Transport Policy 29 (2013) 303–314

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Transport Policy
journal homepage: www.elsevier.com/locate/tranpol

Internalisation of external costs of transport–A target driven approach

with a focus on climate change
Antonio Musso a,n, Werner Rothengatter b
a
Sapienza Universita di Roma, Italy
b
Karlsruhe Institute of Technology, Germany

a r t i c l e i n f o abstract

Available online 25 September 2012
Keywords:
Internalisation of external costs of
transport
Neo-classical approach versus approach of
ecological economics
Deriving shadow prices for environmental
resources from optimisation
Application for noise and climate change
The traditional answer of economists to the problem of internalising external costs of transport is
‘‘setting prices right’’. In a neoclassical economic world this would correspond to setting prices according
to marginal social costs. The neoclassical world is far from reality, however, and therefore workable
instruments have to be developed with respect to technology, transaction costs and social acceptance.
From this follows that the appropriate lever point for public intervention has to be identified for every
type of externality of transport. This results in a strategy bundle for which every instrument should be
optimised according to economic rules. While the principle appears simple its implementation leads to
rather complex follow-up problems. Some instruments have only partial effects and should be
complemented by further instruments (e.g.: emission trading in the case of climate change). Other
instruments have various side impacts and influence some external effects in the desired direction but
others in a counterproductive way (e.g.: emission standards for NOx and PM and their impacts on CO2).
In this paper we give a brief outline of the theoretical foundation of the problem, which can be
formulated as a multi-objective programming problem. Based on this we suggest a heuristic solution,
which translates essential objectives into constraints in form of safe minimum requirements for
objective achievement. The problem reduces then to find least cost solutions for the design of
instruments, which are employed to achieve the safe minimum requirements. In this approach the
‘‘right prices’’ for external effects come out as by-products of the optimal solution (shadow prices) and
can be compared with the results of direct marginal external cost estimations. We give examples for the
quantification of external costs of noise and of climate change, based on this approach.
& 2012 Elsevier Ltd. All rights reserved.

1. Introduction instruments only like carbon taxes or emission trading. Regula-

Transportation leads to external costs, of which the climate
change impacts are presently considered the most serious ones.
Traditional economic theory offers the Pigou-concept of setting
prices at social marginal costs (Pigou, 1924). As Coase (1960) has
shown, the very rigid assumptions of the Pigou-concept have to
be thought over when it comes to practical application. The Coase
postulation of carrying out a benefit-cost analysis for pricing
strategies, which are foreseen for the internalisation of external
costs, implies that the ‘‘optimal’’ internalisation strategies have to
be assessed with respect to transaction costs and other side
impacts. From this follows that extended strategies have to be
developed for designing and testing the appropriate bundle of
tools for internalising external costs of transport. In particular the
climate issue cannot be tackled by focusing on economic
n
Corresponding author. Tel./fax.: þ390644585146.
E-mail address: Antonio.musso@uniroma1.it (A. Musso).
tion, infrastructure policy and enhancing technical progress
towards a low-carbon economy have to be combined with
economic incentives and tailored according to country conditions
to achieve the targets formulated by the IPCC (Intergovernmental
Panel on Climate Change-2007).
This paper is organised as follows: Section 2 will summarise the
theoretical foundations of the traditional neoclassical and of the
alternative target driven evaluation concepts. The target driven
approach is based on an explicit formulation of ‘‘safe minimum
values’’ for climate protection, which is transferred to the set of
constraints of an optimisation programme. The value of CO2, then,
comes out as a side result of optimisation, i.e. the shadow price for
the climate constraint. Practical application of the concept implies to
develop a heuristic procedure, which is presented in Section 3.
Section 4 presents the application of the approach to the internalisa-
tion of external costs of noise and of climate change and Section 5 will
show that single piece meals of the concept are applied in European
climate policy in transport, while a consistent and balanced policy
approach is still missing. Section 6 gives the conclusions.

0967-070X/$ - see front matter & 2012 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.tranpol.2012.07.001
304 A. Musso, W. Rothengatter / Transport Policy 29 (2013) 303–314
2. Neoclassical versus target driven approach
2.1. Neoclassical approach
Neoclassical theory is the mainstream of economic welfare
theory although it is based on a set of not very realistic assump-
tions as for instance:
 Convex preferences (‘‘law of diminishing marginal utility’’)
 Convex technology (‘‘increasing marginal cost of production’’)
 Rational agents (‘‘homo oeconomicus’’)
 Perfect information (incl. ‘‘rational expectations’’).
Welfare can be formally represented by one function (‘‘scalar
type welfare function’’), or its dual formulation, the (scalar type)
social cost function. The general economic objective is then either
to maximise social welfare or to minimise social costs. The part of
social costs, which is observed and influenced by the producer, is
defined internal while the other part, which is processed
unplanned and outside the market mechanism is defined exter-
nal. Social cost minimisation implies to solve the following
problem1 :
minC ðX Þ ¼ C V ðX Þ þ C I ðX Þ þC E ðX Þ ð2:1Þ
s.t.
AnX rB
X is the vector of traffic activity patterns; C is the total social
costs; CV is the individual costs of vehicle operation; CI is the
infrastructure costs; CE is the external costs (CE ¼CE1 þyþCEn);
A is the matrix of coefficients; B is the vector of constraints.
In this formulation all social objectives are amalgamated in the
objective function C, while the set of constraints includes techni-
cal conditions, only (e.g.: flow conservation, traffic distribution,
capacity constraints, etc.). CV is the part of social costs, which can
be observed and controlled by the user, i.e. it is internal. CI is the
infrastructure costs, which is partly internalised through infra-
structure charges or use-dependent taxation (fuel taxes). CE is the
external cost of transport which consists of several elements
(e.g. noise, air pollution, climate impacts), which are assumed to
be additive. It follows immediately from this problem formulation
that the optimal solution implies that the transport activities are
priced at their social marginal social costs.2 Social marginal costs
are the central element of optimal pricing and as such this idea
can be found in many textbooks and policy recommendations (for
instance in the EC White Paper on Fair and Efficient Pricing of
Transport Infrastructure Use, 1998).
2.2. Ecological economics
Ecological economics is a branch of economic theory, which
focuses on a long-term sustainable economic treatment of ecolo-
gical resources. It is not a compact theory like neoclassics, which
integrates micro-, meso- and macro-economic theory under a
common set of assumptions. By contrasting the abstract theore-
tical norms of neoclassics it tries to construct a real world
environment with a focus on the dynamic development of an
economy in harmony with the ecological systems. Outstanding
contributions are due to Baumol et al. (1979), Baumol and Oates
(1988) or Costanza (1991). The programming formulations can be
found already in (Halbritter, 1977 or Hwang and Masud, 1981).
1
This is a most simplified formulation. A full formulation for transport
networks can be found in LeBlanc and Rothengatter (1982).
2
As a consequence, the modal choice and routing decisions follow the
principle of equalising social marginal costs.
When it comes to the types of environmental impacts, a clear
distinction is made between externalities, which generate some
inconvenience and utility losses for the affected parties on the one
hand, and externalities, which cause ‘‘existential’’ risk for human
life and for nature on the other hand (e.g. for rare species,
biodiversity, or climate change), see Hampicke, 1992. While the
first category of externalities can be traded-off against monetary
compensation the second category is not tradable. From this
follows that such externalities cannot simply be integrated into
a social cost function in an additive way.
First conclusion is that the different categories of external
effects have to be treated separately, they cannot simply be
mapped into a scalar type welfare function and then added up
as done in the neoclassical approach. Second conclusion is that
externalities, which represent ‘‘existential’’ risks, cannot be trea-
ted by a continuous functional mapping.
2.3. Programming formulation
It follows from Section 2.2 that formally a multi-objective
programming problem arises. According to the conclusion derived
in Section 2.2 we can separate the set of objectives into two
categories:
(1) Objectives, which can be traded-off and measured/evaluated
(at least after a transformation) using monetary scales.
(2) Objectives, which represent ‘‘existential’’ risks and cannot be
traded-off. Safe minimum values for objective achievements
have to be met to control the ‘‘existential’’ risks.
This separation offers the opportunity to assign the monetised
objective achievements to the objective function and the ‘‘exis-
tential’’ risks to the set of constraints such that two types of
constraints arise: A set of technical constraints and a set of safe
minimum values constraints.
max U ðX Þ ¼ u1 ðX Þ þ u2 ðX Þ þ . . . þ uk ðX Þ ð2:2Þ
s.t.
AnX rB
C nX rD
ui is the monetised achievements for objective i; A, C is the
matrices of coefficients; B is the vector of technical constraints; D
is the vector of safe minimum values.
This means that the safe minimum values are introduced by
exogenous boundaries D, which can be founded by medical,
biological or geological research. This formulation offers an
additional possibility of interpretation, based on the dual pro-
gramme of (2.2)3:
minðBDÞT nY ð2:3Þ
s.t.
ðACÞT nYUP
BD is the aggregate matrices B and D; AC is the aggregate matrices
A and C; Y is the vector of dual variables; UP is the vector of utility
parameters; T is the index for transposed matrix/vector.
In the optimal solution of (2.3) the dual variables indicate the
strength of the associated constraints of the primal programme
(2.2). The optimal value of a dual variable can be interpreted in
economic terms as the shadow price (opportunity cost) of the
constraint, i.e. the increase of the objective function value by
relaxing the associated constraint by one unit. In other words:
3
Assuming that (2.2) is a linear programme.
 A. Musso, W. Rothengatter / Transport Policy 29 (2013) 303–314
Once we know the optimal solution of the programme ((2.2) and
(2.3)) we simultaneously receive information on the optimal
prices for the constrained resources, i.e. of the externalities
associated with ‘‘existential’’ risk.
3. Instruments of internalisation
In the neoclassical marginal social cost approach the optimal
design of instruments is determined simultaneously with the
optimal solution of the problem (2.1). It implies a charging of
traffic activities at a price, which equals the difference between
individual average costs and social marginal costs at the point of
system’s optimum. In practical applications this leads to serious
quantification problems such that in many cases the point of
system’s optimum is not determined and substituted by the
present state of network activities and the non-linear social
marginal cost curve is substituted by a constant marginal cost
value. Although this leads to more or less large deviations from
the theoretical optimum the protagonists of marginal costing
presume that the first-best property still holds even if the
optimum and the magnitude of the approximation step towards
the optimum, effected by ‘‘first-best pricing’’, are not known.
Contrasting the neoclassical approach the multi-objective
approach developed in Section 2 presupposes that the optimum
pattern of transport activities is explicitly derived in a first step.
In a second step the instruments are designed which guide the
transport system towards the optimal solution. If pricing were the
only instrument this may lead to the charges-and-standard
approach of Baumol and Oates (1988), which is presented in the
following sub-section. But it is more realistic to check several
instruments and try to develop an optimal mix of strategies.
3.1. Charges and standard approach
Baumol and Oates, (1971; 1988) recommend to set environ-
mental charges in a way that they equal the marginal cost of
avoidance for the desired target level. Fig. 1 exhibits the simple
principle: The marginal avoidance cost curve is downward slop-
ing with increasing emission level, or in other words, the costs
reducing emissions by one unit increase with lower emission
standards. If a standard or target level has been fixed politically or
by optimisation calculus, then inserting the standard into the
marginal avoidance cost curve will derive the associated charge.
The producers which are producing on the right hand side of En
MAC
Marginal Standard
Avoidance (Target
Costs Value)
Technological
Progress
t Optimal Charge
E* E0 E not treated here because at the end of the day it will be necessary
Fig. 1. Baumol/Oates Pricing. MAC is the marginal avoidance costs; E is the
emission level; E0 is the current emission level; En is the standard (target)
emission level; t: optimal charge (tax).
305
are free of charging, while the producers on the left hand side of
En have to pay the charge. The adjustment dynamics to the charge
will be that the producers develop incentives to reduce emissions
per unit of production such that the marginal avoidance cost
curve shifts downwards. This type of technological progress can
be anticipated in the charging system by lowering the standards
periodically (dynamic standard setting).
3.2. Multiple instruments
In general one cannot expect that a linear and uniform pricing
system as the only instrument is capable to solve the overall
internalisation problem. This would contradict the hypothesis of
multi-objective programming that every objective has to be
treated differently according to its intrinsic characteristics. From
this follows that in principle different instruments have to be
introduced for different types of external effects to optimise the
triggers with respect to cost/effectiveness issues. The following
phenomena may occur:
 Mutual influences of instruments, i.e. an instrument which is
applied to externality i is also influencing externality j.
 Increasing resistance (costs) if the intensity of an instrument is
increased, e.g., for reasons of acceptability or technology.
 Specific instruments might be highly effective for one objec-
tive while being counterproductive to other objectives.
These interdependencies of instruments bring about the pro-
blem that it cannot be optimal to introduce m instruments for m
objectives and trigger them separately for every objective. It
might be the case that more than one instrument should be used
for one objective or that there are ‘‘basic’’ instruments which can
be applied to several objectives and need to be fine tuned by
supplementary instruments. This leads to the problem of defining
an optimal bundle of instruments to achieve the desired patterns
of the transport system.
The formal representation of this problem leads to a program-
ming problem of the following type:
jX
¼1 X
n
min cij mij ð3:1Þ
i¼1j¼1
s.t.
X
n
eij mij Z Rni ; 8i
j¼1
mij is the volume/intensity of instrument j with respect to
objective i; cij is the cost of a unit of instrument j with respect
to objective i; eij is the effectiveness of instrument j with respect
to objective i; Rni is the optimal reduction volume for objective
indicator i (result of (2.3)).
The idea behind (3.1) is to maximise the cost-effectiveness by
composing the best bundle of instruments. This is achieved by
minimising the sum of costs, which are associated with the
employment of instruments to keep the safe minimum targets.
The formulation allows for the use of one instrument for different
objectives and the use of several instruments for one objective.
Non-linearity can in principle be handled, e.g. by formulating a
quadratic objective function in the case of convexity or concave
programming in the other case. If fixed costs would play a major
role then the approach would have to be extended to a mixed
integer programming problem. The specificities for such cases are
to develop a heuristic technique (see Section 3.3).
The costs include the (transaction) costs of the instruments
(e.g.: costs of payment systems) as well as the costs of suppressed
306 A. Musso, W. Rothengatter / Transport Policy 29 (2013) 303–314
or diverted economic activities (e.g.: time delays by using more
environmental friendly transport modes). The effectiveness of an
instrument is measured by the volume of reduction (e.g.: of
emissions) per unit (dose) of instrument. The optimal reduction
values can be derived from taking the differentials between the
current levels and the optimal/safe minimum levels from pro-
gramme (2.2). This corresponds to the Baumol/Oates principle
with the difference that charging is only one out of a number of
different instruments for achieving the desired standards.
3.3. Heuristic approach
In this section we focus on a heuristic solution for problem
(3.1), which is on the optimal design of instruments for inter-
nalising external costs. The basic information, which has to be
generated in the process, is the transport activity pattern. This
presupposes to employ a transport model with demand and
supply side and generate all information on motorisation, traffic
generation, distribution, modal split and assignment. Secondly the
data and functional relationships on costs and effectiveness of
different instruments have to be provided. This presupposes
thirdly a detailed knowledge on the impacts paths for the external
effects, i.e. a detailed impact modelling. This implies that the
optimisation problems presented above cannot be solved exactly
and have to be approximated by simplified heuristic procedures.
The heuristic procedure exhibited in Fig. 2 focuses on keeping
the number of model runs for the transport and impact models
Lexicograpical ordering of
instruments
Safe
Lexicographical ordering of minimum
objectives
Trade-off
Transport Model Impact Models
Trend
Scenarios
1 general effects, low costs
2
. approach. Although the issues of modelling are strategic it is
. important to model the reactions to the instruments in some
. spatial detail because otherwise the impact modelling will not be
k specific effects, high costs
Safe minimum values
achieved
Least cost combination of instruments
Fig. 2. Least Cost Design of instruments.
low, because these are most time consuming. It consists of the
following components:
1. Lexicographical ordering of instruments: The criteria for order-
ing the instruments are costs and generality. Generality
means that the instrument influences several objectives
simultaneously into the desired direction. Costs include
the transaction costs of the internalisation instrument and
the costs of demand adjustment. It is also possible to
include the acceptability of interventions as a criterion,
which might be different in different countries (e.g: speed
limits).
Examples for general and low-cost instruments are:
Better information and guidance
Standards for newly licensed cars and trucks
ISO standards for environmental quality
Examples for general and medium costly instruments are:
Road pricing (all roads, modest price levels)
Taxation
Emission trading
Limitation of car/truck access to city areas
Examples for specific and costly instruments are:
City cordon pricing
Car bans in cities
Truck bans or commodity related freight transport
regulation.
2. Lexicographical ordering of objectives: First the objectives can be
separated in those, which allow for trading-off the objective
achievements, and others, which cannot be traded-off and call
for a control of safe minimum values. The first category
concerns inconveniences and material damage, which can be
compensated for. The second category includes ‘‘existential’’
risk for human health, nature and cultural heritage. The
ordering of ‘‘existential risk’’ objectives can be done on the
base of comparing the trend scenario results with the safe
minimum values. The higher the relative difference is, the
higher the rank of the objective can be set.
Examples for ‘‘existential’’ risk objectives are:
Greenhouse gas emissions and climate change
High concentration of particulate matter, nitrogen
oxide, ozone
High noise levels with serious health risk
Accident fatalities
Disturbance of natural reservation areas, rare species
Disturbance of cultural heritage.
3. Transport modelling: Transport modelling should include all steps
including motorisation, traffic generation, distribution, modal
split and assignment. In freight transport the modelling of
roundtrips, bundling and trans-shipment processes or of the
loading of vehicles are much more important than the assign-
ment of trucks to routes, which is in the focus of the neoclassical
accurate enough. European transport models, which fulfil this
requirement and start from a NUTS 3 desegregation of regions
take several hours (this holds e.g. for the VACLAV model4) or
several days (this holds e.g. for the TRANSTOOLS model used by
4
VACLAV is a passenger transport model developed at IWW (University of
Karlsruhe) which integrates freight matrices generated by a partner institute
(NEA, Rijswijk).
 A. Musso, W. Rothengatter / Transport Policy 29 (2013) 303–314
Table 1
Selected handbook results on external cost of transport. Source; European Commission, 2008
Cost component
hct/vkm
Noise
Interurban, day
Interurban, night
Congestion Interurban, peak
Interurban, off-peak
Climate Change Interurban, petrol
Interurban, diesel
the JRC5). As the computational inputs are in that order of
magnitude it will only be possible to apply such tools for a
limited number of iterations in the computation process.
4. Impact modelling: The transport activity figures are the basic
inputs for impact modelling. This includes generalised costs,
accidents, noise, air pollution, climate change and distur-
bance of nature or cultural heritage. In the case of major
changes it also may be necessary to estimate the impact on
land use. While generalised costs represent internal effects
and congestion and can directly be derived from the transport
model it is necessary to use specific impact models for the
other effects. This means that the whole bundle of tools,
which is usually employed for the assessment of transport
master plans, is also needed here. This seems to be natural
insofar as infrastructure investments (e.g.: to improve the
modal split for public transport) can be a key strategy for
reducing external effects of transport. The development of
concepts for internalising externalities of transport therefore
has to go together with long-term master planning for the
transport system.
5. Scenario runs: First, a trend scenario is constructed. This can
include already general and low cost measures for internalisa-
tion (at the top of the lexicographical order), because it is
unrealistic to expect that nothing will be done towards
externalities in industrialised countries. The results can be
checked against the safe minimum values set. The next
scenario should be composed of instruments, which have a
high impact on those objectives, i.e. which show the largest
deviation between the model output and the safe minimum
value. The instruments are selected from the medium part of
the lexicographical list, i.e. they also may have an impact on
other objectives. In the next iterations the same selection
principle is applied successively for the next objectives of the
lexicographical list. The instruments in this iterative process
successively include measures, which are more costly and
specific to a particular objective. If all safe minimum values
are met it might be recommendable to add a few runs for fine-
tuning the instruments. In particular aspects of acceptability
and transaction costs can play a major role in this context. For
instance it is well known that pricing instruments are often
preferred by economic experts but rejected by the population.
Therefore a capping of pricing elements and a substitution by
soft regulation (i.e.: dynamic standard setting) might be a
more successful strategy.
5
JRC is the Joint Research Centre of the European Commission. TRANSTOOLS
has been developed by a consortium of European institutes lead by CTT
Copenhagen.
307
Passenger car Heavy duty vehicle (HDV)
Unit costs (bandwidths) Unit costs (bandwidths)
0.12 (0.04–0.12) 1.1 (0.39–1.1)
0.22 (0.08–0.22) 2 (0.72–2)
10 (0–20) 35 (0–70)
0 (–) 0 (–)
0.44 (0.12–0.79) (–)
0.38 (0.11–0.68) 2.2 (0.6–4)
The methodology suggested above is not a fixed algorithm in
the sense that the process runs automatically without a participa-
tion of expert intelligence. On the contrary: Expert creativity is
needed during the process in particular when composing the
scenarios, because otherwise a huge number of scenarios would
have to be constructed to determine a good solution only by the
computational process (e.g. by introducing strategic variables into
the models and using brand-and-bound/genetic algorithms). This
is a strength and at the same time a problem of the methodology,
because the outcome depends on the qualification of the
expert team.
4. Application to noise and climate change
We choose the examples of noise and climate change because
in both cases the limited applicability of the neoclassical
approach is evident. In the case of noise the underlying function
of noise emissions (see Rothengatter, 2000), measured in decibels
(dB(A)), has a concave shape. After weighing noise emissions with
monetary equivalents this property remains valid for the noise
cost function. From this follows that marginal noise costs are
decreasing with increasing traffic volume and the marginal noise
cost for a vehicle would be almost zero in most congested areas.
On the side of climate costs the neoclassical approach is usually
based on market values, such as the present carbon prices at the
bourse, which are very low. This contradicts the long-term issue
of bringing down the GHG emissions dramatically, which is only
possible if the prices for climate externalities are set very high.
Table 1 illustrates the outcome of the neoclassical concept as
exhibited in the Handbook on External Costs of Transport (2008)
(European Commission, 2008) which has been prepared for the EC
and is based on a number of marginal costs studies performed on
this issue. Noise impacts of transport which disturb more than
one third of EU population but come out almost negligible in the
economic evaluation. Mark-ups of 0.1–0.2 cts/km for pass cars or
1–2 cts/km for trucks in interurban transport will hardly influ-
ence the choices of agents. Also the mark-ups for climate change
externalities are very modest (about 0.4 cts/km for pass. cars and
2.2 cts/km for trucks). They are too low to achieve significant
changes of behaviour or technology. Congestion costs, on the
other hand, come out as the most important externality for
society. In peak hours marginal congestion costs are 10–20 times
as high as the sum of noise and climate externalities.6 Internalisa-
tion of congestion costs in this order of magnitude gives strong
incentives to avoid peak hours and over-congested areas. But they
6
Note that congestion externalities only include time losses and increased
vehicle operation costs.
308 A. Musso, W. Rothengatter / Transport Policy 29 (2013) 303–314

Table 2
Noise limit values for different land use categories and time of day. Noise measurement scale: dB(A)

Germany Land use category Day (6.00–22.00) Night (22.00–6.00)

dB(A) dB(A)
Health resort, school, hospital, nursing home 57 47
Residential 59 49
Industrial 69 59
Mixed 64 54

Italy Protected areas (Healthcare, school facilities etc.) s 45 35

Mainly Residential 50 40
Mixed 55 45
Industrial 65 55
Mainly Industrial 65 55

also can induce counterproductive detours in the short run and

increased urban sprawl in the long run such that congestion
phenomena have to be treated with care to avoid undesired side
impacts. In the following we will show that applying the target
oriented assessment of essential externalities leads to strategies
which are more compatible with the experts’ estimation of
human risks stemming from these externalities.

4.1. Noise

Traffic noise at lower levels causes inconveniences and annoy-

ance, i.e. effects, which can be traded-off with positive effects.
Once noise exceeds certain levels it causes health impacts, which
can be avoided if limit values are introduced and enforced (see
WHO, 2007 and WHO JRC, 2011). In most industrialised countries
such limit values exist for the provision of new transport infra-
structure. These relate to the type of land use and the time of the
day (day, night). The following Table 2 is taken from the German
Federal Control of Pollution Act and the Italian Law on Acoustic
Recovery Plans and gives an example for the setting of safe Fig. 3. Noise Modelling with GIS Tools for Urban Areas.
minimum values. Source: Schmedding, 2006.
The further procedure presupposes to prepare a GIS model
with the appropriate land cover data on the land use categories
and the number of inhabitants/people exposed to noise. These to reduce noise compared with adding marginal costs of noise to
geographical data are matched with geographical network data. infrastructure charges.
This is the base for modelling the noise distribution and exposure As pointed out in Section 2.2 it is possible to calculate the
alongside the network links after assignment of traffic activities. shadow prices or opportunity costs for the safe minimum values,
In urban areas a further spatial differentiation according to the i.e. in this case for every noise level. This leads to a variety of
type of buildings (form, texture, layout, etc.) and the conditions of shadow prices/opportunity costs depending on:
noise distribution is necessary. The noise levels alongside the
influenced corridors can be modelled as well as the number of (1) Category of land use or settlement type
exposed people for every noise isophone. Then the modelled noise (2) Time of the day
levels can be compared with the safe minimum values. (3) Excess of noise emission over the safe minimum value
The noise related scenarios comprise four steps: (4) Feasibility of avoidance measure

(1) General and low cost measures, as proposed for all safe
minimum objectives (e.g.: lower speeds)
(2) Avoidance measures for vehicles (encapsulated engines, low-
noise tires)
(3) Avoidance measures alongside the guideways (noise walls,
low-noise asphalt layers, noise protected windows for exposed
houses)
(4) Prohibitions and bans for vehicle categories (trucks).
Contrasting the marginal cost approach little emphasis is
taken on influencing route choice by user charges. This is because
the noise dB(A) scale is logarithmic such that a theoretical cut of
the traffic volume on a road by the half will reduce the noise level
only by 3 dB(A), which will hardly be perceived by the exposed
population. Therefore, measures at vehicles and the infrastruc-
ture, and incentives for reducing speeds, are much more effective
In a study for the German Federal Environmental Agency IWW
et al. (1999) have applied this approach and received the follow-
ing values of noise opportunity costs, resumed in Table 3:
The relevant input data for noise evaluation stem from
transport and noise impact modelling. The latter can be per-
formed on three levels: European, non-urban and urban. For
all three levels specific GIS tools can be applied (see
Schmedding, 2006). Fig. 3 shows an example for the urban level
to identify hot spots, i.e. areas for which the safe minimum values
are exceeded.
For the selected region of the study it was found that the
shares of the three categories of measures is almost equal and one
third each. If the number of exposed inhabitants is 1500 per km
motorway on average (500 for non-urban road, and 2000 for an
urban road), the traffic load per day 50,000 for motorways, 20,000
for non urban and 20,000 for urban roads, on 300 day per year,
 A. Musso, W. Rothengatter / Transport Policy 29 (2013) 303–314
Table 3
Selected results for noise opportunity cost calculation; Unit: Euro per inhabitant
and year per km, Source: IWW et al., 1999
Transport General/low cost Specific medium Specific high
Mode measures cost measures cost measures
Road, motorway 20 35 1,200
Road, non-urban 20 35 1,800
Road, urban 20 35 2,600
Rail 4,400 4,400 5,500
then the opportunity costs per km and vehicle on roads, where
the safe minimum values are exceeded, would come out:
– 4.2 cts/PCU km on motorways
– 5.2 cts/PCU km on non-urban roads
– 13.3 cts/PCU km on urban roads.7
Although the values are not directly comparable with the
Handbook results (see Table 3) one can make two observations:
First the marginal cost approach leads to very low values of noise
costs (note that the share of truck in urban areas is low such that
the values per PCU are dominated by passenger cars). This is
partly due to the logarithmic shape of the noise curve, which
leads to lower marginal noise costs with increasing traffic volume.
Secondly it seems to be very risky to transform the cost values
directly into prices. The Handbook values are so low that no noise
specific reactions can be expected on the demand side. This does
not reflect the behaviour of exposed citizens towards traffic noise.
In the case of aviation or railways there is heavy resistance
against new infrastructure projects (runways, HSR links) in
particular because of noise emissions. Against this background it
is not appropriate to treat the noise problem by setting linear and
uniform prices based on marginal noise costs. In the case of
opportunity costs the values reflect the costs of a bundle of
dedicated reduction measures, which are adjusted to the type
and the location of noise problems. These opportunity cost values
indicate the severity of the noise impacts and the intensity of
strategies to achieve the safe minimum values set.
4.2. Climate change
From the formal point of view the treatment of climate change in
the target driven approach is much easier compared with other
externalities like noise or air pollution. This is because neither spatial
nor impact chain modelling is necessary, because climate change is a
global phenomenon. Nevertheless there are some important assump-
tions to be set which have big impact on the result:
– setting the target levels and the time of desired achievement
– choosing CO2 or all greenhouse gas-emissions as indicators
– defining the share of transport of the overall target
achievement
– defining the share of transport modes within the transport
system.
4.2.1. Setting target levels and the time of achievement
The target levels can be taken from the IPCC assessment report
2007, based on the general goal to limit the increase of world
7
PCU means passenger car unit. Small trucks are 1–2 PCU and large trucks
3–5 PCU. The share of heavy goods vehicles is about 13% on German motorways
and much lower for non-urban and urban roads.
309
temperature to 2 1C. This implies to reduce the concentration of
GHG in the atmosphere to about 450 ppm. This is only possible
if the emission of GHG is reduced by 50% until 2050 compared
with 1990. If the developing countries, which are not responsible
for the emission of GHG in the past two centuries, are allowed
to increase emissions modestly then the industrialised countries
have to reduce emissions by 80% until 2050. As this reduction is
measured on the base of 1990 emissions and the transport
activities are growing world-wide at high rates–in particular in
emerging economies-this implies that the reduction compared
with the trend development until 2050 would be between 90%
and 95%, i.e. an almost carbon-free transport world.
When it comes to the timing of reduction steps there
are two philosophies: On the one hand one can argue that the
first steps are very hard to go because technology and behaviour
have to be changed and there are risks of economic losses
if the changes overstress the economic capabilities. On the other
hand the argument is put forward that it is necessary to start as
early as possible with substantial steps (see IPCC Assessment
Report 2007) and that there might be economic cutbacks
only in the short run while in the long run the environmental
challenge would create a new dimension of economic growth.
The EU and some other countries originally planned to follow
the second philosophy and to implement big steps already until
2020 and 2030. In the case of the EU a 20% reduction is aimed at
until the year 2020, which is increased to 30% if other
countries follow. In Section 5 we will show that the EU has
relaxed its top-runner strategy and set the targets for 2020/30
much less ambitiously in the recently published White
Paper 2011.
4.2.2. Choosing CO2- or all greenhouse gas-emissions as indicators
Greenhouse gases (GHG) include CO2, methane (CH4), nitrogen
oxides (N2O, NOx emitted in high altitudes), contrails and water
vapour emitted by aircraft. Also PM concentrations can have an
influence on climate. If CO2 is defined as climate indicator the
contribution of transport is about 25%. In the case of GHG this
share is about 18% (worldwide) or 20% (EU). This lower share
caused by the high emissions of methane from the agricultural
sector.
The choice of indicator has a big influence on the composition
of measures for reduction strategies. The GHG indicator is
composed of a number of sub-indicators, which call for specific
treatment, while the CO2 indicator leads to a much more simple
set of instruments.
4.2.3. Defining the share of transport of the overall target
achievement
It is often argued that the transport sector should be exempted
from the strict reduction target because of two reasons: First, the
transport sector is growing at high rates compared with other
economic sectors and therefore the progress with carbon effi-
ciency is partly eaten up by high growth of traffic. Secondly it is
argued that the mitigation costs in transport are higher compared
with other sectors (energy, industry, households). The EU Com-
mission has followed this argument and set the medium-term
reduction target for the transport sector as one half of the target
for ETS sectors.8 Also the McKinsey (2007) study goes along this
line and estimates mitigation costs for single transport categories
and comes to the conclusion that the biggest polluters (e.g. road
freight, aviation) show also the highest mitigation costs. It would
8
This relaxation holds for all ‘‘non ETS sectors’’, i.e. sectors, which are not
integrated in the CO2 Emission Trading System.
310 A. Musso, W. Rothengatter / Transport Policy 29 (2013) 303–314
be not economical to impose equal reduction targets for all
sectors, if the mitigation costs vary that much.
Other authors contradict this argumentation and point to the
high potentials of reduction of GHG in the passenger transport
sector (see e.g. Geurs et al., 2011; Netherlands Environmental
Assessment Agency et al., 2009; see also European Environmental
Agency, 2007 and 2011). The passenger cars used are over-
powered on average and could be designed in a much more
energy efficient way without a sacrifice of functioning. Logistics
have developed towards just-in-time and just-in-sequence pro-
cesses, minimising inventory holding. Little effort has been
invested in energy saving transport processes, i.e. through better
bundling, cooperation of partners and using the environmentally
superior transport modes. Big potential can be additionally
exploited by reorganising manufacturing processes and the
world-wide supply chains. From this follows that calculating
mitigation costs in the transport sector on the base of past
technology and organisation is misleading. From a forward look-
ing perspective the transport sector in general should be capable
to achieve the same reduction targets as they are set for the other
sectors of the economy.
4.2.4. Defining the share of transport modes within the transport
system
A report of the Dutch and Swedish Federal Environmental
Agencies (2009) analyses the potentials of GHG reduction of all
transport modes, against the background of the presently known
technologies. Result is that there are sectors like passenger
transport, which are capable to operate almost carbon free in
the year 2050. Freight transport will have more difficulties, in
particular maritime transport, to come close to this target. For air
transport this will be practically impossible. The most promising
option is to develop alternative fuels, e.g. bio-fuels of the third
generation produced by algae farming or micro-organisms, but it
is unclear presently, what the volume of this fuel production
might be, such that the above report assumes that still fossil
sources will be necessary to satisfy the energy needs of aviation.
The GHG related scenarios comprise six steps:
(1) General and low cost measures, as proposed for all safe
minimum objectives (e.g.: fuel saving technology, new pro-
pulsion technologies (e-mobility), bio-fuel of 2nd and 3rd
generation, strict control of regulations and standards, traffic
management, traffic information).
(2) Emission trading, inclusion of the transport sector into the
ETS, tightening the caps.
(3) Increase of fuel taxation (carbon taxes).
(4) Improvement of public transport with high investments.
(5) Standards, tightening the 120 g/km standard (e.g. 90 g/km in
2020), inclusion of trucks, inclusion of international transport
in reduction strategies.
(6) Prohibitions and bans for vehicle categories (quotas for car
licensing, bans for cars in city centres, bans for trucks for
particular commodities/OD relationships).
In an ideal world the first two categories of measures would be
sufficient, because the emission trading could be designed in a
way that the caps for trading correspond to the desired reduction
path and the final target levels. But looking at the reality of CO2
trading through the ETS and the problems with finding interna-
tional agreements on reduction levels and country contributions
one cannot invest too much confidence into the effects of this
instrument in the next decades. Therefore it has to be supple-
mented by a host of additional measures, which don’t presuppose
international agreements.
Table 4
Results of CO2 evaluations in the literature.
Study
Value in h/ton of IWW et al. INFRAS/IWW Handbook,
CO2 (1999) (2004) 2008
low 90 20 25
short term short term
central 140 85
long term long term
high 200 180
long term
There are only a few studies, which apply such a stepwise
calculus to estimate the opportunity costs of GHG emissions.
Because of different assumptions on the reduction instruments
they are not directly comparable. Only the study of IWW et al.
(1999) follows the above sketched evaluation path. The study of
Infras/IWW uses a standard avoidance cost approach to derive the
central value and follows the sketched out approach implicitly.
The lower value is taken from the literature on damage cost
estimations while the high value is derived from a backward
calculation of IPCC reduction values for 2050. The results of these
approaches can be compared with the values suggested in the
Handbook on Estimating External Costs of Transport (2008)
which has been launched by the EU Commission to prepare an
internalisation of external costs of transport. The Handbook
includes short-term values, derived from CO2 ETS trading and
long-term values derived from the Stern Review (2006). The
resulting numerical figures are exhibited in Table 4. As can be
seen the opportunity cost approach of IWW et al. (1999) comes to
relatively high values already for the short term, because it is
strictly oriented at IPCC values and a target-oriented implemen-
tation scheme.
The large differences of CO2 valuation reveal a basic evaluation
bias between market and target based evaluation schemes: Taking
the findings of the IPCC and the political announcements given on
this base as a benchmark of evaluation then the CO2 value per ton
should be set at least at 90 Euro (left column) already today. In the
long run an increase to 140–200 Euro would be necessary to meet
the IPCC target value of 450 ppm. Strict standard settings, as they
have been introduced with the 120 g/km–90 g/km rule in Europe9
or the new CAFE standards in the US, are only rational if the
emission of CO2 is evaluated that high.
If market values are assumed to be the relevant indicators or
damage costs are estimated which come out significantly lower
than the opportunity costs (20–25 Euro in the short and 85 Euro
in the long run according to Handbook values) then the IPCC
targets and the associated political announcement would not
appear economically rational. If such low values would present
the accepted decision base, then adaptation policies were super-
ior to mitigation policies. In this context it should be added that
the damage cost estimations come to values between 5 and
800 US$ (see Hohmeyer, 2001). This follows from the fact that
such estimations are derived from impact scenarios and the
economic treatment of impacts which may occur in the far future.
If a high social rate of discount is applied, for instance, then the
present value of future damages is low. If there is no discounting
and a long time horizon (e.g. 300 years) then the present value of
impacts comes out very high. As the magnitudes of impacts, the
costs and effectiveness of future mitigation measures and the
9
See Directive 2009/33 for restricting CO2 emissions of passenger cars in
section 5.1.
 A. Musso, W. Rothengatter / Transport Policy 29 (2013) 303–314 311

Table 5
Most relevant documents concerning externalities. The directives are explained in the following text.

General documents Specific documents Related directives

 Aalborg Charter, 1994  The Green Paper, 1995  Directive 1999/62

 The Sixth Environmental Programme Action of EU, 2001  The White Paper, 1998  Directives 1999/30
 Freight Transport Logistic Action Plan, 2007  The European Council of Helsinki, 1999  and 2008/50
 EU Climate and Energy Package, 2008  The White Paper, 2001  Directive 2006/38
 United Nations Climate Change Conference in Copenhagen, 2009  Green Paper: ‘‘On adapting to climate change in Europe’’, 2007  Directive 2008/101
 Focus Groups’ Report, 2007, European Commission, 2007  Directive 2009/33
 The White Paper, 2011

costs of adaptation measures are highly uncertain one can argue  General GHG reduction goal extended to 80–95% by 2050
that a precaution strategy has to be preferred which favours below 1990 levels.
mitigation measures. This would suggest the choice of high CO2  Reduction of the transport sector at least 60% until 2050; at
values. least 20% in 2030 below 2008 level.

Ten goals for a competitive and sustainable transport system are

formulated that contribute to achieve the 60% emission target. They
5. EU climate policy include for instance innovative vehicle technology, modern infra-
structure for environmentally friendly transport modes, low carbon
5.1. Regulatory tools, targets and instruments of EU climate policy in fuels, e-mobility and pricing measures to set incentives right.
transport Strategies to achieve these goals are for instance:

The European Commission, during the 1990 s and the first
decade of the 2000 s, published a number of policy documents
concerning environmental safeguard and climate change issues.
Even though the problem of external costs is acknowledged as a
crucial topic in the field of transportation in most of such
documents, those addressing it directly are a few, whereas the
majority of them frame it within more general political visions on
how to solve environmental and climate change problems.
Table 5 gives a comprehensive overview on general and specific
documents as well as the most important related Directives,
further commented in the text.
The general targets of EU climate policy have been published
in the EU Energy and Climate Package in 2008. It includes the
‘‘triple 20’’, i.e. a reduction in greenhouse gas emissions of 20%,
and improvement of energy efficiency of 20% and a share for
renewables in the bloc’s energy mix of 20%, until 2020 based on
1990 levels. An extension of the GHG emission target to minus
30% was announced if other industrialised countries would
follow. As other countries such as the US or China are hesitating
with formulating concrete reduction targets the 30% target of the
EU is presently out of discussion. The package has, furthermore,
analysed the reduction contributions of different sectors. GHG
emissions from sectors not included in the EU ETS–such as
transport–should be cut by 10% compared with 2005 levels.
Specific measures are described in Directive 2008/10110 for
aviation and 2009/3311 for passenger cars.
Further goals and measures are discussed in a number of
documents. The 2011 White Paper on ‘‘Competitive and Sustain-
able Transport’’12 includes the most far-reaching policy goals:
10
Directive 2008/101 integrates aviation into the CO2- emission trading
scheme (ETS). All flights are included starting from European aerodromes,
beginning with January, 2012. In the year 2012, the number of allowances will
equal 97% of the historical CO2-emissions. From January, 2013, 15% of the
allowances will be auctioned.
11
Directive 2009/33 introduces CO2-emission caps for newly licensed pas-
senger cars. Fossil fuel consumption of the vehicle fleet of manufacturers is limited
to 120 g/vehkm, beginning with 2012. In 2015 a further reduction is foreseen and
a reduction target of 95 g/vehkm is planned for 2020. The penalties foreseen can
reach an order of magnitude of 95 Euros per gram of CO2 emission exceeding the
cap value.
12
Commission Working Document. Road Map to a Single European Transport
Area—White Paper on Competitive and Sustainable Transport. Feb. 2011.
(1) Creating a single European Transport Area. This concerns in
the first instance the railways and the ‘‘Blue Belt’’ around EU
ports, furthermore common rules for safety and security.
(2) Innovating for the future—technology and behaviour. Inno-
vative control systems for rail and air, management systems
for roads, information and surveillance systems for maritime
and inland waterway shipping are basic requirements for an
innovative transport sector.
(3) Modern infrastructure and smart funding. The Commission is
propagating a core network (TEN-T) carrying large and con-
solidated volumes of freight and passenger traffic.
(4) Getting prices right and avoiding distortions. Internalisation
of externalities and elimination of tax distortions and unjus-
tified subsidies are core instruments. As regards GHG emis-
sions, two main instruments shall be used: Taxation and
emission trading systems. Before 2020, the Commission plans
to develop a common approach for the internalisation of noise
and air pollution cost on the whole rail network.
(5) Focusing on the external dimension. Transport is fundamen-
tally international and substantial progress with cutting emis-
sions requires the involvement of international organisations
(WTO, ICAO, IMO, OTIF, OSJD) and international agreements.
5.2. EU White Papers 2001/2011: an anatomy of ambition
The Commission’s Transport Policy White Paper of 2001 ‘‘Time
to Decide’’ included a clear analysis of needs for an integrated
transport policy towards sustainability goals and the necessary
policy instruments to apply. It attached a detailed action pro-
gramme, consisting of more than 60 policy actions to tackle the
challenges of shifting the balance between modes of transport,
eliminating bottlenecks, placing users at the heart of transport
policy and managing the globalisation of transport. While this
White Paper was appreciated as one of the most ambitious and
transparent EU policy documents it soon became obvious that the
possibility was limited to transpose the programme into political
reality. This is best documented by the mid-term review of the
White Paper published in 2006 which does not check and balance
the achievement of goals and implementation of the suggested
actions rather than presents more general and moderate goal
312 A. Musso, W. Rothengatter / Transport Policy 29 (2013) 303–314
formulations as well as more general and partly fuzzy concepts as
for instance the co-modality issue: While the White Paper
propagated the inter-modality goal and an action programme to
revitalise the railways the co-modality issue formulated in the
mid-term review relaxes this challenge by propagating the
‘‘efficient use of different modes on their own and in combina-
tion’’, which can be interpreted towards all convenient directions.
The example of the White Paper 2001 and its mid-term review
illustrates that the Commission often has to find political com-
promises with the EU Council and the EU Parliament such that the
ambitious political announcements in the White papers have to
be smoothened in the phase of political implementation.
Nevertheless one has to recognise that the Commission has
achieved substantial progress on several fields:
– liberalisation, deregulation of the transport markets, recently
including the railway market and interoperability of
technology;
– charging heavy goods vehicles on motorways and freeways;
– introduction of some externalities into this charging system;
– integration of aviation into the ETS;
– introduction of CO2 emissions limits for newly licensed
passenger cars;
– setting local concentration limits for NOx and PM emissions.
(1) Liberalisation, deregulation of the railway market and inter-
operability of technology:
The principle of free market access, introduced by the First
Railway Package (Directives 2001/12-14) and reinforced by
the Recast of this package, is certainly a progress with respect
to fostering intramodal competition and increasing the total
market share of rail. On the other hand, it encourages small
and medium sized rail companies to apply old environmental
technologies, as for instance diesel driven locomotives and
wagons lacking noise protection. Comparable to other market
sectors the EU policy is successful with liberalisation, but
hesitates with corresponding harmonisation. Lacking harmo-
nisation the climate issues are only taken up by the big
railway companies to protect themselves against ambitious
competition policy of the governments.
(2) Charging heavy goods vehicles on motorways and freeways:
The charging systems developed under the regime of Direc-
tive 2006/38EC13 have proven successful. Full recovery of
allocated infrastructure costs is possible and a differentiation
according to Euro emission categories and congestion. In
Germany this has induced a rapid change of the truck fleet
operating on motorways. Meanwhile more than two thirds of
truck (km) with heavy trucks are operated with Euro V
technology and better. Austria has introduced the environ-
mental differentiation of HGV charges in 2009 and other
countries like Poland and Czech Republic are following this
promising scheme. These positive impacts remain limited
because of the incompleteness of the charging system. It only
includes the motorways and some freeways and is restricted
to heavy vehicles (in Germany: 412 t). A more comprehen-
sive charging system, as for instance in Switzerland, would
cause less transaction costs, generate more revenues, foster
modal split and avoid undesired deviations of traffic to the
secondary network.
13
Directive 2006/38, amending Directive 1999/62, revised in 2011 (Directive
2011/33) allows for charging HGV on motorways and similar roads on the base of
allocated (average) infrastructure costs. The charges can be differentiated accord-
ing to congestion and environmental characteristics of vehicles (Euro emission
categories, not including GHG emissions). The recent revision (2011) allows for
mark-ups on the infrastructure costs by adding external cost elements, restricted
presently to noise and air pollution.
(3) Introduction of some externalities into this charging system:
The revised Directive 2006/38 EC allows for adding external
costs of noise and air pollution to the infrastructure costs and
for an extended differentiation of charges according to con-
gestion. However, the mark-ups for externalities are so low
that practically little impacts on road freight transport can be
expected. It can easily be shown that the differentiation of
charges according to Euro emission standards in Germany is
much more effective compared with the internalisation of air
pollution costs on the base of capped values of the Handbook
(2008). When it comes to noise the concept of km-based
charging fails because it does not generate enough incentives
for changing the technology or the transport mode. Differ-
entiating charges according to congestion is in principle a
promising way to shift transport to other parts of the network
or times of the day. For long-distance freight transport,
however, it is almost without any effect; a route of for
instance 1000 km is in any case composed of congested and
less congested network parts such that at the end of the day
the total external costs of different routes and different
transport times equalise. Such a differentiation of charges
would only be effective if other transport categories like light
duty vehicles or passenger cars were included in the charging
system. Under this condition it would also help to reduce CO2.
(4) Integration of aviation into the ETS:
For the first time international aviation is included in a regional
trading system, after a long period of ‘‘no-touchability’’ of
international aviation after the Chicago Convention 1944. In
this way the EU integration of aviation into the ETS can be
regarded as a milestone and a top-runner strategy. But one
cannot fail to notice that there will be little impact and
partially counterproductive results in the short and medium
term. The effect of a cap-and-trade system is dependent on the
caps and the trading rules set. With respect to aviation
Directive 2008/101 defines the caps with 97%/95% for 2012/
2013 of the historical levels. No further adjustment rule is
defined for the caps. The trading rule of the Directive says that
15% of the allowances shall be auctioned, beginning with 2013.
Again there is no announcement for a further development of
this rule. The price for emitting a ton of CO2 is presently below
15 Euro. Even if this price would double the effect on aviation
would be very low, in an order of magnitude of 3–5 Euro
per seat for a short distance flight. Reducing the share of
auctioned allowances to 15% implies that the additional cost
load for the flight carriers is negligible. The ticket tax which has
been introduced by the German government beginning with
January 2011 is much more biting (8/25/45 Euro for short/
medium distance/intercontinental flights) and has provoked
reactions of the airlines (Ryan, Air Berlin). Unfortunately, the
motivation of the ticket tax has nothing to do with climate
protection, rather than with generating revenues to consolidate
the public budget after the economic crisis.
In the maritime sector the governance situation is comparable
to aviation, because international maritime transport is regu-
lated by international organisations (IMO). However, the pro-
blem of defining caps and the trading rules is more complex
compared with aviation and the Commission until now has not
indicated how they will tackle this problem in the medium run.
(5) Introduction of CO2 emissions limits for newly licensed
passenger cars:
Directive 2009/33 EC (‘‘120 g/km rule’’) has been fostered by
DG Environment against a heavy resistance of the automotive
industry. Although the penalty system has been relaxed the
Directive implies a big challenge in the medium run if the 95
g/km rule is actually imposed in 2020. This regulatory
instrument has proven successful insofar as the industry has
 A. Musso, W. Rothengatter / Transport Policy 29 (2013) 303–314
been enforced to increase fuel efficiency of their cars within a
short period. Tightening the standard periodically (i.e. avoid-
ing the failure to keep the standard constant as has been done
in the US with the CAFE standard for a long time) generates
the right incentives for the development engineers.
This policy is incomplete insofar as the freight sector is not
included, i.e. there are no similar incentive-compatible reg-
ulations for trucks and railway engines.
(6) Setting of local concentration limits for NOx and PM:
Directive 1999/30 EC, followed by 2008/50 EC14 , had a big
impact because they enforce cities with high air pollution to
introduce sharp measures towards car mobility and trucking.
This induced an indirect impact on CO2: As many cities
banned cars equipped with dirty technology (worse than
Euro 4) from the city zones public transit was stimulated or
the purchase of passenger cars with with lower fuel con-
sumption.
Summing up, a number of EU activities aim at reducing the
climate impacts of transport. While the papers on green
mobility and green logistics present comprehensive lists of
measures to be taken the actual actions are fragmented and
don’t reflect a comprehensive and balanced programme with
substantial incentives for reducing GHG emissions. The strat-
egy of the Commission is to describe the options for such a
consistent action programme for the long time horizon on the
one hand. On the other hand the Commission hesitates to
work out a road map of concrete actions to achieve ambitious
medium-term results. This is underlined by comparing the
long-term and medium-term CO2 reduction targets with the
intended short and medium-term actions planned as pub-
lished in the White Paper 2011. The long-term reduction goal
for the transport sector until the year 2050 is set rather
ambitious at least minus 60% of GHG emissions of transport,
compared with the 1990 level. The 2030 reduction target is
only set at 20% below the 2008 level. This means that–taking
into account the growth of traffic in the next two decades–the
transport sector emissions 2030 would be even 8% above the
1990 level. Analysing the comprehensive list of 40 initiatives
which are announced in the White Paper to achieve these
targets one cannot fail to notice that most initiatives are
described in a very general way and denote only the level
playing fields which are intended to be influenced.
What is missing in particular is a road map which links the
time path of desired target achievements with the activities to
be taken and their intensities. Therefore, the visionary part
looks very ambitious and challenging while it lacks a concrete
list of measures which the EU is planning to take in the next
years to meet the IPCC requirements.
5.3. Internalisation Schemes and political action programmes
While the neo-classical internalisation paradigm is based on a
costing principle (social marginal cost) a target-based internalisa-
tion scheme relates to action programmes, which include least
cost combinations of measures to achieve the targets set on a
dynamic trajectory. With this respect the target-based internali-
sation scheme can give direct indications for appropriate political
14
Directive 1999/30, amended by 2008/50, ‘‘Relating to limit values for sulphur
dioxide, nitrogen dioxide and oxides of nitrogen, particulate matter and lead in
ambient air’’ enforce limit values and alerts threshold for the concentration of
air pollutant emissions, in particular of particulate matter (starting in 2005) and
nitrogen oxides (starting in 2010). Air quality analyses have to be performed by
standardised measurement techniques, which have to be common for all Member
States. A number of cities still have difficulties with meeting the limit values.
313
action programmes, their intensities over time and their asso-
ciated costs. As pointed out in chapter 4 the measures can be
classified with respect to their cost implications such that it is
economically rational to start with low cost and widely accepted
actions, while high cost actions and rigid restrictions on beha-
viour can be avoided or come at the end. This might look to be a
complex exercise but it has a number of advantages:
(1) Packaging of measures: A packaging of measures avoids the
risk of overusing one instrument, as for instance pricing, and
increases the acceptability by the stakeholders. It makes
evident, furthermore, that some measures only work into
the desired direction if others are taken. This addresses in
particular the role of regulation, because pricing measures
only work right if the regulatory environment is set properly.
(2) Allowing for country differences: Although the harmonisation
of country taxation and regulation within the EU is a high
priority goal would be an illusion to assume that this were
achieved within a realistic time perspective. Transportation
taxation is still varying considerably between member coun-
tries and only minimum (fuel taxation) or maximum rates
(motorway charging for HGV) are harmonised. In the case of a
target-based internalisation scheme for climate change the
member countries would have some degree of freedom to
compose the measures according to the country conditions
while the target are set in common. This would also reflect
the fact that instruments like emission trading will by far not
lead to price levels for CO2 which are consistent with the
reduction targets, such that complementary country taxation
(carbon/eco/energy taxes) are necessary.
(3) Change of intensities over time: As there is uncertainty about
the future change of technology an internalisation scheme
needs some flexibility to adjust over time. Therefore, a recast
can be foreseen, for example in five years steps. This would
allow for completing strategies which have been started in
particular market segments but not harmonised for all
(e.g.: Fuel consumption regulation for freight vehicles).
(4) Transparency for top runner position: As the target achieve-
ments are permanently observable it is possible to relate the
packages of instruments applied to the success achieved. This
is important to create competitive incentives within the EU as
well as between the EU and other countries (US, Japan,
emerging economies).
(5) The political benefit of a target based internalisation scheme
is that it allows for a continuous monitoring of the policy
action programmes which are aiming at target achievement.
As shown in Section 5.2 the EU transport policy has achieved
some important progress, but it is still a piece meal policy and
lacks coherence as well as a dedicated road map for future
actions. A target based internalisation scheme would provide
a transparent framework for such a monitoring process.
6. Conclusions
We have shown that ambitious goals for the control of climate
change require a set of instruments, which are combined on the
base of a least cost strategy. The recommendations given by the
economic mainstream analysis on the base of the neo-classical Pigou
concept fail to generate sufficient incentives to change technology
and behaviour. A target driven approach will lead to higher cost
estimations for GHG emissions compared with marginal cost
approaches of the literature. But this does not imply that the charges
for using the transport infrastructure should be increased to peak
levels. Instead of ‘‘setting prices right’’ the conclusion of this paper is
to ‘‘set incentives’’ right on every level of decision making in the
314 A. Musso, W. Rothengatter / Transport Policy 29 (2013) 303–314
transport sector. This concerns the provision of the infrastructure,
the production of vehicles and rolling stock, the use of appropriate
energy sources, the choice of organisation schemes as well as the
choice of modes, routes and travel times.
The challenge is to reduce GHG emissions by around 80% until
2050 compared with the 1990 level, which is almost 95% com-
pared with a business-as-usual development. The IPCC (2007)
postulates that major efforts have to be done now, in the short and
medium term, and not shifted to the far future. Against this
background the long-term targets set by the new White Paper
2011 of the EU Commission are conforming with the long-term
IPCC landmark. But the road map until the year 2030, allowing
transportation to increase GHG production by 8% compared with
1990, fails to set the signals right for the industry and the
consumers to start early with a change of technology, organisation
and behaviour.
There are many unexplored options in the transport sector
already in the medium term for better technology, behavioural
change and efficient green logistics, which can be stimulated by
an incentive-compatible framework of pricing, regulation, stan-
dards and network configurations. The risk for the economy
induced by a more strict environmental policy appears to be
low. On the contrary: A substantial structural change towards a
low-carbon transport economy might bring new chances for
qualitative economic growth and competitive advantages such
that it fosters innovation and long-term economic sustainability
for the countries acting as top-runners.
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