EU study arguing additional aviation taxes can cut emissions is dismissed by European airlines as flawed

EU study arguing additional aviation taxes can cut emissions is dismissed by European airlines as flawed | A4E,CE Delft

(photo: Amsterdam Schiphol)

Fri 7 June 2019 – A report published by the European Commission finds that imposing value added tax (VAT) on airline passenger tickets and/or applying a kerosene tax to flights would reduce aviation carbon emissions and noise from in line with a reduced demand for flying in Europe. The study modelled impacts on EU States and looked at aviation taxation in other major countries. In most EU countries, a 10 per cent increase in ticket prices would result in a 9 to 11 per cent lower demand and the resulting reduction in the number of flights would produce similar levels of reductions in emissions and noise. However, trade association Airlines for Europe (A4E) has dismissed the report as flawed and simplistic. Meanwhile, the Dutch government has released details of a conference to be hosted by the finance ministry on June 20/21 that is aiming to bring EU States together to discuss unified aviation carbon pricing and taxes.


The study, ‘Taxes in the field of aviation and their impact’, carried out by CE Delft for the Commission’s transport directorate (DG MOVE), found that most countries with a sizeable aviation activity levy taxes of some form on the sector. In the EU, VAT or other taxes on domestic aviation are the most prevalent and exist in 17 Member States, with six levying taxes on international aviation, usually in the form of a passenger departure tax on tickets.


Fuel is sometimes taxed on domestic flights, such as in the US, but fuel used on international flights is generally exempt from fuel taxes, largely as a result of provisions under the Chicago Convention, although this does not explicitly prohibit the taxation of jet fuel. Exemptions from taxation on jet fuel is also often mentioned in bilateral air service agreements, for example the EU/US agreement. Under the EU’s Energy Tax Directive, aircraft fuel for commercial operations is exempt from excise duty. However, Member States may abolish this exemption for intra-Community and domestic flights. The minimum excise duty for kerosene under the directive is €300 ($340) per 1,000 litres.


The study calculates the weighted average aviation tax in the EU across all Member States and destinations amounts to €11 ($12.50) per ticket. If all aviation taxes in the EU were to be abolished, it estimates the number of passengers would increase by 4%, resulting in an approximate equivalent increase in the number of flights, connections, aviation sector jobs and value added to the sector. However, aviation carbon emissions would increase by 4% and the number of people affected by aircraft noise by 2%, it believes, and because of the lower government expenditures or higher taxes on other activities resulting from the abolition, most of the increase in jobs would be compensated by a decrease in employment in other sectors.


Conversely, abolishing the exemption on aircraft fuel taxation – if it were possible, points out the report – would result in an increase of the average ticket price by 10% and a decrease in passenger demand of 11%. This would have a negative outcome for the aviation sector of a 11% reduction in both employment and value added. However, the higher fiscal revenues would offset the negative effects completely, says the study, and carbon emissions would decrease by 11% and the number of people affected by noise would fall by 8%.


The report does caution that any changes in the tax regimes must be carefully analysed since the role of aviation as a priority industry varies significantly between EU Member States.


Speaking at a press conference after a meeting of EU transport ministers last Thursday, EU Transport Commissioner Violeta Bulc said the report had been prepared for consideration by the next Commission and was part of efforts to inform EU Member States of the options to tackle emissions from air transport, which represented around 3.6% of all EU emissions. She said that along with investment in new technologies and the global CORSIA carbon offsetting scheme, aviation taxation was “another tool in the box”.


Bulc also said Member States should rethink their transport strategies and consider shifting journeys of up to 500-600kms away from regional aviation and towards high-speed rail.


Airlines for Europe (A4E) said the report contained simplistic assumptions and did not accurately reflect the negative impact such taxes have on the economy, while also exaggerating the environmental benefits. The industry body said it had incorrectly assumed that job losses in the aviation sector would be compensated for in other sectors.


“The fact is, 600,000 highly specialised jobs cannot be easily replaced,” said an A4E statement. “A detailed analysis of the impact such taxes would have on tourism, including employment, is also crucially missing. The tourism industry currently employs 13 million European citizens. The report also fails to account for shifting CO2 emissions to other transport modes or countries.


“Finally, a tax study which excludes the EU ETS is remarkable. Aviation is currently the only transport sector that is part of the scheme. The cost of emissions allowances has tripled in recent years to €25 ($28) per tonne. It is misleading to portray the aviation sector as not paying for its environmental footprint.”


Commenting on the report, A4E Managing Director Thomas Reynaert said: “Going forward, smart policies are needed to achieve sustainable mobility whilst maintaining EU competitiveness. Our focus should remain on finding ways to reduce CO2 emissions rather than short-sighted and ineffective measures such as new taxes. It’s very simple: taxing passengers or flights will not cut emissions.”


The Dutch conference on carbon pricing and flight and kerosene taxes is aimed, says the finance ministry, on bringing together a Europe-wide agreement on these taxes, rather than the current patchwork that exists among EU States.


It will be hosted by the State Secretary for Finance, Menno Snel, and will be attended by EU Commissioner for Economic and Financial Affairs, Taxation and Customs, Pierre Moscovici, plus government representatives from other European countries. So far, Germany and the United Kingdom have not indicated their enthusiasm for the initiative.


Speeches are due to be made by Magdalena Andersson, Swedish Minister for Finance; Brune Poirson, French Secretary of State for Ecology; Koen van den Heuvel, Flemish Minister for the Environment; and Cora van Nieuwenhuizen, Dutch Minister of Infrastructure and Water Management. Other speakers lined up include Ludger Schuknecht, OECD Deputy Secretary-General, and Ruud de Mooij, Chief of the IMF’s Tax Policy Division.


There will also be three sessions covering the characteristics of national aviation taxes, taxing aviation fuels intra-Europe and a coordinated approach to carbon taxation in the EU ETS sectors.


The Dutch government has indicated it wants to introduce a tax on air travel and transport from the beginning of 2021. It says while its preference is for a European tax on aviation, it has a bill drafted for a flight tax of €7 per departing passenger if insufficient progress is made on creating a Europe-wide tax. There would also be a tax on air cargo transport, with a lower rate for quieter aircraft. The government says the bill is part of efforts to charge consumers and businesses for environmentally polluting behaviour.


“Unlike travel by car, bus or train, international flights from the Netherlands are not in any way taxed. This is a key reason for introducing a flight tax,” said Menno Snel. “It will also help close the price gap between plane tickets and, for example, train tickets. Many of our neighbours already have a flight tax, so it’s our priority to seek cooperation at the European level.”



(Article updated Monday 10 June with comment from EU Transport Commissioner Violeta Bulc)




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