Environmental Tax Policy Review of Romania

4. Assessing Romania’s tax framework for road transport

Key findings

Road transport in Romania is driving rising GHGs and persistent NO_x pollution, while public transport use falls and rail infrastructure is degrading.

• GHG emissions from road transport in Romania are rising, mainly due to higher diesel consumption from increased passenger car ownership and diesel cars, and to a lesser extent from more truck traffic.

• Air pollution from road transport in Romania is generally declining, except for NOx for which transport accounts for about half of domestic emissions. Slow fleet turnover and imports of relatively old second-hand vehicles are delaying adoption of cleaner cars with newer Euro emission standards.

• Public transport in Romania remains relatively important by EU standards, but usage is declining. Rail infrastructure is ageing and unevenly distributed.

Tax policy can support better environmental outcomes in road transport if implemented effectively and fairly, while balancing trade-offs with revenue objectives and distributional concerns.

• Carbon pricing and fuel excise taxes are powerful instruments to reflect the external costs related to GHG emissions or to use prices to attain climate mitigation objectives, with air pollution co-benefits, while being cautious about potential base erosion due to fuel tourism.

• Vehicle taxes can additionally be designed to encourage the uptake of electric vehicles, as well as cleaner Euro emission standards and higher fuel efficiency vehicles, although they are less efficient than instruments such as carbon pricing to do so.

• Distance-based charges can reflect external costs related to driving, in particular when charges are differentiated according to vehicle characteristics and align with population exposure to these externalities, as well as provide stable long-term revenues to compensate fuel excise tax decline when the fleet electrifies.

Romania’s recent vehicle tax and road pricing reforms are important steps to reduce air pollution and the EU ETS2 will strengthen price signals on GHG emissions from road transport. However, additional measures can further improve environmental outcomes.

• Considering the current lower taxation of diesel compared to gasoline despite the higher environmental costs related to diesel use, harmonising tax rates between both could be envisioned alongside the introduction of a carbon component through the ETS2 starting 2028.

• In the absence of a purchase tax, further differentiation of the annual motor vehicle taxes according to Euro emission standards would support the adoption of cleaner cars, while maintaining reduced tax rates for battery electric vehicles in the short and medium term.

• Better targeting the existing scrappage scheme and higher vehicle taxes could support environmental goals and create fiscal space.

• Complementary pricing measures, such as urban tolls, could further reduce air pollution in urban areas where air pollution emissions have a strong negative impact.

• Distance-based charges can address driving related external costs like congestion, air pollution and noise and ensure stable revenues: in the short run, in particular if current road toll rates gradually increase to compensate for revenue foregone from diesel fuel tourism, while maintaining the existing rate differentiation according to trucks’ characteristics such as Euro emission standards, and in the long run when electrification progresses tolls are extended to cars.

• Support to vulnerable drivers for economic reasons (e.g. low-income households) or transport constraints (e.g. commuters, freight transporters), depends on available administrative data and could favour public acceptance of tax reform, could be provided through targeted time-limited support or public transport subsidies.

• Reaching Romania's environmental objectives requires a well aligned policy mix beyond taxation. Modal shift could be enhanced by investments in clean and well-connected public transport. Low emission zones can tackle the negative impact of air pollution at the local level. Finally, well-tailored communication, on the upcoming reforms and their impact, on the current and future total cost of ownership of different technologies can foster the transition.

This chapter examines the role of tax policy within the broader policy framework aimed at reducing GHG and air pollution emissions in road transport in Romania. The chapter begins by outlining current challenges in Romania’s road transport sector including environmental outcomes, infrastructure and revenues. It then examines the main barriers and market failures affecting clean vehicle adoption and emission reductions. Next, it reviews different tax policy objectives in the sector drawing on international practices and existing literature. The chapter concludes with actionable policy recommendations to better align Romania’s environmental tax framework with policy objectives.

4.1. Setting the scene

4.1.1. Growing GHG emissions and air pollution due to increased car ownership and traffic

Growing GHG emissions and air pollution

GHG emissions from the road transport sector have been increasing in recent years and represent the third source of domestic GHG emissions in Romania. In 2021, the transport sector was the third-largest source of GHG emissions in Romania, accounting for up to 17% of domestic GHG emissions1, the bulk of it (96%) coming from road transport. Over the past decades, emissions from the road transport sector have risen significantly, from 10.7 Mt CO₂e in 1990 to 11.9 Mt in 2005, and reaching 18.8 Mt in 2021. This represents a 76% increase between 1990 and 2021, driven primarily by rising motorisation rates and increased traffic.

The rise in road transport GHG emissions is largely driven by diesel combustion, due to increasing number of diesel cars and heavy-duty trucks. Emissions from all types of vehicles have been steadily increasing since 1992, with a particularly sharp rise in emissions from passenger cars (see Figure 4.1). While passenger car emissions were at the same absolute level as those from other vehicles in 1992, they have since increased by 250%, far outpacing the more moderate 50% rise in emissions from heavy-duty trucks and buses. Today, passenger cars account for the majority of road transport emissions, at 53%, followed by heavy trucks and buses at 34%, and light trucks at 13%. Motorcycles contribute less than 1% to road transport emissions. Moreover, the share of passenger cars using diesel is growing. Although diesel cars are generally more fuel-efficient, they tend to be driven more frequently and emit more CO₂ per litre of fuel combusted. Additionally, there has been an increased activity of heavy trucks and buses, which are almost exclusively diesel-powered, and the growing road traffic, partly due to a shift from rail to road.

Figure 4.1. Distribution of road transport emissions in Mt CO₂e by fuel and by vehicle type in Romania from 1989 to 2021

Source: Author’s elaboration based on UNFCCC (2021[1]).

Road transport also contributes to air pollution, in particular to NO_X. Road transport represents approximately 9% of NMVOC, 5% of PM 2.5, 20% of CO emissions and up to 46% of NO_x in Romania (see Figure 4.2). The EU regulations on fuel and vehicles caused important drop in air pollutant emissions over time. SO_x emissions have been almost totally removed thanks to the regulation on sulphur content in fuels (European Union, 2016[2]). Other regulations on vehicles define Euro standards, which are maximal threshold of air emissions per km for new vehicles. They tackle, among other, NO_X, CO, NMVOC and PM and have contributed to the reduction of such emissions at the vehicle level by gradual tightening over time. Nevertheless, since 2015, total domestic NO_X emissions from road transport are slowly increasing.

Figure 4.2. Air pollutants emissions in Romania and EU targets

Note Emissions on Panel A are as of 2023. Targets on Panel B are from the European Directive.

Source: Author’s elaboration based on EEA (2023[3]).

To stay in line with EU objectives regarding air pollution and GHG emissions, Romania will have to monitor closely the activity of the road transport sector. The current evolution contrast to the reduction targets set for 2030. As part of the Integrated National Energy and Climate Change Plan (NECP) target, Romania has committed to capping GHG emissions from the transport sector to no more at 40% above 1990 levels by 2030 (Romania, 2024[4]). Additionally, the European Climate Action Regulation sets a 17.5% GHG emissions reduction target in 2030 compared to 2005 level for transport (excluding aviation), buildings, small industries and waste (European Union, 2023[5]). Regarding air pollution, Romania has air pollution reduction with the National Emission reduction Commitments Directive (European Union, 2016[6]). For NO_x, the target is -60% in 2030 compared to 2005 levels. While most of these targets are for several sectors, the role of transport as the third emitting sector for GHG and first emitting sector for NO_x will be crucial.

An expanding fleet and increased use of high-emitting vehicles

Car ownership and traffic activity have risen over the past decades in Romania and are expected to continue increasing. The number of cars per 1 000 inhabitants rose steadily from 200 in 2011 to 360 in 2023, but is still below the EU average of 505 cars per 1 000 inhabitants (see Figure 4.3). In absence of measures, car ownership is expected to increase jointly with the purchase power of Romanians, a key driver for car ownership demand. The freight transport activity increased less strongly, up to 3232% in terms of vehicle-kilometre2 between 20077 and 2024 (Eurostat, 2024[7]). This is partly due to a shift from rail to road freight transport, and to increased international transport linked to cross-trade and cabotage.

Figure 4.3. The motorisation rate is increasing as more households can afford a car

Note: Motorisation rate (panel A) refers to the number of cars per 1 000 inhabitants; panel B shows the share of households who do not have a car because they cannot afford it according to the EU SILC survey

Source: Author’s elaboration based on Eurostat (2025[8]; 2025[9]).

Romania’s car fleet is ageing and increasingly dominated by diesel vehicles. The average vehicle age is growing, with 36% of cars over 20 years old in 2024 (see Figure 4.4). Diesel vehicles grew from 30% of the fleet in 2010 to over 51% by 2024. This evolution is due by the types of cars entering the fleet and low turnover.

Second-hand diesel cars have gained traction over the past decade due to their low cost and wide availability in the second-hand market. Between 2011 and 2017, the number of registered second-hand vehicles, predominantly from Western European countries, increased by 450%. This can be attributed to the affordability of older diesel cars, which are often phased out in Western Europe due to stricter emissions standards, surcharges on high-emission vehicles, and urban bans on diesel cars. The increase of second-hand imported diesel cars was sharpened by the removal of the purchase tax on new registrations in 2017 (Transport & Environment, 2018[10]) (see below for a discussion). In 2024, 48% of cars newly registered in Romania are imported second hand diesel cars with an average age of 12 years, against 8% with an average age of 13 years for second-hand gasoline vehicles. By contrast, new gasoline vehicles account for approximately 13% of newly registered cars, and new diesel vehicles for 4%.

Import of second-hand diesel cars is mainly driven by household purchases. 71% of newly registered cars are owned by households, 60% of which being second-hand diesel cars. Firms tend to buy cleaner vehicles (i.e. newer and with less carbon intensive energy).

The rise of diesel cars in Romania’s fleet contributed to increasing GHG and local air pollutant emissions. Older diesel vehicles emit more GHG emissions due to higher carbon content in diesel (see Section 4.2) and also more air pollutants. In 2024, over 81% of cars in Romania were more than 10 years old, corresponding to a Euro 0 to Euro 5 emission standards3. In 2024 approximately 55% of the newly registered cars complied with Euro 6 standards.

Figure 4.4. The car fleet is ageing and the share of diesel cars increasing

Note: Vehicles older than 50 years at the time of the first registration are excluded from the statistics. Gasoline-powered cars presented in panel B also include cars powered by LPG and natural gas, which represent a very small share of the total.

Source: Eurostat (2025[8]), Romania’s Ministry of internal affairs (2025[11])

Use of public transport and carsharing is more frequent in Romania compared with other EU countries, but in decrease over the past years. For passenger transport, almost 28% of the distance travelled is via buses and coaches. Walking also represents a high share (7%), while other smart mobilities options are at a lower level (0.3% cycling, 3.9% train, 1.9% urban rail) (Eurostat, 2021[12]). Also, car occupancy is higher than in other EU countries, with almost two people per cars. There is evidence that public transport use decreased with the growing motorisation rate in Romania. Similarly, an increasingly higher share of freight transport happens by road compared to rail (Eurostat, 2025[13]).

Increased reliance on cars and road freight with fossil fuel energy makes it harder to meet environmental objectives and is sensitive on energy security grounds and for mobility reasons, and the growth in road transport activity should be carefully managed. Without further action, the increase in car ownership and activity coupled with reliance on old diesel or gasoline-powered vehicles will likely compromise the achievement of the environmental targets for the coming years, as well as create path dependency to fossil fuel-based technologies. Once purchased, vehicles remain in place for some time (on average 15 years in Romania in 2022 (ACEA, 2024[14])) and new technologies risk to only slowly penetrate the fleet.

Growing road transport activity

Greater vehicle affordability fed the growing road transport activity for households. Growing purchase power has likely been one of the main contributors to the raising motorisation rate over the past decades as vehicles have become more affordable, although it remains well below the EU average. From 2000 to 2024, the average wage in Romania has tripled in constant domestic prices (OECD, 2024[15]). The cost of cars remains relatively high in relation to purchasing power in Romania. The average price paid for a used car is EUR 12 800, a substantial investment compared to the average monthly salary of EUR 832 (Spotmedia, 2024[16]). Monthly costs are estimated at a bit less than EUR 400 for ICE cars (Lease plan, 2024[17]).

Urban sprawl and motorway expansion and low railway maintenance may be other drivers. Since the 1990, major cities like Bucharest, Cluj-Napoca, and Iași have experienced outward growth. This expansion increases dependence on personal vehicles, as public transport does not always adequately serve sprawling peri-urban areas. Expansion of motorways has incentivised the growing activity, both for passenger and freight transport, although still less developed compared to Western Europe, has been expanding (see Section 4.2 for discussion). Finally, low speed and delays of trains seem to make road a better option for long-distance travels.

4.1.2. Revenue consideration

Romania has faced a budget deficit for several years and is subject to a procedure for excessive deficit under EU rules since April 2020. Energy and vehicle related taxes can contribute to gain fiscal space, but, but adapting tax systems will be required as the fleet composition evolves.

Fuel excise taxes, and to a lower extent vehicle tax, already represent a significant share of tax revenue, even though reduced by generous support for diesel and EV purchases. Energy-related taxes accounted for almost 1.5% of GDP and 26% of tax revenue in 2023. The percentage as a share of tax revenues is well above the OECD average at 3.7% (see Figure 4.5) and in sharp increase compared to 2021 level of 13%. Energy-related excise taxes represent RON 22.7 billion4 in 2024, with a high share from automotive fuels. Transport taxes, almost exclusively vehicle taxes, account for 0.1% of GDP and 2.3% of tax revenues. Energy subsidies have been distributed in 2022 to all drivers and more recently in 2024, 2025 and 2026 to diesel used in freight transport. As an order of magnitude, around RON 190 million were disbursed for the five months between October 2025 and March 2026.

Figure 4.5. Transport and energy tax related revenue in Romania and selected countries in 2023

Note: Taxes on energy products relate to taxes on all energy products (e.g. fossil fuels and electricity) including those used in transportation (e.g. petrol and diesel) and includes all CO2-related taxes. Taxes on transport includes one-off import or sales taxes on transport equipment, recurrent taxes on ownership, registration or use of motor vehicles, and other transport-related taxes and excludes excise taxes on automotive fuels.

Source: OCDE (2025[18]) .

4.2. Market failures in road transport and barriers to clean vehicle uptake

Negative externalities from transport activity can cause major market failures in road transport. Market failures occur when the market does not allocate resources efficiently. Negative externalities occur when an economic activity, e.g. vehicle use, imposes costs on society that are not reflected in prices paid, such as external costs related to GHG emissions, local air pollution, noise, congestions and accidents. Poor transport infrastructure can reflect market failures too or relate to government or policy failures.

4.2.1. Externalities and external cost estimates

Vehicle use generates a wide range of externalities that depend on the characteristics of vehicles and the context in which they are used. Externalities arise when one or several economic agents have an activity that imposes costs on others that are not reflected in the prices paid. For a driver, private costs include maintenance and insurance, which are priced at market prices. External costs5 are unpriced negative externalities (e.g. CO₂ and congestions) that affect the population and may not affect driver behaviour.

For road transport, externalities include air pollution, GHG emissions, noise, accidents, congestion and road damage. The level of air pollution depends on vehicle end-of pipe technologies. Diesel vehicles typically emit more air pollutants than gasoline or alternative fuel-powered vehicles, such as electric vehicles. The cost of air pollution varies with location and the health condition of those exposed. GHG emissions, on the other hand, are directly proportional to the quantity and type of fuel combusted and their impact on climate change is global, instead of local. Congestion levels vary according to location and time of driving, with costs also depending on consumers’ preferences regarding time of travel. Road damage depends on the weight of the vehicle and road surface, while costs related to noise depends mainly on vehicle type and location.

Externalities can be quantified into external cost, useful to set adequate pricing. As externalities, these estimates vary according to the vehicle’s characteristics and driving circumstances. They also vary according to the underlying assumptions of the estimated cost of each level of externality (discussed in the section below).

Externalities

GHG emissions and climate change

GHG emissions from vehicles consist mainly of carbon dioxide (CO₂), methane (CH₄) and nitrous oxide (N₂O). In the transport sector, GHG emissions result almost entirely from fuel combustion. CO₂ emissions represent by far the highest share of GHGs emitted in road transport. Methane emissions occur from incomplete fuel combustion or from leakage in natural gas-vehicles (Clairotte et al., 2020[19]). Nitrous oxide emissions result from both fuel combustion and, more importantly, from technologies6 aiming at reducing air pollutants as a by-product. While emitted in smaller amount, CH₄ and N₂O have a much higher global warming potential: one unit of methane and nitrous oxide warm the atmosphere 28 and 265 times more than CO₂, respectively. GHG emissions in Romania consist mainly of CO₂ (98.8%), with smaller shares from CH₄ (1%) and N₂O (0.2%) (UNFCCC, 2021[1]). Some GHG emissions are not related to fuel combustion, such as F-gases from air conditioning systems, though their levels are negligible.

Box 4.1. Determinants of CO₂ emissions in the road transport sector

At the vehicle level

CO₂ emissions from vehicles depend on how much each vehicle, i, drives and the energy type, j, the vehicle uses, as well as the:

• Carbon content of energy, expressed in CO₂ per unit, for instance grams of CO₂ per litre, refers to the quantity of CO₂ emitted during the combustion of this energy. It can be direct for ICE vehicles, powered by diesel and gasoline, or indirect for electric vehicles. This content is higher for diesel, compared to gasoline.

• Energy intensity per vehicle is expressed in unit per kilometre driven, for instance litre per 100 km, and can vary over time and, amongst others, depending on the driving conditions. Energy efficiency is influenced by the energy content of the fuel, the efficiency of the engine in converting that energy into traction, vehicle size (and therefore the energy demand), but also driving-related characteristics and the type of route. For a given vehicle size, diesel vehicles tend to be more energy efficient than gasoline vehicles,7 and electric vehicles more efficient than diesel and gasoline vehicles.

${CO2 emissions}_i={km driven}_i*{energy efficiency}_{i,j}* {carbon content}_j$

At the fleet level

Emissions at the aggregated level depend on the structure and use of the vehicle fleet in real world:

• Energy efficiency: diesel-powered vehicles tend to be larger, leading to lower energy efficiency.

• Number of kilometres driven: diesel-powered vehicles tend to be driven more.

Source: Harding (2014[20]), OECD/ITF (2019[21]), OECD (2023[22]) for the vehicle level paragraph, Transport and environment (2017[23]) and COPERT (2025[24]) for the fleet level paragraph.

Diesel combustion emits more CO₂ emissions than gasoline per litre, which is partly compensated by higher fuel efficiency (km/l). CO₂ emissions are directly proportional to the volume of fuel consumed for a given fuel type, being higher for diesel. As shown in Box 4.1, the type of fuel is a key determinant of GHG emissions, due to the varying carbon content of fuels. The combustion of one litre of gasoline emits 2.3 kg of CO₂, compared to a litre of diesel which emits 2.7 kg of CO₂ and 1.5 kg per litre of LPG, for a respective energy content of 34.2 MJ, 38.6 MJ and 25.5 MJ. For a given size, diesel vehicles nevertheless tend to be more energy-efficient than gasoline ones.

Methane and nitrous oxide emissions are not directly proportional to the volume of fuel consumed. Methane emissions are higher in cases of incomplete fuel combustion, which is more common in gasoline-powered vehicles. Nitrous oxide emissions are higher for diesel-powered vehicles with recent technologies such as selective catalytic reduction (SCR) (Clairotte et al., 2020[19]).

In the case of electric vehicles, road transport can also cause indirect emissions, which are lower than direct emissions. Indirect emissions (also referred to as “Scope 2” emissions) are associated with the combustion of fuel to generate the electricity consumed by electric vehicles8. The level of Scope 2 emissions depends on both the carbon intensity of electricity production and the energy efficiency of the vehicle. In 2023, the carbon intensity of electricity production in Romania was 226 gCO₂ per kWh - slightly below the EU average - and has been steadily decreasing since the 1990s (EEA, 2025[25]). Currently, the share of fossil fuel (mainly coal and natural gas) used in electricity production stands at 31% (IEA, 2025[26]). Energy efficiency is affected by the type of electric motor and the size of the vehicle. Electric vehicles are approximately three times more efficient than ICE vehicles due to the superior efficiency of electric motors (EPA, 2025[27]). This means that less energy is required to drive an electric vehicle compared to an ICE vehicle of the same category. For this reason, and even though EVs tend to be larger due to heavy batteries and consumer preferences, they produce lower overall emissions (IEA, 2024[28]).

Local air pollution and health damage

The main source of air pollution from road transport are exhaust emissions from fuel combustion. Vehicles emit nitrogen oxides (NO and NO₂ jointly referred to as NO_x), particulate matter (PM₂.₅ and PM₁₀), carbon monoxide (CO), volatile organic compounds (VOCs) and sulphur oxides (SO_x). Additionally, under sunlight, VOCs and NO_x react to form ground-level ozone (O₃). These air pollutants have significant health and environmental consequences (World Health Organisation, 2005[29]). NO_x, PM, SO_x and O₃ contribute to respiratory diseases. CO reduces the level of oxygen delivered to the body. VOCs cause irritation and can be carcinogenic. Finally, NO_x and SO_x contribute to acid rains, and PM can warm the atmosphere through the absorption of sunlight.

The level of pollutants emitted varies according to the type of fuel and combustion process, as well as the end-of-pipe technologies used in the vehicles. Due to their type of combustion system, diesel engines more importantly emit NO_x and PM, while gasoline vehicles while more CO and VOCs9 (UNEP, 2021[30]). Low fuel quality10 influences the combustion process, leading to higher NO_x and PM emissions. NO_x levels also vary according to the driving conditions and are higher with acceleration and cold starts, which are more frequent in congested areas with stop-and-go or with frequent short urban drive (He et al., 2022[31]). Finally, modern end-of-pipe technologies can significantly reduce the level of air pollution, like selective catalytic reduction systems for NO_x or diesel particulate filters for PM for diesel vehicles (European Commission, 2022[32]). SO_x emissions directly depend on the content of sulphur in the fuel and depends on the fuel quality. Thought sulphur content was historically higher in diesel compared to gasoline, several countries implemented regulations leading to very low sulphur content (UNEP, 2024[33]).

Non-exhaust emissions, which result from wear and tear pollutants and not from fuel combustion, are low but gaining importance. Non-exhaust emissions are mainly particulate matter (PM₁₀, PM₂.₅), resulting from frictions and abrasions11 (OECD, 2020[34]). Their levels increase with the weight of the vehicles, as well as vehicle speed and congestion causing stop-and-go traffic. In modern fleets, where PM emissions resulting from fuel combustion are low thanks to catalytic converter or electrification, non-exhaust PM can exceed exhaust PM. This is especially true in urban traffic (frequent braking) and heavy vehicles (SUVs and trucks that cause greater friction with the road).

The impact of air pollution is highly local and varies according to urban density, topography and the type of population exposed. On the emission side, the air pollution level due to road transport is higher in urban areas due to higher emissions (more traffic, pollutants trapped in urban canyons) and higher exposure (more people). At the individual level, children and older people are more vulnerable to air pollution (WHO, 2025[35]).

As for GHG emissions, electric vehicles cause indirect air pollution through electricity production. Due to higher energy efficiency of battery electric vehicles, this level is nevertheless lower than those generated by ICE vehicles. Air emissions additionally happen in power plants located outside urban areas, where less people are exposed.

Other externalities

Congestion refers to the time lost in traffic collectively and can cause increased fuel consumption and consequently GHG and air pollution emissions and economic inefficiencies. It also leads to a reduced quality of life for all drivers and has an economic cost from delays for the delivery of goods and people. Its level varies by time and location. It is influenced by existing transport infrastructures, for instance, the presence of public transport alternatives, and driving habits, for instance commuting hours. Bucharest is ranked as the fourth most congested city in the world and the first in Europe (TomTom, 2025[36]), as driving 10 km can last up to 31 min.12

Noise causes stress and, by extension, other health issues. Its level increases with vehicle speed and weight and varies according to road surface, with asphalt being smoother than concrete, and tire type. Vehicle types also play a role, as motorcycles and trucks emit more noise than cars. Additionally, the density of urban areas intensifies the noise, as well as the exposure to noise. The level of noise is also relatively high in Romania, as almost 40% of inhabitants within urban areas are exposed to unhealthy road traffic noise, above the 55-decibel threshold of the EU Directive relating to the assessment and management of environmental noise (EEA, 2024[37]).

Road accidents cause death, injuries and emotional trauma, in addition to having an economic cost due to medical treatments and loss of productivity. Their level varies according to speed and driving behavior, as well as vehicle safety standards and the road design (especially how the mix of road users is harmonised). This is a critical issue in Romania, which has the highest level of fatalities linked to road transport in the EU. According with the preliminary data, in 2025, around 68 persons per one million inhabitants were killed in road accidents in Romania, against an EU average of 43 persons (European Commission, 2026[38]).

Wear and tear refer to road infrastructure damages. Their impact leads to frequent repairs, maintenance costs, and thus increased public spending. Additionally, it disrupts mobility, especially for heavy freight corridors. Their level varies according to vehicle weight and axle load and road construction quality. Weather, freezing – defreezing cycles as well as anti-sliding materials used during winter can additionally weaken the surface.

External cost estimates in road transport vary

Externalities vary with context and vehicle characteristics and can be quantified into external costs under certain assumptions. External costs are computed by multiplying assumptions on the cost of externalities by a quantified amount of externalities. Van Dender (2019[39]) provides a summary of the range of external costs estimates, and European Commission (2019[40]) an evaluation for EU countries. Assumptions on the costs are the following:

• The external cost of climate change (cost of physical damages, human health impact, socio economic losses) is often quantified around EUR 100 in the medium term, though the estimates varies widely, especially depending on the pure (Wang et al., 2019[41]). As CO₂ emissions are directly proportional to the quantity of fuel consumed according), an equivalent price per litre of fuel for the externality can be calculated.

• For air pollution, a cost per kilogram emitted is computed by aggregating the different costs for health and environmental damages, which vary by pollutant, level of urbanisation, and country characteristics (e.g. population size and age structure).

• For accidents, quantification relies mainly on human costs, based on the statistical value of a life (EUR 960 000 in Romania, according with the National Road Safety Strategy (Government, 2022[42]), and EUR 3.6 million per life in the EU, according with the EU handbook).

• For noise, a price per decibel per person per year is used, increasing with noise level.

• For congestion, the value of the hour lost depends on the type of use (e.g. passenger for business or for personal use, freight) and the duration of the delay.

Figure 4.6. Average external cost per type of vehicles in the road transport sector

Note: External costs are in EUR per passenger-kilometres for cars, buses, coaches and motorcycles, and per ton-kilometre for light duty trucks and heavy duty trucks. The activity data are from Eurostat and based on the nationality principle.

Source: State of play of the internalisation of Internalisation in the European Transport Sector The cost for accident for motorcycles is EUR 54 (truncated on the graph).

External cost estimates for Romania are especially high in relation to accidents, and close to the EU average costs for other externalities when looking at the cost per passenger or tons of goods transported.

• External costs related to accidents and noise in Romania are above the EU average for all vehicle types, except for heavy-duty trucks in the case of accidents and are significantly higher for motorcycles, followed by light-duty trucks.

• External costs related to climate change and air pollution are of a similar order of magnitude compared to the EU average when looking at the costs per passenger or per ton transported. This is likely due in part to a higher occupancy rate compared to other EU countries.

• External costs for infrastructure are close to the EU average.

4.2.2. Barriers to the uptake of clean vehicles

Beyond unpriced externalities, adopting low-emission vehicles faces several challenges, foremost being high upfront costs. Buyers seem to give relatively high importance to the purchase price compared to recurrent cost, as the high price of EVs is quoted as the first barrier to adaption in recent surveys (European Commission, 2023[43]). The decreasing cost of batteries, as well as scaling up, market competition and increasing supply compared to demand drives purchases prices of EVs closer to the alternative ICE vehicles (IEA, 2025[44]). Combined with the development of second-hand EVs market, and already existing lower maintenance cost, this should gradually improve affordability. Support for the adoption of such vehicles, e.g. through purchase subsidies or one-off tax incentives, leasing or subsidised loans can help lowering the cost further but comes with fiscal cost calling for a cautious and well evaluated approach.

In Romania, high EV purchase prices are particularly relevant as overall car affordability remains a challenge for less affluent, rural households. Lower disposable income explains remaining affordability issues regarding car ownership. Almost 17% of households in Romania cannot afford to own a car. Although this share has decreased drastically over the past decade with increasing motorisation, it remains well above the EU average of 6%. More broadly, expenditures on personal transport activity represent a relatively small share of household consumption in Romania compared with other European countries but are set to grow in the future. In 2015, on average, 5% of Romanian household budgets are spent on transport, a share lower than the EU average of 12%. Most of this spending goes to purchase of fuel and maintenance of vehicles (3.3%), followed by transport services13 (1.3%) and purchase of vehicles (0.3%) (Eurostat, 2025[45]). A continued increase in car ownership may increase household spending on transport in the future. There is no strong difference in vehicle-related expenses depending on the degree of urbanisation in Romania (always around 5% of the expenditure), unlike the EU average where the expenditure share by households in rural areas is higher on average. To the opposite, the share of expenditures linked to the purchase and maintenance of vehicles increases with income (from 1% for the first quintile to 7% for the last quintile).

Despite initiatives aimed at more rapidly renewing and cleaning up the vehicle stock, such as the scrappage scheme, fleet turnover in Romania remains relatively low. Fleet turnover – the rate of vehicle replacement over a certain period of time – is slow: in 2024 Romania has the second highest share of cars older than twenty years in the EU (36%) and one of the lowest ratio between newly registered cars compared to the total fleet (1.8%) (Eurostat, 2026[46]). Combined with a high share of second hand vehicles among new registrations, slow turnover hinders adoption of cleaner technologies with better CO₂ performance and Euro emission standards. Since their respective launches in 2005 and 2016, the scrappage schemes Rabla Classic and Plus programmes have been associated with scrapping over one million vehicles and purchasing of 700 000 new cars as of early 2024 (Automotive today, 2024[47]). However, the success of the scrapping would need to be measured in a further study as the true additional effect (excluding any windfall gains for households that would have changed their car even in the absence of the scheme).

Another important barrier to EV adoption is range anxiety, closely linked to charging infrastructure availability, especially for fast charging, and insufficient autonomy. Range anxiety refers to the concern of running out of energy before reaching a destination or charging station. The IEA (2025[44]) noted a stabilisation of the average range in 2025, around 350 km, but varying widely according to the size (from 150 km for small cars to 400 km for SUVs). Either through public investments or tax incentives, government role can be important to ensure sufficient charging infrastructures at the stage of early adoption before private investment comes in (Lee and Nilsson, 2025[48]).

In Romania, the installation of charging infrastructure has progressed at a steady pace over the past decade. In 2024, there were 5 731 charging stations in service (Alternative fuels observatory, 2025[49]). Of these, 56% are fast charging station, based on direct current (DC) which allows car charging in less than one hour and are primarily located near highways. The remaining 44% opposite alternative current (AC) charging stations, which are typically installed in commercial or residential buildings and public car parks, are slow but cheaper to install. Despite a relatively low number of charging infrastructure, Romania currently exceeds its target in terms of power capacity compared to the existing stock of electric vehicles.

Uncertainty regarding the total cost of ownership, as well as future policies can also hinder clean vehicle uptake. In that sense, communication is key, both to ensure that the buyers have full information (e.g. through labelling or advertisements) and that future tax policies are gradually implemented to allow people adapt to change and where possible with a fixed timetable. A study in China for instance finds a positive effect on EV’s adoption for under 40 years old buyers when fuel cost and ownership cost over the future 5 years are communicated (Ji and Gan, 2022[50]).

Finally, social, cultural and psychological factors also shape the appetence for EVs uptake. Social network and peer pressure can have a higher impact than media attention (Stockkamp et al., 2021[51]). Other factors include for instance, environmental concerns and positive emotions while driving EVs (Rezvani, Jansson and Bodin, 2015[52]).

4.2.3. Transport infrastructure

Romania’s transport infrastructure, including motorways and railways, presents a mixed picture. The density of its motorway network is one of the lowest in the EU, which limits long-distance travel and freight transport, affecting economic competitiveness. The motorway expansion resumed at the beginning of the 2000 and accelerated with EU fundings after the accession to the EU in 2007. The motorway network, after a 140 km expansion in 2024, reached about 1 137 km - representing roughly 6.3% of the national road system. This is a 77% increase compared to 2013 (Eurostat, 2025[53]). Conversely, the country’s rail infrastructure is relatively dense. Railway lines amount to 45 metres per km², close to the EU average of 48 metres (Eurostat, 2025[54])

Road and rail infrastructure, as well as public urban transport, are unequally distributed across regions. The western regions, including Arad and Timișoara, benefit from more developed infrastructure compared to the eastern region of Romania, which is poorly connected. Clusters like Bucharest–Ilfov, Vest, and Nord-Vest perform relatively well, while the East and parts of the South remain underserved. Similarly, while public transport progress in major cities, significant gaps remained elsewhere. In the capital region Bucharest–Ilfov, public transport remains among the densest and most developed in the country. In smaller towns, public transport is weak or non-existent and integration between modes is often poor.

Planned infrastructure investments are a welcome step to improve connectivity. Only half of public roads are currently modernised with medium or heavy-duty asphalt (Romania National statistical office, 2025[55]). About a quarter remain as gravel or dirt and many modernised roads have already outlived their service life. The limited motorway coverage, combined with many narrow or unpaved rural roads, contributes to frequent bottlenecks, slow travel times outside major corridors, and poor connectivity especially in remote or rural areas. Similarly, the outdated rail infrastructure with many lines suffering from speed restriction14, frequent maintenance issues and single-track segments make it unreliable and less attractive for long-distance travel or freight (EIB, 2022[56]). There has been a renewed push for expansion and modernisation: under national plans, large investments are planned for road and rail (Romania, 2021[57]). Nevertheless, investments for renovations targeted main corridors and developing connectivity in the future with more rural areas will be key (World Bank, 2023[58]).

Finally, public transport is partially relying on clean energy. Only 38% of the rail network is electrified against 56% for the EU average. There is additionally a strong push toward electric public transport, with a rise of new registration of electric busses.

4.3. A tax framework for road transport applied to Romania

Taxes in the road transport sector relate to different bases. In practice, tax instruments apply at least to three main tax bases: vehicles, road use and energy use. Vehicle taxes are set at different stages of a vehicle’s lifecycle. One-off taxes are levied at the time of purchase (e.g. VAT, purchase tax, registration tax, luxury car tax), while recurrent taxes are charged at regular intervals, typically annually (e.g., annual motor vehicle tax). Road use charges are based on vehicle activity (e.g. duration-based charge, distance-based charge, congestion charge). In addition, road use is taxed through energy taxation (including fuel and electricity excise tax, carbon tax, and indirectly ETSs when costs are passed through)15.

Subsidies in the road transport sector focus on vehicle purchase or energy use. Subsidies for the purchase of a vehicle are usually granted as direct cash transfer for the purchase of new and clean cars, sometimes conditioned to the deregistration of an old vehicle (e.g. scrappage schemes) and sometimes combined with a tax for more emitting vehicles (e.g. feebates). On the contrary, subsidies related to energy use in the road transport sector are often fossil fuel subsidies, either directly incorporated in the prices or delivered to specific users as a refund (e.g. diesel subsidies for freight transporters).

Figure 4.7. Tax instruments and subsidies available in road transport, by their respective base

Source: Author’s elaboration based on OECD (2024[59]).

4.3.1. Energy taxes

Fuel excise taxes in Romania apply in the context of the EU Energy Tax Directive (ETD) that sets minimum tax rates per fuel type. As explained in Section 1.2, excise tax rates are set at EUR 0.50 (RON 2.549) per litre, EUR 0.55 (RON 2.782) per litre and EUR 1.427 (RON 7.24) per MWh for diesel, gasoline and electricity respectively at the end of 2025, with an additional 10% increase implemented at the beginning of 2026. These rates are above the ETD minimum thresholds of EUR 0.330, EUR 0.359 and EUR 0.5 MWh. The ETD is currently under revision. An initial proposal in 2021 planned an equalisation of diesel and gasoline rates per GJ, which would imply a higher per-litre threshold for diesel than gasoline (European Commission, 2021[60]). Such a change should not impact Romania, as its excise tax rates already exceed these thresholds. Negotiations are nevertheless ongoing on the exact timeline and details of implementation (Deloitte, 2025[61]).

In Romania, the per-litre excise tax on diesel is much lower than on gasoline. Currently, diesel is taxed at a lower rate than gasoline per litre and so also per GJ and even more per tonne of CO₂. The resulting “diesel differential” is common across EU countries (OECD, 2019[62]), (OECD, 2022[63]), but sends a misleading signal to consumers, who may be incentivised to consume relatively more diesel and invest relatively more in diesel-powered technologies, despite their negative environmental impact (Harding, 2014[20]).

Fuel excise tax rates in Romania are higher than in some neighbouring countries, even more since the recent tax increases, potentially affecting fuel tourism. Diesel taxes in Romania are close to the EU average, but higher than in neighbouring countries, except for Slovenia (see Figure 4.8). This excise tax gap which is not compensated by higher VAT rates in neighbouring countries (except Bulgaria), contributes to higher diesel costs in Romania and may trigger fuel tourism to some extent. The difference with Bulgaria is significant and moderate with other countries but set to increase with the forthcoming excise tax rise in Romania. No country so far has announced plans to increase the level of excise taxes and VAT and this gap is not likely to be reduced by the introduction of the ETS2 and the eventual ETD2 directive reform as currently designed.

Figure 4.8. Diesel cost in Romania and selected neighbouring countries in 2025

Note: The vertical axis shows prices in euros for 1 000 litres. Prices are as of September 2025 and taxes as of August 2025, plus January 2026 for Romania.

Source: European Commission (2026[64]; 2025[65]; 2025[66]).

Diesel refunds have played an important role in recent years, helping to mitigate energy price increase from taxes and prevent fuel tourism to neighbouring countries. Subsidies for diesel and gasoline have been distributed in 2022 to all drivers and more recently in 2024, 2025 and 2026 to diesel used in freight transport, The amount per litre for the subsidy implemented at the end of 2025 is around RON 0.4-0.65 (around EUR 0.08-0.13) per litre).

Forthcoming introduction of explicit carbon pricing

In 2028, the EU ETS2 is expected to introduce a carbon price on transport fuels. Fuel suppliers will need to buy permits to cover emissions from diesel, gasoline and LPG consumed in the transport sector. Biofuels are excluded if certified under the Renewable Energy Directive, which includes a lifecycle emissions threshold. The price of the allowances will be determined by the market, though a price stability mechanism allows the EU to release extra allowances to ease price pressures if prices exceed EUR 45 per tCO₂ for two consecutive quarters.

Drivers in Romania are expected to face a price increase with the introduction of the EU ETS2. Consumers are not directly covered by the ETS2, but fuel suppliers are expected to pass most additional costs on to consumers. Evidence suggests that increases in fuel excise and carbon taxes are almost fully passed through to consumer prices (Harju et al., 2022[67]) (Sun et al., 2022[68]), while temporary tax reductions are typically fully passed through (Drolsbach, Gail and Klotz, 2023[69]). Pass-through seems to vary across firms and tend to increase with operators’ market shares (Moral Rincón and González, 2025[70]). Similar heterogeneity has been observed for ETS1 price pass-through in the power and manufacturing sectors (Arlinghaus, 2015[71]). Looking ahead, the future EU ETS2 is expected to increase fuel prices by 10-20 cents per litre by 2030, depending on the carbon price. At EUR 48 per tCO₂e, prices are estimated to rise by about EUR 0.11 per litre of gasoline and EUR 0.13 per litre of diesel, i.e. around 13% price increase for Romania (European Commission, 2021[72]).

Auctioning ETS2 allowances is expected to generate additional revenues, some pooled at the EU level and returned in proportion to Romania, with their use focused on climate change mitigation. Revenue from the EU ETS2 should address distributional impact and favour public acceptability. Revenues from the auctioning of the ETS2 allowances will be distributed in three ways. First, a share of all revenues at the EU level will be pooled into the Social Climate Fund (SCF), which will fund Social Climate Plan (SCP). Over the 2027-2032 period, an estimated upper bound of EUR 54.6 million could be allocated to the SCF from the revenues of the auction16, which will be split between countries based on poverty-, population- and emission-related indicators. Second, national contributions will finance the remaining SCF total budget, estimated at around EUR 18.2 billion. Third, the remaining revenues from auctions can be used by countries for broader climate change mitigation policies.

Romania will be one of the top beneficiaries of the SCF, which intends to protect the most impacted and vulnerable economic agents. The SCF action will focus on vulnerable transport-users and small and medium enterprises (SMEs). No more than 37.5% of the national funding from the SCF can be used as direct support to households, such as energy or vehicle purchase subsidies17. Overall, any support should be additional and not substitute recurring national budgetary expenditure. Romania will likely be one of the top beneficiaries of the SCF pooled funding, and may receive up to 9.25%, i.e. up to EUR 5.1 billion18, supplemented by EUR 1.7 billion financed by Romania (see Annex I).19 Romania has not submitted its SCP as of the end of 2025 (European Commission, 2025[65]).

The remaining revenues from the ETS2 also intend to focus on climate action and social measures, at it is the case for the existing ETS in other sectors20. In the road transport sectors, such revenues can finance energy efficiency investments, public transport, and EV adoption.

4.3.2. One-off vehicle taxes and subsidies

Apart from a narrowly targeted luxury car tax and VAT, Romania has no one-off tax on cars. The luxury car tax (“impozitul special pe bunurile imobile și mobile de valoare”) entered in force in 2024. The tax is levied recurrently during the first five years of ownership following registration in Romania. The tax rate is set at 0.3% of the part of the price above RON 375 000 (EUR 75 452.72). Additionally, a 21% VAT rate is levied on the price of new vehicles, or second-hand vehicles imported from outside the EU. As most of vehicles newly registered vehicles in Romania are second-hand vehicles imported from other EU countries, only limited share is subject to VAT.

Despite several attempts between 2007 and 2017, Romania does not have a car registration tax.21 When entering the EU in 2007, Romania aligned its customs duties to the EU framework and removed excise duties on cars. A registration tax on first registrations was established to compensate the revenue loss. This tax was changed several times between 2007 to 2017 and discontinued in 2017, the latest being the Environmental Stamp Duty ("Timbrul de Mediu pentru autovehicule"). The tax rates all varied with CO₂ emissions and Euro standard and applied to new and second-hand cars at the time of their first registration in Romania. The last version of the tax also varied with the age of the car, with the effective rate decreasingwith age. However, higher taxes on older, more polluting cars were only partially offset by age-related discounts. As a result, second-hand imported vehicles faced disproportionately high tax rates compared with similar second-hand vehicles already on the Romanian market. This created a competitive advantage for domestic vehicles, discouraged imports and was considered contrary to the EU’s principle of non-discrimination (article 110 of the TFEU). The tax has therefore been discontinued in 2017.

A generous scrappage scheme is in place that has recently begun to be scaled back. Romania has a scrappage system that subsidises the purchase of new low-emission vehicles in exchange for deregistering an old one (Rabla). Its budget and scope constantly increased since its creation in 2005 until 2023. Currently, the Rabla budget is co-financed by the Environment Fund Administration and the 500 participating municipalities. Both the subsidy per unit and its scope is relatively large. Until 2023, Romania offered some of the highest support amongst European partners, with subsidies up to EUR 10 000 for the purchase of battery electric vehicles, EUR 3 000 for plug-in hybrid vehicles (PHEV), and EUR 1 400 for a fuel-efficient vehicle. In terms of scope, Romania is part of the few countries to subsidise the purchase of new petrol or diesel vehicles next to electric vehicles, alongside France and Italy. Austerity measures have begun to be implemented in 2023, as subsidies for electric vehicles were halved (Government of Romania, 2023[73]), and the total budget reduced from RON 1.8 billion in 2023 to RON 1.3 billion in 2024 (see Figure 4.9). Electric vehicles registrations experienced a slight decrease in Rabla uptake in 2024.

Figure 4.9. Budget and number of new vehicles financed by the Rabla programs

Note: Vehicles are mainly cars, some are motorcycles or other vehicles for local authorities. Electric vehicles cover plug-in hybrid and battery electric vehicles. ICE vehicles cover fuel-efficient vehicles. Registration of electric vehicles (total) only present data for the 2021-2024 period.

Source: AFM (2024[74]; 2024[75]).

Box 4.2. Country practice: Purchases taxes based on air pollution level

Air pollution parameter in purchase taxes in the EU countries and the world

Theoretically, a tax on air pollution could be levied on the amount of NOx effectively emitted. In practice, the exact amount of air emissions is heavily reliant on the condition of driving (speed etc), which make it difficult to measure. Taxes are thus typically based on average air emissions per kilometres driven provided for each brand by manufacturers according to standardised test procedure. As evaluated under specific conditions, some estimates have proved in the past to heavily underestimate the real level of emissions (International Transport Forum, 2021[76]).

Most of existing taxes on the purchase of vehicles that incorporate air pollution as a parameter are based on ranges of emissions or standards, as the Euro emission standards in the European Union. As an exception, Ireland has a Vehicle Registration Tax (VRT) including a NOx element, charged per mg/km, and, outside the EU, Chile has a registration tax, called Green tax based on the price, the fuel efficiency and the NOx amount.

Slovenia motor vehicle tax

Slovenia implemented in 2020 a tax on air pollution, called Motor Vehicle Tax (Republic of Slovenia, 2025[77]). It applies to cars and motorcycles at their first registry in Slovenia. The amount of taxation varies by type of energy, CO₂ emissions and air pollution standard for cars, and by power and air pollution standards for motorcycles. A discount factor is applied for second hand vehicles depending on the age. The final tax varies from 91% for less than one year old to 33% for vehicles which are over 10 years old.

Figure 4.10 displays taxation of vehicles with different characteristics, depending on their age assuming specific Euro emission standards apply at specific ages. The depreciation factor linked to age almost offsets higher tax rates for older Euro emission standards (tax rates are at similar levels for young and old cars). The differential according to CO₂ emissions is better represented in particular for older cars as the difference in taxation between gasoline and diesel shows.

Figure 4.10. Variation of the tax by age and car’s characteristics for the vehicle tax in Slovenia

Note: the vertical axis displays the tax

Source: Author’s elaboration.

4.3.3. Recurrent taxes on vehicles

Romania applies a recurrent vehicle tax that currently does not directly include environmental criteria. The tax on means of transport ("Impozitul pe mijloacele de transport"), introduced in 2004, is a yearly ownership tax. The tax is calculated based on the vehicle type (i.e. motorcycles, cars, buses, and trucks), engine capacity, weight and axle count and amounts and. The tax structure does not directly incorporate CO₂ emissions or air pollution as a basis for calculation. However, a reduction is offered for plugin-hybrid vehicles, and an exoneration for battery electric vehicle (BEV).

Romania’s vehicle taxation is low compared to the EU average, both in terms of rates and revenues. Vehicle taxes represent only 0.2% of per GDP and 1% of total tax revenue, both below the OECD average. In most of EU countries, the net taxation per vehicle exceeds Romania’s tax burden on ICE cars. The ownership tax for small or compact cars is below EUR 50 per year (see Figure 4.11) Romania does not levy a purchase tax on vehicles, which is relatively uncommon in Europe, except for the luxury car tax which applies only to a small share of new vehicles.

Figure 4.11. Car ownership taxation for typical car models in the EU in 2022

Note: Based on typical car models

Source: Transport & Environment (2022[78])

4.3.4. Road use charges

Romania levies a duration-based vignette (“rovinieta”) on almost all vehicles driving on national public roads. Implemented in 2002, the vignette rate varies based on the validity period (e.g. 1 day, 7 days, 30 days, 90 days, or 12 months), vehicle type (e.g., car, light truck, heavy truck, bus), weight and axle number for trucks. The differentiated fee structure is supposed to account for a vehicle’s impact on road infrastructure. Rates go from RON 28 per car to RON 1 210 for the heaviest trucks for one year. The vignette for cars has almost doubled starting from 2025, up to RON 50 per car.

An ambitious reform of the vignette has been legislated in 2023 to better reflect vehicle-related externalities and comply with the EU’s Eurovignette directive for heavy-duty trucks starting from 2026. Starting from 2026, the rate will be differentiated by additional parameters according to the law 2023/226 (Romanian Parliament, 2023[79]) following the Eurovignette directive.22 For heavy trucks, with a gross permissible weight above 3.5 tons, a toll system called TollRo will enter into force and substitute to the vignette. TollRo will be a distance-based charge, based on kilometres driven, a more accurate proxy of GHG emissions and road damage compared to validity period. TollRo is planned to be interoperable with similar systems in other EU member countries.

4.4. Tax policy objectives in road transport

Taxes can support progress toward multiple policy objectives. Historically, raising revenue has been the primary purpose of road transport-related taxes. More recently, vehicle taxation has increasingly been used to achieve environmental policy objectives, either by internalising estimated external cost or by supporting environmental targets. Finally, mobility-related objectives such as limited congestion and influencing the modal mix are also part of taxation related goals. These different objectives can create tensions; for example, generous tax incentives for low-emission vehicles likely reduce tax revenue, placing a strain on public finances. Additionally, vehicle taxation has distributional impacts, as low-income households often own older, more polluting vehicles, and rural populations frequently rely on cars for mobility. This section discusses the policy rationale behind taxation in the road transport sector.

The effect of taxes on emissions reductions and revenues depends on consumer responses (measured through the elasticity of the demand) and the wider policy and economic context. Extensive literature explores the reaction of drivers to a fuel price increase, suggesting a relatively small response in the short term that increases in the longer run, as people switch to more fuel-efficient or alternative fuel-vehicles – as further discussed below. Comprehensive policy package matter for emissions reductions, with taxes and other policy instruments either reinforcing or substituting each other.

4.4.1. Revenue raising

Revenue raising is the main objective of taxation. Certain taxes such as fuel excise constitute substantive part of total tax revenues, alongside vehicle taxes. However, revenue raising and environmental goals may be conflicting. For example, revenues from carbon pricing and fuel excise taxes will decline as electrification of the fleet advances, while tax incentives and subsidies for clean technologies may advance emissions reductions but come at a fiscal cost. Monitoring and gradual adaptation of the tax system to the evolving fleet will be beneficial.

Revenues and elasticities

Fuel consumption and car ownership are relatively inelastic, which currently makes taxation of these bases an important tax base. Analysis of fuel price elasticities suggests that consumers in the road transport sector tend to be less responsive to price changes – for vehicle ownership and fuel consumption – than in some other sectors like buildings or parts of industry, especially in the short term (Labandeira, Labeaga and López-Otero, 2017[80]). This may lead governments to tax road transport comparatively more. In most countries, effective energy tax rates are much higher in the transport sector, compared to buildings or industry sectors (OECD, 2024[81]). In the longer term, elasticity tends to increase as substitutes become more readily available, for example, through technological change, expansion of public transport infrastructures or reductions in vehicle costs driven by economics of scale, learning-by-doing or purchase subsidies.

Fuel and, to a lower extent, vehicle taxation has also been an important source of revenues in Romania. As discussed in Section 4.1, energy-related taxes (mainly fuel taxation) account for almost 2% of GDP and 13% of tax revenue in Romania. The share in terms of tax revenues is significantly above the OECD average and suggest that Romania also needs to find alternative resources outside the road transport sector, as well as prepare the future erosion linked to electrification on the fleet on the medium to long term. Vehicle taxes account for 0.2% of GDP and 1% of tax revenues.

Differences in energy tax rates across countries can have effects on revenues by triggering fuel tourism at the regional level. In case of significative differences in energy costs between countries, drivers living close to a border may be incentivised to refuel in neighbouring countries. Fuel tourism arises for personal travel but importantly also in freight transport, for which trade-off between refuelling stations is easier when trucks travel long distances and cross different countries, as recently experienced with the tax increase in Lithuania (see Box 4.6 in Section 4.5).

Fiscal impact of the long-run electrification of the fleet

Reaching environmental goals can be misaligned with revenue raising objectives in the long run and requires monitoring. Though carbon and energy taxes as well as ETS will provide useful revenues in the short to medium term, their tax base (emissions and fossil fuels) are meant to decrease over time as decarbonisation advances such that revenues may decline. Governments also need to consider the trade-offs between tax incentives for EVs and revenue raising. As Romania is currently in an early phase of electrification these concerns are likely less urgent in the short to medium run but need to be monitored given the strong reliance on energy tax revenues.

While currently modest for Romania, revenue shortfalls from automotive fuel taxation can arise in the long run. Fuel tax base erosion arises when ICE vehicles are replaced with electric vehicles. Electricity is traditionally taxed at a much lower level than diesel or gasoline and current rates may not compensate for the revenue lost from lower fuel excise revenue. In 2023, global tax revenue losses due to lower oil consumption estimated at around EUR 13 billion, with projections indicating this figure could rise to EUR 76 billion by 2030 and exceed EUR 155 billion by 2035 (OECD, 2024[81]). Similar results were found for Slovenia, with a projected drop of 16% of tax revenues from fuel used by cars between 2017 and 2050s under the assumption a 60% of new car purchases in 2050 (OECD/ITF, 2019[21]). An Irish study showed that tax revenues reduced by 0.9% of GNI yearly by 2030 due to lower VAT rates on electricity, decrease in fuel tax revenues and lower vehicle tax revenues due to the emissions tax parameter (IFAC, 2023[82])

Increasing excise taxes on electricity in the long run could compensate the revenue foregone but is less straightforward and runs against electrification efforts in the short run. Electricity is used for many purposes beyond transport. A generally higher electricity tax would affect heating and industry appliances at the same time as transport use. Differentiating electricity taxes by use, will be difficult to implement administratively as it is not straightforward to distinguish the quantity of electricity consumed for transport, from other use. Some jurisdictions, especially in the USA, have implemented taxes on EV charging stations. For instance, as of January 2025, Wisconsin charges an excise tax of USD 0.03 per kWh on electricity dispensed at all public charging stations, including those that are free. However, raising electricity taxes at a time where electrification of transport (and other sectors) remains a priority may be counterproductive. Additionally, taxing electricity does not give a location or usage specific signal to address external cost such as congestion, whereas kilometre-based taxes can better reflect such externalities (as discussed below).

Road use taxes as a stable revenue source

As the electrification of the fleet progresses, several countries have undertaken reforms to tackle revenue losses through the implementation of kilometre-based charges. New types of charges on car uses are introduced. New Zealand, Israel and Iceland introduced a distance-based road use charge for electric and plug-in hybrid vehicles in 2024 that may compensate for already existing fuel excise tax revenue losses. The Netherlands plans to implement such a charge for all cars in 2030, with tax rates set to raise the same level of revenues as fuel excise taxes. They are reduced for plug-in hybrid vehicles compared to fully electric vehicles as they still pay fuel excise tax on the diesel or gasoline share of their consumption. Australia and New Zealand have a road use charge on diesel-powered vehicles to explicitly compensate for lower excise duty on diesel compared to gasoline.

4.4.2. Internalising externalities

Transport tax instruments vary in how well they address different externalities. As explained in Section 4.1, road transport generates a range of external costs which taxation can help internalise.

Pricing external costs

Transport tax instruments vary in how well they address different externalities. Fuel excise taxes are seen as well suited to price GHG emissions, since emissions are proportional to fuel consumption. They account less well for air pollution and driving-related external costs, e.g. from congestion, noise or accidents, which depend on vehicle technology, driving behaviour, as well as location amongst others. Distance-based charges can reasonably approximate external costs from GHG emissions, air pollution and driving (such as road damage, congestion) because they can reflect spatial and temporal variation in driving and – depending on technology used – vary by fuel type (Van Dender, 2019[39]). Congestion charges are a promising tool at the local level to cover noise, congestion and air pollution. Finally, vehicle purchase or ownership taxes or subsidies are less-well suited to cover transport related external costs, particular those related to driving (accidents, noise, air pollution), because they can only account for average vehicle characteristics (OECD/ITF, 2019[21]). However, vehicle taxes can reflect average air pollution and GHG emissions profiles of vehicles, which can be useful. They are a powerful tool to influence energy technology choices but correspondingly the revenue forgone can be large. On the other hand, the external costs of accidents are better addressed through insurance policies; they target directly drivers that have a history of crashes, to the extent an efficient bonus-malus ranking system is embedded therein.

Economic theory suggests marginal cost pricing as the optimal approach to price non-linear external costs such as congestion, noise or road damage. Marginal external costs reflect the additional costs from one additional unit of transport activity (e.g. one additional vehicle on the road) (European Commission and CE Delft, 2019[83]). A marginal cost levy integrates the costs of this additional transport unit into prices. As explained previously, external costs vary both according to the characteristics of the vehicle and the context in which it operates. For instance, the marginal external cost of a truck varies in terms of road damage according to its load (vehicle characteristics), as well as the type of road (context), while in terms of congestion it varies according to time and location (context).

When full marginal cost pricing is hard to implement, average cost pricing may be easier to implement. The exact marginal costs from additional transport activity may be difficult to know or pricing difficult to implement,23 and average cost pricing can be an alternative.24 Such a levy is especially useful in case of budget constraints with equal per unit cost sharing, for instance for infrastructure. However, average cost pricing will not fully internalise external costs at the margin since all users pay a flat average share of the total damage regardless of the specific damage they actually cause. Some pricing like road use charges regulated by the Eurovignette combine both, with a component for infrastructure cost, as well as components related to other externalities such as air pollution and GHG emissions.

Energy taxes and carbon pricing

Explicit carbon pricing (carbon taxes and ETSs) can be designed to internalise external costs related to climate change and is widely used in the EU. Carbon taxes directly set a price in terms of tCO₂ emitted, while the carbon price is fixed by the market for a fixed level of GHG emissions under ETS. In 2023, eight EU member countries have implemented a carbon tax on road transport, which range from EUR 0.14 in Slovenia to EUR 97 per ton of CO₂e in Sweden (OECD, 2024[84]). Austria and Germany additionally have a national ETS on road transport, before the implementation of the EU ETS2, implemented respectively in 2014 and 2016 and set respectively at a price of EUR 32 and EUR 34 per tCO₂e in 2023. Romania currently has no explicit carbon price, but the EU ETS2 may add an additional price of up to EUR 0.11 for gasoline and EUR 0.13 for diesel according to current projections (see Section 4.1).

Combined with fuel excise taxes, explicit carbon pricing can lead to high effective carbon rates (ECRs). Effective carbon rates summarise the price signals from ETSs, carbon taxes and fuel excise taxes, by combining the prices and the base to which they apply, in one indicator expressed in EUR/tCO₂e (OECD, 2025[85]). In the EU countries, ECRs in road transport range from EUR 99 per tCO₂e in Bulgaria to EUR 263 per tCO₂e in Finland (OECD, 2024[81]). The bulk of the ECR in road transport typically comes from fuel excise taxes. In 2023, before the recent excise tax increase, the ECR in road transport in Romania was at 131 EUR per tCO₂e, below the EU weighted average of EUR 199 per tCO₂e, but above the OECD weighted average of EUR 110 per tCO₂e.

Fossil fuel subsidies blur the price signal, especially when they are broad-based. Apart from the energy crisis, automotive fuel subsidies are traditionally more limited to diesel used for selected users in the road transport sector, such as taxis or freight transport in the EU countries. This support includes preferential tax treatment under the form of partial refund of tax rates. Countries widely implemented temporary support during the energy prices crisis, mostly implemented under the form of price control or revenue based subsidies (OECD, 2023[86]; 2024[87]; 2022[88]). Support for diesel consumed for freight transport exist in eight countries as of 202525 (CNR, 2025[89]), included Romania, where reforms proved to be difficult to implement.

Vehicle taxes

Vehicle taxes are less well suited to internalise external costs, but can be useful to reflect average pollution profiles of cars. Vehicle tax parameters can only consider average vehicle characteristics (e.g. average emissions per km) but not the externalities related to the driving activity (driving behaviour, km driven, location) (OECD, 2023[22]).

In the European Union, CO₂ emission is a key parameter of vehicle taxes while air pollution is much less considered. Thirteen EU members have a CO₂ emissions parameter for new vehicles registered, and thirteen for recurrent vehicle taxes (see Table 4.1). Air pollution is less common as a tax parameter and is more present on one-off vehicle taxes (six countries) compared to recurrent vehicle taxes (two countries).

Vehicle taxes considering multiple emissions can guide environmental outcomes, though simpler approaches, like linking rates to Euro standards, may reduce administrative complexity. In Israel, the vehicle registration tax accounts for multiple emissions, including CO₂, particulate matter and NOx and could serve as an example. However, this approach is administratively complex due to the need to adjust rates for different emissions and their external costs. An alternative is to vary tax rates based on environmental indicators, such as the vehicle’s Euro standard.

Table 4.1. Criteria for car taxation in selected European countries

	CO2 emissions or fuel efficiency	Air pollution	Weight	Size	Value	Power (kW)	Age	Fuel
One-off vehicle tax	Austria, Finland; France; Greece; Iceland; Ireland; Italy; Lithuania; Netherlands; Norway; Portugal; Slovenia; Spain	Czechia; Greece; Ireland; Norway; Slovak republic; Slovenia	France	Hungary: Poland; Portugal	Greece; Ireland; Poland	France; Italy; Slovak republic		Hungary; Netherlands
Recurrent vehicle tax	Austria; Belgium; Denmark; Finland; France (company cars); Germany; Greece (registration after 2010); Iceland; Ireland; Italy; Latvia; Luxembourg; Sweden	France (company cars); Netherlands; Bulgaria*; Italy*	Finland (diesel cars); Latvia (registration before 2009); Netherlands	Austria; Germany; Greece (registration before 2010); Italy; Latvia (registration before 2009)		Hungary; Italy; Latvia (registration before 2009); Spain	Hungary; Portugal; Bulgaria*	Netherlands; Portugal

Note: EU OECD countries, plus Bulgaria, Norway and Iceland; Croatia, Cyprus, Malta, Romania not included. Additionally, Norway and Slovenia have a duration-based recurrent tax and Iceland a kilometre-based road use tax for EV. Air pollution taxation is done through euro standard, except for Ireland which has a direct NOx level. *exact rates depend on the local authorities

Source: OECD (2024[90]), IFCMA Climate Policy Database (2025[91])

Road use taxes

Distance-based charges, which include congestion charges, can be well suited to reflect external costs. Distance-based charges are levied according to the distance driven. Congestion charges are levied to access certain areas. They can price driving-related external costs under certain conditions, in particular if they are differentiated by time and location (Van Dender, 2019[39]; OECD, 2023[22]). For instance, a congestion charge can effectively price congestion if modulated by time and location, and thereby population exposure. Distance-based charges can price adequately road damage if modulated by the weight of the vehicle and additionally reflect average emissions when differentiated by the fuel type and Euro emission standard.

Distance-based charges have so far mainly been implemented for heavy duty trucks. In the EU, a distance-based charge is levied on heavy-duty trucks due to the Eurovignette directive, as an obligation when highways are not under concessions. The implementation of distance-based charges for cars is only emerging in countries with high electrification rates. Under the same directive, most EU countries moved to distance-based road toll with rates differentiated by CO₂ and air pollution emissions. Differentiation according to time of the day is limited within EU countries, with only Austria and Czech Republic providing higher rates during the night (Comité National Routier, 2023[92]). Examples of distance-based charge for cars are rare and mainly limited to electric cars (see Section 4.2).

4.4.3. Reaching environmental goals

Government may set themselves environmental policy targets not focusing on internalising external cost. Romania has several targets in terms of air pollution and GHG emissions reduction (see Section 4.1). Reaching the targets can imply having higher prices than the marginal or average ones (for instance the national carbon trajectory is usually well above the social cost of carbon). Such targets may call for pricing beyond level of the external cost or for a policy mix extending beyond taxation.

Energy taxes, carbon pricing and related subsidies

Carbon pricing, through carbon taxes or ETSs, and energy26 taxation can effectively and efficiently reduce emissions. Carbon pricing has been shown to be effective across the economy (Döbbeling-Hildebrandt et al., 2024[93]) (Vrolijk and Sato, 2023[94]). Carbon pricing is cost-effective, as it gives economic agents flexibility to cut emissions, where doing so is least costly. Carbon pricing provides ongoing incentives to reduce emissions and limits rebound effects. Finally, it spurs investments towards the uptake and the innovation for clean technologies (Cantone, Evans and Reeson, 2023[95]) (OECD, 2022[63]).

Carbon pricing, and more broadly energy prices, provide a long-term signal to reduce emissions either through changes in consumption or by investments in low carbon technologies. Short term impacts could arise, for example, by limit trips and driving activity and thus fuel consumption, while long term impacts can imply the purchase of new, low carbon vehicles. These two channels are incorporated into the modelling presented in chapter 5. In this regard, the fossil fuel prices have significant impact on the uptake of electric vehicles compared to electricity prices (Zhao et al., 2025[96]; Bushnell, Muehlegger and Rapson, 2022[97]). In practice, electric vehicles sales have been observed to sharply increase in the context of gasoline and diesel-price rises (The Guardian, 2026[98]).

The impact of carbon pricing on transport activity, and consequently GHG emissions and air pollution, may be constrained in the short run by limited alternatives and by behavioural or infrastructure lock-in. The transport sector shows a relatively low-price elasticity of demand, reflecting a low sensitivity of drivers to price signals, which depends amongst others on consumer preferences, the availability of substitutes, structural constraints and the taxpayer’s perception. While elasticities in transport are relatively low in the short run they increase in the longer term. Main determinants of the price elasticities of demand in road transport are detailed in Box 4.3.

Box 4.3. Main determinants of the elasticity of road-transport related energy demand to energy cost

Elasticities refers to the increase in demand in response to price rise. A rough estimate is an own-price elasticity of -0.3, meaning that a 10% increase in the price of a specific fuel will lead to a 3% reduction in consumption of this fuel (Dahl, 2012[99]). Various studies highlight the heterogeneity of demand elasticities due to different parameters:

• Time horizon matters as it affects the availability of substitutes and changes in consumption habits. Elasticities are typically higher in the long run, as technologies develop and substitutes become more readily available or because households have time to adjust consumption habits by buying more fuel-efficient vehicles or even relocating to move closer to work or public transport (Dahl, 2012[99]).

• Location is another important driver of elasticities, as the availability of public transport or alternatives such as cycling, carpooling or walking – which tend to be more available in dense urban areas - make fuel demand more elastic. Evidence of higher demand elasticities for households living in urban area was found in the US (Wadud, Graham and Noland, 2010[100])

• Fuel types are associated with different elasticities due to the varying fuel efficiency and consumption patterns associated with diesel and gasoline-powered vehicles. Elasticities for diesel are typically lower, both for freight transport and for personal car use. Meta-analyses finds short-run elasticities for automotive fuels are around -0.25 and -0.3 for gasoline and -0.1 for diesel, and long-run elasticities are respectively -0.7 or -0.8 and -0.4 (Dahl, 2012[99]; Labandeira, Labeaga and López-Otero, 2017[80]).

• Income levels affect elasticities through their effects on households’ budget constraints. Higher-income households have higher purchasing capacity and are shown to be less sensitive to fuel price increases in the short term but have larger long-run responses (Dahl, 2012[99]).

• Characteristics of the price change can be perceived differently by household’s and thus affect their responsiveness. The magnitude of the price variation, its frequency, its direction and the cause of the variation have an influence. First, large and permanent increases can lead to more permanent adjustments in consumption and vehicle choices. Second, responses to price changes tend to be asymmetric, with greater responsiveness to cost increases than to cost decreases as shown for automotive gasoline (Levin, Lewis and Wolak, 2022[101]). Third, tax-induced price changes are more salient than non-tax changes and tend to elicit stronger responses. Analysis suggests that fuel excise taxes (Li, Linn and Muehlegger, 2014[102]) and carbon taxes (Rivers and Schaufele, 2015[103]) may affecter drivers’ behaviours more strongly than equivalent market-driven price changes due to higher salience and persistence. This is possibly due to greater perceived duration and media attention.

Vehicle tax and subsidies

Research on the effectiveness of vehicle taxes in reducing GHG emissions from the fleet is limited, and even more so for air pollution emissions. When existing, literature finds relatively lower impact of vehicle taxes compared to energy taxation (OECD/ITF, 2019[21]; OECD, 2023[22]). They are nevertheless interesting instruments in the road transport policy mix as complement or to reinforce other measures, as well as to raise stable revenues at a relatively limited administrative burden.

One-off vehicle taxes and subsidies affect upfront costs of buying cars and can thereby influence the structure of the vehicle fleet if well designed. For example, one-off purchase or registration taxes that vary with the average CO₂ emissions or fuel efficiency of a vehicle were shown to have a positive impact on the fleet (Klier and Linn, 2015[104]). Similarly, vehicle purchase subsidies affect vehicle upfront cost and can be designed to incentivise the uptake of low-emitting vehicles. Conversely to taxation, subsidies come with revenue costs and the risk of windfall gains when households or firms were ready to buy or register a cleaner vehicle even in the absence of the subsidy (Sheldon and Dua, 2019[105]). Subsidies may need to be set are higher level than needed due to misperception of the net total cost of ownership of vehicles, especially due to cheaper operating costs with electricity compared to gasoline or diesel.

Recurrent vehicle taxes can influence buying decisions, but their effect is more limited due to consumers’ focus on the present. Buyers tend to underestimate future costs related to car use (e.g. in the form of vehicle taxes) due to myopia (Urrutia-Mosquera and Fábrega, 2021[106]; Andor et al., 2020[107]), which may limit the effectiveness of recurrent taxes compared to those at the purchasing or registration stage. Recurrent vehicles taxes can nevertheless contribute to fleet turnover, and guide buyers’ choice. A study in Switzerland suggests annual motor vehicle taxes have increased fuel efficiency slightly by advancing the retirement of high consuming vehicles (Alberini et al., 2018[108]).

Emissions reductions from vehicle taxes incentives or subsidies in favor of low emitting vehicles may be limited when distances driven increase in parallel or when more vehicles enter the fleet. The so-called “rebound effect” describes a situation where higher fuel efficiency is compensated by more kilometres driven (Small and Dender, 2007[109]). Research finds a rebound effect of around 12% on the short run and 32% on the long run for vehicle taxes (Dimitropoulos, Oueslati and Sintek, 2016[110]) Additionally, under a lifecycle perspective, the full impact of vehicle taxes on emissions can be very small or even negative. Studies in Switzerland and France indicate that vehicle taxes have increased new car registrations, raising GHG emissions from production (Alberini and Bareit, 2019[111]; D’Haultfœuille, Givord and Boutin, 2014[112]). To reduce GHG emissions effectively, vehicles must be low-emissions and retained long enough. Similarly, Japan’s scrappage scheme had limited impact on GHG emissions likely due to its broad coverage incorporating less-efficient ICE cars and rebound effects (Kagawa et al., 2013[113]).

The air pollution effects of taxes and subsidies in favour of fuel- or carbon-efficient vehicles are less studied and there may be unintended drawbacks. Policy instruments focusing only on CO₂ emissions or fuel efficiency, may incentivise a shift towards diesel vehicles which are more fuel efficient but emit more air pollutant (Linn, 2019[114]). Similar findings have been observed in Ireland (OECD, 2025[115]).

Road use charges

While not significantly reducing freight activity, distance-based charges for trucks had positive impacts on logistics and can influence the decarbonisation of the fleet, while raising revenues. Road tolls do not significantly reduce freight demand or induce modal shift (Gomez and Vassallo, 2018[116]). They nevertheless improve efficiency, by decreasing the number of empty trucks per kilometre and accelerating fleet modernisation towards cleaner vehicles when modulating by emissions (Transport & environment, 2017[117]).

At the local level, congestion charges can address congestion and air pollution while contributing to fiscal revenues. Depending on their design and objectives, congestion charges can vary according to different parameters (Gostner, 2018[118]). To reduce the time lost in traffic, congestion tolls can vary with time (moment of the day, of the week, duration) and location (zone, distance). To reduce air pollution, they can also vary according to the average emissions of vehicles and population exposure. In practice, congestion charges have proven effective by shifting travel from peak to off-peak periods, as well as shifting to public transport, thus reducing congestion, accidents and air pollution peaks (ITF, 2021[119]). London combined multiple charges depending on the type of vehicle, the objective and the location: a GBP 18 congestion charge applies to all vehicles entering the city centre during the day for weekdays and the afternoon for weekend, while an Ultra Low Emission Zone charge is levied on more polluting light-duty vehicles in the city, and Low Emission Zone charge on the more polluting heavy-duty vehicles in the greater London (London's government, 2023[120]).

Road use charges require high administrative capacity to set the prices and implementation of infrastructure and control, which sometimes trigger privacy concerns. Both distance-based charges and urban toll requires specific enforcement technologies, though the former requires more traffic-measurements. Most urban tolls use cameras to control license plates, with a few automatic payments. The most technologically advanced congestion charge is Singapore’s, with dynamic pricing and simultaneous payments. For distance-based charges, existing systems to track the number of kilometres driven include GPS-system, as well as odometer-based systems or smart meters for electric vehicles. While already well implemented for trucks, concerns on collecting such information may arise in the case of an extension for cars about misuse of data or in case of equity concerns if rural areas drive more.

When aiming at reducing congestion and emissions, non-market-based instruments can be used with similar objectives. Access restrictions (e.g. depending on plate in China) or low emission zones (e.g. Berlin, Milan where the most emitting vehicles are banned) have proven to reduce emissions. Some countries combine both a congestion toll and a low emission zone. Milan for instance has a daily EUR 7.5 congestion charge for the centre of the city, while a larger part of Milan is covered by a low-emission zone prohibiting the access to most polluting vehicles during weekdays (Comune Milano, 2025[121]).

4.4.4. Distributional impact of transport taxation

The distributional impact of tax policies can be analysed across horizontal and vertical dimensions. The vertical dimension captures how the tax burden varies across income levels. Vertical distributional indicators are typically expressed as a share of income or expenditures. The horizontal dimension captures the tax burden on groups with similar income but different socio-demographic characteristics, such as the location, employment status, the size of the household, or the age. The difference between households living in urban and rural areas is an important dimension in the transport sector. For both, vertical and horizontal dimensions, distributional effects depend on the structure of car ownership and driving habits compared to tax parameters. While the distributional impact of energy-related taxation has been well analysed, fewer studies exist related to vehicle taxes or distance-based charging.

Taxes on automotive fuels are usually proportional to, or increase as a share of expenditures, while the pattern is more heterogeneous across countries relative to income. In both cases the exact curve of the distributional impact varies according to country-specific profile of the shares of energy consumed per income by deciles (Flues and Thomas, 2015[122]). For instance, relatively to expenditures, low- and high-income countries experience higher taxation compared to middle income households in a few EU countries (e.g. United Kingdom, Germany, Finland), while fuel taxes have progressive effects throughout the entire distribution in other countries (e.g. Chile, Hungary, Turkey) or are proportional to expenditures (e.g. Austria, Spain, Italy). Analysing fuel expenses in several European countries, Sterner (2012[123]) similarly finds that distributional impact of fuel taxes varies according to the usage of cars by income group and public transport availability.

Untargeted EV subsidies tend to be regressive even though they can be interesting at the early stages of fleet electrification. EV incentives tend to be regressive as electric vehicles are mostly owned by higher-income households (Borenstein and Davis, 2016[124]; Pyddoke et al., 2021[125]). Scrappage subsidies on the contrary can be progressive if lower deciles own older and more polluting cars (Lindsey, Tikoudis and Hassett, 2023[126]). Varying vehicle taxes by fuel efficiency, CO₂ emissions profiles, or by weight or size can be regressive if lower-income deciles buy older, more polluting or heavier cars more often, or progressive if higher deciles buy bigger or heavier and less efficient vehicles.

The distributional impact of vehicle taxes varies according to their tax design. Varying vehicle taxes by fuel efficiency, CO₂ emissions profiles, or by weight or size can be regressive if lower-income deciles buy older, more polluting or heavier cars more often, or progressive if higher deciles buy bigger or heavier and less efficient vehicles. Leroutier and Quirion (2022[127]) found that air pollution instruments may be more regressive than those tackling CO₂ emissions. Vehicle taxes may be progressive if wealthier households change cars more often (more one-off vehicle taxes) or own multiple cars (more recurrent vehicle taxes) (Brand, Anable and Morton, 2018[128]).

Distance-based charges and congestion charges affect drivers with commuting constraints. Congestion charges can be regressive if low-income households are constrained in their travel choice, e.g. due to commuting (Lindsey, Tikoudis and Hassett, 2023[126]). Distance-related charges may have regressive impacts, as they typically do not consider the economic capacity of different drivers or their access to alternative travel modes.

Support can ease the transition to cleaner transport and consider revenue needs, by targeting resources at most socio-economically vulnerable users. Support is typically provided to promote clean technology uptake (e.g. subsidies to access public transport or for EV purchases) or mitigate income impacts from rising costs (e.g. higher taxes on polluting vehicles or energy price increases). Targeting support is essential to limit revenue costs and potential windfall gains, for example, focusing on the most impacted users with limited alternative travel choices: e.g. freight transporters or taxis, commuters, low-income households. For instance, California (Driving Clean Assistance Program, 2025[129]), Germany (Bundesumwelt Ministerium, 2026[130]) and France include household’s income thresholds when targeting EV subsidies. The past scrappage scheme in France was targeted according to commuting time and income. With respect to higher energy prices Austria granted a climate bonus as a lump-sum depending on the location and access to public transports alongside the implementation of an ETS on automotive fuels (see Box 4.4).

Box 4.4. Country practice: Austria’s national ETS and compensation measures in the road transport sector

A national ETS in road transport

In 2022, Austria legislated a new domestic ETS under the “Ecological Social Tax Reform Act”, which entered in force the 1^st October 2022. The national ETS covers selected fuels in the road transport sector (gasoline, diesel, natural gas), as well as in the buildings sector to target GHG emissions so far uncovered by EU ETS

The price was initially fixed and set to increase gradually from EUR 30 per tCO₂e in 2022 to EUR 55 in 2025, before being harmonised in 2027 with the EU ETS2. In the road transport sector, gasoline, diesel and natural gas are covered.

Compensation measures

Between 2022 and 2024, a climate bonus was granted to mitigate negative impacts. This cash transfer was automatically paid to all Austrian residents. It was composed of a fixed base (EUR 145 in 2024), plus a variable amount (between EUR 50 and EUR 145 in 2024) depending on a residents’ location and connection to public transport. People under eighteen benefited from half the bonus. The national statistical office classified municipalities based on public transport access and quality, as well as rural-urban status.

Overall, the policy package included additional measures and resulted spending that exceeded revenues from the reform. Additional measures included, among other, a reduction of health insurance contribution and personal income tax for low- and middle-income households, as well as an increased family bonus, an energy tax exemption for self-generated renewable electricity, an income tax deduction for energy efficiency investments and a reduced corporate income tax for firms.

Source: OECE (2022[88]), Federal Ministry of Climate and Environmental Protection (2025[131])

Such support can partly be financed by revenue recycling of environmental taxes, alongside communication, to favour public acceptance. While full earmarking carries the risk to overfinance in the long term and to reduce accountability, as it lacks flexibility to adjust the budget to evolving needs, using a share of revenues from environmental taxation to support the green transition and mitigate the impact for vulnerable groups can increase public acceptance of taxation (Maestre-Andrés et al., 2021[132]). A recent survey-based study (Dechezleprêtre et al., 2025[133]) explains that showing videos clarifying policy mechanisms to fight climate changes and its distributional impact improve acceptance better than videos on the climate change impact, by increasing the perception of the policy’s effectiveness and progressivity.

4.5. Aligning Romania’s framework with environmental tax principles

Aligning Romania’s transport tax policy with economic and environmental tax policy principles is central to a policy package for cost-effective progress towards environmental, distributional and revenue objectives This section suggests strategic reform options to Romania’s tax framework in the road transport sector, based on the preceding stocktake of current policies and the review of tax policy principles and best practices in other EU member states. Chapter 5 models selected reform options and evaluate their environmental, economic and distributional effect.

4.5.1. Increase diesel taxes while mitigating potential impacts on affordability and fuel tourism

Increasing diesel taxation to reflect external costs, through the introduction of a carbon component, can reduce reliance on diesel cars, lower diesel consumption and cut related air pollution and CO₂ emissions. Increasing diesel excise tax to a level superior to gasoline excise tax would better reflect the negative impact of diesel on air quality and CO₂ emissions. As discussed in Section 4.3, diesel is currently taxed at a level lower than gasoline per litre, while emitting more CO₂ per litre and more air pollutants. Aligning diesel tax rates with these costs would incentivise air quality improvements and carbon emission reductions through the quantity of fuel consumed, as well as on the type of vehicle chosen. Indeed, it has been proven that buyers consider the future cost of fuel in their decision to purchase a car. As the excise tax rates are already high in Romania, and in the context of the current energy price rise, there is little room to further increase them at the current price level. A middle-ground approach could be to equalise diesel and gasoline excise taxes by raising diesel while lowering gasoline rates (as implemented in Italy see Box 4.5), in parallel of the introduction of the ETS2 in 2028.

Box 4.5. Country practice: Excise tax reform in Italy

Italy legislated in 2025 a major tax reform, with the aim to adapt taxation to the environmental impact of energy. Between 2025 and 2030, the excise tax rate for diesel will increase and the rate for gasoline will decrease by 1.5 eurocent yearly. Both fuels will reach the same excise tax rate in 2030 at EUR 0.673 per litre. The reduced rate for diesel used for freight by trucks over 7.5 tons will continue to benefit from a reduced rate of EUR 0.403 per litre.

Source: Normattiva (2025[134]); Ministry of Finance (2025[135]); TVA international (2025[136]).

Gradually, well-communicated tax increases can improve their acceptability, complemented if needed by temporary, targeted income support. Lithuania has recently reformed its fuel excise tax to reflect environmental and security objectives (see Box 4.6). The gradual rate increase and clearly defined price trajectory offered consumers certainty, visibility and gave them time to adjust. A gradual increase in transport fuel taxes was also implemented in Slovenia. In addition, temporary support for energy users most in need, can ease the transition, whether it comes from energy taxes or prices increases in general. Such support should be limited in time and well targeted, e.g. to low-income drivers when they have few alternatives in the short-term to using their car for necessity trips. Targeting would best consider several dimensions, such as income, location, patterns of consumption but administrative feasibility should be ensured. For instance, Austria also implemented an elaborate temporary cash transfer subsidy to compensate the introduction of their domestic ETS on transport (see Box 4.4). Existing preferential treatment for trucks should remain temporary. Public information campaigns on the benefits of such reforms and on revenues recycling measures (if chosen) have proven to facilitate public acceptance.

Ensure revenue stability by addressing fuel tourism concerns, for example through engaging in exchange with neighbouring countries. Coordinating with neighbouring countries on transport tax rate differentials could address fuel tourism concerns to some extent. The introduction of ETS2, and a potential ETD revision are positive steps raising the diesel tax threshold, but they will not fully close the price gap with neighbour countries. Alternative revenues can also be raised through trade-off with distance-based charges for trucks (see below).

Box 4.6. Country practice: Lithuania excise tax reform and Slovenia carbon tax

Lithuania excise tax reform

Starting from January 2025, a carbon component has been included in the fuel excise duty in Lithuania. The carbon component is planned to increase for gasoline and diesel from respectively EUR 0.05 per litre in 2025 to EUR 0.14 and EUR 0.16 per litre in 2028 (approximately EUR 20 to EUR 60 per tCO₂e) (Lithuanian parliament, 2025[137]). Additionally, a security component is added to diesel gasoil of EUR 0.03 to 0.05 per litre.

In 2025, Lithuania experienced a 15% drop of diesel purchases, which halved the expected additional revenues from the tax increase (Madeinvilnius, 2025[138]). The gap between Lithuania and neighbouring countries such as Poland, was already significant before the reform at EUR 0.15 per litre (see Figure 4.12) and almost doubled afterwards feeding fuel tourism for diesel consumed by trucks. The government reacted by suggesting a pause to the increase in 2025 and an import restriction on the amount of fuels from extra European Economic Area countries (Ministry of finance of the Republic of Lithuania, 2025[139]; Ministry of Finance of the Republic of Lithuania, 2025[140]).

Figure 4.12. Diesel and gasoline taxes before and after the tax reform in Lithuania and Poland

Note: The vertical axis presents tax rates in Euro per 1 000 litres

Source: Ministry of Energy of the Republic of Lithuania (2025[141])

Slovenia carbon tax

The Slovenian carbon tax was implemented in 1996 as part of the Decree on Fees Charged for Air Pollution. The tax rate regularly increased up EUR 17.3 per tCO₂ in 2018 and to EUR 30.85 per in 2024 (Energetika Portal, 2024[142]). It applies to oil products, natural gas and coal and coke for GHG emissions generated from transport and heating (OECD, 2024[143]). The tax was waived between August 2022 and May 2023 on gasoline, diesel, natural gas and kerosene to mitigate the impact of the energy crisis on fuel cost.

Source: OECD (2025[144]).

4.5.2. Reform vehicle taxation to encourage electric vehicle adoption while preserving fiscal space by reforming subsidies

Raising recurrent vehicle taxes according to Euro emission standards can support both revenue and environmental objectives. Considering challenges to implement a purchase tax to disincentivise the uptake of old polluting vehicles, the annual motor vehicle tax can be entitled to reach such goal. The reform of the tax on the means of transport taking effect in January 2026 for cars is a welcome development in this direction but could be refined. As the gap between the oldest and newest cars is small, a greater differentiation of the tax by Euro emission standard would send a better signal for the renewal of the fleet. Bulgaria (see Box 4.7) for instance has an annual car tax varying with vehicle power, adjusted by a coefficient for age and Euro emission standard. The Euro emission standards coefficient is fixed by municipalities. At the national level, France has implemented a surtax for higher emitting company cars based on Euro emission standards. With a slightly different perspective, the Netherlands chose both to have an air emission tax (PM surcharge on diesel vehicles) or a tax rebate for the cleanest cars motor vehicle tax rebate for Euro 6 cars.

Box 4.7. Country practice: Bulgaria annual motor vehicle tax

The annual motor vehicle tax applies to all vehicles. Tax parameters are the following: power for cars, size for motorcycles, seats for busses, axles and weight for trucks. Additionally, the final tax for cars is modulated by a coefficient varying according to age and air pollution through the Euro emission standard. Municipalities can fix the exact tax per kilowatt for each threshold inside a range determined at the national level. Similarly, municipalities can fix the exact coefficient for the Euro emission standard.

The age correction factor penalises cars which are less than 15 years old (up to a coefficient of 2.3 for cars which are 5-years old or less) as well as cars which are more than 20 years old (with a coefficient of 1.1). The Euro emission standard correction factor modulates the tax up to 1.4 for Euro 1-2 and up to 0.4 for Euro 6. Battery electric cars and motorcycles are fully exempted.

All in all, it is up to municipalities to tax more the most polluting cars or not by adjusting coefficients.

Source: Bulgarian Parliament (2025[145])

To limit path dependency of fossil fuel–powered technologies even if less polluting, the net cost of battery electric vehicles should remain substantially lower than that of internal combustion engine vehicles. BEV uptake is a promising solution to simultaneously reduce externalities such as GHG emissions, air pollution and noise. A clear difference in tax-induced net costs between BEVs and ICE vehicles -even the very efficient ones- would strengthen incentives for consumers to switch to BEVs at the time of vehicle renewal or first purchase. This approach would help prevent the continued introduction of long-lasting fossil fuel-powered technologies into the market now. Adoption of BEVs goes along with continuing installing charging infrastructures to address range anxiety.

Targeting scrappage subsidies to zero-emission vehicles and vulnerable users, while including second-hand cars, would reduce costs and support environmental and equity objectives. The scrappage scheme could better focus on supporting clean vehicles, e.g. be available only for battery electric vehicles, and extend the scope to second hand ones to affect this important part of the market. On the user side, focusing better on vulnerable users from an economic point of view (low- and middle-income households, small firms) and their dependency on vehicles (public transport infrastructure, commuting, taxis and busses, freight transport companies) could further improve the targeting of the policy and reduce costs. The upcoming SCF can be considered for fundings. Such targeting subsidies can nevertheless require good administrative capacity, data and enforcement mechanisms to avoid driver exploiting loopholes. For instance, France implemented subsidies for the purchase or leasing of electric vehicles targeted to commuters and modulated by revenues. Revenues are checked according to income tax declaration, alongside an employer certificate stating the commuting distance between home and work27.

Box 4.8. The French social leasing and retrofit programs​

The leasing subsidy is granted for a three-year leasing contract of max. EUR 200/month to low-income commuters only, for new cars complying with an environmental standard criterion, at 27% of the purchase cost, up to EUR 7 000.

​The retrofit subsidy is granted for the conversion of an internal combustion engine car, for low-income households, up to EUR 5 000.

Revenues are checked according to income tax declaration, alongside an employer certificate stating the commuting distance between home and work.

Source: Ministère transition écologique (2025[146]; 2025[147]).

Implementing a feebate on car registrations is another option to maintain budget space while encouraging clean technology adoption. Implementing feebates can maintain budget neutrality if the pivot point is well defined. They have been shown to be effective in reducing CO₂ emissions (see Box 4.9 for France), but only rarely include air pollution which would be beneficial (e.g. Singapore’s vehicle emission scheme). A feebate scheme in Romania could be implemented at registration of new and second-hand imported cars and best cover both CO₂ and air pollutant emissions. Noting that the “malus” part will require a depreciation component based on vehicle age under the EU legal framework to address concerns expressed in relation to the former registration tax, which can result in higher taxation of the most recent and cleaner cars compared to older, more polluting ones.

Box 4.9. Country practice: French bonus-malus

French bonus-malus design

Created in 2008, the French feebate applies at the first registration of cars and light-duty trucks registered in France. It levies a fee (malus) on the purchase or registration of highly polluting vehicles, while the revenues collected from the fee are used to support (bonus) clean vehicles. The level of the bonus and malus varies by range of CO₂ emissions emitted per kilometres. The schedule is regularly updated to be adapted to fleet evolution. Until 2020, it was also set to be neutral between revenues and expenditures.

When first implemented, the bonus varied from EUR 5 000 for cars with emissions under 60 gCO₂/km to EUR 200 for those with emissions up to 130 gCO₂/km. Over the years, the bonus has been further restricted to a subset of battery electric vehicles only based on an environmental score (in 2023) and modulated by income level (in 2025). At the beginning of 2025, the bonus varies from EUR 2 000 to EUR 4 000 depending on the household’s income.

At implementation in 2008, the malus varied from EUR 200 for cars emitting more than 161 gCO₂/km to EUR 2 600 for those emitting at least 250 gCO₂/km. In 2025, the malus goes from EUR 50 for cars with 113 gCO₂/km to EUR 70 000 for vehicles with at least 192 gCO₂/km. In 2022, a malus on the weight of vehicles was introduced, with electric vehicles exempted until July 2026.

GHG emissions and fiscal impact

The bonus malus was shown to have a positive impact on the decarbonisation of the fleet. Nevertheless, it initially resulted in oversales of new cars, which generated additional GHG emissions due to their production and the high pivot point in terms of CO₂ emissions per kilometres (D’Haultfœuille, Givord and Boutin, 2014[112]). Another study, from Durrmeyer (2021[148]), found that the scheme reduced CO₂ emissions, but came at the cost of an increase in local air pollutants. Also Additionally, the scheme was initially generous and resulted in a cost for public finance until 2014 which could go up to EUR 0.5 billion (ICCT, 2022[149]).

In 2020, revenues from the malus stopped being earmarked for financing the uptake of low emissions vehicles.

Source: Legifrance (2025[150]), I4CE (2024[151])

To sustain fiscal revenues, electric vehicles will need to be included in the tax base in the long run. A future shift of the vehicle fleet towards EVs risks eroding fuel excise revenues. Such base erosion will be relevant for Romania because fuel excise constitutes a high share of tax revenues (26%, see Section 4.2). As the electrification of the fleet is just nascent, this is a medium to long term challenge. At that time, including EVs in the vehicle tax could help offset revenue decreases.

4.5.3. Adjust road tolls for trucks and consider their extension to cars

Preparing for the use of distance-based charges for cars. Distance-based charges can be an efficient tool to manage driving, if they incorporate vehicle’s characteristics like weight, fuel type, fuel efficiency and Euro emission standard. They could be applied to cars and replace the current vignette system which functions only as an access fee to the road network and is not linked to the actual kilometres driven. Such charges could vary by vehicle weight and average pollution profile thereby reflecting costs related to air pollution and road damage. They could also incorporate spatial and temporal variation in driving; reflecting population exposure to externalities, like air pollution and noise, as well as higher congestion costs during peak hours and in specific locations. In addition to better cost management, distance-based charging offers more stable revenues. A key drawback, however, is its greater complexity, high administrative and implementation costs, as well as privacy concerns in particular related to private cars.

The recently implemented road tolls for trucks could be further developed to maximise their environmental policy potential and raise more revenues. A more granular price schedule related to air pollution and CO₂ emissions profiles of trucks and population density would better reflect external costs from driving, as it is the case for German road tolls (see Box 4.10). Additionally, its scope could be extended to light-duty trucks. Investments in infrastructure to ensure an appropriated coverage of the roads would be necessary to avoid trucks running on secondary routes. Additionally, there is room to increase the road tolls for trucks, which are currently relatively low. Such an increase can be used to compensate revenue foregone from diesel excise tax due to fuel tourism or current refunds for freight transport.

Box 4.10. Country practice: German road toll

The German road toll (LKW-Maut) was introduced in 2005 jointly with a reduction of the vehicle tax for heavy-duty trucks, an innovation program to support investments in cleaner vehicles and a discount on the toll to mitigate the impact.

The toll has covered an increased scope of the territory covered (up to 51 000 km) and vehicles (weight lowered from 12 to 7.5 tonnes in 2015, to 3.5 in 2024). Variation in the rate was introduced according to weight in 2019, CO₂ emissions in 2023, in addition to the air pollution criteria based on Euro emission standards already existing from the beginning. 

Rates are split into different components (infrastructure, air pollution, noise, CO₂ emissions) whose level is determined by the external cost corresponding the truck’s segments. The lowest rates correspond to the cleanest and lighter trucks. Total rates vary from 11.4-24.8 eurocent per km for trucks between 3.5 and 7.5 tonnes to 26.9-51.6 eurocent per km for trucks above 18 tones with 5 axles. Zero emission trucks are exempted until 2031.

The road toll has successfully generated revenue (around EUR 13 billion in 2024), which finance road and rail transport infrastructures. The toll improved the efficiency of road freight transport by decreasing the share of empty trucks, but did not reach the targeted shift towards rail.

Source: Author’s elaboration based on Bundesministerium für Verkehr (2025[152]), toll collect (2025[153]), Transport and environment (2017[154]), Transport Committee of the house of commons (2007[155])

4.5.4. Consider implementing local congestion charges or low emission zones in the main urban areas

Reducing urban air pollution and congestion will require additional measures, even beyond tax, including congestion charges and low emission zones. As air pollution and congestion imply costs at the local level, with higher externalities in urban areas where population density is higher, acting at the city level is relevant. This could include cities like Bucharest, Cluj‑Napoc and Iași where congestion and air pollution is particularly high.28 Congestion would be indirectly tackled through a low emission zone or directly through a congestion charge, and reversely for air pollution. A cordon fee differentiated by Euro emission standard, could be levied to enter a city and its suburbs, possibly with differentiated tax schedules per zone and time of the day and week to well reflect peak and off-peak hours. Congestion and air pollution objectives can also be addressed separately by a combination of instruments as in London, with a fixed fee with a cordon on a large area combined with a low emission zone in the centre of city where most polluting vehicles are prohibited. Infrastructure costs for automatic recognition through cameras have decreased over time and can be limited as for the Warsaw low emission zone (see Box 4.12). Ensuring public acceptance ahead of introduction, e.g. through public consultations, can also thus avoiding costly resilient infrastructures, choosing the most appropriate technology and exploiting economies of scale through potential reproducibility in other cities as seen in Sweden which implemented a congestion tax longer time ago (see Box 4.11). Municipalities usually benefit from the revenues, which are used for transport infrastructure.

Box 4.11. Country practice: Stockholm congestion tax

The Stockholm congestion tax was implemented in 2006, as a toll cordon, meaning the charge is paid each time the vehicle crosses the cordon to enter the city. Charges are levied from 6 am to 6:30 pm during weekdays. They vary according to the time of the day and the year, from SEK 11-15 (c.a. EUR 1-1.4) up to SEK 35-45 (c.a. EUR 3.3-4.2) between 7-8:30 am and 4-5:30 pm.

The charge is automatically levied through cameras photographing vehicles’ number plates and cross-references with Sweden’s National Vehicle Registry. Revenues are used for infrastructure investments.

Implementation costs were high (EUR 200 million) due to the high political risk, requiring a resilient infrastructure. Operating cost the second year was 20 million. The implementation cost was nevertheless much reduced when another congestion charge was implemented in Gothenburg (EUR 76 M), as it was building on the existing Stockholm congestion charge.

The congestion tax was criticised as being regressive, though not all studies during the trial were conclusive at this point. The potential risk of low-income car-owners being more impacted can be mediated by developing public transport and recycling revenues.

A 20% decrease in traffic occurred in the implementation year, due to drivers shifting to public transport and a slight peak spreading. These effects increased in the long-term suggesting a greater availability of alternative travel modes over time.

Source: Author’s elaboration based on Karlström and Franklin (2009[156]), Börjesson (2018[157]).

Box 4.12. Country practice: Polish low emission zones

Implementation of the low emission zones

The framework for the implementation of the Clean Transport Zone (SCT) was set through an amendment to the electromobility law in 2021. The law defines which vehicles is exempt, minimum duration, the possibility to levy a fee for banned vehicles during a three-years transition period and the details of the resolution that the municipalities should adopt.

Warsaw introduced a SCT in July 2024, followed by Krakow in January 2026. The SCT regulate only all vehicles except motorcycles. They cover different share of the cities: 7% of Warsaw (37 km2) and 60% of Krakow. Both cities have exemptions for the vehicles owned by residents, and for few other cases (e.g. seniors).

Warsaw plans a gradual strengthening of the rules whereas Krakow directly required stricter air pollution standards. Warsaw plans to gradually tighten the rules to access the centre of the city every two years until 2032. In 2024 petrol-powered vehicles needed to comply with Euro 2 emission standard, and diesel-powered vehicles with Euro 4. In July 2030, only Euro 6 petrol-powered vehicles and Euro 6d diesel-powered vehicles will be allowed. In Krakow diesel cars need to comply with Euro 6 standard while gasoline cars are required at least Euro 4 standards. Krakow allowed the other cars to enter the area against a fee (PLN 100 per month) for a transition period of three years.

Other cities are also considering implementing a low emission zone. For instance, Wrocław was about to implement a low emission zone in 2025, as an obligation linked to air emission levels.

Cost and impact of the low emission zones

The enforcement is ensured by cameras using automatic number plate recognition system, coupled with stickers for exemptions. Implementation cost for Warsaw was initially estimated at PLN 10 million upfront costs, plus 0.4 million for the ongoing annual costs.

Substantial reductions of air pollution are expected. NO_X and PM emissions have been estimated to decrease by 52% and 23% respectively for the third phase of implementation.

Source: Polish Parliament (2021[158]), Public Transport Authority in Krakow (2026[159]), Ricardo (2023[160]), ICCT (2025[161]).

4.5.5. Adopt complementary non-tax measures to strengthen public transport use, alleviate the burden on vulnerable population and build support for tax reforms

Apart from tax instruments, public transport demand and supply should be developed. Significant investment in clean public transport, both rail and busses, is needed to provide Romanian commuters with viable alternatives when driving costs increase through tax reform. Improving rail speed and reliability is also essential to shift freight from road to rail and advance environmental objectives in this market segment. On the demand side, subsidised bus and train tickets could contribute halting the decline of public transport use (see Box 4.13 for Germany’s experience) but these measures must be accompanied by sustained infrastructure investments. Such subsidies should require agreement between operators and government to prevent revenue shortfalls potentially leading to less revenue and investments. Improving public transport before the introduction of low emission zones or increasing vehicle taxation could ease acceptance, though it risks being more expensive and slower.

Both subsidies and investment in public transport will have significant budgetary impacts, and the costs should be carefully evaluated ahead of their implementation. ETS2 or at the local level revenues from the congestion charge could potentially be considered to contribute towards financing such reforms.

Box 4.13. Country practice: German 9-Euro-Ticket subsidy for public transport

A public transport subsidy in the midst of the energy crisis

A monthly regional ticket at the price of EUR 9 (“9-Euro-Ticket”) was introduced between June and August 2022 in Germany alongside a package of measures during the energy crisis to mitigate the impact on the cost-of-living. It corresponds roughly to a 90% reduction of public transport cost. It granted the access to all local public transport and regional trains. The federal government transferred EUR 2.5 billion euros to German states to finance the initiative.

Starting from May 2023, a national-wide type of ticket (“Deutschlandticket”) was put in place, still subsidised but at a higher price for consumers, at EUR 49 per month. The price increases annually reaching EUR 63 per month in 2026. Funding is equally shared between the federal government, with EUR 1.5 billion yearly, and the states. The states can decide to provide further discounts.

A positive impact on emissions

Analysis shows that the 9-Euro-Ticket reduced air pollution by 8%, with more pronounced effects during weekdays and in urban areas, likely due to a modal shift of commuters (Gohl and Schrauth, 2024[162]). Similar results in terms of CO₂ emissions reduction, air pollution reductions and modal shift were found for the “Deutschlandticket” (Koch et al., 2025[163]).

Source: Bundestag (2025[164]; 2025[165]); Bundesregierung (2026[166])

To mitigate the impact of rising prices on vulnerable populations, targeted government support is preferrable to broad price support. Supporting households during is costly, but essential to ensure energy affordability and sustained political support for reducing emissions. Some countries rely on price support to lower consumers energy costs (e.g. price controls, broad energy tax or VAT cuts). While easier to implement and politically expedient, such measures place significant pressure on public finances, especially when untargeted and extended to households able to absorb higher prices. Converting price support into well-targeted income support would better address distributional concerns and contain costs, albeit at some administrative complexity. Effective targeting should account for multiple factors, including income, location, and consumption patterns but comes with implementation costs (OECD, 2022[88]).

Information campaign on the benefits and costs of clean technologies, available alternatives and the mechanisms of environmental policies can improve public acceptance. For instance, short spots could explain the rationale of tax and regulations design, the existing fundings put in place to ease adoption of clean alternative and mitigate distributional impact, alongside their benefits in terms of air quality, climate change and congestion. Communicating on the total cost of ownership of electric vehicles currently and in the near future could also increase understanding and certainty among buyers.

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Notes

← 1.  17% of domestic GHG emissions without LULUCF, 26% of emissions from energy.

← 2.  Vehicle-kilometre measure the total distance travelled by all vehicles. For instance, 100 vehicles traveling 10 kilometre each result in 1 000 vehicle-kilometre.

← 3.  Euro 0 refer to pre-Euro emission standard vehicles be, i.e. with Nox emissions potentially exceeding than 0.5 and 0.15 g/km for diesel and gasoline-powered cars respectively, while Euro 5 refers to a maximum of NOx emissions of 0.18 and 0.06 g/km. See Annex J for details of the intensity of Euro emission standards.

← 4.  49% of the RON 46.3 billion (Romania Fiscal Council, 2024[168]).

← 5.  External costs differ from social cost, which measure the total negative effects of an activity borne by society, including both private costs to the economic agent undertaking the activity and external costs imposed on third parties.

← 6.  These technologies are catalytic converters. They provide after-treatment of exhaust emissions. Most recent and common one are three-way catalysts (TWC) for gasoline-powered cars and selective catalytic reductions (SCR) for diesel-powered cars.

← 7.  For two reasons: diesel fuel contains more energy per litre and diesel engines are typically more efficient at converting fuel into motion (Harding, 2014[20]).

← 8.  By contrast, direct emissions (Scope 1 emissions), as discussed in the previous paragraphs, are generated by the combustion of gasoline, diesel, LPG or natural gas in ICE vehicles.

← 9.  Diesel vehicles have a compression ignition system, where fuel is injected directly into compressed hot air (without being pre-mixed), and that excess of oxygen (through air) combined high temperature can generate NOx (EEA, 2025[167]). Gasoline vehicles have a spark ignition system, in which fuel is pre-mixed with air, causing incomplete combustion during cold starts or acceleration where air is missing, and thus air pollution is released at the time of the evaporation of the fuel.

← 10.  This includes high sulphur content, high aromatic content, and lower octane.

← 11.  This includes brake wear, tire wear, road surface abrasion, and the resuspension of road dust.

← 12.  The indicator measures increase in travel time due to excess traffic, comparing free-flow or optimal traffic conditions, which are statics factors in each city, and actual travel time.

← 13.  This refers to the use of public transport or taxis.

← 14.  For freight: c.a. 15 km/h; for passenger trains: slightly over 40 km/h.

← 15.  Import tariffs are not discussed, as they are zero for trade with other EU countries, which are the main trading partners for cars, and are otherwise determined at the EU level.

← 16.  Article 30d of the 2003 directive, this amount corresponds to the scenario where the ETS2 starts in 2028 rather than 2027.

← 17.  Article 8 of the of the Regulation (EU) 2023/955.

← 18.  Annex II of the Regulation (EU) 2023/955 of the European Parliament and of the Council of 10 May 2023 establishing a Social Climate Fund.

← 19.  Article 15 of the Regulation (EU) 2023/955.

← 20.  Article 10 of the Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a system for greenhouse gas emission allowance trading within the Union.

← 21.  A registration tax (“Taxa de prima înmatriculare”) (2007-2012) was first implemented for the vehicles being first registered in Romania, as a function of vehicle age, size and Euro standard. From 1 January 2012, the tax became mandatory also for re-registration in Romania of vehicles first registered domestically before 1 January 2007.

← 22.  The Eurovignette regulation (European Union, 2022[169]) requires all countries to switch to distance-based tools on the TEN-T core network, unless exceptions such as highways under concessions by March 2030, and for countries that already implement distance-based tolls, to apply air pollution charges for trucks from 25 March 2026.

← 23.  This is especially relevant for externalities that are non-linear with activity because each unit of activity does not generate the same level of externalities. Non-linearities in transport related external costs arise for example with congestion (delays increase more than proportionally by number of vehicles on the road), noise (noise effects increase more than proportionally to the number of vehicles), and road damage (road damage increase more than proportionally to the weight of the trucks according to the four-time axle principle).

← 24.  In some cases, average and marginal external cost are identical, e.g. for GHG emissions.

← 25.  Belgium, Croatia, France, Italy, Portugal, Romania, Slovenia, Spain.

← 26.  Energy taxation refers here both to fuel and electricity taxation.

← 27.  Or a sworn declaration of professional travel, and a proof of social-security affiliation for self-employed workers.

← 28.  After a first attempt in 2020, the implementation of a low emission zone in Bucharest is still under consideration (EBRD Green cities, 2025[170]) and encouraged by the national framework adopted in 2023 (Romanian Parliament, 2023[172]; Economica, 2026[171]). The indicative cost has been estimated at EUR 15 million, which could for instance be financed by funds from the RRF and a loan through Invest EU. The Air Quality Action Zone (ZACA) implemented in early 2020 encompasses an “oxygen tax” at a rate between RON 500 to 1 900 yearly for cars not complying with the Euro 5 standard and a gradual ban implemented between 2022 and 2024 for the same cars (EU urban mobility observatory, 2019[173]). The low emission zone was scrapped two months before the elections, shortly after its introduction, due to its unpopularity.