THE INTERNALISATION OF EXTERNAL COSTS OF CO2 AND POLLUTANT EMISSIONS FROM PASSENGER CARS

Snežana Kaplanović,Radomir Mijailović

doi:10.3846/20294913.2012.702694

Snežana Kaplanović, Radomir Mijailović

Open Access

https://doi.org/10.3846/20294913.2012.702694

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Abstract

The paper's goal is to unify practical and theoretical aspects of internalisation of external costs, in line with the “polluter pays” and “user pays” principles. Due to the impossibility of applying an ideal economic solution for internalisation of external costs, alternative solutions have to be developed and implemented. One of the possible solutions for internalisation of external costs of CO2 and pollutant emissions from passenger cars is presented in this paper. It is a new methodology for calculating annual circulation taxes on passenger cars. This methodology, besides CO2, also takes into account the pollutants whose emissions are regulated by the Euro standards (CO, HC, NOx and PM), as well as the vehicle age and kilometres driven. The proposed methodology has been tested on some of the best-selling passenger cars in Europe. The results of analysis show significant differences between our methodology and the methodologies that are used in five European countries (Ireland, the United Kingdom, Malta, Luxembourg and Sweden), which use the CO2 emissions as a reference value for their calculation. Also, we have proved that the annual circulation tax, calculated using our methodology, provide better internalisation of external costs compared to the fuel tax.

Highlights

Due to the negative impacts on the environment and human health, on one hand, and the necessity for sustainable development, on the other, the transport sector today faces a great challenge (Mačiulis et al 2009)
One of the advantages of this methodology is that it takes into account the CO2 and the pollutants whose emissions are regulated by the EC Regulation 715/2007: NOx, non-methane hydrocarbon (NMHC), CO and PM (European Commission 2007)
We have examined the effect of vehicle age on the tax burden according to our assumption that average annual kilometres driven do not change with vehicle age (S = constant = 19353 km – the average annual kilometres driven were calculated as arithmetic mean for a ten-year period of distribution of average kilometres driven by vehicle age (Moghadam, Livernois 2010))

Summary

Introduction

Due to the negative impacts on the environment and human health, on one hand, and the necessity for sustainable development, on the other, the transport sector today faces a great challenge (Mačiulis et al 2009). From an economic point of view, the best solution for internalisation of these externalities would be achieved by applying tax on vehicle emissions in the amount of marginal external damage caused to society This way, there would be strong economic incentives to reduce CO2 and pollutant emission levels through an adequate selection of vehicles and optimization of the driven kilometres. Continuous measurement of damage caused by a given level of emissions represents an even bigger problem, since, except in the case of CO2, this damage significantly depends on temporal, spatial, atmospheric and many other factors These are the reasons for application of different “second-best solutions” for internalisation of external costs of CO2 and pollutant emissions. The objective of this paper is to present a new methodology for calculation of annual circulation taxes on passenger cars which would enable better internalisation of these externalities

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