The article considers the role of the transportation system in the sustainable development of cities. The article pays special attention to the development dynamics of road transport in Russia and of the emissions of air pollutants by motor vehicles. The role and significance of fuel taxes in the system of government revenue are investigated. The author analyzes the existing system of fuel taxes in the Russian Federation and concludes that the mechanism of taxing motor fuel is based on consumption and does not take into account the adverse impact on the environment and the energy content of fuels. The author provides arguments for changing the mechanism of calculating the rate of the excise tax on motor fuel so that it factors in its energy efficiency and carbon dioxide emissions. A conclusion is drawn that the introduction of the proposed adjustments would produce a substantial fiscal impact on government revenues and would make it possible to eliminate the existing distortions for two competing sources of energy (petrol versus diesel fuel); would encourage the use and development of public transport and help reduce the emissions of air pollutants. The objective of the study is to work out proposals for improving fuel taxation that would also contribute to the sustainable development of cities.