■ Practicality – both in terms of political acceptability and technical feasibility, taking into account local conditions and priorities; and
■ Measurability and transparency – to ensure that the effects of the new funding arrangements on carbon emissions can be monitored and evaluated against various criteria including cost effectiveness.
Pricing practices and their reform (energy costs, taxation, subsidies) The market for transport is currently distorted in many ways. Firstly, the various impacts of motorised transport (see Section 2) are in most cases not accounted for in transport costs. Secondly, roads, fuels and sometimes vehicles are subsidised in many countries. These subsidies can be significant, in the European Union they are estimated to amount to 4 per cent of GDP (however, total taxes related to transport are about the same size). This results in unsustainable transport patterns and is a major barrier to the introduction of green transport models. On the other hand, studies show that there is an economic case for subsidising mass transit systems. For example, a study by Parry and Small (2007) shows subsidies for public transport are warranted as they support a reduction of urban traffic congestion and various scale economies that can be exploited (e.g. less time wasted waiting at stops when trains and buses run more frequently).
To escape this deadlock, economic instruments such as charges and taxes need to be applied, which can be designed to reflect at least some of the external costs onto the users. As regards transport taxes, Hayashi and Kato
(2000) point out that such instruments can be applied at three different levels, namely car purchase, car ownership and car use (e.g. fuel/mileage tax, road user charging and parking charges). The distinction between car ownership and use is important. Many developed countries, especially in Europe, combine high levels of car ownership with limited vehicle use. For example, the city of Vienna has one of the highest car ownership rates among European cities, while the use of public transport is also among the highest. Taxing car use rather than ownership, together with providing high quality public and non-motorised transport alternatives, seem to be able to limit car use in many European cities.
Changes in pricing are essential in promoting green transport. Revenues from a full-cost-priced transport system39
can be used to invest in green transport. Such
changes do not necessarily have to result in increased tax burden; reforming existing tax structures can effectively reduce congestion and reduce emissions. London’s Congestion Charge scheme, for example, directs part of its revenue towards improving the quality of the city’s bus services (see Box 12). Pricing private modes of transport correctly will also ensure a level playing field for public transport.
The relationship between levels of trade and environmental sustainability is complex and their impacts should be assessed from a holistic perspective. In some cases, importing goods from other countries may actually
39. Especially in developing countries where coverage of all transport costs is difficult due to existing structures, one may begin by initially pricing for the variable (operational and maintenance costs), and/or subsidising certain elements of transport from other transport revenues in the form of cross- subsidies, for example, using fuel tax revenue to cover rail transport infrastructure.
The implementation of policies and shifts in financing priorities will inevitably lead to some groups in society to be worse off, at least in the short term. The elimination of fuel subsidies may impact disproportionately on poorer households, with little access to alternative sources of energy. UNEP (2008b) argues that targeted subsidies towards the lower income groups may offset such impacts. Lessons can be learnt from the recent reduction of fuel subsidies in Indonesia, which has been coupled with cash compensations and increases in other types of social benefits for vulnerable groups, such as staple food prices and education (Bank of Indonesia 2008).
Box 12: Congestion charging
Congestion charging, a fee charged to motorist to enter a zone prone to heavy congestion, may be an important element of more comprehensive energy price rationalisation in the longer term, particularly in developed countries. Congestion charging in London is thought to have reduced the vehicle volumes by around 15 per cent in 2003-2004 (Green Fiscal Commission 2009). The Eddington Review (2006), for example, emphasised the importance of controlling spiralling future congestion costs in the UK. This may facilitate a restructuring – and in some cases perhaps lowering – of fuel excises to focus them on the objectives they are best served to address, such as climate change mitigation.