climate analytics


Policy measures

Decreasing activity for passenger cars

Fuel taxation

Fuel taxation is the most straightforward fiscal instrument aimed at changing the long-term behaviour of drivers. Moreover, it helps to partly internalise the externalities of transport, such as the societal costs of infrastructure, congestion, health problems related to pollution, injuries and loss of life due to road accidents.

Increased fuel prices may also cause a modal shift to public or shared ways of transport, such as buses and trains or carpooling. According to calculations by Transport and Environment, with a long term elasticity of -0.3 to -0.5 for car use, an increase in petrol, diesel and natural gas fuel taxes by 10% would decrease fuel consumption by 3-5%. 

fuel taxation

The switch from cars to other modes of transport (in reaction to higher fuel prices) is determined by the availability of different methods of transport or alternatives to commuting, e.g. home office. If such alternatives are lacking, an increase in fuel taxation may result in decreased acceptance of climate policy and high political costs for the policy-makers increasing fuel taxation. Policy-makers can use a balanced, context-specific mix of the following three approaches to reduce the risk of a negative societal response to increased fuel taxation:

  • development of low carbon alternatives to individual car transport, e.g. development of public transport, especially in suburban and rural areas 
  • promoting e-mobility (see our section on reducing emissions)
  • partial refund of the money on a per capita basis: polluters pay more than they receive, while those switching to alternatives benefit from an additional income.

A solution adopted in some countries, e.g. in Germany, where car drivers can deduct €0.30/km of commuting from the tax base, mainly if applied only to passenger cars, counterbalances the impact of the additional fuel taxation. A compromise may take the form of a commuter tax deduction introduced independently from the means of transportation. A commuter tax deduction is similar to the last option described above but applied only to persons commuting to work. 

Prior knowledge of the operational costs of owning a car would be helpful to the final consumers to allow informed decisions. Thus, steadily and predictably increased fuel tax can improve the impact of the fuel taxation on emissions, and the social and political costs will decrease. 

In July 2021, the European Commission proposed introducing an emissions trading scheme (EU ETS 2) that would, among others, cover the transport sector. Starting in 2026, the new ETS would introduce a carbon price for fuels, starting at a low price and having attached a price-controlled mechanism that would safeguard against a steep rise. A 25 euros per t/CO2 would translate into a 5 Eurocents per litre increase in gasoline and diesel prices, relatively close to market fluctuations. If member states achieve their respective national climate targets through other measures, the theoretical price of the new tax might even be zero. A European Social Fund will also be established, which the government can alleviate low-income citizens’ burden.

The Commission’s proposal to revise the Energy Taxation Directive (ETD) also provides an opportunity from a fuel taxation perspective. The proposed legislation introduces taxation based on the energy content of fuels instead of volume, levelling the playing field and ensuring the most polluting fuels get taxed the highest. The rate proposed for conventional fuels such as petrol will be the highest, at €10.75/GJ when used as a motor fuel. The Commission will also adjust minimum rates for fuels to reflect current prices and remove national exemptions and tax reductions. The Commission also encourages Member States to protect low-income households and vulnerable citizens from higher taxes through lump-sum transfers or financing more energy-efficient, low-carbon goods. The proposed introduction of emissions trading to the road transport sectors will complement the proposed revision of the ETD. Road ETS will tackle CO2 emissions while ETD will ensure that fuel taxation incentivises an efficient use of energy and the consumption of more sustainable energy products while not including a CO2 specific tax component.


Sweden is a good example of a country that utilises fuel taxation to decarbonise its transport sector. The country applies both a fuel excise tax and an explicit CO2 tax on diesel and gasoline. The nominal rate applied for the carbon tax is approximately 120 euro per tonne of CO2. The rates will likely see an increase following the revision of the ETD.

Road charging

Road charging may facilitate the shift from cars to other modes of transport, such as cycling, public transport, or railways. It may also increase the role of aviation, especially for countries with underdeveloped railway system. 

road charging

Road charging could take the form of toll on the motorways implemented in many EU countries. Drivers might be charged for using a specific section of the road or for a specific period of time on a road network. Charging drivers for a specific section of the road may discourage some of them from taking a shorter and paid route and take a longer one, with the corresponding increase in emissions. Should this option still be preferred for political reasons, it may be targeted at routes for which there is an alternative in the form of a faster railway connection. 

Charging drivers for a specific period of time offers an advantage as it would result in drivers the fastest route. However, a significant decrease in the costs of Vignette if it’s purchased for a longer period of time, may encourage drivers to stick to car transport even if in some cases train could be a better alternative. Therefore, the daily average price for a vignette should not differ much, independently from the period for which it is purchased.     

In November 2021, the EU adopted Eurovignette Directive and it obliges member states to phase-out time-based vignettes out for heavy-duty vehicles on the core TEN-T network within eight years. In addition, it introduces a mandatary fee on air pollution for heavy-duty vehicles after a four-year transition period, where tolls are applied. At the same time, the directive introduces numerous exceptions from these rules and leaves road charging almost exclusively to the member states. 

Car-free Sundays

Car-free Sundays have been introduced in some countries and cities to promote a car-free way of life and alternative modes of transport. The first examples go back to the 1970s during the oil crisis. Currently car-free Sundays are introduced in many cities; in Bogota, roughly 100 km of roads are car-free every Sunday, to make room for bicycles. 

The impact of car-free Sundays on emissions is limited by two factors: some drivers, who cannot or don’t want to resign from driving on that day, may take longer routes to reach their destination. In other cases, the trips will be taken on another day.  However, there are ways in which the impact of car-free Sundays may go beyond the resignation from car travels on that specific days. The car free days are suitable to show how the space taken up by cars can be used in a way, more beneficial to the citizens and in this way increase support to mitigate the car traffic. They can also facilitate the habit of using public transport among those who usually do not.  

car-free sundays

The political costs of implementing car-free Sundays can be decreased and long-term impact on emissions increased in three ways:

  • it should take place regularly to avoid surprises by the drivers and improve utilisation of available space 
  • it should be ensured that attractive alternatives are available outside of car-free Sundays
  • to encourage the utilisation of public transport instead of driving longer distances around the temporary car-free zone, it should be considered if public transport should be free on Sundays.
  • car-free Sundays should be a part of a broader package of measures, which includes the development of cycling lanes, pedestrian zones, and introduction of parking fees.   

In cities, active transport is an alternative to both car and public transportation. While public transporation has much lower GHG emissions than personal petrol or diesel cars, active transport (like cycling or walking) has none at all. Furthermore, active transport confers health benefits to the citizens. An inactive lifestyle is associated with increased risk for a variety of diseases, and a 20-30% increased risk of overall mortality. Thus, car-free Sundays would do well to promote cycling and walking equally as much as public transportation. 

Registration tax

Relatively high levels of private vehicle user remains a particularly pernicious issue for those seeking to reduce emissions from passenger transport. Introducing a registration fee for passenger cars could be an essential instrument in disincentivizing their use and decreasing passenger vehicles’ emissions. It could also be a way to approach the substantial flow of imported cars, particularly those from Western European countries, which greatly increase market supply and decrease prices – significantly increasing activity levels from this mode of transport.

To be compatible with the EU’s freedom of trade, any registration fee for imported vehicles would have to be charged independently of origin and include used cars resold domestically. A registration fee could be staggered depending on their emissions, with zero carbon vehicles excluded from the fee until the share of newly registered electric cars reaches a certain level. Studies have shown that taxes on purchases of new (or new to that particular owner) vehicles and taxes associated with vehicle registration are likely to be the most effective for motivating purchases of low-emissions vehicles. 


France established a tax on vehicle purchases in 2008, switching from taxation based on horsepower to taxation based on carbon dioxide emissions. They instituted a notched system that placed cars into one of three groups based on emissions per km – the higher the emissions, the higher the fee (in some cases, tens of thousands of Euros). Conversely, subsidies for low-emissions cars were introduced at the same time. Estimates suggest that this new scheme was responsible for motivating nearly the entire decrease in emissions seen after the reform.

Austria levels both a VAT and fuel consumption/pollution tax (Normverbrauchsausgabe, NoVA) on vehicle purchases of new vehicles and cars not yet nationally registered. The maximum rate for passenger cars is 32% plus the malus fee when applicable and is calculated for passenger cars such that NoVA = [(CO2 emissions in g/km-115)/5] + NoVA malus fee if applicable – €350. Zero emissions vehicles (e.g. electric vehicles) are not charged a NoVA, and other reductions or exemptions are available based on the particularities of the purchase and/or car. 

Car sharing

Car ownership is a major driver of activity levels: a private car is often used even if an attractive alternative is available, because “it’s there”. Car sharing may reduce activity levels of passenger cars by reducing car ownership: knowing that there is an option, for the rare cases that car is needed, some car owners may decide to give up ownership completely or at least reduce the number of cars in the household. 

car sharing

The main requirement, however, is that an attractive alternative to daily car travels exists (e.g. public transport, cycling, train) and car sharing is used only in exceptional cases. Due to higher utilisation rate per car, car sharing comes with an additional benefit of making their electrification more cost-effective.  Decreasing car ownership would also reduce the need for parking spaces. Finally, giving up a car results in significant personal savings in terms of the decreasing value of the car, costs of insurance and parking fees.  

To reduce the need for car ownership and increase a modal shift towards modes of transport that are less emissions intensive, car sharing should fulfill the following criteria: 

  • availability in remote parts of the city. While the car ownership model can only be competitive to its providers if it reaches certain utilisation rate, it can contribute the most to decreasing car ownership if it is available on routes where other alternatives are temporarily not available – e.g. due to construction or night time. 
  • assurance that enough vehicles are available in high demand areas. To ensure a balance between a high utilisation rate of the vehicles, which is in the interest of the car sharing providers, and availability of cars to be rented (which is an essential criteria for car owners willing to resign from their car), an in-depth assessment of needs is required. 
  • ensuring that the cars to be rented are adapted to specific needs. This applies especially to cars rented to transport certain products that cannot be transported on foot or via public transport.   

In all those cases, the interests of the car sharing companies may not necessarily correspond with public interests. This is especially the case when car sharing operators target customers who would otherwise use public transport. Car sharing providers may also ignore areas where availability of car sharing could result in a decrease in car ownership, but the utilisation rate of the vehicles would be much lower than in the city centre, where car ownership is low anyway. These differences should be taken into consideration by the public administration when operating licenses are issued and an optimal compromise should be reached. 

Rethinking subsidies

The possibility of using cars provided by the company significantly diminishes the willingness to reduce activity levels. In fact, the perception of travelling “for free” results in using passenger cars instead of options that could otherwise be cheaper, e.g. train.

rethinking subsidies

In addition to the emissions, subsidies for company cars come at a significant cost to the whole economy: companies purchasing cars can deduct the VAT and write off the value of the car depreciation from their taxes. According to the calculations by Transport & Environment, this results in combined subsidies of €32 billion annually in the EU. In Germany alone, private utilisation of company cars reduced tax proceeds by €3 billion in 2018. 

The possibility to deduct the purchase and utilisation of company cars should be reduced only to areas in which no other means of transport can be used. This concerns specific companies (e.g. construction, delivery) and cars (e.g. only construction vehicles or vans). An interesting best practice has been adopted in Denmark: starting on 1 July 2021, employers using company cars for private purposes have to pay a tax on it. The level of the tax is determined by the value of the car plus an environmental supplement. Another option that could avoid using company cars for private purposes without paying the taxes could be clearly marking company cars and banning their usage over the weekend. 

Parking fees

Charging for public parking spaces, especially in urban areas, is one of the most common ways currently introduced to reduce car utilisation. It also one that can be easily communicated: the utilisation of public space for parking spaces is one of the most inefficient ways of using it.

At the same time, introducing charges for parking spaces results in opposition of car owners accustomed to their free availaibility. It may thus come at a significant political cost to the decision makers and the potential of losing elections if the resulting decrease in popularity is not mitigated and compensated by citizens encouraged by the new measures. The political cost of introducing or increasing parking fees can be reduced by a number of measures. Theis mix may differ depending on whether the parking spaces are mostly used by commuters or occasional visitors. 

For parking spaces used mostly by commuters, the following aspects should be taken into consideration:

parking fees
  • predictability and steady increase – knowing that hitherto free parking spaces will be paid for in the coming months allows commuters to adjust their decisions, e.g. resign from the purchase of the car.
  • availability of alternative modes of transport – it must be ensured that the introduction or increase of charges for parking space comes hand in hand with the expansion of the public mode of transport. It should be expected that introduction of charges for public parking in areas close to the biggest employers will result in much higher utilization of the existing means of transport. Therefore their frequency should be significantly increased and made easier
  • free parking spaces at the outskirts of the city – to increase the availability of alternatives for commuters from outside of the city, free parking spaces at the outskirts of the city but next to city bus or metro station. To promote electric mobility, the parking spaces could in addition be equipped with charging stations.  
  • introduction of employee tickets – Commuters situated in areas affected by the parking charging should be allowed to benefit from public transport tickets, preferably at a reduced rate. These public tickets could be co-financed by the local authorities from the additional income resulting from parking charging charging.
  • promotion of low carbon modes of transport – An option that could be temporarily considered is introducing lower charges for low emission vehicles and ZEVs. However, keeping in mind that at the latest in the 2030s most cars will belong to this category, this advantage should be temporarily or geographically limited to areas for which other utilisation of the space is not possible  
  • equal distribution of resources from the parking fees to the residents in the district  – monthly payment to everyone 

For parking spaces occasionally used e.g. by tourists or customers: 

  • to reduce opposition by businesses, it could be considered if a limited number of free parking spaces are allowed in front of selected shops for limited time (e.g. 1h).
  • in other areas, charging for parking spaces could increase for each additional hour to discourage long-term parking. 
  • fees may also increase authomatically, if a certain share of parking spaces are already taken up. In this way parking space is always available but at a higher price.  If all parking spaces in a certain area are charged at the same higher rate, this could decrease the tendency to drive around in search for a an availabel parking spaces.       

Charging for parking spaces, especially if alternatives (possibly co-financed from the financial proceeds collected) are be made available, will result in a significant reduction in cars parked. To increase the popularity of this policy measures, the newly won space should be used in a way that maximises its benefits for the population, e.g. green spaces, outside cafes, cycling lanes.    

Policy measures