  not  contribute  to 
increasing  inequalities.  This  could  stem  from  the  fact  that  lower  income  people  tend  to  use 
more  public  transport  and  do  not  feel  impacted  by  charging  of  private  cars.  One  aspect  the 
models cannot capture is the positive effects of the reduction of external costs on health. The 
reduction  of  air  pollution  will  have  a  positive  impact  on  health,  especially  in  densely 
populated areas and in alpine and other populated mountain valleys. 

Taking the revenues from tolls in different policy options, operational costs would vary from 
12% to 25% of revenues in the EU25. These estimates do not consider existing schemes. In 
some  countries  such  as  Germany,  Austria  or  the  Czech  Republic,  an  electronic  system  is 
already in place and operational costs range between 15% and 20% of revenues. Accordingly, 
the estimates provided above might be lower in some Member States.  

The  use  of  the  revenues  from  charging  for  externalities  should  take  into  account  the 
advantages for the Community of international traffic. In the case of road freight transport, the 
share  of  international  traffic  in  total  road  freight  traffic  in  the  EU-27  is  27%.  However,  in 
seven  Member  States,  it  is  higher  than  50%  with  a  peak  of  84%  in  Estonia  and  77%  in 
Luxembourg. Given the increase in international road freight traffic, its share of EU27 traffic 
is  expected  to  reach  33%  with  a  peak  of  90%  in  Estonia.  In  the  absence  of  earmarking, 
Member States would tend to maximise their national welfare without taking full account of 
the benefits of sustainable mobility at Community level.  

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The absence of transparency and accountability could result in some cases in overcharging of 
international  transport,  which  in  turn  may  impact  negatively  on  mobility,  freedom  of 
movement  and  the  internal  market.  Overcharging  may  also  have  negative  impacts  at  local 
level.  First  experiences  with  tolled  motorways  in  Hungary  in  the  1990s;  for  instance  failed 
because charges were set at a level beyond the users' capacity to pay.  

The  most  important  provisions  in  the  current  Directive  to  ensure  accountability  of 
infrastructure  costs  are  the  recourse  to  a  common  method  for  calculating  costs  and  the 
adoption of common charging principles. Member States can decide to recover only some of 
the  costs  calculated  according  to  this  common  methodology.  As  to  external  cost  charges,  a 
similar approach could be envisaged. 

5. 

COMPARING THE OPTIONS 

The quantitative and qualitative analysis appears to show that the option including congestion 
charges offers the best results. First, the reduction of time spent induces positive effects in the 
economy  as  transport  goods  flow  more  easily.  Second,  congestion  charging  induces  strong 
reduction  of  external  costs.  Freer  flows  impact  on  fuel  consumption,  which  in  turn  induces 
less CO2 emissions. For these reasons, welfare effects are higher in this scenario. 

When  charging  all  modes  of  transport,  mobility  is  largely  maintained  while  environmental 
emissions  and  fatalities  decrease.  Congestion  is  not  analysed,  therefore  all  the  positive 
impacts due to congestion charging are not provided in this case. From an acceptability point 
of view, the public consultation has shown strong support for charging all modes of transport. 
However,  the  international  dimension  of  maritime  and  air  transport  needs  to  be  considered 
when implementing an internalisation strategy. In addition, in policy option 3, the impact on 
employment relies heavily on the use of revenues.  

Preferred options: Strategy to internalise external costs in all modes 

For  reasons  of  fairness,  all  modes  of  transport  should  be  concerned  by  internalisation. 
However, given the international framework of maritime, aviation and inland waterways, the 
strategy will be developed in a longer term perspective.  

The comparison of scenarios gives some indication of the preferred policy option. Option 3B 
covers other modes and would involve internalising air pollution, noise and CO2 in the other 
modes. Extending internalisation to other modes of transport improves overall sustainability.  

On  this  basis,  a  work  programme  would  be  elaborated,  taking  into  consideration  the 
desirability  of  charging  for  external  costs  (air  pollution,  noise,  CO2)  in  other  modes  of 
transport.  

In the railways directive, the impact assessment mentions that charging for external costs was 
already  envisaged  in  the  existing  EU  legislation  (Directive  2001/14/EC).  Once  the 
Eurovignette  has  been  revised  to  allow  internalisation,  railways  would  have  further 
opportunities to internalise external costs.  

In  air  transport,  inclusion  in  the  ETS  is  an  important  step  to  fight  CO2  emissions.  Ongoing 
work  on  the  reduction  of  Nox  emissions  would  give  the  opportunity  to  analyse  a  pricing 
mechanism in this context.  

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In maritime transport, the growth of CO2 and air pollutants emissions shows the need to take 
actions  in  this  field.  Given  the  international  framework  for  maritime,  a  solution  such  as  the 
ETS could be one of the outcomes of the analysis.  

Finally, consideration will also be given to inland waterways, taking into account the fact that 
many of them have their specific regulatory environment, e.g. the Manheim Convention.  

Preferred options: Revision of Directive 1999/62/EC in June 2008 

As  mentioned  above,  road  freight  transport  contributes  to  a  large  share  of  external  costs. 
Internalising these costs, which requires Directive 1999/62/EC to be amended is therefore an 
essential  component  of  the  broader  strategy  to  internalise  external  costs  in  all  modes  of 
transport.  

Tackling road freight transport external costs is not the first step in this broader strategy since 
a proposal has already been made for inclusion of aviation in ETS The revision of Directive 
1999/62/EC  is  also  necessary  to  unblock  the  legislative  bottleneck  that  prevents  tackling 
externalities in rail transport.  

Acting  in  road  transport  while  other  policy  initiatives  in  other  modes  are  being  developed 
would not negatively affect the trend in externalities, since it would be consistent with higher 
relative charging of the mode with larger externalities.  

In the framework of this analysis, the policy options corresponding to charging air pollution, 
noise and congestion in freight road transport seem to offer the best combination in terms of 
mobility  and  sustainability.  A  differentiated  charging  scheme  based  on  the  costs  of  air 
pollution  and  noise  allows  local  environmental  externalities  to  be  taken  into  account. 
Integrating  a  congestion  charge  into  such  schemes  produces  time  savings  which  lead  to  a 
positive impact on the economy at large. Congestion charging is more efficient if passenger 
and freight transport are concerned as both compete for the same infrastructure. This element 
is  supported  by  the  result  of  the  public  consultation  which  was  in  favour  of  an  option 
"charging  for  freight  and  passenger  cars”.  In  addition,  the  reduction  of  travel  time  also 
contributes to reducing CO2 emissions. Interestingly, charging for freight and passenger cars 
leads  to  a  reduction  of  environmental  costs  similar  to  policy  options  that  include  a  specific 
CO2 mark-up.  

The  analysis  assumed  that  all  Member  States  are  charging.  However,  the  benefits  and 
drawbacks  of  a  mandatory  versus  and  optional/empowering  approach  have  been  considered 
together  with  the  link  with  subsidiarity  issues.  A  number  of  considerations  suggest 
considering first an empowering approach: 

–  There  may  still  be  uncertainties  related  to  the  costs,  benefits  and  enforcement  of  the 
required  tolling  systems  on  the  networks  of  some  Member  States  with  lower  traffic  and 
thus with low levels of externalities.  

–  A  binding  approach  based  on  a  mandatory  charge  would  constitute  a  radical  change 
compared with the current Directive and could hardly be envisaged without a transitional 
period.  

–  Member  States  have  traditionally  followed  differing  approaches  regarding  infrastructure 
charging and consequently have different levels of experience with the tolling technology 
involved. Interoperability issues are not yet solved. 

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–  A  flexible  and  gradual  phasing  in  approach  would  allow  the  new  charging  schemes  and 
tolling  technology  to  be  trialled  in  Member  States  where  the  geographical  conditions  are 
the most appropriate. 

–  The  actual  implementation  and  operational  experience  gathered  in  the  early  adopter 
Member  States  would  allow  a  thorough  stocktaking  to  be  carried  out  at  a  later  stage.  A 
joint assessment of the pros and cons of making external cost charging mandatory for all 
Member States and the required degree of EU co-ordination can then be reviewed.  

Such a policy option, based on an enabling approach, would entail the revision of Directive 
1999/62/EC as a first step in the internalisation strategy. The main amendments would be: to 
authorise  the  calculation  of  road  charges  on  the  basis  of  the  external  costs,  namely  air 
pollution,  noise  and  congestion  and  to  differentiate  the  charges  accordingly.  Such  charging 
schemes  would  be  subject  to  a  number  of  conditions  to  improve  their  efficiency  and  their 
chance  of  success  such  as  the  use  of  electronic  free  flow  tolling  technologies  to  facilitate 
implementation  by  reducing  costs,  and  local  inconveniences  and  allowing  subsequent 
extension  to  all  roads.  For  subsidiarity  reasons,  the  Directive  will  not  cover  passenger  cars. 
However, charging to reduce congestion is more effective if other road users outside the scope 
of  this  Directive  are  also  covered  by  a  similar  scheme.  This  positive  impact  should  be 
acknowledged.  

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