The European Commission is set to propose EU-wide minimum taxes on kerosene, the fuel for planes, as part of their EU energy taxation plans to meet the new eco 2030 targets. However, it remains to be seen if this tax will be agreed by all member states, as taxation issues require unanimity.
A leaked draft from the Commission proposes a minimum tax on flights inside the EU. Freight flights are to be exempted, so as not to give a competitive advantage to non-EU competitors, which could be seen as a muddled approach to satisfy too many objectives at once. And there are alternatives, such as including aviation companies in the CO2 emissions trading.
Why do planes not have to pay taxes on their fuel? The tax-free fuel for planes goes back to the Chicago Agreement of 1944, which intended to help the aviation business to take off. In 2003, the EU offered member states the possibility to levy a kerosene tax — but only the Netherlands did so. Germany introduced a departure levy per flight ticket that was not linked to fuel usage.
Taxes are the prerogative of member states, though the EU can set minimum rates. The planned minimum tax is to be linked to the energy content of the fuel and environmental performance. The aim is to incentivise aviation companies to switch to more environmentally friendly fuels.
The kerosine tax is a political victory for Frans Timmermans, vice president of the Commission. He had been campaigning for it and can now say he delivered. At first sight it looks like a sensible proposal. No other sector has such a low climate target as the aviation sector, while this brings them in line with taxes on diesel and other fossil fuels. And pricing in for pollution may be preferable to an outright ban for shorthaul flights. But there is politically zero chance this tax will get through the EU Council, the heads of each of the member states. It would be better to reduce the free emission rights the aviation sector has in the CO2 trading system.
Since the climate targets have been increased by 55 per cent by 2030, emission rights are getting scarcer and thus more expensive. Today, one ton of CO2 emission rights costs €50 (£43), and this is set to increase further. At the moment, the aviation sector gets those emission rights for free. Would it not be better to start from here? At least there is no need to get all member states to agree unanimously. And a reasonable chance the aviation sector pulls its weight when it comes to climate change.