Momentum growing for bilateral deals to tax jet fuel

France has announced a new tax on flight tickets in the latest sign that European governments are prepared to curb the aviation sector’s growing climate emissions by ending its tax holiday. The ‘écotaxe’ will be the sixth ticket tax in Europe, though airlines will still pay no tax on their kerosene or VAT on their international tickets.

Flights within France or the EU will be taxed at €1.50 per ticket, while economy flights out of the EU will be charged €3, and intra-EU business class tickets €9. Business class tickets for flights out of the EU will be taxed at €18. Transit flights will not be taxed.

T&E said the tax is but a modest start. It would need to be significantly higher to have an impact on aviation emissions. Crucially french minister for ecology François de Rugy said the government would lead a ‘battle’ for a kerosene tax at European level.

T&E’s aviation manager, Andrew Murphy, said: ‘The spell has been broken. Governments now recognise that aviation can’t remain untaxed and that national measures are needed because the UN’s carbon offsetting scheme won’t save us.’

Read more: How to tax aviation to curb emissions

The écotaxe announcement follows calls by leading government ministers elsewhere in Europe for bilateral or multilateral agreements to tax kerosene. Speaking at a high-level conference hosted by the Netherlands government to explore ways to tax aviation, they said member states should use existing provisions in EU law to tax aviation fuel.

‘I can see bilateral or multilateral agreements as a way of going forward,’ Sweden’s finance minister Magdalena Andersson told the meeting in The Hague, which was attended by well over 100 EU and national officials, the IMF, World Bank and the OECD. The conference was held against the backdrop of a Commission report, published days earlier after T&E leaked it, which showed that aviation in Europe was heavily undertaxed compared to other major markets.

The Dutch state secretary for finance Menno Snel also joined the chorus of those already calling for aviation fuel to be priced equally with other transport modes. He called for like minded member states to build on the current momentum for a level playing field on taxing transport fuel, adding that pricing aviation and fuel taxation should be on the first page of any climate action list for the new president of the European Commission.

Making bilateral or multilateral agreements would sidestep any legal and political obstacles to taxing aviation fuel in Europe. While the EU’s Energy Taxation Directive exempts jet fuel from tax within the EU, member states can agree bilaterally to waive the exemption, according to legal expert Professor Eckhard Pache of the University of Würzburg. This provision sidesteps the normal requirement in EU law that taxation requires unanimity among the EU 28. Any conflicts involving foreign carrier flights within Europe that are tax exempt under air services agreements could be avoided by including a de minimis tax provision and exempting cargo services, he told the conference.

Pache added that there are also no international obstacles to aviation tax within Europe; the Chicago Convention on International Civil Aviation prohibits taxing fuels already on board an arriving aircraft but not the taxation of fuel taken on board prior to departure.

The conference also discussed aviation ticket taxes which are widely applied by governments around the world but only in seven European countries. Professor Jon Strand of the World Bank argued that governments need to both tax fuel and apply ticket taxes, which are a simpler and fairer way of replacing lost VAT revenues as the burden of these taxes would also fall on the business sector that accounts for at least 30% of aviation activity. 

The OECD deputy secretary-general, Ludger Schuknecht, added that coordination at the European and global level was crucial and the challenge was to convince society that what was at stake was not a loss of economic activity but a shift; resources might move to other sectors that can contribute to sustainable growth and jobs as much or more than aviation does today but with less environmental impact.

Schuknecht said that carbon pricing was heavily underused and for aviation the gap was almost 100%. ‘For both cost effectiveness and fairness reasons, air travel should contribute to decarbonisation efforts especially as aviation is disproportionately consumed by higher income households,’ he told the conference. ‘…Given what we do on road pricing and pollution, there is really no issue to complain regarding fairness. It’s not the most vulnerable who fly.’

Afterwards T&E aviation director, Bill Hemmings, commented: ‘Member states have had a unique opportunity to assess what needs to be done about aviation’s climate impacts and it's clear that the kid glove treatment of the sector must end - starting with stepped up taxation on fuels and tickets and a further strengthening of the ETS. The call for a level playing field on taxing fuel between sectors came across loud and clear.”

Conference papers can be found at https://www.aviatax2019.nl/#media.

Read more: How to tax aviation to curb emissions