<p>This is a <span style="color:#8e44ad;"><strong>Function Question</strong></span> since it literally asks us for the "function" of the highlighted portion.</p>
<p>We can see that the highlighted bit is preceded by a colon, implying that it is giving an example of the idea stated before it.</p>
<p><span style="color:#27ae60;"><span style="font-size:20px;">The Right Answer</span></span></p>
<p><span style="color:#27ae60;">C:</span> This matches the idea of the highlighted portion giving an example of the idea before it. The "principle" is the idea that "tax...should...be levied to deal with negative externalities". It provides a "specific example" of this principle, showing how it applies to the taxation of fuel in relation to the harm it causes.</p>
<p><span style="font-size:20px;"><span style="color:#e74c3c;">The Wrong Answers</span></span></p>
<ul>
<li><span style="color:#e74c3c;">A:</span> This is incorrect, as the point in the highlighted portion (about how fuel taxes should equal the harm caused) has not been stated before in the passage.</li>
<li><span style="color:#e74c3c;">B:</span> This is incorrect, as the point in the highlighted portion is hypothetical since it uses "should". Therefore we cannot claim that it is providing evidence.</li>
<li><span style="color:#e74c3c;">D:</span> Whilst we can argue that the highlighted portion might be justification for the principle stated in the first part of the sentence, there is absolutely no evidence that the author disagrees with this.</li>
<li><span style="color:#e74c3c;">E:</span> This is wrong, there's no evidence in the highlighted portion indicating any kind of overestimation.</li>
</ul>