Exclusive report: is it high time airlines paid tax on fuel?

After World War II, flight would bring together a continent torn apart by conflict.

The so-called golden age of air travel connected countries and gave millions of citizens across Europe relatively low-cost air travel.

But there was another cost, and fast forward 70 years aviation is responsible for 3% of the EU’s total greenhouse gas emissions.

The UK has been a heavy contributor, and now has the third largest aviation sector in the world, going from handling 195,000 flights a year in 1950 to over 2 million in 2018.

But much of the sector’s growth was built on a fuel-related tax break that dates back to the 1940s.

It’s estimated a tax on kerosene could bring in an extra £14bn a year to the EU economy, and campaigners believe it could be critical to moving the industry towards clean fuels and a low-emission future.

So why isn’t it happening?

Two to tango

Photo credit – Pixabay

As part of the 1944 Chicago Convention on aviation, countries signed up to bilateral fuel tax exemption rules which meant it was actually a criminal offence for states to tax aviation fuel.

However, in 2003 the EU introduced the Energy Taxation Directive (ETD), which was wide in scope and covered how energy should be taxed across sectors as diverse as transport, local authorities, industry and academia.

The directive included further exemption on aviation fuel for domestic, intra and extra-EU flights.

However, it is not mandatory, and EU member states were now free to tax kerosene on domestic flights, just as the USA, Japan, Brazil and even Saudi Arabia now does.

Member states could also tax fuel on intra-EU flights and it’s one of the few EU laws that doesn’t require unanimity.

This means the UK could do a deal with France or another member state and bring in a kerosene tax. This hasn’t happened and other than the Netherlands, no country has expressed any interest in making the first move.

But with last week’s UK Committee for Climate Change report piling pressure on the aviation sector to cut emissions, Bill Hemmings of Brussels-based campaign group Transport and Environment says EU leaders must do more to upset the status quo.

‘It just takes two member states to tango,’ he says.

‘However, there aren’t any votes in making trips to Malaga more expensive. Particularly for the plumber with four kids who flies once a year.’

‘But there’s no reason why people flying shouldn’t pay tax the same way you do when you drive a car.

‘Why should your grandmother who never flies, subsidise the frequent flyer, through a tax rebate?’

Squeezing the lemon

Boeing 787-9 Dreamliner. Photo credit – Anna Zvereva

Each new generation of aircraft is 20% more efficient than the last, according to the International Air Transport Association (IATA).

The two largest manufacturers of aircraft, Airbus and Boeing, account for over 90% of aviation CO2 and are in constant competition for efficiency bragging rights, but Hemmings says the technology is being pushed to its limits.

‘You’re running out of juice to squeeze the lemon now,’ he says.

Boeing’s 787-9 Dreamliner cost over £30bn to produce and took its first flight in 2013. It’s their most efficient aircraft but since it’s first take-off it has been beset with mechanical and safety problems.

Airbus also recently announced they wouldn’t be taking more orders of its A380 from 2021 due to lack of customers, only ten years after it’s launch when they proudly called it the most environmentally friendly aircraft ever built.

It’s a climate that means the next generation of efficient aircraft could be decades away.

‘Not enough is being done,’ says Hemmings.

‘It’s too slow and in the meantime, companies like Ryanair are driving fares down.’

Rather than focusing on trying to encourage airlines to move towards cleaner fuels, the EU says their emissions trading system (EU ETS) is the ‘cornerstone’ of tackling climate change and reducing emissions for aviation.

They set a cap on the total amount of emissions which is reduced over time so that total emissions fall.

Airlines can receive or buy emission ‘allowances’ which they can trade with emission-saving projects around the world, and each year a company must have enough allowances to cover all its emissions or faces heavy fines.

But with net CO2 emissions from aviation increasing every year, many observers have called the ETS an abject failure.

Tim Johnson of the Aviation Environment Federation (AEF) says the UK government must understand that hitting climate targets requires some ‘smart investments and penalties and recognise that fuel tax is part of that.’

‘But how willing are they to go out to their European counterparts and start these conversations?’

A UK Treasury spokesperson told AirQualityNews they were ‘very proud’ of their record on cutting emissions but were unable to answer why they don’t tax kerosene for domestic travel, which contributes 1.5 million tonnes of CO2 to the atmosphere every year.

‘We are considering the impact of aviation growth on the environment as part of our Aviation Strategy and we will continue to ensure the sector pays its way through taxes like air passenger duty,’ they added.

Synthetic fuels

How might a fuel tax work in practice?

Environmental consultants CE Delft examined the legal options for a kerosene tax that would still maintain a level playing field between countries and airlines.

Their study concluded that an EU-wide fuel tax, either between two member states or on an intra-EU-wide basis, would be feasible and, importantly, not contravene existing bilateral agreements, which is a common misconception.

The airlines argue that a fuel tax would mean higher ticket prices for consumers but Transport and Environment estimates if 33 cents was added for every litre of kerosene used during a flight, which is the minimum road users must pay for fuel at the pump according to the ETD, it would add only around €15 in taxes to the ticket price of an average Ryanair flight across Europe.

They also argue that this tax would incentivise airlines to move towards more sustainable fuels and create a better environment for change.

The UK Committee for Climate Change report last week said synthetic fuels could provide the solution to aviation emissions but are ‘thermodynamically and economically challenging.’

Synthetic fuels are created by taking electrons from electricity and putting them into a liquid form that can then be used in a jet’s engine.

The idea is that by using renewable electricity in the process, the end result can be much cleaner than fossil fuel but at the moment it’s extremely energy intensive to produce.

115 terawatt hours (TWh) of synthetic jet fuel would require around 200 TWh of zero-carbon electricity, which is the equivalent to a further 33% of the total UK electricity generation requirements. Meaning the UK would have to massively upscale its renewable energy generation to meet the demand and create a surplus.

However, the report said if the challenges around synthetic fuels could be resolved it could play a large role in low emission aviation, and Tim Johnson of the AEF says the taxation of kerosene would be an important first step.

‘A tax would help level the playing field, says Johnson.

‘It’s a difficult environment to encourage synthetic fuels at the moment.’

‘While the industry is very keen to have more sustainable fuels, the suppliers are thinking – does the market really exist?

‘It’s costing them twice as much and you could offset a couple of tons of fuel for cheap, so why would you invest in these fuels?’

‘We need technology and we need synthetic fuels, but at the end of the day, it is not growing fast enough or at the sufficient quantities to get us to net zero, so therefore you need to think about demand management. The only tools at our disposable are price.’

Grassroots

In the end, it may be feeling on the ground that brings about change in the sky.

In 2003 then Prime Minister Tony Blair said that no politician facing an election would vote in Parliament to end cheap air travel, and perhaps back then he was right.

But in March this year, a ComRes poll on climate change revealed over half of the public would be willing to forego ‘at least’ one overseas trip per year for the sake of the climate, and public awareness on the damage aviation is growing.

The EU Commission recently registered a citizen petition which called for an end to the kerosene tax break, and a Commission spokesperson confirmed to AirQualityNews that they are ‘evaluating the current rules around energy taxation to see if there is scope for more environmentally-friendly policies that support the EU’s climate change commitments.’

‘What’s the justification against it?’ asks Bill Hemmings of Transport and Environment.

‘Just because it’s been like that for 50 years? A lot of things have changed, and everyone knows aviation is a problem.’