Tools for Cutting European Transport Emissions. CO2 Emissions Trading or Fuel Taxation?

Per Kågeson

The European Union has introduced a cap-and-trade system for emissions of carbon dioxide (CO2) from power production and energy-intensive industries. The fast-growing transport emissions, however, are not yet subject to any cap.

This report is an analysis of the impact on efficiency and costs from including not only aviation and shipping but also the CO2 emissions from road transport in the European Emissions Trading System (EU ETS). This option is compared to a case where road transport is permanently excluded from the trading scheme and where its emissions would have to be cut by other policy measures and ultimately by allowing higher excise duties on petrol and diesel to depress the demand for fuel.

The analysis shows that the chance of reaching similar marginal abatement costs in the transport sector and the EU ETS is a great deal higher when the Community’s commitment is to cut overall greenhouse gases by 20 per cent than in a case where the objective is a reduction by 30 per cent between 1990 and 2020. The more ambitious target is likely to result in a major difference in price increases between the trading and the non-trading sectors as well as between individual member states.