Reducing Carbon emissions through transport taxation, GFC Briefing Paper 6

Ekins, Paul and Potter, Stephen (2010). Reducing Carbon emissions through transport taxation, GFC Briefing Paper 6. Green Fiscal Commission, London, UK.



Road transport and aviation are, or are becoming, major sources of carbon emissions which will need to be reduced if the UK’s carbon dioxide (CO2) reduction targets are to be met. However, since 1980 the real costs of motoring have fallen while those of other transport modes have risen, and rising incomes have also increased transport demand, offsetting efficiency increases. Increased road transport taxation, which could be introduced as part of a green fiscal reform, will be essential if demand is to be managed and carbon emissions from road transport reduced. Taxes on vehicle purchase, ownership and use have different effects, and can be used to pursue different policy goals. For example, taxes on purchase and ownership can incentivise manufacturers to develop low carbon vehicles and people to buy them. Tax measures on vehicle use are needed to reduce congestion and overall energy use. This briefing discusses experience with road transport and aviation taxes in the UK and other European countries, and considers how they might develop to take account of increasingly stringent CO2 reduction targets and other issues such as the increasing diversity of road fuels, and the need to maintain government income. In particular, any shift to electric vehicles may require a parallel shift to road user charging if revenues from transport taxes, and incentives to reduce the damaging effects of road transport apart from emissions, are to be maintained. Each tax introduced will affect some people more than others. Increasing fuel duty is progressive overall because most low-income households do not have a car, but there are concerns about the impact on low income motorists, particularly in rural areas, which can be at least partially addressed if the revenues are recycled in a progressive manner. Increasing taxation on air travel is even more progressive because most leisure flying is by the wealthiest 20 per cent of the population and those on low incomes fly very little.

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