Nine countries call on European Commission to find a common approach on EU-wide air passenger taxation
Menno Snel, Dutch State Secretary for Finance, presents the Commission's Frans Timmermans with statement signed by nine EU finance ministers
Mon 18 Nov 2019 – Nine EU countries are calling on the new European Commission to come up with a proposal for a coordinated EU-wide approach to air passenger taxes. In a statement presented to the Commission’s incoming Executive Vice President, Frans Timmermans, who will be in charge of EU climate policy, the nine finance ministers said the pricing of carbon emissions from flights was insufficient. The lack of a common policy led to unfair competition between States, they argued. European airline associations responded that such taxes do not achieve the aim of reducing aviation emissions, which were already subject to carbon pricing through the EU ETS. Meanwhile, trade association Airlines for America (A4A) has warned German taxation plans violate the US-EU air transport agreement and risk undermining the global CORSIA scheme.
The Netherlands is taking the lead on a harmonised EU approach to taxing air passengers and has pledged to introduce a national flight tax if an agreement is not forthcoming before 2021. In June its finance ministry hosted a two-day conference in The Hague to discuss with other States carbon pricing and taxes on passenger tickets and jet kerosene (see article).
“It is not only the Netherlands but also a large group of other European countries that believe it is not good that flying – unlike the car, bus or train – is not taxed. By working together now, we hope that this important topic can continue to fly in Europe,” said the State Secretary for Finance, Menno Snel. The statement was also signed by ministers from Germany, France, Sweden, Italy, Belgium, Luxembourg, Denmark and Bulgaria.
The move was welcomed by Brussels-based NGO Transport & Environment. “It’s deeply unfair that everybody has to pay tax to fill up their cars but airlines don’t pay a single cent in fuel excise,” said Aviation Manager Andrew Murphy. “EU countries and the European Commission have the ability to move ahead with taxation measures that don’t require unanimity, such as national ticket taxes, bilateral agreements to tax kerosene or a radical reform of Europe’s carbon market for aviation.”
Trade group Airlines for Europe (A4E) countered that the statement by the nine countries was “full of flaws” and there were differences in the way taxes and charges applied to transport modes in Europe. Unlike the significant amount of government subsidies paid to road and rail transport, argues A4E, the aviation industry paid for the majority of its infrastructure, with airlines contributing almost €31 billion ($34bn) in 2017 towards the use of airport infrastructure in Europe.
In addition, it said, European aviation had been paying for its emissions in Europe since 2012 through the EU Emissions Trading System (EU ETS), with the price of allowances tripling since 2018. “The EU ETS is, in fact, a coordinated economic instrument for aviation carbon pricing. This fact was noticeably absent from the Ministers’ statement,” said an A4E press release.
It said its member airlines were investing €169 billion ($187bn) over the next decade in new aircraft technologies and sustainable aviation fuels. “By contrast, aviation taxes are an ineffective way to pursue environmental objectives, especially if the revenues are not used to invest in cleaner aviation technology.”
Added A4E Managing Director Thomas Reynaert: “It is simply inaccurate to claim that aviation is not taxed at all or that it is insufficiently priced. In 2018 alone, European airlines paid more than €5 billion in ETS and environmental taxes. The maritime sector, for example, is also exempt from excise duties – and 21 EU Member States grant rail operators a VAT exemption for cross-border travel.”
A4E said people living on islands and in countries at the periphery of Europe had no real alternative to flying and taxes would undermine their competitiveness, a view supported by the European Regions Airline Association (ERA), which represents smaller regional carriers.
Last week, ERA hosted a session on sustainable connectivity at the European Parliament that promoted the work of its member airlines and the wider industry in reducing their environmental footprint and covered activities on topics such as biofuels, decarbonisation and pioneering electric flight.
“Passengers value air transport and the benefits it brings on an economic, cultural and personal level. We are concerned about the current discussions around taxation to reduce air traffic demand,” said Montserrat Barriga, ERA’s Director General.
“Passengers not only want to continue travelling but they need to, and it can be done in a more sustainable way. The industry has a responsibility but the airlines alone cannot make decarbonisation happen, they need the support from manufacturers, governments and other stakeholders. To make sustainability goals and connectivity requirements compatible, we need public incentives to enable the technological breakthrough: making sustainable fuels widely available and commercial electric aircraft a reality. Flying is not a simple binary choice to fly or not fly, it is about sustainable flying.”
The incoming EU Commission President, Ursula von der Leyen, has promised increased climate ambition and Executive Vice President Timmermans is tasked with implementing her ‘European Green Deal’. This includes raising the EU’s emissions reduction target from 40% by 2030 to 50%, or even 55%, and become the first climate neutral continent by 2050. The policy proposal includes extending the EU ETS to cover the maritime sector and reduce over time the free allowances allocated to airlines.
“Transport is one of the most polluting sectors of our economy and we need to tackle this head on,” Timmermans told a special hearing in the European Parliament that brought together MEPs from the environment, transport and industry committees (ENVI, TRAN, ITRE). “We need to cut emissions from the aviation and maritime sectors in particular if we are to meet our climate goals. This requires a careful mix of tools. We need to invest, for example, in our railways. Why is it that people choose to spend more time sitting in an airport waiting for a flight rather than sitting in a train getting to their destination? In part because it’s cheaper and they’re not paying for the externalities. We’re running up a debt on Mother Earth’s credit card. She cannot afford to pay that debt.”
Meanwhile, A4A President Nicholas Calio has written to the Commission’s transport Director General, Henrik Holohei, to express the association’s concerns over German plans to increase taxes on international and domestic passenger tickets, partly as an environmental protection measure, but also to help fund a VAT reduction on train tickets from 19% to 7%. “The proposal is problematic,” says the letter, seen by GreenAir, which was also copied to the US Department of Transportation and the State Department.
The move would undermine the resolution passed at the recent ICAO Assembly that gives CORSIA global exclusivity on market-based measures to address emissions from international aviation, says Calio. The cross-subsidisation also violates the US-EU Air Transport Agreement, in which Article 12 provides that user charges must be cost-related, argues A4A.
“Burdening international aviation in such a way, to address aircraft emissions, is both unnecessary and counterproductive,” the letter adds. “The commercial aviation industry and European governments will achieve more if they are able to focus their energies on the promotion of CORSIA and work together to develop the technology, operations and infrastructure measures that will provide long-term solutions to ensure sustainable growth.”
The German federal government had originally planned for the new ticket tax to bring in €500 million per year ($550m) to cover the VAT reduction on train tickets but at a cabinet meeting last month, an even higher rate of aviation tax was agreed that is expected to raise €785 million ($870m). The German aviation industry says the levy on top of what it already pays under the EU ETS creates a double burden it has to bear for climate reasons.
“This drastic increase in the tax is completely the wrong way for climate protection,” said Matthias von Randow, Chief Executive of the German Air Transport Association (BDL). “The shared goal of reducing aviation CO2 emissions is made considerably more difficult. On the one hand, our companies are deprived of funds for more investment in low emission aircraft fleets and alternative fuels based on renewable energy. On the other, the aviation tax, especially at airports close to our border, leads to a passenger shift to foreign airports and airlines, which means even more CO2 emissions.”
Jakob Graichen, Senior Researcher at Berlin-based Öko-Institut, told the recent Aviation Carbon 2019 conference that at a rate of 19%, the VAT exemption on airline tickets within the European Union amounted to a subsidy of €30 billion a year. If VAT was to be applied at 20% on a one-way ticket from Frankfurt to Las Palmas, it would add €60 to the cost, and €20 to a single ticket between London and Paris, he estimates.
According to the industry’s Air Transport Action Group, nine European countries have in place green taxes on aviation, although some have been re-coded as general taxation (see below).