Dutch finance ministry argues for EU-wide single aviation tax to cover the sector's environmental costs
Thu 21 Feb 2019 – The Dutch finance ministry has released a paper suggesting the EU should adopt a Europe-wide aviation tax in response growing emissions from the sector. Such a coordinated approach could prevent a shift in air passengers to neighbouring countries, avoid the accumulation of regulations and administrative burdens for airlines, and counter the fragmentation and disruption of the internal market. The government says it will hold an international conference in June with EU States to discuss carbon pricing and aviation, and find ways on how States can work together. The ministry, which says it wants to “green taxes”, has proposed re-introducing a national passenger tax by 2021 and carried out a consultation last year. Meanwhile, UK regional airline flybmi has ceased operations and entered administration, citing recent spikes in fuel and carbon costs among its problems.
The Dutch government introduced a passenger tax in 2008 and although it netted a reported €380 million ($430m) in revenue, it led to an 8% fall in traffic at Amsterdam Schiphol that was blamed on passengers choosing to fly from Brussels or German airports instead. Airline representatives lobbied the government and the tax was dropped a year later. Trade association Airlines for Europe (A4E) claimed the removal of the tax led to a strong growth in passengers, which was similarly repeated when the Irish government scrapped its passenger tax in 2014 and subsequently led to an 8% increase in tourism.
A 2017 report by Pricewaterhouse Coopers (PwC) commissioned by A4E estimated European GDP would be boosted by a cumulative €215 billion ($240bn) over the following 12 years if all air passenger taxes were abolished in the European Economic Area (EEA). The study estimated total air passenger taxes in Europe would raise around €6 billion in 2017.
Globalisation had provided positive economic growth but the resultant greater demand for air transport had led to a sharp rise in aviation-generated carbon emissions, argues the paper. The price of flight tickets for transporting passengers and freight does not include the environmental costs, it maintains, and a fair price on tickets to include these externalities could bring about a decrease in emissions.
“If we are to take on this challenge effectively, we will need to work together to levy a tax on aviation,” it says. “The Netherlands is convinced that the EU should have a leading role in discussing and examining the possibilities for taxing aviation and should take action where possible.”
Carbon pricing on aviation at the EU level could be through the EU Emissions Trading System, a tax on kerosene, an air passenger tax or a tax per flight, but the finance ministry cautions that such a tax should not become an ‘own resource’ of the EU, namely revenue towards the EU budget.
A legal analysis for Brussels-based NGO Transport & Environment published earlier this month concluded that EU States could end an exemption on kerosene taxes for flights within Europe. This could be done at the EU level through a series of bilateral agreements or by agreement between individual countries, it says. The report adds there are misconceptions about taxing aviation fuel under the Chicago Convention and that it is intergovernmental air services agreements that prohibits such taxation.
A kerosene tax would incentivise airlines and manufacturers to reduce the sector’s environmental impact, says T&E, shifting environmental costs to users while still raising money to allow tax cuts for citizens or improve public services.
The Canadian federal government is also considering the introduction in 2019 of a carbon tax on domestic air travel. A study conducted by Toronto-based consultancy AirTrav for the National Airlines Council of Canada (NACC) estimated such a tax would add millions of dollars to the cost of air travel in the first year and almost C$850 million ($640m) a year by 2030. The study argues, however, the tax would not reduce carbon emissions in the medium term because of the aviation industry’s “technological and systems maturity” with respect to fuel consumption and emissions.
One of the unintended consequences of a carbon tax is that it would penalise residents of small and remote communities that depend on air travel, it says. Most flights in and out of these communities use aircraft that are older, less fuel-efficient and smaller, making the per-passenger cost of the tax higher. A tax would also dampen domestic tourism and encourage Canadians to travel outside the country, another unintended consequence, it adds.
A carbon offset system similar to the ICAO CORSIA scheme would be better suited to the industry and would result in measurable emission reductions, argues NACC. It estimates the cost of a carbon tax on domestic air travel would be approximately 10 times that of a CORSIA-like offset carbon pricing system. The reason why the government prefers a carbon tax over an offset system is the soaring federal windfall that would result from the former, it suggests.
Carbon taxation is becoming a serious issue for the European aviation industry, Tim Jeans, a former managing director of Monarch Airlines – which failed in 2017 – and now Chairman of Newquay Cornwall Airport in the UK, told the BBC.
“Carbon costs are a creeping cost for all airlines,” he said. “The fees you need to pay to carry out your flying are going up all the time, and they are now quite a material cost.”
The price of EU Emission Allowances used in the EU Emissions Trading System has more than doubled from a year ago, when it was around €9, and is now over €20. Many airlines have not fully budgeted for this rise, thinks Jeans, including flybmi.
Trade association Airlines UK also blamed the UK’s “sky high” rates of Air Passenger Duty for the collapse of flybmi.
“Rates of APD are the highest in the world, making it harder for airlines to grow and sustain routes as they battle high fixed costs and wider economic uncertainty,” said the association’s Chief Executive, Tim Aldserslade. “The demise of flybmi highlights the myriad challenges faced by airlines today trying to keep revenues ahead of costs and should act as a wake-up call for Government, which must prioritise a cut to this damaging tax.”