The European Commission mandated the consulting firm CE Delft to develop a framework for the internalisation of external costs and to devise a number of potential internalisation scenarios for further analysis. The results of their preliminary research are published in a CE discussion paper, and the Commission is now formulating draft legislative proposals which will be subjected to a consultation of stakeholders.

The present report offers a critical assessment of the above mentioned CE study, provides a theoretical examination of the relative strengths and weaknesses of the polluter pays principle and the cheapest cost avoider principle in relation to the problems arising in the road transport sector, demonstrates how the cheapest cost avoider principle can be applied in practice by providing examples of external costs in road transport, and puts forward recommendations for the appropriate principles that should guide the Commission's further activities in this area.