ENVIRONMENT: Despite growing concerns about climate change and energy efficiency, imbalances in the pricing of different transport modes continue to distort the market across Europe. But CER Chairman Aad Veenman sees signs of progress at last.

It is 20 years since the Community of European Railways was formed to represent our sector in discussions with the European institutions - the Commission, the Parliament and the Council of Ministers. We see our role as complementing the decision-making process, and I was delighted that the President of the European Commission, José Manuel Barroso, was able to join our recent anniversary celebrations in Brussels.

If we look back over the past 20 years, we can see how far the European railway industry has come since 1988. CER started with 14 members and now has more than 70, including almost all countries in central and eastern Europe and several new entrants to the rail market. On the political side, the Comission's White Paper on Transport Policy spawned the three Railway Packages, the Trans-European Networks strategy, and Directives on interoperability and safety. But perhaps most importantly, freight and passenger traffic volumes have started to grow again after years of decline.

Of course, looking at the past must not obscure the need to focus on the future. CER is working with the European institutions to put in place a framework that encourages the provision of rail services which are attractive to customers and environmentally-sustainable. There are three main areas for debate: the structure of the railways; infrastructure; and the search for a level playing field.

We have made clear progress with reform, despite the attitude taken by most railways 20 years ago. We now have full liberalisation of the freight market and incentives to develop the passenger sector. But we must find the right balance between market incentives and the public interest. As I argued in a recent CER discussion paper, a properly-functioning market with the right incentives is preferable to heavy regulation.

Major investment in infrastructure is needed, both for modernisation and to provide the capacity for growth, but I believe the challenge of financing has been significantly underestimated. And new tools are needed to drive sustainable transport policy. The 'level playing field' debate is often seen as affecting the balance between different modes, but it also applies to relationships within the rail sector - in areas such as infrastructure charges, state aid, competition and social policy. But in broader terms, it is important to reflect the fact that rail is the most environmentally-friendly mode of transport.

Sustainability is the big challenge

Environmental sustainability is the area where the lack of a level playing field is most obvious. The basic idea is very simple. Users must take account of all relevant costs if they are to make the right decisions. If you cause a high environmental impact, that should be reflected in what you have to pay.

Today, transport has the fastest-growing level of CO2 emissions, and it is mainly due to our sector that western society is not on course to achieve its targets for emissions reduction. Technical solutions have not reduced total emissions, so we need to consider demand management and environmentally-friendly alternatives.

The issue is not new. We have been discussing it since the early days of the Rolling Stones, and we still 'can't get no satisfaction'. Internalisation of external costs has been a debate for economists since the 1960s. CER issued its first report on the externalities of transport in 1991, and in 1999 a high-level working group concluded that internalisation of external costs was both desirable and achievable.

Fast forward to 2008 and European legislation still prohibits the inclusion of external costs when setting charges for road traffic! But at long last there are moves to deal with some environmental aspects, although wider social costs are not even on the agenda. Worse still, most of the consequences are generally perceived as threats, and the benefits for the environment, the economy or for quality of life are ignored. Nevertheless, I believe that there are good reasons to be hopeful.

Look at the waste sector. About 40 years ago society simply dumped everything. Now consumers are ready to pay to deal with waste in a sustainable way, and we have a modern industry that is making money. Why should it be so difficult to accept the 'polluter pays' principle for transport?

Of course, transport affects everybody. It is directly related to economic and land use planning, and existing flows are influenced by the cost structure. There is a perception is that mobility is some kind of 'public good', which comes for free or at a very low price. But as a society we really cannot afford to think like this any more.

Recent research in the Netherlands found that about 50% of transport users do think about the environment when choosing their mode of transport. There is growing public awareness about climate change, increasing congestion and the effects of emissions on health.

The negative impact of higher charges needs to be softened by providing sustainable alternatives, and of course I'm thinking about rail. Yes, we will need investment to improve capacity and quality, but surely this is worthwhile. It's all about delivering sustainability with three Ps: people, planet and a profit for everybody.

Dr Aad Veenman has been President of Netherlands Railways since 2002 and was elected Chairman of the Community of European Railways & Infrastructure Companies in 2005. With a degree in mechanical engineering from Delft Technical University, he has had a long career in Dutch industry, working for Esmil International and becoming President & CEO of Stork NV in 1998.

'The issue is not new. We have been discussing it since the early days of the Rolling Stones'