This presentation was made by Luisa Dressler, OECD, at the Introductory Workshop on Green Budgeting Tools held at the OECD, Paris, on 29 April 20

1. Tax revenue implications of decarbonising
road transport
Paris Collaborative on Green Budgeting – 2nd Green Budgeting Experts Meeting
“Session 4: Long-term fiscal sustainability”
OECD Conference Centre, Paris
29th April 2019
Luisa Dressler
Centre for Tax Policy and Administration, OECD

2. 1. Introduction: Tax revenue in road transport
2. The low-carbon transition: a risk to the sustainability of government budgets?
3. Case Study: Scenarios for Slovenia
4. Main findings and policy recommendation
Outline
2

3. Potential tax base erosion in the transport sector
3
The road transport fuel tax base could erode.
Eroding tax bases may put stress on government budgets
Need to anticipate the potential decline of fuel tax revenues and decide whether and how to
respond.
• How could tax revenue from transport fuels evolve over time as
vehicles rely less on fossil fuels?
• How could the tax system respond to declining revenues?

4. Revenue impacts from technology changes and
potential tax policy responses
4
OECD/ITF (2019) “Tax revenue implications of decarbonising road transport”
– analyses the revenue implications of potential reductions of fuel consumption in road transport,
under specific technology scenarios
– develops a data-driven simulation tool to track the evolution of tax bases and revenues over time
– investigates potential tax policy responses assuming that the objective is to maintain total tax
revenue associated with road transport
OECD/ITF (2019), Tax revenue implications of decarbonising road
transport: Scenarios for Slovenia, OECD Publishing, Paris,
https://doi.org/10.1787/87b39a2f-en (forthcoming).
Planned launch date: 22 May 2019 at Annual Summit of ITF
– The tool is kept flexible to allow similar (or extended) analysis to a wider set
of countries and regions. It can be adjusted to handle data sources of different
granularity and varying tax policy questions.
– In-depth analysis for Slovenia

5. First case study: Scenarios for Slovenia
5
Scope:
– Republic of Slovenia (2017-2050) using micro- and administrative data
• In 2016, 14.6% of total tax revenue collected at the central government level in Slovenia came from excise
duties and carbon taxes levied on diesel and gasoline used in road transport
– Three tax bases in the transport sector are considered: fuel use, vehicle stock, distances driven
– Tax policy simulations:
• Baseline: current fuel and carbon taxes, vehicle taxes, vignettes and tolls in Slovenia
• Tax reform simulations: increasing fuel and carbon taxes, adapting vehicle taxation, extending and improving
distance-based charging
– Main scenario for technology development: IEA “2°C Scenario for Europe”
• Scenario analysis provides a plausible narrative about potential tax base developments; no predictive intent

6. Main findings and policy recommendations (1)
6
Total tax revenues from fuel used in passenger cars in Slovenia would drop by 56% between 2017 and
2050 if demand for cars and car use develops as expected.
(This assumes that fuel-efficiency improves in line with European standards until 2030 and that
alternative fuel technologies account for roughly 60% of new passenger car purchases in 2050 in line
with the IEA 2°C scenario.)
The picture for trucks is different, with a less pronounced drop in fossil fuel use over the 2050 horizon
(due to a slower expected take-up of alternative technologies). Furthermore, Slovenia’s current toll
system for trucks provides an effective means to raise revenue independently of fuel use.
Under current policies, tax revenues from diesel and gasoline use in private
cars are likely to decline substantially in the coming decades in Slovenia.

7. Fuel tax revenue from passenger cars is expected to
drop in Slovenia
7
0
200
400
600
800
1000
1200
2017 2020 2025 2030 2035 2040 2045 2050
0
200
400
600
800
1000
1200
2017 2020 2025 2030 2035 2040 2045 2050
Passenger cars Trucks
0
2017 2020 2025 2030 2035 2040 2045 2050
Excise duty (incl. additional taxes) Toll income Carbon tax Motor vehicle tax Registration tax
Tax revenue from passenger cars and trucks for the baseline scenario, 2017-2050
Source: OECD/ITF (2019), Tax revenue implications of decarbonising road transport: Scenarios for Slovenia, OECD Publishing, Paris.

8. Main findings and policy recommendations (2)
8
Fuel tax revenues from private cars erode gradually over time, which leaves leeway to adapt tax policy.
For example, a relatively modest charge on all kilometres driven on Slovenian motorways that gradually
increases over time can cover the revenue loss from fuel taxes on passenger cars.
Early preparation for tax reform and a gradual implementation will reduce the risk of disruption. It will
also create room for carefully designing policies, tailoring communication and developing the necessary
accompanying measures.
Accompanying measures could encourage the development of alternative travel modes, such as public
transport, or take the form of support to those households that are affected disproportionally by the
reform in the short run, but cannot easily adapt to the reform due to budget constraints.
Gradually reforming the tax system, starting now, allows for a smooth adaptation
to technological changes in the vehicle fleet and the timely implementation of
accompanying measures.

9. Tax reform simulation: distance-based charges
9
2020 2025 2030 2035 2040 2045 2050
Fuel tax revenue loss from cars for IEA 2DS
(million EUR)
47.6 112.5 186.1 256.1 312.7 362.4 402.1
Km-equivalent; all car kilometres; any road
(EUR per vkm)
0.0025 0.0057 0.0091 0.0123 0.0148 0.0168 0.0182
Km-equivalent; car and truck kilometres; motorway only
(EUR per vkm) 0.0071 0.0158 0.0247 0.0330 0.0389 0.0433 0.0458
Kilometre tax equivalent to cover revenue loss from fuel taxes on passenger cars (2020-2050)
(No differentiation along vehicle dimensions; no behavioural effects)
Source: OECD/ITF (2019), Tax revenue implications of decarbonising road transport: Scenarios for Slovenia, OECD Publishing, Paris.

10. 10
Tax reform simulation: fuel and carbon tax increase
​
24%
12%
-2%
-15%
-26%
-35%
-42%
​
-6%
-20%
-33%
-44%
-53%
-60%
0
100
200
300
400
500
600
700
800
900
1000
2017 2020 2025 2030 2035 2040 2045 2050
Reference Tax increase (no behavioural effects) Tax increase (incl. behavioural effects)
Source: OECD/ITF (2019), Tax revenue implications of decarbonising road transport: Scenarios for Slovenia, OECD Publishing, Paris.
Simulation of fuel and carbon tax revenue from passenger cars (2017-2050)
(Fuel tax at Italian level; tax revenue in million EUR)

11. Main findings and policy recommendations (3)
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In the long run, revenues can be sustained by gradually increasing fuel or carbon taxes (to cover the external
costs closely related with fossil fuel use) and by phasing-in distance-based charges for cars (to reflect
external costs closely related with distances driven).
An efficient distance-based system for passenger cars would provide a direct link to the amount of kilometres
driven, instead of charging an all-you-can-drive access to the road network via the current vignette.
The existing distance-based charging systems for trucks could raise revenue and manage external costs
(congestion, air and noise pollution) more efficiently by differentiating rates by time and place.
Revenue raising is only one objective of a fair and efficient road transport tax policy.
– Efficiency considerations imply aligning tax rates with external costs closely related to vehicle, fuel use and road use.
– Options for tax reform outside the road sector may further improve the efficiency of the overall tax system.
Shifting from taxes on fuels to taxes on distances driven can contribute to more
sustainable tax policy over the long term, improving environmental and mobility
outcomes at the same time.

12. Luisa Dressler
Economist, Tax and the Environment
Centre for Tax Policy and Administration, OECD
2, rue André Pascal - 75775 Paris Cedex 16
Luisa.Dressler@oecd.org
www.oecd.org/ctp || @OECDtax
Thank you for your attention

13. Back-up: Main technology scenario (model input)
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0%
20%
40%
60%
80%
100%
2017 2020 2025 2030 2035 2040 2045 2050
FCEV BEV PHEV Diesel Petrol
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2017 2020 2025 2030 2035 2040 2045 2050
FCEV BEV PHEV Diesel CNG/LPG
Source: OECD/ITF (2019), Tax revenue implications of decarbonising road transport: Scenarios for Slovenia, OECD Publishing, Paris.
Alternative fuel vehicles in new vehicle sales, 2017-2050
(Based on IEA 20C scenario)
0
200
400
600
800
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1200
2017 2020 2025 2030 2035 2040 2045 2050
0
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400
600
800
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1200
2017 2020 2025 2030 2035 2040 2045 2050
Passenger cars Trucks
0
2017 2020 2025 2030 2035 2040 2045 2050
Excise duty (incl. additional taxes) Toll income Carbon tax Motor vehicle tax Registration tax