Environmental Taxes on Lorries

EU governments will soon be able to impose environmental taxes on lorries that use their motorways. Member States have finally voted on this and other changes to the current EU "Eurovignette" legislation that were proposed a couple of years ago. (The legislative proposal will now go back to the European Parliament for a further vote there, including, potentially, more adjustments, before being adopted into law.)

Transport ministers voted to allow Member States to charge heavy lorries not only for the costs of infrastructure usage, as is currently the case, but also for the environmental cost of air and noise pollution.

The "Eurovignette" Directive adopted in 1999 created a framework for road charges on heavy goods vehicles. The Directive allows (but doesn't require) Member States to impose road usage charges on lorries above 3.5 tonnes, essentially to recover costs of wear-and-tear, but it prohibits charges to recover the so-called "external costs" such as air pollution and noise that are increasingly viewed as being otherwise borne by society at large and by tax-payers.

Some of the main changes approved by Member States last week would:
• Give Member States the option to charge heavy lorries for air and noise pollution in addition to the cost of infrastructure use; 
• Allow for congestion-based charging;
• Allow Member States to charge lorries using not only the so-called "Trans-European Transport Networks" but but also all other motorways across Europe, roughly doubling the amount of roadway covered.

Political Context

The revision of the Eurovignette Directive was proposed by the European Commission in July 2008 as part of its ‘Greening Transport’ package. The European Parliament voted on it in March 2009 but when it was discussed in Council the same month, no agreement was reached, and the issue had remained blocked since then. Essentially, Member States could not reach agreement on the proposal; particularly states located on the geographical periphery of Europe were concerned about disproportionate costs of shipping goods to and from the more centrally located contries.

During last week's debate in the Council, the strongest complaints were voiced by Member States such as Ireland, Portugal and Finland. In the end, the political agreement between Member States was only adopted by a "qualified majority". Italy and Spain opposed to the final text and Ireland, Portugal and the Netherlands abstained. 

The key issues dividing the Member States are outlined below.

Earmarking of Revenues

An obligation to earmark toll revenues generated by the external cost charge for investment in sustainable transport was discussed. Based on a compromise proposal tabled by the Belgian EU Presidency, the obligation was replaced by a recommendation to do so.

The UK, Germany, Ireland, Luxemburg and Finland opposed to the obligatory earmarking of revenues from levies and made their agreement conditional on this issue. On the other hand Italy, Poland, Hungary, the Czech Republic, Slovakia, Bulgaria, Romania, Slovenia and Estonia preferred obligatory earmarking; however most of these Member States were willing to compromise on this position to reach an agreement.

Exemptions for Environmentally Friendly Vehicles

There was disagreement among Member States on whether environmentally friendly vehicles should be granted exemptions from the tolls until 2013 or 2020. The Presidency proposed to exempt vehicles, complying with the most stringent emission standards, from their pollution charge until 2 years after the date of entry into force of the Regulation on more stringent standards.

A majority of delegations including Romania, Bulgaria, Spain, Estonia, Malta, Cyprus, Portugal, Greece, the Czech Republic and Poland wanted an exemption for Euro vehicle class V until 2013 and an exemption for the least polluting Euro vehicle class VI until 2020. The agreement reached fixed the relevant dates at end of 2013 for vehicles of category Euro V and end of 2017 for vehicles of category Euro VI.

Maximum Toll Variation

As regards the means to tackle road congestion, the Presidency proposed to fix a maximum toll variation at 300% for peak hours and the duration of the peak hour periods at 6 hours. In the end the intervening parties settled for a maximum toll variation of 175% for peak hours and the period during which these higher rates can be applied was cut to 5 hours per day.

Germany, the Netherlands, Romania, Bulgaria, Spain, Estonia, Malta, Cyprus, Portugal, Greece and Poland felt the maximum toll variation should be dropped to 100%. All these countries, except Germany, supported a duration of the peak hour periods of 4 hours instead of 6.

Delegated Acts

The reference to delegated acts for amendments to Annex III on the calculation of toll levels was deleted and should instead follow the ordinary legislative procedure. Germany, France and Spain opposed to the amendments to Annex III as this was considered to be an essential aspect of the Directive.

Legal Basis of the Proposal

The political agreement reached clarifies the legal basis of the text, i.e. Article 91 of the Treaty on the Functioning of the European Union. This was challenged by a number of delegations, including Sweden and the UK, which considered the levying of charges to be too close to the imposition of a form of taxation. Accordingly, these Member States argued that the legal basis of the proposal should be changed.

The legal service of the Council underlined that under EU law a toll could be considered as being either a tax or a charge for services rendered. In accordance, the use of infrastructure could be considered the provision of a service. Furthermore, even if at national level it is decided to classify the levy as a fiscal measure when the Directive is transposed into national law, the legal basis under EU law remains unaffected.

Next Steps

The European Parliament already adopted a first reading position in March last year. The Council is expected to formally present its ‘Common Position’ before the end of 2010. Following the adoption of the ‘Common Position’ the proposal will go to a second reading in the European Parliament in 2011. Informal discussions between the Commission, Council and the European Parliament, over a possible adoption of the proposal at second reading, are expected to take place during 2011 ahead of the final vote in the European Parliament.