The material presented here comes from Milne, Niskanen and Verhoef (2000), Operationalisation of Marginal Cost Pricing within Urban Transport, AFFORD Deliverable 1, Government Institute for Economic Research, Helsinki, plus private communications with Dr David Milne, Institute for Transport Studies, University of Leeds, and Terje Tretvik, SINTEF, Norway.

Context

Charging schemes in Norway are implemented on a temporary basis to fund infrastructure construction. Once costs have been recovered, charging schemes are removed. One such charging scheme is the implementation of a fuel tax increment in Tromso. Whilst fuel tax cannot usually be varied between regions due to the high potential for avoidance behaviour, Tromso is so remote that it would not be possible to drive to an area with lower fuel tax to purchase fuel.

The additional fuel tax - 0.50 NOK per litre of petrol and auto diesel - was introduced in 1990, and increased to 0.65 NOK in 1996. The tax will be in place until the end of 2003. Net income from the tax was 18.7 million NOK in 2001. The tax was introduced to part finance an investment package of main highway infrastructure (including a subsea and other tunnels) for Tromso.

The tax was expected to reduce car travel by two to two and half percent. However, this does not appear to have happened. It is likely that the demand impacts of the infrastructure funded by the tax have counteracted some impacts of the tax itself. The subsea tunnel is known to have increased car and decreased bus travel for certain origin-destinations. Further to this, total transport costs have decreased despite the tax, and cyclists and buses have obtained improved operating conditions.

The material cited here is taken from the Online Travel Demand Management Encyclopedia, compiled by Litman.


Whilst the Tromso example cited above is an exception, fuel tax is usually set at a national level, and is not generally hypothecated. This means that fuel tax is generally not implemented in same way as other charging instruments such as urban road charging. Fuel tax is implemented as a general revenue raiser and to influence consumption of fuel to meet environmental objectives. Impacts are therefore national and virtually impossible to disentangle from other national policy instruments. However, Litman (2002) cites modelling of the effect of fuel tax increases in California, USA.

Table 1 Impacts of Fuel Tax Increase, Year 2010 (Harvey and Deakin (1997) Table B.8 in Litman (2002))

“Deakin and Harvey (1997) model the effect of a fuel tax increase on transportation impacts in four major urban regions in California. Table 1 summarizes their results for the year 2010. It indicates, for example, that in the South Coast (Los Angeles) region, an additional 50¢ per gallon tax would reduce total vehicle trips by only about 3.5%, but congestion delay would decline by 9.5%, and fuel consumption would decline by 9.3%. Another study finds that a $0.40 increase in fuel prices would reduce regional vehicle trips by 1.2% and vehicle mileage by 1.4%, while a $2.00 increase would reduce trips by 6.7%, and mileage by 7.2% (PSRC, 1994)” (Litman, 2002)

Contribution to Objectives

As indicated, there is little evidence on the effect of fuel taxes as a policy instrument because they are generally implemented on a national basis to meet a wide variety of objectives, not all of which are transport related.