Ending International Aviation’s $65 Billion Fuel Tax Exemption an Essential Step towards Decarbonisation

by Andrew Murphy (Transport & Environment (T&E)/GreenAirOnline) ... The airline industry predicts a massive increase in the use of alternative fuels, although most experts predict an uptake of only a few percentage points in the coming years. More optimistic projections remain purely speculative at the moment. Whether these alternative fuels will actually lead to emissions reductions on a lifecycle basis and after taking into account of indirect land use change are major question marks ICAO is yet to resolve.

All these issues point to aviation remaining a persistent laggard in efforts to decarbonise the world economy, meaning further measures are required. One obvious measure is to finally end aviation’s generous fossil fuel subsidies.

As the Piera article outlines in detail, international aviation benefits from a fuel tax exemption that is rooted partially in the 1944 Chicago Convention, but is largely the result of ICAO and industry lobbying to enshrine the exemption in thousands of bilateral Air Service Agreements (ASAs). This exemption amounts to the mother of all global sectoral fossil fuel subsidies – matched only by international shipping – that is artificially inflating the growth of international aviation.

International air transport, for all the economic and social benefits it brings, remains the preserve of a privileged minority – some 140-280 million – of the world’s population. These travellers overwhelming constitute the wealthiest percentile.

Based on converting international aviation CO2 emissions totalling 477 million tonnes in 2012 into fuel and taxed at €0.33 ($0.35) per litre (the minimum kerosene tax stipulated under the EU Fuel Directive, but which has never been implemented for the legal reasons outlined in this article), we calculate the fuel tax exemption amounts to an annual subsidy of €61 billion ($65bn) per annum to the sector. Using ICAO’s carbon calculator, which estimates a return flight between Europe and the US generates 782kg of CO2 per economy passenger, this works out at a generous subsidy of almost $102. All the while, those worst affected by climate change remain the world’s poorest and most vulnerable, as demonstrated by the recent Pacific cyclones. Legal realities may explain, but they cannot justify, what is essentially a hefty tax break enjoyed by the corporate world and the world’s wealthiest at the expense of its poorest.

It is essential States move to reform ICAO’s position on fuel subsidies to bring them into line with well-established global objectives to phase out subsidies for fossil fuel consumption. This should begin with ending ICAO’s opposition to fuel duty in the form of an updated Council Resolution, which should garner support from those States leading on climate change, and those States facing its worst effects.

Change will not materialise overnight, but without first steps it will never come. Such a move should be matched by increased departure taxes, the introduction of fuel duty in the major economies starting with intra-EU flights and an increase in the US domestic aviation gasoline tax – the world’s two largest aviation markets. What an irony that the two largest domestic aviation fuel taxes worldwide are levied in India and Brazil while foreigners jetting in pay nix.

Piera describes the legal barriers to this outcome, but the reality is that most measures to rein in international aviation emissions face legal barriers. It is still unclear, for example, how a global market-based mechanism to offset emissions above 2020 levels will be legally established. Maybe the model ICAO paragraph that so embeds the fuel tax exemption in ASAs will need to be deployed. In such a laborious but potentially necessary process, perhaps one could replace the other?

Legal barriers cannot be ignored and a strategy to overcome them must be drafted. They should not, however, be used as an excuse for inaction. This fossil fuel tax exemption, so long as it exists, will continue to run counter to global efforts to decarbonise and has no place in the 21st century. READ MORE