This report investigates how tax revenue from transport fuels could evolve over time as vehicles rely less on fossil fuels, providing a conceptual framework and data-driven analysis. Reducing the reliance on fossil fuels in the transport sector is a welcome development that will reduce dependence on fossil fuels and improve climate and health outcomes. However, under current settings, reduced fuel use will also lead to a loss of tax revenues, which may put stress on government budgets. Based on simulations for the Republic of Slovenia, the report assesses the taxation of road transport and investigates how tax policy could adapt to declining fossil fuel use in the long term, while maintaining revenues at current levels.

Developing analytical frameworks and data-driven analysis is crucial to understand the various interactions between tax policy and decarbonisation, which is necessary to support OECD member and non-member countries ensure that they understand the importance of undertaking future tax reforms in order to secure sustainable revenue sources over the long term.

This report was discussed by the OECD’s Joint Meetings of Tax and Environment Experts. It was approved by the Committee on Fiscal Affairs and the Environment Policy Committee on 19 April 2019, and prepared for publication by the OECD Secretariat and the International Transport Forum (ITF).

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