Where's the sound cost-benefit analysis?

Brussels – Addressing the EU Commission stakeholder consultation meeting on the "Internalisation of External Costs", IRU Head of Sustainable Development, Jens Hügel, today warned that, if applied to road transport, the “polluter pays” principle runs the risk of regulatory failure which will produce additional costs for the European economy.

Policy-makers consider the Polluter Pays Principle (PPP) as the only way to internalise external costs. However, this is not based on any cost-benefit analysis. It is equally too simplistic and inadequate to respond effectively to the internalisation debate taking place in the EU. It is rather an easy way to implement yet another government tax collection scheme, without actually reducing any external costs!

More importantly, the dogmatic PPP approach contradicts the EU’s “Better Regulation Initiative”, which calls for any policy-making to be based on a regulatory impact assessment, since the PPP already indicates which party should cover external costs, without conducting any cost-benefit analysis.

The IRU thus advocates the Cheapest Cost Avoider principle (CCAP), which won Ronald Coase a Nobel Prize, as a sound basis for assessing internalisation policies, which has superseded the PPP in many economic circles. The underlying principle of the CCAP is that the stakeholder which can prevent (or abate) external costs at the lowest cost for the overall economy should take action. This is of particular significance if policies are to prevent the price of internalising external costs exceeding the external costs themselves.

IRU Head of EU Fiscal Affairs, Damian Viccars, said, ‘’The IRU is convinced that in order to achieve sustainable development, economic growth and competitiveness in Europe, the CCAP, which is based on sound cost-benefit analyses, must be applied to all questions concerning the internalisation of external costs in road transport instead of the economically outdated and misguided PPP.