Belgium opens way toward fair tax on aviation pollution

The Belgian proposal – to be discussed by EU environment ministers later on Tuesday (5 March) – is welcome and adds momentum to the Netherland’s similar pitch to finance ministers last month. The unbridled growth of aviation emissions – up 21% in Europe since 2012 alone  – is of longstanding concern and it is clear that current measures to address them are inadequate.

Critically, Belgium observes that emissions from outbound flights are part of the EU’s Nationally Determined Contribution to the Paris climate agreement.

That means the onus is on EU countries, individually and collectively, to ensure that aviation does not prevent Europe meeting its commitments under this agreement.

Several recent studies have set out the options that member states could pursue. A legal analysis carried out for Transport & Environment shows that an aviation kerosene tax on flights within the EU is possible provided a de minimis threshold is applied to avoid taxing the dwindling number of intra EU flights operated by tax exempt foreign carriers.

A group of interested states could begin to tax kerosene on flights between them by entering into bilateral agreements, without the need for any new legislation or action at EU level. This provides a viable approach that could spread across Europe pending agreement to revise the 2003 Energy Tax Directive to facilitate an EU-wide approach.

Taxing domestic fuel has been possible under the Energy Tax Directive since 2003 but only the Netherlands has done so. Other member states could follow suit – it is a decision entirely up to each national government.

Many EU member states already apply ticket taxes which cover over half the European aviation market. They were first introduced as a way around aviation sector’s exemption from VAT, which can only be changed by a unanimous decision of member states.

A second study, also for T&E, looks at past legal challenges to ticket taxes including the 2005 Zaventem case. It identifies ways to make ticket taxes more environmentally effective by calibrating tax levels according to aircraft emissions.

Like domestic fuel taxes, the application of ticket taxes is solely up to national governments so one option would be to extend their coverage across Europe by additional member states deciding to apply them.

The need to better harmonise such taxes in order to avoid potential, though limited, cross-border effects is well noted and this could be achieved most simply through a dialogue between states or, over time, the Commission could draw up guidelines.

Another option – a new one – is per flight taxes. We understand the Dutch Government may be considering this option for all-cargo flights. The tax could be set for each flight according to MTOW (maximum aircraft take-off weight) – a proxy for the CO2 emissions of each aircraft.

But it should be combined with at least one other environmental element. For example, the aircraft’s certified noise rating. This avoids a situation where a tax set according to CO2 performance only would be challenged as a pseudo fuel tax and thus potentially breach air services agreements.

There is nothing in the EU’s emissions trading law which says it can be the only charge on carbon emissions from entities covered by the ETS.

Indeed it states that further measures at EU, member state and international level will be needed: “notwithstanding the multifaceted potential of market-based mechanisms, the European Union strategy for climate change mitigation should be built on a balance between the Community scheme and other types of Community, domestic and international action”.

The continued growth in aviation emissions bears out the need for additional measures.

Pending agreement on amending the Energy Tax Directive, the current provisions are flexible enough to enable member states to agree between them to tax fuel on flights within the EU and clearly enable member states to exercise their right to tax fuel domestically.

Extending and looking at ways to harmonise ticket tax levels where necessary is also a more realistic approach than waiting for the VAT Directive to be reformed.

So implementing either ticket taxes or per-plane taxes, together with taxing fuel domestically and on intra EU flights, would afford member states sufficient flexibility to establish an effective EU-wide aviation taxation regime.

Such measures would remove the longstanding subsidies to aviation which help drive growth and out-of-control emissions. They would also start to even up the playing field with road and rail transport.