Diesel Petrol Weighted average

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1 Indicator fact sheet TERM EU Fuel s and taxes The inflation-corrected EU average of road fuel in January 2002 was about 5 10 % lower than in the first half of the 1980s. However, some incentives have been given to reduce total fuel consumption and CO 2 emissions, because the share of taxes in the fuel have increased. The differential between petrol and diesel has become smaller. Petrol became about % cheaper, diesel about 10 % more expensive, primarily due to higher diesel taxes. In rail transport, fuel taxes are much lower; inland and seaborne shipping and aviation pay no fuel tax at all. Figure 1: Index of real average EU-15 s including excise taxes and VAT of (a) diesel (b) petrol (weighted average leaded/unleaded) and (c) weighted average of petrol and diesel, over the period (January 1986 = 100) Diesel Petrol Weighted average NB: Prices are those applicable in the middle of January, April, July and October each year. Results and assessment Policy relevance A crucial precondition for reaching sustainable transport is the principle to let users pay for the real costs of transport. Fuel taxes can contribute to reaching this principle, in particular because they provide incentives to reduce fuel consumption and hence CO 2 emissions. However, they are certainly not the only way towards fair pricing (see TERM EU Internalisation of external costs, for more fair pricing tools ). The cost of fuel is an important factor in fuel demand and, in the absence of such instruments (e.g. kilometre charging), also in transport demand (see Box 3). Additionally, fuel taxation can promote a shift towards cleaner fuels such as unleaded petrol and low-sulphur diesel, LPG, methane and non-fossil energy sources. The White Paper

2 European transport policy for 2010: time to decide (European Commission, 2001) aims to harmonise and increase excise duty on commercially used diesel. Ministers gave their political agreement to the proposed Directive on the taxation of energy products, (COM)97 30, (European Commission, 1997) in March Policy context Fuel taxes are the subject of a number of EU initiatives. The first is the White Paper European transport policy for 2010: time to decide (European Commission, 2001). It proposes to harmonise excise duty on diesel for commercial uses which in practice would be higher than the current average tax on diesel. The aim of this harmonisation is the better internalisation of external costs (as from the internalisation point of view there is no reason to tax diesel at a lower rate than petrol), to improve the functioning of the internal market, and to establish more stable s in road transport. The second is a proposal for a Directive on the taxation of energy products, COM(97) 30, (European Commission, 1997), which contains inter alia new EU minimum levels for road fuel taxes. The Economics and Finance ministers have agreed the proposal, which dates from March 1997, in March The minimum rate for unleaded petrol increases from 287 per 1000 litres to 359 per 1000 litres. For diesel fuel, the minimum excise duty increases from 245 per 1000 litres to 302 per 1000 litres. Definitive adoption of this proposal must await an opinion of the European Parliament. but has made only little progress since then. At the Barcelona Summit in March 2002, the European leaders asked the Council to reach an agreement on the directive by December 2002, and thereby take into account the needs of the road haulage industry, in parallel with an agreement on the opening of the energy markets. Other initiatives are the European Commission s Green Paper on the security of energy supply (European Commission, 2000), and the European climate change programme (ECCP), started in March 2000, which aims at assessing and preparing the necessary steps to fulfil the EU s commitments in the Kyoto Protocol. Environmental context Fossil fuel consumption is directly linked with CO 2 (the primary greenhouse gas). The links with other pollutant emissions (e.g. NOx, HC, NMVOC, etc.) and noise also depend on vehicle technology (Euro and noise classes) and trip conditions, as well as the type of fuel. Therefore fuel taxes, originally instruments of fiscal policy, are also seen as instruments to reduce emissions from transport, in particular CO 2. First, fuel taxes stimulate reductions of fuel consumption, e.g. by stimulating fuel efficiency within all modes. Secondly, they can stimulate a shift towards cleaner fuels, for example from leaded towards unleaded petrol, or to low-sulphur fuels (see the fact sheet Internalisation of external costs ). Assessment There are currently enormous differences in fuel taxation between Member States. Taxes on unleaded petrol range from EUR 296 (Greece) to EUR 744 (UK) per litres, taxes on diesel from around EUR 250 (Greece, Portugal, Ireland, Luxembourg) to EUR 744 (UK) per litres (see Box 2). This is not in line with the proposed objective to harmonise diesel taxes for commercial purposes Despite the fact that nominal fuel s, and certainly nominal fuel taxes, have risen in the past two decades, and despite a rise of the of diesel fuel over this period, the inflation-corrected EU average of road fuel in January 2002 was lower than in the first half of the 1980s. This is due to the following reasons. Pre-tax fuel s, in real terms, are substantially lower than 20 years ago (although higher than 15 years ago). Pre-tax petrol s are about 50 % lower, pre-tax diesel s about 40 % lower. There has been a shift to cheaper fuels: the fuel mix has moved from the relatively expensive leaded petrol to the cheaper unleaded petrol and diesel fuel. In 1980, leaded fuel accounted for about 70 % and diesel for 30 % of fuel sales. In 2000, the share of the

3 cheapest fuel, diesel, was 58 %, unleaded petrol about 37 % and leaded petrol about 5 % (see TERM EU Uptake of cleaner fuels). Excise duties have on average and corrected for inflation risen by about one third in the case of petrol, and more than doubled in the case of diesel over these 22 years. VAT has remained quite stable; VAT decreased a little in the case of petrol and increased in case of diesel. The tax share in fuel s has risen from % in the early 1980s to % now. External costs generated by 1 litre of diesel fuel are on average higher than those from 1 litre of petrol (see e.g. European Commission, 1999; CE, 1999 and the fact sheet TERM EU External costs of transport). Correspondingly, in all Member States (except for the UK) the ratio between petrol and diesel excise duties appears unbalanced in view of the estimated external costs accruing to the respective fuels (see Box 1). On the other hand, diesel particulate emissions responsible for a substantial part of external costs from diesel-fuelled vehicles are likely to decrease rapidly due to the Euro III and Euro IV emission standards for road vehicles and the fuel sulphur standards. References CE, 1999, Efficient s for transport; estimating the social costs of vehicle use, Delft, the Netherlands. Delsalle, J., 2001, The effects of fuel changes on the transport sector and its emissions Simulations with Tremove, European Commission, Economic and Financial Affairs DG, Brussels, Belgium. European Commission, 1997, Proposal for a directive on the taxation of energy products, COM(97) 30, Brussels, Belgium. European Commission, 1999, External costs of transport, ExternE Externalities of Energy, Vol. 9 Fuel cycles for emerging and end-use technologies, European Commission, Research and Technology DG, Transport and Waste, Brussels, Belgium. European Commission, 2000, Towards a European strategy for the security of energy supply, COM(2000) 769 final, Green Paper, Brussels, Belgium. European Commission, 2001, European transport policy for 2010: time to decide, COM(2001) 370, White Paper, Brussels ( Eurostat, different volumes, Eurostat s Oil Bulletin, Volumes , ( Goodwin, P. B., 1992, A review of new demand elasticities with special reference to short and long run effects of changes, Journal of Transport Economics and Policy, May 1992, pp Hagler Bailly, 1999, Potential for fuel taxes to reduce greenhouse gas emissions in transportation, Fuel tax policies report, prepared for the Department of Public Works and Government Services, Science Directorate, Science, Informatics and Professional Services Sector, Canada, June Johansson, O. and Schipper, L., 1997, Measuring the long-run fuel demand for cars, Journal of Transport Economics and Policy, Vol. 31, No 3, p Bibliography Environment DG, The costs and benefits of lowering the sulphur content of petrol and diesel to less than 10 ppm, September WHO UNECE, 2001, Overview of instruments relevant to transport, environment and health and recommendations for further steps Synthesis report, World Health Organisation and United Nations Economic Committee for Europe, Geneva, Switzerland

4 Data Table 1: Unit: Real fuel s in index numbers 1986 = 100, EU weighted average Euro 95 unleaded Diesel Fuel total Year Date Sales Cost Tax share Sales Cost Tax share Sales Cost Tax share % % % % % % % % % % % % % % % % % % Table 2: Petrol and diesel s per EU Member State, January 2002 Unit: EUR per litres Euro 95 unleaded Diesel Sales Cost Excise duty VAT Sales Cost Excise duty VAT Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Spain Sweden United Kingdom Spreadsheet file: TERM EU Fuel s and taxes.xls Metadata Technical information 1. Data source: Eurostat, different volumes. 2. Description of data: Original file name: TERM EU Fuel s and taxes.xls Original measure units: ECU, market s (until 1998), EUR, market s (from 1999 onwards). Conversion factors applied: Corrected for inflation rate

5 3. Geographical coverage: EU-15 countries. 4. Temporal coverage: January 1980 to January Methodology and frequency of data collection: Four times a year. Overall, EU fuel s are an average of individual countries s weighted by their consumption. 6. Methodology of data manipulation: Nominal s corrected for inflation rate. Quality information 7. Strengths and weaknesses (at data level): All data are from Eurostat and therefore very comparable. 8. Reliability, accuracy, robustness, uncertainty (at data level): Data are from Eurostat and very reliable. 9. Overall scoring (give 1 to 3 points: 1 = no major problem, 3 = major reservations): 1 Relevancy: 1 Accuracy: 1 Comparability over time: 1 Comparability over space: 1 Future work Include development of rail, shipping and aviation fuels. Box 1: Trends in breakdown of fuel s The share of taxes in the of fuel has risen in the last two decades. The share of taxes in diesel has risen more rapidly than the share of taxes in petrol. The petrol still consists of a larger share of taxes than diesel. Given the fact that diesel s are lower than petrol s (see Box 2), this means that the absolute level of taxes is lower for diesel than for petrol. Figure 2: Average EU-15 share of VAT and excise duty, % 90 % 80 % Petrol Diesel Weighted average 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0 %

6 Box 2: Diesel and petrol s per EU Member State Differences in diesel and petrol s and taxes between countries differ substantially, as the graphs below show. Diesel s in the UK are much higher than in the other Member States. In fact, the UK is the only Member State with a higher diesel than petrol. Figure 3: Unleaded petrol per EU Member State, January 2002 (EUR per litres) United Kingdom Netherlands Denmark Finland Italy Germany France Sweden Belgium Portugal Austria Ireland Spain Luxemburg Greece Figure 4: cost excise duty VAT Diesel per EU Member State, January 2002 (EUR per litres) cost excise duty VAT United Kingdom Italy Germany Sweden Denmark Finland Netherlands France Ireland Belgium Austria Spain Portugal Luxemburg Greece

7 Box 3: Effect of fuel on fuel and transport demand Fuel s and fuel demand A 10 % increase in fuel leads, in the long run, to a fall in fuel demand of 4 10 %, according to the international literature (overviews in Goodwin, 1992; Johansson and Schipper, 1997; Hagler Bailly, 1999). This implies that a 10 % increase of the fuel will, in the long run, also reduce CO 2 emissions by 4 10 %, compared to the situation where s do not change. This reduction is due mainly to the increased attractiveness of fuel-efficient vehicles. Fuel s and transport demand The effect of a 10 % increase in fuel on transport demand is lower than the effect on fuel demand. This is because fuel costs are only one amongst many transport cost factors. Moreover, the attractiveness of fuel-efficient vehicles increases, which reduces fuel demand, but not transport demand. An internal study from Economic and Financial Affairs DG (Delsalle, 2001) has suggested, on the base of simulations with the Tremove model, that an increase of 10 % in the at the pump would induce a drop of road transport demand of only 0.6 %