This paper examines the effects of replacing current fuel taxes by a system of taxes that account better for all the different external costs of the different transport modes. One of the important implications of this reform is that current fuel taxes are decreased to a level of 80 euro/ton of CO2 but that the mileage related taxes on car and truck use increase. Using the TREMOVE model for the transport sector of 31 European countries, one finds that the volume of transport will decrease because current taxes on transport are too low compared to overall external costs. Overall CO2 emissions will decrease slightly. Using the MARKAL-TIMES model for the Belgian energy sector, putting all sectors and technologies on equal footing shows that a fuel tax reform makes that it is not cost efficient to require large CO2 emission reductions in the transport sector and that traditional car technologies will continue to dominate the car market in 2020-2030. (C) 2009 Elsevier Ltd. All rights reserved.