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Tax Revenue Implications of Decarbonising Road Transport

Scenarios for Slovenia

image of Tax Revenue Implications of Decarbonising Road Transport

This report investigates how tax revenue from transport fuels could evolve over time as vehicles rely less on fossil fuels, with a focus on the case study of the Republic of Slovenia. Reducing the reliance on fossil fuels in the transport sector is a welcome development from the perspective of its climate and health impacts and of reduced energy dependence. 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 Slovenia, with a 2050 horizon, the report provides an in-depth assessment of the taxation of road transport and investigates how tax policy could adapt to declining fossil fuel use in the long term if the objective is to maintain revenues at current levels while taking fairness and efficiency considerations into account. It finds that gradual tax reforms, with an evolving mix of taxes, shifting from taxes on fuel to taxes on distances driven, can contribute to more sustainable tax policy over the long term.

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Assessment framework and results for the baseline scenario

This chapter introduces the assessment framework used in the analysis. It describes the simulation tool developed to evaluate the development of transport tax bases over time and to infer implications for tax revenues in the Slovenian road transport sector. The chapter highlights the model structure and scope and presents results for a baseline scenario. It also discusses the main technology scenario adopted for modelling the uptake of alternative fuel vehicles and provides sensitivity analysis to this key input parameter. Tax revenues from fuel excise levied on passenger cars may significantly decline under current policies when fuel-efficiency improves and the uptake of alternative fuel vehicles increases.

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