A decade after the liberalisation of the rail market, EU plans to revise the existing rules to boost competition
The development of a sustainable and efficient pan-European railway system has been one of the priorities for the European Union for many years. The growing demand for transport made it necessary to integrate the various national rail networks to allow passengers and goods to travel more effectively in the enlarged EU. Over the last decades the EU has put forward a wide range of legislative initiatives to create a necessary platform, including freight and passenger market opening, developing interoperability, controlling state aid and improving passenger rights. These initiatives have been aimed at boosting the competitiveness of the rail sector, which has suffered in comparison with other modes such as road haulage.
Despite of all these efforts the degree of competition in the EU rail market is still low and significant barriers to market integration are still in place. The benefits of the liberalised market have not been fully exploited, for example rail’s share of freight has decreased.
Due to many shortcomings in the current legislation EU officials in Brussels are considering a number of proposals to improve the functioning of the rail market. These will have a significant effect on the way rail infrastructure managers do business.
In addition, the increasing public focus on protecting the environment and fighting climate change presents a number of opportunities for creating a level playing field between various transport modes, while increasing the competitiveness of the rail sector.
Of the issues currently before EU, decision makers, the most pressing are the recast of the First Railway Package and the long-awaited revision of the Eurovignette Directive.
The European Commission admits that there are still significant barriers to market integration at EU level, despite many efforts made by both industry stakeholders and political actors over the last several years. On the basis of this conclusion, the EU executive is finalising a revision of the so-called First Railway Package.
The original set of legislation was designed to liberalise international rail freight, to establish a transparent regulatory regime for the allocation of capacity and charging for access to rail infrastructure across the EU and to create a framework for the licensing of train operators in each member state.
The package forms the legal framework for the rail sector in Europe today, being the basis for the introduction of competition, the independence of Infrastructure Managers and the opening up of the international freight market. This has had results in some European countries. In the UK, rail freight has increased by 60 per cent since the mid-1990s, while in Sweden freight traffic has increased by almost two billion tonne-kilometres between 2004 and 2006.
The Package has not fully taken effect due to a number of reasons, however. A majority of member states have not implemented the rules in their national legislation with sufficient conviction. Further complications have arisen from the fact that those member states that have implemented the legislation have done so in different, and sometimes incompatible, ways. The result is that the degree of competition in the EU rail market is still low and significant barriers to market integration are still in place. The rail sector thus faces a bar to reaching its full potential.
The European Commission reacted to the situation by calling on 24 EU member states to comply with EU law. Against 22 member states the Commission has launched an infringement procedure. 13 of these states were recently referred to the European Court of Justice for failing to implement the First Railway Package.
There is a shared opinion in the rail sector that the current legislation needs to be streamlined, clarified and simplified to avoid further misinterpretation and discrimination. The proposal to recast the First Railway Package, therefore, has been welcomed by all stakeholders. In order to be most effective in overcoming the challenges facing the rail sector, and to strengthen the competitiveness of the industry, the recast should ensure:
• A strengthening of the separation between infrastructure management and operations
• A clarification of arrangements related to ownership and access to services and facilities
• A legislative framework to oblige member states to use Multi-Annual contracts, and to provide a clear definition of these contracts
• The strengthening of regulatory bodies, and rules to ensure the independence from government ministries
• Mandatory introduction of schemes to ensure the payment of external costs in all member states to ensure the implementation of the “user pays” and “polluter pays” principles.
On 17 June 2010 the European Parliament adopted the motion for resolution, in which it urges the European Commission to ensure proper implementation of the First Railway Package.
MEPs stressed that the Commission must step up its efforts to make member states comply with the package and that the current law needs to be reviewed. The Parliament therefore called for the Commission to quickly launch a recast of the package
The drafting the recast of the 1st Railway Package legislation has been completed and the European Commission was scheduled to adopt the proposal in July 2010. However, the publication was postponed until September.
Unfair playing field
Climate change is at the top of the European political agenda, and a number of measures are being taken at EU level to ensure that the transport sector makes its contribution to reducing carbon emissions.
Rail is widely acknowledged as the most sustainable transport mode, with the lowest CO2 emissions of any mode. While emissions from the transport sector overall increased by 32 per cent in the period between 1990 and 2004, only the rail sector recorded a decrease in greenhouse emissions. Railways are also highly efficient in terms of energy use: steel wheels running on steel tracks lose very little energy through friction. Electric trains, increasingly using power from a variety of renewable sources, are helping to address political and environmental concerns surrounding energy security and oil dependency.
Given its energy efficiency and small carbon footprint, the best contribution the rail sector can make to the environment is to increase its share of the transport market. Unfortunately, the prevailing political and economic context has not contributed to this goal – indeed, rail’s share of freight has declined from 19.7 per cent in 2000 to 17.8 per cent in 2008, according to Eurostat. Despite its green credentials the rail industry faces an uneven playing field when competing with other modes of transport, particularly in the freight market.
The Eurovignette Directive
Transport sector prices across Europe are distorted by the political framework for taxation and by state subsidies. In addition, the rail sector, through its indirect participation in the European Emissions Trading Scheme, is the only transport mode that is currently required to take full account of its environmental footprint. Furthermore, existing EU legislation allows governments to include “external costs” (such as the impact of noise, pollution or accidents on society) in rail infrastructure charges, while prohibiting them from doing so for road transport. This leads to something of an imbalance with other modes, which do not take account of environmental costs in their charging schemes and which have not yet been brought under the ETS.
This situation could change, however, with the revision of the Eurovignette Directive proposed by the European Commission in early July 2008. The existing Eurovignette Directive is a piece of European legislation that sets out common rules for EU governments on tolls and charges for heavy goods vehicles on certain kinds of roads. It does not, however, take account of the external costs of transport to society – under the existing Directive, the level charges are strictly capped at the level necessary to recover infrastructure costs only. The external costs of rail transport, however, can, as mentioned above, be factored into track access charges under European law. The result is, in effect, to grant road transport a subsidy and to give road haulage a competitive edge over rail freight.
The Commission’s proposal could change this situation in a number of positive ways. The legislation would give national road authorities a series of options and formulas for calculating the unpaid costs of road transport. The legislation would only apply to vehicles of 3.5 tonnes or more, although countries can introduce charging for cars if they want.
If the legislation is approved, toll prices on roads could be raised to cover the costs medical care for health problems relating to air and noise pollution, but not the costs related to traffic accidents. Productivity losses due to road transport problems can also be charged-for, as can the costs caused by sleep disturbance, time lost in traffic jams, increased fuel consumption and road maintenance.
In addition, the Directive would encourage governments to “earmark” the funds generated by the scheme for investments in sustainable transport. This is a step in the right direction, but this provision could be further strengthened by making funding of “green” transport projects a requirement.
While the proposal is a good step forward, the rail sector regrets the fact that the costs of CO2 emissions are not taken into account, especially as tackling climate change is high on the EU’s agenda. Nevertheless, if properly implemented, the proposal will help to ensure the creation of a level playing field amongst all transport modes by implementing the polluter pays principle.
The European Parliament has sent a clear signal on 11 March 2009 as a majority of MEPs voted in favour of the proposal. The outcome of the vote was a first – but important – step towards lifting the current ban on applying environmental charges to trucks. In particular, MEPs voted to keep congestion costs, and to allow member states flexibility in implementing such congestion charges.
The legislation must be approved by both the European Parliament and national governments. European governments were expected to follow the positive example set by the Parliament. However, according to the EU Member States, the financial and economic crisis made it inappropriate to adopt a directive that would lead to an increase in transport prices.
The validity of this argument can be questioned, however. In January 2010, a report published by the European Commission’s Joint Research Centre (JRC) has shown that charging road vehicles for the damage they do to the environment would, in fact, have a positive effect on the economy. The researchers concluded that “the overall benefits of charging for external costs outweigh the limited negative price impacts on individual transport operators”. Indeed, the expected net benefit for the European economy amounts to EUR 2.3 billion a year – very good news for an economy shaken by the economic crisis.
Due to the unwillingness of EU governments to deal with the Eurovignette dossier, the initiative has been stalled in the legislative pipeline under the Spanish and Swedish EU presidencies. In fact, the last time it was considered was during the Czech Presidency, at the Transport Council of 30 March 2009. Belgium, which took over the Presidency of the EU on 1st July, has announced plans to revive the initiative and advance the Eurovignette proposal in the coming six months.
The journey to the future
As the projects described above show, there is political will at EU level to work to improve the competitiveness of the European rail industry, in order to increase capacity to meet a booming demand for transport in as sustainable a way as possible. While the initiatives outlined above are positive, the complex EU legislative process does not always have the desired or predicted effect, as the experience of the First Rail Package shows.
The revitalisation of the rail sector thus requires that public officials, industry stakeholders and customers work together in partnership to develop effective common solutions.
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