IEA - EU transport policies impose heavy costs on taxpayers for little gain

6 Jun 2016 01:56 PM

New IEA report asks if transport policy should be determined at EU level

EU transport policies are imposing staggering costs on taxpayers and consumers for very little benefit, according to a new study from the Institute of Economic Affairs. Increased taxes, more expensive vehicles and higher fuel prices are just some of the additional burdens from EU policies that range from green levies to infrastructure subsidies. 

The biofuels requirement alone in petrol and diesel is costing approximately €20 billion a year and is proving to be an expensive and ineffective method of reducing greenhouse gas emissions with the costs outweighing the benefits by a factor of seven. 

Taxpayers must also foot the bill for heavily loss-making EU projects, including 'white elephant' high-speed rail schemes in southern Europe. 

The new report examines whether transport policy should be implemented at the EU level. The authors examine different aspects of the sector and assess whether EU agencies or more decentralised institutions are best suited to making key decisions. 

Rail travel

• The EU’s development of new infrastructure has become a profoundly politicised process. Rather than maximising economic returns, resources have been diverted to poor-value projects that promote ‘European cohesion’.
• The Lyon-Turin high-speed rail link’s estimated cost has spiralled from €12 billion in 2002 to €26 billion in 2012 and it is taxpayers who bear the brunt of these wasteful investments. Worse still, several EU schemes have been plagued by fraud.
• Road schemes in core areas of the bloc are much more likely to produce high returns than expensive and risky high-speed rail projects in struggling peripheral regions.
• EU rules prevent full private ownership of rail infrastructure, encouraging inefficient fragmentation that separates track from train. Fragmentation has increased costs by approximately £1.5 billion a year in the UK alone, pushing up taxpayer subsidies.
• EU involvement in rail projects adds little value and politicises the sector unnecessarily.

Air Travel

• EU aviation policy has been more successful in delivering economic benefits as the EU has reduced protectionist behaviour by member states.
• Low-cost airlines are free to operate across the bloc with the ‘single-market’, enabling competition to bring major efficiency gains.
• But fragmentation of air traffic management along national borders raises costs in the region of €3.4 billion per year, through less efficient administration and unnecessarily long flight paths.
• The EU has been slow to deliver reform in areas where the efficiency gains from international cooperation have been obvious, such as air traffic control.
• The EU is not a necessary institution for air travel agreements. Alternative transnational arrangements involving non-EU members are likely to be more appropriate given the geography of the aviation market.

Alternative approaches

• Rail: dispersed bottom-up regulation would create competition between jurisdictions and enable a discovery process and increase economic efficiency.
• Air: EU-level policy and regulation is better suited to air travel but there is a strong rationale for international cooperation beyond EU boundaries when it comes to air traffic management.
• Environment: The Emissions Trading Scheme, a carbon-cap-and-trade scheme, is fully sufficient for reducing carbon emissions. There should be no ‘decarbonisation’ measures over and above the ETS: neither the EU nor the national government should try to go any further than that.

Commenting on the report, co-author Dr Richard Wellings, Head of Transport at the Institute of Economic Affairs said: 

"The current one-size-fits-all approach of EU transport policy has been far from optimal, with heavy costs imposed on individuals and businesses. Such a centralised setting allows for regulations and investment decisions to be determined by politics and bureaucracy rather than market mechanisms.

"A patchwork of voluntary cooperation between private infrastructure entrepreneurs and decentralised institutions would be far more productive and efficient."

Notes to editors:

For media enquiries please contact Nerissa Chesterfield, Communications Officer: nchesterfield@iea.org.uk or 020 7799 8920 or 07791 390 268

The full report, by Dr Richard Wellings and Dr Kristian Niemietz can be download here.

This report is part of the Paragon Initiative - the IEA's biggest-ever research programme. Across the next five years, we'll:

• Analyse the failure of current policies through a far-reaching series of nearly 50 books and papers scrutinising every area of government activity. 
• Later in 2016, we'll investigate child care, the state of social housing, government funding of the arts and more.
• All backed by a co-ordinated and comprehensive programme of stimulating events, compelling ieaTV films and targeted communications reaching policymakers, practitioners and opinion-formers.

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.

The IEA is a registered educational charity and independent of all political parties.