What is the optimum rate of tax on petrol?

Petrol taxes vary from 6p per litre in the US to 50p in the UK, a whopping eightfold difference. Both rates might be wrong but it is unlikely that they are both right. There are two plausible reasons to tax petrol more highly than other goods. To pay for the external environmental damage to human health directly or via global warming, and to minimise traffic congestion. Both justify some, but not any level of tax. If petrol tax is too high we could reduce environmental damage more cheaply, or provide more environmental protection for the same cost, by taxing something else. For example by shifting some of the petrol tax burden to coal. A recent report from Resources for the Future makes the calculations. The answers are revealing. The health costs of burning petrol amount to 10p per litre at most, and the global warming costs even on high damage scenarios, amount to only 5p per litre. The costs in terms of traffic congestion vary by country and are greater in the crowded UK. Nevertheless, even here they amount to only 10p per litre. This makes a total optimum tax rate of 25p per litre. Since the pre-tax price of petrol is only 20p per litre this is still more than a 100% tax, but it is less than half the current UK rate. However even the lower bounds for the environmental, health and congestion costs would suggest that American petrol tax is way too low.

http://www.rff.org/issue_briefs/2001.htm

A useful link for current UK petrol prices.  Click here.