The Internalization of External Effects in Swedish Transport Policy - A Comparison Between Road and Rail Traffic

University dissertation from The International Institute for Industrial Environmental Economics, P.O. Box 196, S-221 00 Lund, Sweden

Abstract: Transport is a key factor for economic growth. It has enabled both the economic scale of production and an increase in competition. No one can question this role of transportation. There is, however, a back-side to the coin: the environmental challenge. Present trends show that transportation is not compatible with sustainable development. The need to internalise the external effects from trans-portation has been well documented during the last decade, i.e. the traditional ‘command and control’ approach should be supplemented, where appropriate, by economic and fiscal measures. This is the philosophy of Swedish transport policy since 1988, which states that traffic user-charges for road- and rail traffic should include explicit charges for the external effects of traffic accidents, air pollution, climate change, and noise. The total social costs for road- and rail transportation, in the form of traffic accidents, air pollution, and noise, amounted to 4.2% of GNP in 1995. The external costs for 1995 amount to 8.9 billion SEK for road traffic and 0.3 billion SEK for rail traffic. The total transportation for road traffic is, however, higher than for the railway. Accordingly, for traffic in its entirety the external effects in relation to the traffic work are nearly 6 times higher for road traffic than for railway traffic. The thesis analyses existing taxes and user-charges in order to internalize the external effects in transportation. One of the conclusions is that diesel-driven road vehicles pay considerably less of their socio-economic costs in comparison to petrol-driven vehicles. Also, the difference between the external costs for different diesel vehicles is much too great for one to be able to apply a uniform fuel charge. Only a user-charge system based on variable vehicle-related charges (such as the earlier kilometer tax) can attain an appropriate internalization of the external effects. In general, the conclusion is that fuel taxes are too blunt as steering instruments. The optimal fuel taxes and train-kilometer taxes, etc. vary with a factor of up to ten and more between different vehicles and modes of traffic, so that they correspond to the external costs with a low degree of preciseness. Even if sufficient knowledge exists about the costs and evaluations of external effects in transportation, there is an inertia in the process of implementing necessary measures to cope with the external effects of transportation. It is difficult to gain broad acceptance about the necessity for increasing fuel taxes, for example. In order to overcome the barriers and roadblocks impeding the pursuit of sustainable transportation, it is necessary to consider the following three claims on externality charges: they must be explicit, which means that current petrol taxes must be substituted for traffic accident charges, air pollution charges, etc; they must be distinguished from taxes, which implies, for example, that a reduction of speed limits is coupled to a reduction of petrol price through a reduced traffic accident charge; they must be generally adopted, which means that the charges are not only implemented for externalities in transportation but applied to all other sectors.

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