Policies Supported by External Costs Valuations

Once again, it will be the European Community to help us.

With few national exceptions, until now external costs valuations and environmental cost/benefit analysis have been used mainly at the EU level. More and more the various european policies (regional integration, transport and energy, environment, etc.) have been using external costs in their decision making process.

At the level of the regional and cohesion policy, the Guide to Cost Benefit Analysis of Investment Plans, elaborated by Valuation Unit of the General Directory for Regional Policy and Cohesion of the European Commission, asks for an external costs valuation of the big projects financed by the structural funds, and for its integration in the projects’ cost benefit analysis. Such a Guide proposes general criteria to apply in new infrastructure valuations; however each State should develop its own Valuation Guide with country specific environmental, social and economic values to be used in the appraisal process.

Another field is transport policy. The importance of external costs valuation was stated in the European Union Fifth Environmental action programme (1992), where it was considered to be the economic condition for a sustainable development. In December 1995, the European Commission published the green paper (“Towards a fair and efficient pricing in transport”) aimed at identifying strategies to internalise the external costs of transports in the EU. In 1999 a White Paper was published “Fair Payment for Infrastructure Use: a gradual approach towards a common charging structure for the use of transport infrastructures in the EU” by which the Commission proposed a strategy for a review of charging criteria based on the real costs generated by transport users, by considering the various contexts, the degree and the moment of use of the infrastructure (the so-called marginal social costs). For example, by reviewing the fuel excise duty structure or by charging the traffic on the most congested arterial roads on the basis of the time of time of use.
Subsequently, the white paper of the European Commission “The European Transport Policy for 2010: Time to decide” (2001) underlined once again the will of the Commission to reshape and to harmonize the taxation and charging system for the use of transport infrastructures, including a criterion for the evaluation for the external costs. Amongst other things, a framework directive on integrated charging for all modes of transport have been announced. However, five years after its publication, the measures announced in the White Paper have still not been put into force, with the exception of the proposal to amend directive CE/62/1999 “Eurovignette”, which sets out rules governing the use of tolls, user charges, excise duties on heavy goods vehicles, referring not merely to the traditional criteria of infrastructure construction and maintenance costs, but also to the specific damage to the infrastructure (weight per axles) and the environmental class of the vehicle (Euro 1, etc.).

In the environmental policies, external costs valuation is used in cost benefit analysis of the new environmental regulation (external costs avoided by new standards, as compared with the cost of technologies complying with the standard). Examples of such valuations are in the directive proposals on fuel sulphur content and on air quality control (CAFE). .

© 2006 - Andrea Molocchi