Jet fuel's tax holiday could be cut short by EU climate activists

13 May 2019 16:50

Short-haul airlines including Ryanair, EasyJet and Wizz Air could see regulatory risk emerge over the next year from an unusual place: a group of European students with no formal power but big climate ambitions.

University students from seven EU countries have won the European Commission’s approval to start collecting signatures in support of new legislation to introduce taxes on jet fuel, which is currently exempt, for flights within the bloc. And they want to levy the heaviest taxes on fuel used for short-haul flights, which are both less fuel-efficient than longer flights and easier to substitute with train journeys.

If the petition gathers a million signatures over the next year, including clearing specific minimums in each of the seven countries, the commission may take up the cause and formally present the bill for debate among lawmakers and governments.

That doesn’t seem like a very high bar, given the strength of the youth-led climate movements on Europe’s streets. As a comparison — albeit one where passions were running high — an online petition to cancel Brexit, open only to UK citizens and residents, gathered more than 6 million signatures over a few days in March.

A draft report prepared for the commission, and leaked today by environmental group Transport & Environment, could give the students a tailwind. It suggests that taxing kerosene would cut aviation emissions by 11 percent but have “close to zero” impact on jobs or the economy as a whole.

The proposal’s path to becoming law would face many more hurdles, but it could well clear them.

Considering the commission, two of the leading candidates to become the EU executive’s next president later this year, Manfred Weber and Frans Timmermans, indicated their support for some form of tax on aviation fuel in a recent debate on German television.

In the European Parliament, much will depend on the outcome of elections later this month. A strong showing for the Greens would help the students’ cause.

And finally, national governments will face strong lobbying from airlines to reject the proposal. Then again, EU countries have pledged to reduce their emissions one way or another, and they might well see short-haul flights as low-hanging fruit. Besides, extra tax revenues are always welcome, and the sums talked about aren't trivial — 27 billion euros ($30 billion) a year, according to the leaked commission report.

So despite its unusual provenance, there’s a reasonable chance of this proposal becoming law in the next few years, in some shape or form.

Under the radar

No EU country currently collects any levy on kerosene jet fuel, not even sales tax, the students say in an annex to their draft bill. By contrast, fuel for cars is taxed at an average of 48 euro cents ($0.54) per liter, they say — a much higher rate than for most other goods.

And they say that many non-EU countries — including the US, Brazil, India, Japan and Canada — collect tax on domestic but not international flights.

Furthermore, aviation accounts for a large share of EU carbon dioxide emissions — 13 percent of the total emissions from transport, according to T&E, which comprises 58 environmental groups from 26 countries across Europe.

Last year, T&E said, while coal and cement plants managed to reduce their emissions by 3.9 percent, flights within Europe registered a 4.9 percent increase in carbon emissions. “Airlines are the new coal,” said the group’s aviation manager, Andrew Murphy, in a statement. “Unlike cars, trucks, vans and trains, airlines pay no tax on their fuel and have no limit on their emissions growth.”

Regressive tax

Under the students’ proposal, only fuel for flights within the EU would be taxed. Moreover, flights to and from islands that lack a tunnel or bridge connection would be exempt.

Of those flights that are subject to the tax, those under 600km — Brussels to Stuttgart, say — would pay the highest rate of 45 euro cents per liter. Flights between 600km and 1,500km would pay 38 cents, while flights over 1,500km — imagine Paris to Warsaw — would pay 33 cents.

This would add, on average, between 10 and 20 euros to the price of a one-way ticket, according to rough calculations by MLex, depending on the length of the flight and which tax band it falls into. With many one-way flights currently priced under 100 euros, and some under 50 euros, this could represent a sizeable chunk of the total ticket cost.

“The kerosene tax should be regressive in order to incentivize even more customers to use alternative transport modes and to avoid planes, especially on short distances,” the annex to the initiative says.

That makes sense from an environmental perspective. Planes consume a lot of fuel taking off and climbing to cruising altitude, and relatively little when cruising. On short-haul flights, more time is spent climbing than cruising, meaning worse fuel efficiency.

Short-haul flights also offer the greatest opportunity for taxes to nudge consumers into shunning flights altogether. It’s a common complaint among climate-conscious Europeans that a train journey of a few hundred kilometers is often more expensive than flying — even though it may be faster and more convenient, once the hassle of airports is accounted for.

As things stand, it’s not uncommon for European travelers to have a financial incentive to pollute more. This proposal could start to change that — if it makes it through the EU legislative process.

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