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The road freight industry in the UK is already operating on very tight margins, but as congestion and green issues come to the forefront of the political and social agenda, should the industry be paying more to cover the costs? This was the question asked by the Logistics Centre at Heriot-Watt University in its report 'Internalising  the external costs of road freight transport in the UK'. While the title of the report might seem rather complicated, the basic idea is that haulage operators currently pay for their internal costs, such as fuel, VED and vehicle maintenance, but the wider costs associated with congestion, infrastructure and the environment are paid for by tax payers.

The report asks how much of this external cost could and should be covered by road haulage operators, therefore internalising them. Road freight accounts for 83% of all freight tonnage moved in the UK and 64% of tonne-km. Alan McKinnon, logistics professor at Heriot Watt, who wrote the report, says that if road freight were disrupted for only a few days the consequences to the country would be disastrous. Despite  the enormous economic and social benefits road freight transport yields, it also adds to congestion and infrastructure damage, and produces greenhouse gases and other air pollutants.

The European Commission's fair and efficient pricing policy aims to ensure that all damage caused by road traffic is paid for in the price of transport. It suggests that polluters are obliged to pay the marginal social cost of their activities, but they should be given incentives to reduce the negative effects of their activities. The report aimed to work out how much these external costs are costing the UK and measure what proportion is already paid for by the road haulage industry. Lorries' contribution to the cost of providing, operating and maintaining road infrastructure is not an externality as such, but has to be calculated to determine its share of road freight taxation. From the remaining taxes the environmental and congestion costs should be recovered.

Heriot Watt estimates the external costs of LGVs in the UK to be £7.1bn a year, based on medium emissions levels. The heaviest articulated vehicles over 33 tones carry 72% of all road tonne-km and are responsible for only 47% of all external costs of road freight transport. But rigids account for 48% of the external costs while carrying only 24% of total tonne-km. These figures show that larger and heavier trucks have lower external costs per tonne-km. Of the overall external costs attributed to LGVs 40% comes from congestion, 23% from infrastructure, 19% from accidents, 15% from air pollution and greenhouse gas emissions and 2% from noise.

The report found that the duties and taxes paid by transport operators cover an average of 67% of the total external costs created by British-registered LGVs. But there were marked differences depending on the size of the vehicle. Rigids up to 7.4t covered only 55% of their external costs rigids between 7.5t and 16.9t were at 68% rigids between 17t and 24.9t were at 60% while rigids over 25t were at 79%. Artics below 33t were at 72% while artics over 33t were at 67%.

The report states that if congestion is taken out of the equation the taxes currently paid by UK road haulage operators exceed the value of all the external costs for all LGVs apart from artics over 33t and they cover 99% of those costs. In 2006 the average truck in the UK paid 12% more in duties and taxes than its allocated infrastructural and environmental costs (excluding congestion costs).

McKinnon says this is the first time a report shows this, and as trucks get cleaner with improving Euro standards in theory they will pay for even more. "Hauliers will accept the need to pay towards the infrastructure and the environment, but congestion is a different matter. Hauliers will ask 'why should we be held responsible for congestion?' if there was sufficient infrastructure there would not be any congestion," he says.

Despite this reasonably positive outlook, McKinnon says that in the light of recent reassessments of the impact of climate change these estimates might be too optimistic. He points out the Stern report suggests the cost of carbon should be around £265 per tonne, which is roughly three times higher than the values used to calculate the figures in the report. Using this figure would reduce the amount of external costs already being paid for the road haulage sector down to 49%.

The number of foreign trucks using the UK's roads also places a burden on the infrastructure and adds to congestion and air pollution, but they do not pay VED in the UK and pay very little fuel duty in the UK, so their external costs are hardly covered by the tax and duties they pay. Heriot Watt estimates that for foreign-registered vehicles congestion constitutes 30% of their external costs, followed by infrastructure wear (29%), air pollution (20%), accidents (20%) and noise (1%).

If the estimated 1,058 million vehicle km run by foreign-registered lorries in 2006 had been using diesel purchased in the UK an extra £177m in duty would have been collected by the UK exchequer. As most trucks spend less than two days in the UK full externalisation of the external costs of foreign LGVs in the UK would raise around £300m. However, the report says it can be safely assumed that most undertake their haulage work in the UK with fuel purchased outside the UK.

And UK operators fair well when compared to the rest of Europe, according to European Environmental Agency figures from 2002, which show that in Britain 88% of external costs have been internalised, whereas countries such as Poland, Greece and Luxembourg manage only 30%. But just because the UK is doing reasonably well at present and there is room for improvement does not mean things should not change.

The report concludes that if the polluter-pays principle were applied more rigorously to the road freight transport sector then it could distort the market. In fact, it says that ironically the UK's higher fuel duty means that local operators pay more of their external costs, but it has also opened up the market to foreign competition that doesn't. The report goes on to say that even though duties and taxes in the UK are very high, they would need to be 50% higher again to fully cover all the external costs of the road freight sector.

If the government were to provide additional road space and/or use traffic management measures to relieve congestion, costs would be reduced and the degree of internalisation increased, the report concludes. Given the importance of road freight transport to the national economy, this would probably prove a more effective transport strategy than taxing LGVs more heavily. And the more operators are taxed the less likely they are to be able to afford to upgrade their trucks to more efficient and environmentally friendly versions.

• To see the full report click here.