Luxembourg urged to increase fuel costs

An OECD report has recommended that Luxembourg raise the cost of fuel and introduce a congestion charge in a bid to combat mounting environmental pressures.

Greening Growth in Luxembourg, an OECD Economics Department Working Paper by Nicola Brandt, outlines the negative impact on the environment that 20 years of unchecked growth has had on the Grand Duchy.

“Luxembourg's impressive development into a transborder regional economic centre has not come without environmental pressures. Commuter traffic has increased significantly, the largest share being due to the car. This has led to congestion, local air pollution and considerable CO2 emissions,” the report read.

To help the country meet environmental targets while continuing to grow, the report proposes a number of initiatives focusing on transport, construction, fuel taxes and sewage systems.

The large thrust of the recommendations target ways of reducing carbon emissions caused by motorised vehicles. They call for Luxembourg to gradually eliminate “the price differential with neighbouring countries” on fuel, to consider introducing a system of congestion charges and carry out further work with the Greater Region “to increase the choices for the public transport system.”

Parking prices could also be reviewed, the report suggests, along with a review on what it sees as “harmful tax subsidies” such as reduced VAT on solid mineral fuels, natural and liquefied petroleum and electricity.

The report observes that housing supply has fallen short of demand in Luxembourg. In 2009, it was calculated that the country would need to generate 3,400 units per year to meet demand. In order to fulfil this demand while having a minimal impact on the environment, the report author proposes:

• speeding up procedures for granting construction permits;

• raising property taxes by updating property values used as a tax base;

• widening the application of the surtax on vacant houses and land applied in some municipalities in other areas;

• moving forward with plans to impose deadlines for starting and finalising developments on land that is zoned as a construction area;

• targeting subsidiaries for building a home based on social and ecological criteria.

Finally, the report calls for an upgrading of Luxembourg's sewage system infrastructure to improve water quality.

Click here to read the full report in English