Internalisation of external costs of transport in Flanders

Abstract

We calculated the private and marginal external costs of different transport modes. The private costs are the costs for the user. For road transport, these include the vehicle purchase costs, insurances, maintenance, fuel costs, etc. For transport services (bus, train, plane), this is the ticket price. Marginal external costs are the costs the user does not take into account when deciding to make a trip. They are called marginal as we focus on the additional effect of that one trip. We considered congestion, environment (air pollution and greenhouse gasses), noise, safety, infrastructure wear & tear, and health.The internalization of external costs determines the extent to which the user does take into account part of these external costs via taxes and levies. In the case of full internalization, the user pays for all the costs he causes via taxes and levies. Today, in most cases, the user does not pay the full costs he causes.In this study, we calculated the private costs, marginal external costs, and degree of internalization for all modes in Flanders for the period 2000-2014, with an outlook towards 2016. Based on these calculations we assessed the evolution of the degree of internalization over time. Is Flanders heading towards the “polluter pays principle”? Which steps are needed to develop better pricing? We found that over the years the level of internalisation is mainly driven by changes in external costs rather than by a targeted adjustment of taxes. Recent changes in taxation such as the changes in car registration tax, yearly road tax and km charge for trucks did lead to an increase in internalisation, but we are still far from full internalisation. Moreover, it would be better to differentiate taxes not only on environmental performance but also on time and place. The levels of internalisation are also very different – not only between modes but also within the road mode.JEL codes: D62, H21, H23