This document discusses options for incorporating external costs of transport into pricing in the European Union. It explores ways to make transport pricing more efficient and fair by internalizing costs related to infrastructure use, congestion, accidents, air pollution, and noise. The goal is to launch a broad discussion on using market-based instruments and regulations to reduce transport problems and reflect the full costs of transport activities on society and the environment.

1. EUROPEAN COMMISSION
DIRECTORATE-GENERAL FOR TRANSPORT-DG VII
COM(95)691
TOWARDS FAIR AND EFFICIENT PRICING
IN TRANSPORT
POLICY OPTIONS FOR INTERNALISING THE
EXTERNAL COSTS OF TRANSPORT IN
THE EUROPEAN UNION

2. COMMUNICATION BY MR. NEIL KINNOCK
TO THE COMMISSION
Transport policy is at the cross-roads. Whilst the fundamental importance of adequate
transport facilities to modern societies and economies is generally recognised, concern about
increasing congestion, environmental consequences and accidents is mounting.
This insight has led to a review of transport policies in many Member States. Calls for debate
at the European level are intensifying and the Cannes Summit has asked that measures should
be taken to review policies to establish fairer competition between modes of transport.
As part of a comprehensive transport strategy, this Green Paper explores ways of making
transport pricing systems fairer and more efficient by giving users and manufacturers
incentives to adjust their transport behaviour. Various possible instruments are identified and
discussed.
The Green Paper argues that fair and efficient pricing should constitute an essential
component of a transport policy strategy and can contribute significantly to reducing some of
the main transport problems (notably congestion, accidents and environmental problems). Its
objective is to launch a broad discussion on this issue.
It is proposed that the Commission :-
• approves the attached Green Paper;
• agrees to its communication to the European Parliament, the Council of
Ministers, the Economic and Social Committee and to the Committee of the
Regions;
• agrees to its publication as a supplement to the EU bulletin.

3. Table of Contents
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
1. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. THE EXTERNALITIES OF TRANSPORT . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 What are transport externalities? . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Why do transport externalities matter? . . . . . . . . . . . . . . . . . . . . . . . . 5
2.3 How can transport externalities be reduced? . . . . . . . . . . . . . . . . . . . . 5
2.4 How can externalities be measured? . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5 What are the main transport externalities? . . . . . . . . . . . . . . . . . . . . . 7
3 INSTRUMENTS TO CURB TRANSPORT EXTERNALITIES . . . . . . . . . . 8
3.1 Criteria for selecting instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Market based instruments and regulation . . . . . . . . . . . . . . . . . . . . . . 8
4 INFRASTRUCTURE COSTS AND CONGESTION . . . . . . . . . . . . . . . . . 10
4.1 Why do infrastructure and congestion costs matter? . . . . . . . . . . . . . . . 10
4.2 Measuring and charging for infrastructure costs . . . . . . . . . . . . . . . . . 10
4.2.1 What are infrastructure costs? . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2.2 How should we charge for infrastructure costs? . . . . . . . . . . . . 11
4.3 Congestion costs : nature, size and charging . . . . . . . . . . . . . . . . . . . . 12
4.4 Congestion charging, efficient infrastructure policies and recovering
infrastructure costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.5 How are we charging for infrastructure and congestion costs now? . . . . 16
4.5.1 Charging systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.5.2 Infrastructure costs recovery : road, rail and inland waterways . . 17
4.6 Charging for road infrastructure and congestion costs : policy conclusions 18

4. 5 TRANSPORT ACCIDENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.2 Regulatory policies have brought down accidents considerably . . . . . . . 21
5.3 The cost of road accidents to the Union . . . . . . . . . . . . . . . . . . . . . . . 22
5.4 Possible economic instruments to bring costs closer to users . . . . . . . . . 23
5.5 Road accident insurances in the Union . . . . . . . . . . . . . . . . . . . . . . . 23
5.6 Towards fair and efficient pricing for accidents . . . . . . . . . . . . . . . . . 24
5.7 Policy conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6. AIR POLLUTION FROM TRANSPORT . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.1 Emissions from transport : levels and trends . . . . . . . . . . . . . . . . . . . . 26
6.2 The costs of air pollution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.3 The current policy approach : scope and limits of regulation . . . . . . . . . 27
6.3.1 The current policy approach . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.3.2 Limits of the current policy approach : Differentiated causes and effects
of air pollution across Europe . . . . . . . . . . . . . . . . . . . . . . . . 28
6.4 Reducing emissions from transport : leverage points . . . . . . . . . . . . . . 29
6.5 Economic instruments as a complement to the existing regulatory approach
29
6.6 Policy conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7. NOISE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
7.2 Existing legislation has only been a mixed success . . . . . . . . . . . . . . . 33
7.3 The costs of the transport noise problem . . . . . . . . . . . . . . . . . . . . . . 34
7.4 Economic instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.5 Policy conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35