ITF REPORT ON DECARBONISATION AND THE PRICING OF ROAD TRANSPORT
On 23 June, the International Transport Forum published a study on the need for reforming vehicle and road use taxes due to the shift to electric vehicles (EVs) and improved fuel efficiency of internal combustion engine (ICE) vehicles, which will reduce revenues from fuel taxes. The study suggests potential tax and charge packages that can generate revenue efficiently and maintain incentives for a sustainable transport system.
The report emphasises the economic efficiency benefits of well-designed taxation reforms. It recommends using fixed charges or general taxation to cover fixed costs of the road system, while user charges are the most efficient means to recover variable costs of road use. Not taxing EVs could lead to increased congestion and an equity issue, as EV owners would contribute little or nothing to road infrastructure costs. The report highlights examples of jurisdictions already reforming vehicle and road use taxation, such as registration surcharges for EVs and undifferentiated distance-based charges. It also suggests that distance-based charges differentiated by time and place can provide further efficiency and equity gains but pose technical and design challenges.
Furthermore, the report advocates for reforming tax expenditures aimed at promoting EV adoption to better align with policy goals. It recommends maintaining fuel taxes for fossil-fuel-powered vehicles, supplementing them with undifferentiated distance-based charges, considering opt-in arrangements for EVs, introducing congestion charges, and earmarking congestion charging revenues for improving public transport and active mobility. Lastly, the report emphasises the importance of setting the level of road-user charges to meet sustainable transport objectives and making differentiated distance-based charges a policy priority, particularly in the freight transport sector. It suggests redirecting incentives towards supporting the transition to low-carbon vehicles and ensuring adequate charging infrastructure.
The ITF will organise a 30-minute online presentation and Q&A, with the author Rex Deighton-Smith, on 12 July, to which registration is open.
Source: ITF