Multimodal Sustainable Transport: which role for the internalisation of external costs?

Ladies and gentlemen, dear friends,

  1. Introduction

The subject of today's conference is of major importance. Quality information is key for good decision-making. We all know that while transport is the backbone of the economy and makes the internal market possible, the society – and our environment – pay a certain price for our mobility. Today we will talk about: i.) quantifying those costs based on quality information, and ii.) who should pay for them. I am very happy to see so many of you here today. It is worth it – you’ll see!

  1. Why is this so important? Negative impact

Creating benefits for people via excellent mobility services, while generating high safety and health-related costs should no longer be ignored. To cite just two very telling and tragic statistics: every year,  it can be roughly estimated that there are in the general magnitude of 50,000 premature deaths in the EU due to transport emissions, and we count over 25,000 road accident deaths, as well as over 136,000 seriously-injuried people.

These and other harmful by-products of transport are not usually taken into consideration by the users of transport services.

Let’s make this personal. To come here today, you probably travelled by car or plane. You paid for fuel or a ticket covering these costs. But you didn’t really pay for the air pollution, climate change, noise, congestion and so on generated by your journey, did you? Economists call these costs ‘externalities’ or ‘external effects’. We can go about addressing these negative externalities in different ways: i.) by asking engineers to ensure that new solutions, innovations take them into account, driving them towards “vision zero” (zero deaths, zero emissions, zero paper); ii.) by better allocation of these costs in the medium term. This second topic is at the center of today’s conference.

  1. Principles for internalisation of external costs

On the basis of the ‘user pays’ and the ‘polluter pays’ principles, these external costs should be internalised, i.e. integrated in the price of transport.

In other words, this is about setting the right prices, it’s about influencing the behaviour of users so that they take into account the harmful effects of their transport-related decisions. It is also about creating a level playing field among the different modes of transport in terms of taxes and charges.

To put this in simple terms – the price for a transport service should cover:

  1. Most obviously, the internal costs of the transport provider: wages, taxes, input costs of all types.
  2. Over time, the price should also cover – more systematically than today – the economic cost of externalities, that is the indirect cost to others and society created by the use of a means of transport.
  3. And third, infrastructure costs should be covered to some extent – unless there are overriding policy reasons for society to (co-)finance certain infrastructures.
  1. Comprehensive study launched by the Commission

In order to make the right policy choices in this area, we need reliable and comprehensive data.

The study’s scope is much broader and also more detailed than any work previously done in this area: it covers all transport modes and looks at infrastructure costs as well as external costs. And importantly, it compares costs with relevant taxes and charges. The study covers all 28 EU Member States and certain third countries.

The project has been and continues to be a huge endeavour, and I would like to thank all of those involved. It involves complex scientific methodologies and the collection of data that is not readily available. I am proud to present today for the first time the summary of results, while full-scale detailed results will follow in Q2 2019.

  1. Key results of the study

Allow me to show you just two slides, showing preliminary results which I find impressive and thought-provoking.

External costs of transportExternal costs of transport

Overall external transport costs are estimated at around EUR 1,000 billion per year, almost 7% of EU GDP. I was stunned the first time that I saw these figures.

Many of you may have noticed that the figures are significantly higher for most categories than in previous estimates. This is because methods for measuring external costs have advanced and the simple fact is that real-life emissions have gone up.

These figures cover external costs related to accidents, environment (meaning air pollution, climate change, energy production such as well-to-tank emissions, noise, habitat damage) and, for road, congestion. Congestion alone has a total cost of more than €250 billion.

You can see that environmental costs represent almost half of all external costs.

In absolute terms, road is responsible for more than three quarters of transport external costs. Road transport has a high share of road transport activity is and has the highest average external costs of all modes.

Who is paying for transport external costs ?Who is paying for transport external costs ?

Looking more in detail, we can see significant differences between modes. In maritime and aviation transport, environmental costs represent the lion’s share. In road transport, environmental costs and accidents are at similar levels, while infrastructure costs are also substantial. In rail transport, infrastructure costs represent by far the greatest share of costs.

Comparing infrastructure and external costs with taxes and charges, we can see that users and polluters do not pay for the total costs – external and infrastructure – for which they are responsible. This is true for all transport modes.

Road users pay for a bigger share of their total costs than rail users, but rail users pay for a bigger share of their external costs. The price paid by those travelling by plane covers roughly the infrastructure costs, but only a small share of the environmental costs. Waterborne transport users pay the smallest share of their total costs compared to users of other modes.

These costs are real even if they are not priced by the markets. And the question is: if the user and polluter are not paying, who does? Well, we all do, all of society, regardless of whether we want to or not. That means that, for the time being, we have a ‘society and environment pays’ principle in place rather than ‘user pays’ or ‘polluter pays’.That, for me, is the single most important take-away from the study.

  1. Way forward and conclusion

So for policy makers and key stakeholders the question is: where do we go from there? To what extent should we internalise external costs, and in which modes? What will be the effect of our policy choices in 5-10-20 years from now ? Is there a difference to be made between infrastructure and other costs? How do we deal with social challenges? Because, let’s not forget, further internalisation means higher taxes and charges, and potentially new ones. We are currently seeing in France how sensitive this is!

We might decide that a portion of costs be absorbed by the society for the sake of overall social and economic development or not, but let’s make sure that’s not at the expense of human life. Regardless of the decision, the future model must be transparent, comparable and fair.

This conference is therefore only the beginning of a very important journey. Please come on board, engage, discuss with stakeholders from all transport modes and transport users, and talk about the concrete effects and political dimension of the user pays and polluter pays principles.

On this note, I’ll hand over to the experts!