Transport, Welfare and Externalities

Transport, Welfare and Externalities

Replacing the Polluter Pays Principle with the Cheapest Cost Avoider Principle

New Horizons in Law and Economics series

Dieter Schmidtchen, Christian Koboldt, Jenny Helstroffer, Birgit Will, Georg Haas and Stefan Witte

This book discusses a paradigm shift for dealing with the internalization of external costs in transport. Crucial to the analysis is the insight that the polluters are not the only cost drivers; both pollutees and the state can also contribute to reducing social costs. The authors show that applying the Cheapest Cost Avoider Principle (CCAP) instead of the Polluter Pays Principle (PPP) can lead to substantial welfare improvements.

Chapter 8: The Cheapest Cost Avoider Principle and the European Transport Policy

Dieter Schmidtchen, Christian Koboldt, Jenny Helstroffer, Birgit Will, Georg Haas and Stefan Witte

Subjects: economics and finance, environmental economics, transport, environment, environmental economics, transport, urban and regional studies, transport


The internalization of external costs is subject to ongoing concern in the European Union. According to Directive 2006/38/EC of the European Parliament and of the Council of 17 May 2006, amending Directive 1999/62/EC on the charging of HGVs for the use of certain infrastructures, a ‘fair’ system of charges is based on the ‘user pays’ principle and the application of the ‘polluter pays’ principle. The directive specifically mentions ‘the polluters [sic] pays principle for all modes of transport, by means of the internalization of external costs’ (European Commission, 2006, recital 18; see also recitals 18 and 19). Directive 2006/38/EC also requires the European Commission to present after examining all options including environment, noise, congestion and health related costs, a generally applicable, transparent and comprehensible model for the assessment of all external costs to serve as the basis for future calculations of infrastructure charges. This model shall be accompanied by an impact analysis of the internalization of external costs for all modes of transport and a strategy for a stepwise implementation of the model for all modes of transport. (ibid., p. 16) In order to assist the Commission’s work in this area, CE Delft and INFRAS prepared a discussion paper (‘the CE study’) covering potential methodologies for the estimation of external costs and possible internalization scenarios for further consideration. The paper was discussed in a workshop in Brussels on 15 March 2007, and the consultants were expected to provide a final report in November 2007. To the best of our knowledge...

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