Is marginal emission cost pricing enough to comply with the EU CO2 reduction targets?

Kickhöfer, Benjamin; Agarwal, Amit

FG Verkehrssystemplanung und Verkehrstelematik

From transport economic literature it is known that pricing (environmental) externalities can improve the efficiency of a transport system. However, in real-world politics, policy setting often follows so-called `backcasting' approaches where predefined goals are set, and policy measures are implemented to reach those goals. This study presents, for a specific case study, an parametric approach to identify the gap between toll levels derived from environmental damage cost internalization and toll levels from the goal to reduce global greenhouse gas emissions in the transport sector until 2020 by 20% (avoidance cost approach). For this purpose, the damage costs internalization is applied to a real-world scenario of Munich metropolitan area. The results indicate that the desired reduction in CO2 emissions is not reached. This parametric internalization approach with damage cost estimates from the literature yields toll levels that are by a factor of 5 too low in order to reach the predefined goal. When aiming at overall emission cost reductions by 20%, the damage cost estimates are even by a factor of 10 too low. Furthermore, it is shown that the major contribution to the overall emission reduction stems from behavioral changes of (reverse) commuters rather than from urban travelers; under some circumstances, the latter even increase their CO2 emission levels. Finally, the study indicates that there might be conicting trends for different types of pollutants, i.e. pricing emissions does not necessarily result in a reduction of all pollutant types.