Internalizing external cost of passenger vehicles in Flanders

Abstract

In this paper, the total external impact of seventy vehicle segments is monetized and benchmarked against the vehicle taxation in Flanders, with a distinction between steering and non-steering measures, to determine the internalization rate. Climate change, environmental pollution, noise pollution, congestion and the road wear and tear are discussed in detail and, where relevant, vehicles are segmented according to fuel type, engine capacity and Euronorm. As the impact of external effects is subject to region specific conditions such as population density and traffic intensity, a separate analysis of urban, rural and highway usage is carried out. Current traffic taxation, on the other hand, is predominantly fixed. Only fuel taxation is related to vehicle miles traveled. In general, steering traffic taxes tend to over-internalize the external effects. Total steering traffic tax revenue amounts to 3.7 billion euro, while external effects are estimated at 3 billion euro. However, the internalization rate is not always straightforward and differs significantly between vehicle types, since current traffic taxation is not time and place dependent. Because traffic taxation only marginally differs between areas (urban, rural, highway) in consequence of fuel consumption, urban traffic tends to be rather under-internalized compared to rural traffic. Consequently, we determined the optimal taxation rate per vehicle segment in each area from an external cost perspective. Furthermore, some recommendations to improve current traffic taxation are formulated.