Road fuel taxes in Europe: Do they internalize road transport externalities?

Abstract

All countries in Europe have road fuel taxes and these account for roughly half of the net fuel price. We compare current road fuel taxes and corrective taxes, estimated on the basis of negative externalities from road transport for 22 European countries, taking into account the effect of fuel taxation on fuel efficiency. We focus on cars running on diesel or petrol and commercial vehicles running on diesel. If fuel taxes were intended to internalize all road transport externalities, then a number of countries could be considered to be on the right path already in what respects petrol taxation. Diesel, on the other hand, seems to be under-taxed in all 22 countries. Petrol tax increases would be in order in some countries and diesel tax increases would be in order in all 22 countries, at least as a bridge until fine-tuned policies, such as widespread peak congestion pricing or pay-as-you-drive insurance can be put in place.