The EU Should Increase Aviation Taxes, But How?

Diego Rodríguez Mejías

16 de Julio de 2020, 18:35

The Covid-19 pandemic has forced governments to postpone policies and rethink priorities, but climate change action should not be one of them. There are only 10 years left to avoid irreversible damage to our planet and it is therefore imperative to reduce our greenhouse emissions. Currently, aviation accounts for 3.6% of the total carbon emissions and 13.4% of transport related emissions in Europe, but its share is likely to increase in the future as the emissions of the industry are predicted to grow between 300% and 700% by 2050. As such, the case for increasing taxes on aviation has recently gained momentum in Europe as a solution to tackle the growing share of emissions associated to the industry.

While there are already some international schemes which aim at reducing the carbon emissions of the aviation industry, these have so far not lived up to their expectation. Schemes such as Carbon Offsetting and Reduction Scheme for International Aviation (Corsia) or the European Union Emission Trading Scheme rely on carbon offsetting projects and tradeable emissions allowances, which do not address the main factor driving the increase of emissions: the growing demand. Indeed, aviation traffic was forecasted to double in the next 15 years; partly driven by the sector’s low prices. According to Skyscanner, ticket prices have fallen by 13% since 2013 in Spain, and several studies have shown that low prices encourage people to book flights they did not originally intend to.

Consequently, the governments of countries like The Netherlands, Germany, France, Sweden, Italy, Belgium, Luxembourg, Denmark and Bulgaria have publicly rallied behind the establishment of an EU-wide tax on aviation. But the adoption of European taxes is a complex issue which requires the unanimous agreement of all the member states as taxation largely remains a national competence. It is therefore unlikely that an EU-wide tax on aviation will be implemented any time soon as countries like Greece, Cyprus and Malta remain reluctant to adopt such measure.

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As a result, many governments have decided to unilaterally impose taxes on aviation. As analysed on a recent article published on Agenda Pública, countries like Switzerland and Germany have recently opted for imposing taxes which scale up according to distance travelled, whilst other countries such as France have implemented taxes which do not consider the distance, but the kind of ticket bought. The lack of coordination at an EU level has therefore led to diverging approaches which could cause the fragmentation of the internal market in the long term. For instance, while Italians are taxed 22.82€ per passenger in average, their Spanish counterparts only pay 2.57€. Indeed, many airlines have repeatedly complained that the current tax regime leads to market distortions and unfair competition.

What are the different proposals on the table?

The fragmentation above raises a further issue. Even if member states agreed to establish an EU-wide tax, what kind of tax should be preferred? One option is that of waiving the 2003 Energy Taxation Directive which exempts aviation fuel from taxation. However, whilst this is legally feasible for domestic and intra-EU flights, no member states have so far pursued this approach yet. Evidence over the effectiveness of taxation on aviation fuels is conflicting as higher fuel prices may not directly reflect on ticket price increases; thus failing to drive consumer behaviour.

Alternatively, governments could directly impose taxes on flight tickets as research suggests they have a more direct effect on consumer behaviour. Recently, a proposal to tax frequent fliers has gained traction in the UK. Proponents of this approach argue that 70% of flights are taken by just 15% of the British population and should therefore be taxed more. However, the above argument is distributional rather than environmental in nature. Indeed, a frequent flier tax is unlikely to reduce demand as frequent fliers are less likely to significantly change their behaviour because they are wealthier and less price sensitive.

Finally, establishing ticket taxes based on the distance travelled is another popular option. However, taxes which target long distance flights, such as the UK Aviation Tax, have failed to stop the increasing demand since they act as a revenue-raising charge with no behavioural impact due to the absence of realistic alternative transport options. If curving the increasing demand is our priority, taxation should then target those flights which can be easily substituted with more sustainable transport options i.e. short-distance flights.

While the carbon emissions of short-distance flights are lower than those of long-haul flights, their environmental impact should not be underestimated: one passenger travelling between Madrid and Barcelona emits more than the average citizen of eight different countries in a given year. Moreover, the ability of taxes to change consumer behaviour and raise awareness about sustainability when there are viable and readily available alternatives should not be underestimated either. For example, a simple 5p levy on plastic bags did not only drive down plastic bag usage by 90% in the England, but also increased the support for additional charges on plastic bottles and excessive packaging. A ticket tax on short-distance flights could therefore not only reduce emissions by driving consumer behaviour, but also increase support for more drastic policies concerning traffic restrictions and international aviation; as well as raising funds which could be for example reinvested on improving the rail network.

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Of all the different tax proposals on the table, a tax on short-distance flights therefore seems as the best suited to accelerate the environmental transition since they are the most likely to shape consumer behaviour. It would be ideal if this was an EU wide initiative since this would not only help harmonise the existing tax regimes but would also send a strong message abroad about the EU’s commitment to sustainability. Climate change action is therefore yet another example where decisive and coordinated action at an EU level is needed. However, the matter is too urgent to postpone action and the difficulties of coming to an EU agreement should not deter national governments from taking the initiative to pursue their own proposals.

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