ICAO extends jet fuel tax exemption, for now

 - December 17, 2007, 6:21 AM

The International Civil Aviation Organization (ICAO) has ruled out introducing taxes on jet fuel for commercial operators for at least three years. In a hard-fought deal struck at the close of the organization’s assembly on October 8, ICAO delegates agreed that no fuel taxes or charges can take effect before its next triennial assembly in the fall of 2007.

The move will likely slow efforts by the 25-state European Union (EU) to introduce taxes unilaterally. Before the ICAO Assembly, officials at the European Commission indicated that they would keep “all possible solutions open” regardless of any ICAO decision.

Significantly, the ICAO Assembly ruling appears to leave the door open for European governments to introduce their own emissions charging formula as long as EU member states agree to such a move and the formula applies only to airlines competing on intra-EU routes that do not compete with carriers from outside the EU. Any tax on aviation fuel would apply to all aircraft operated under commercial licenses, a category that would include many European corporate operators holding commercial aircraft operators certificates.

Environmental groups have accused U.S. delegates at the ICAO Assembly of forcing through restrictions on aviation fuel taxes. UK transport secretary Alistair Darling condemned opposition to introducing charges to reduce aviation’s greenhouse gas emissions as “puzzling” and demanded “urgent action to tackle emissions.” When the UK takes over the EU presidency next July it is committed to using its six-month term to include aviation in new emissions trading requirements, which are due to take effect in 2008.

Aviation Fuel Taxes Loom
The ICAO Assembly resolution does not prevent EU governments from continuing to prepare possible new taxes on aviation fuel and/or an emissions trading program. Aviation lobbyists, including the European Regions Airline Association, have indicated that they would prefer emissions trading (by which operators not using their quota of emissions can trade these with those who need more) to fuel taxes.

While the ICAO Assembly was convened, the European Union’s new transport commissioner, Jacques Barrot, discussed his views on the exemption for aviation fuel during his confirmation hearing before the European Parliament transport committee. Barrot said that his agenda will include the possible lifting of the current tax exemption for aviation fuel for commercial aircraft operators, but only if oil prices drop from their current elevated levels.

“When fuel prices have settled down, we will be able to look at the exemption of tax on aviation fuel, because there is a risk of discrimination of competition,” he told the committee. Barrot’s comment suggests that he will consider imposing taxes on aviation fuel, not only for environmental reasons, but also to address complaints from other sectors of commercial transportation. He did not specify what fuel prices would be deemed low enough to prompt the committee to address the taxation issue.

The ICAO Assembly also considered proposals from its Committee on Aviation Environmental Protection (CAEP) for a 12-percent reduction in nitrous oxide emissions from aircraft engines by 2008, as well as the prospect of still greater reductions from 2010. To achieve this, CAEP has proposed a mix of various “market measures,” voluntary agreements and emissions trading. This year’s Assembly deferred adopting these proposals and asked ICAO “to develop further guidance” in time for the 2007 Assembly.