The future of transport, especially in our cities, has been the subject of recent heated debate in the media and the Oireachtas. The discussion has been framed as a binary policy choice: that private cars should serve either the majority or little-to-none of our future transportation needs across the country.
Such framing is reductive and fails to recognise the existence of the many trade-offs associated with private car use. Cars bring many benefits: they are a highly convenient, flexible way of moving people and goods from one place to another. But cars also have many costs: they take up space in our cities, they cause congestion, accidents and noise, and they are a source of harmful greenhouse gas and particulate emissions. These costs can be thought of as the social costs of driving because they are borne by society at large rather than individual drivers and are not reflected in the prices people pay.
Policy needs to balance these costs and benefits, confronting the trade-offs they bring. The focus of debate has been on regulations and the allocation of road space, as well as the role of information to encourage behavioural shifts. However, the track record of informational campaigns in changing behaviour is quite poor.
Tax policy, on the other hand, is a powerful tool as was demonstrated by the tax-induced shift towards diesel vehicles in the 2000s. Taxes can be particularly effective as a way of aligning the social and private costs of driving, discouraging it where the social costs are high (such as in cities at rush hour) but not where they are low (for example, in rural areas where public transport is unavailable).
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Our current system of motor taxation does a poor job of this, with the vast majority of revenue raised from taxes closely linked to the amount of fuel used to drive a vehicle. Although these are somewhat related to the social cost of emissions from motoring, they are poorly targeted at most other social costs. Drivers may react to higher fuel prices by driving less, but they may also react by driving just as much – or even more – in an electric or more efficient car which still results in accidents, congestion and noise.
The close link between fuel used and revenue raised means that €4 billion to €5 billion of tax revenue – more than the annual Department of Transport capital and current budget combined – will dissipate over the coming decades as vehicles are electrified. There is therefore a pressing need for radical reform of our taxes on motoring, even without considering the huge opportunities from redesigning the system in a way that addresses other social costs of driving.
Foremost among these are the costs of congestion, estimated by the European Commission to be among the highest in the EU. These depend on when and where – not just on whether – a car is driven, which fuel taxes are incapable of reflecting. There is a case for replacing the non-carbon component of excise duty on motor fuel – currently 30-40 cent per litre – with a congestion charge in our biggest and most congested cities.
Congestion charges are a tried-and-tested mechanism that specifically incentivise drivers to avoid cities at peak times, reducing congestion and delays. Such a reform has the potential to leave many groups – notably hauliers, taxi drivers and rural drivers – financially better-off, as they will pay less on congestion charges than they currently do on fuel duties. This policy will also bring benefits for those who pay the charge, as they compete with fewer other cars for limited space.
In addition to aligning motoring taxes more closely with the social costs of driving, shifting away from fuel duty and towards congestion charging would – despite costing revenue in the short-run – put the public finances on a sounder footing in the long run. There is also a need to reform VRT and motor tax – which are both currently closely linked to fossil fuel consumption – as well as our system of road tolls which do little to discourage socially costly driving.
Varying toll charges by time of day is one option available, a model that has already been implemented for the Port Tunnel in Dublin. However, charging tolls on motorways, and not other roads, can result in traffic being diverted into towns and villages, where the social costs of driving are much higher.
A better approach would be to integrate motorway tolls into a wider system of road pricing, which would also ensure that electric car owners – who contribute to accidents and noise pollution much as petrol and diesel cars do – would pay for road usage. Such charges could in time replace congestion charges, although time and location road pricing like that operational in Singapore would require infrastructural investment and addressing potential privacy concerns.
However the Government decides to reform motoring taxes, it should start now. Delaying action merely kicks the can down the road and means there will be less revenue available to compensate those seen as unfairly affected by inevitable reform. Delaying action condemns us to further years of costly congestion and delays.
Muireann Lynch and Barra Roantree are economists at the Economic and Social Research Institute