European Commission Confirms Plans for Aviation Fuel Tax

 - July 14, 2021, 2:50 PM

Airlines operating in and from the European Union will be subject to a new tax on aviation fuel and be required to uplift a certain proportion of sustainable aviation fuel (SAF) under new rules unveiled by the European Commission on Wednesday. The measures form part of the commission’s long-awaited "Fit for 55" legislative package to reduce emissions by at least 55 percent by 2030 compared with 1990 levels and deliver the European Green Deal, which aims to make the continent climate-neutral by 2050. The far-reaching green policies—to affect most businesses and households—also include a proposal to strengthen the EU Emissions Trading Scheme (ETS) for aviation and a decision implementing the UN Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) into European law.

“The proposals unveiled today will have a transformative impact on the sector,” Airlines for Europe (A4E) managing director Thomas Reynaert commented. While supporting the overarching decarbonization goal of Fit for 55—which he noted aligns with the sector’s Destination 2050 roadmap and commitment to accelerating its emissions reductions to reach net-zero CO2 emissions by 2050—he warned that climate policy regulation can be ecologically and economically counterproductive. “Badly designed European taxes will not reduce emissions,” he said. “We need to invest in solutions that offer real reductions in CO2 emissions per aircraft. Increasing costs reduces our capacity to make these investments whilst CO2 emissions are potentially shifted to other regions.”

Willie Walsh, director-general of the International Air Transport Association (IATA), called for EU policymakers to support practical emission reduction measures such as production incentives for SAF and modernization of Europe’s patchy air traffic management rather than resort to taxation. “Aviation is committed to decarbonization as a global industry,” he said. “We don’t need persuading or punitive measures like taxes to motivate change. In fact, taxes siphon money from the industry that could support emissions’ reducing investments in fleet renewal and clean technologies.”

The Fit for 55 package consists of a dozen new legislative proposals and amendments or updates to existing rules.

The proposal to revamp the existing Energy Taxation Directive (ETD) aims to end the current tax exemption for aviation fuel and introduce a “minimum” EU-wide tax for intra-EU passenger flights. The levy would apply beginning in 2023 across the bloc (EEA countries) and increase gradually over 10 years until the full rate is imposed. The minimum rate will depend on the energy content, expressed in euros per gigajoule. “This means that 10 years after the entry into force of the new rules, kerosene used in the aviation industry to power planes for intra-EU flights would be taxed at least €10.75/GJ EU-wide, as for petrol used in road transport,” the commission explained.

To encourage the use of cleaner energy, sustainable and alternative fuels “will enjoy a zero minimum tax rate for a transitional period of 10 years,” according to the commission. The rules exempt freighter flights to protect the competitiveness of European airlines against the likes of UPS and FedEx, which operate intra-EU flights with fifth-freedom rights and enjoy fuel tax exemptions incorporated in bilateral agreements.

The ReFuelEU Aviation initiative, also called the regulation on ensuring a level playing field for sustainable air transport, aims to boost the production and uptake of SAFs. It calls for the introduction of an EU-wide obligation to blend 2 percent SAF by 2025, rising to 5 percent in 2030. For the longer term, the proposal sets out a minimum volume share of 63 percent of SAF starting in 2050. Under the proposal, fuel suppliers will need to supply SAF-blended jet fuel at EU airports, and all airlines—EU and non-EU—departing from EU airports will have to uplift SAF-blended jet fuel needed for their flights.

To ensure a level playing field and limit carbon leakage resulting from increased fuel tankering at non-EU airports, the amount of jet fuel uplifted must correspond to at least 90 percent of the fuel volume necessary to operate the planned flight (including the fuel safety margins), regardless of the destination. All airlines will have to report their jet fuel uptake to a European organization in charge of detecting and reporting cases of obvious fuel tankering on a yearly basis to the EU Commission.

With regard to EU ETS for aviation, Brussels intends to keep its aviation ETS in conjunction with CORSIA. Based on the proposed revision of the ETS directive, the share of free carbon allowances will decline to 25 percent in 2024 for transition to full auctioning from 2027. The EU ETS will cover all intra-European Economic Area (EEA) flights—in the 27 EU member states plus Iceland, Liechtenstein, and Norway—and departing flights from EEA airports to Switzerland and the UK. The text indicates that the European Commission seeks to apply CORSIA for flights not now covered by the EU ETS, namely extra-European flights—flights between the EEA and third countries and by EU-based airlines between two third countries. IATA said it is “extremely concerned by the commission’s proposal that European states would no longer implement CORSIA on all international flights.”

Also on July 14, the UK government initiated an industry consultation over plans to accelerate its push to achieve so-called net-zero aviation by 2050. It is now urging the UK air transport industry to achieve net-zero for domestic flight by 2040. The consultation will run through September 8, 2021. 

From November 1-12, the UK will host the United Nations COP26 climate change conference in Glasgow, which is expected to resolve wide-ranging multilateral measures to meet the legal requirements from the Paris Agreement. Since last year's departure from the European Union, the UK is pursuing its own carbon reduction initiatives.