Ongoing economic uncertainty is forcing governments across Europe to manage revenue and expenditure more carefully than ever. At the same time, increasing fuel efficiency and the growing use of electric vehicles are leading to a widespread long-term decline in fuel tax revenues.
To address these shortfalls, support is growing for a taxation system based on miles travelled. However, charging solely on mileage could be considered unfair as it takes no account of the environmental impact caused by different vehicles.
New environmental regulation, in the form of a new green tariff, which charges all vehicles not only on distance covered but also on energy used, presents an innovative and sustainable solution. This tariff provides the funding that governments need while helping them meet carbon emissions reduction targets by giving people an incentive to use less-polluting vehicles.
While creating a greener tariff means challenging established practices, it can be achieved by following these key steps.
Creating defendable political and fiscal objectives
Defining clear political and fiscal objectives for any new form of vehicle taxation is key. Additionally, carefully evaluating the consequences of doing nothing will help governments justify the new approach to the public.
In Germany, for example, the government agreed to base new vehicle taxes on both engine size and carbon emissions per kilometre travelled. This is in line with the trend in environmental regulation among EU member states to implement emissions-based tax systems for vehicles travelling on their roads.
Building tariffs based on mileage, and environmental impact
The new green tariff should take account of miles travelled, energy consumed (and hence impact on carbon emissions reduction targets) and the potential road damage caused by vehicles’ axle weight. Governments must take care to build tariffs based on proper data about clean solutions. Our research into the full ‘well-to-wheel’ emissions of different fuels shows that some technologies promoted as clean produce significantly higher emissions than conventional petrol engines.
The more greenhouse gases emitted by a vehicle, the more owners should pay – a dozen EU countries have introduced environmental regulations making carbon emissions a factor in their motor taxation system. While governments hail this as a step forward in the fight against global warming, environmentalists have criticised this approach, making it harder to present it as meeting the defendable, political and fiscal objectives outlined above.
It is important to develop a tariff that not only provides consistency across the vehicle fleet, irrespective of vehicle type, but also reflects fairly the relative environmental impact of different vehicles.
Making sure implementing the new tariff is practical and cost-effective
Unless an environmental regulation like the new green tariff is inexpensive to implement it will face substantial resistance from consumers. A tariff based on mileage and environmental impact does not require more detailed information than the registration number, maximum weight and axle count, and odometer readings linked to fuel purchases, and could be implemented without necessarily requiring an extensive equipment retrofit programme.
Prior to the change of government, we were road-charging advisors to the UK’s Department for Transport, supporting its research programme by drawing on our expertise in transportation and the creation of efficient funding models. This ended with the completion of the Time Distance Place charging investigations of 2010. We have also contributed to road pricing initiatives in a number of countries including Germany, France, the Netherlands and Denmark for consortia, scheme owners and government ministries.
To find out about using environmental regulation to develop and support an effective strategy for road charging, please contact us now.