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01/10/2016

Study: Aviation tax breaks cost EU states €39 billion a year

Transport

Study: Aviation tax breaks cost EU states €39 billion a year

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Fuel and VAT tax exemptions on international flights could provide EU countries with an extra €39 billion a year, a sum approaching Spain’s swingeing budget cut in 2013, according to a new study by the consultancy CE Delft.  

The report, which was commissioned by the green campaigning group, Transport and Environment (T&E), blamed outdated EU laws, which privileged aviation over less polluting forms of transport.

"International airlines are like flying tax havens inexplicably exempted from paying the basic EU taxes every EU citizen and company is obliged to,” said T&E’s aviation policy officer Aoife O’Leary.

“Cash-strapped EU governments should seize the opportunity, collect this low-hanging fruit and generate revenues badly needed to cover their budget deficits,” she added.

According to the study, €32 billion a year is lost due to the airlines’ exemption from paying fuel taxes, while another €7.1bn goes missing because of VAT exemptions on international flight tickets.

Moving up the political agenda

The issue of tax breaks for airlines is moving up the political agenda, partly because petrol pump price increases are hitting consumers hard.

But the aviation industry is also facing intense pressure ahead of the International Civil Aviation Organisation (ICAO)’s triannual meeting in Montréal in September.

There, an attempt will be made to agree a market-based measure that could resolve the increasingly bitter dispute over the EU’s efforts to make airlines pay a price for their carbon emissions under the Emissions Trading System.

Writing in the China Daily last month, Achim Steiner, director of the United Nations Environment Programme, said airline tax breaks “give air transport an unfair advantage over rail and road, and offers less incentive to aircraft designers and operators to accelerate a transition to ever-more fuel-efficient planes.”

However the airline industry says that without such tax holidays it would be hard pressed to turn a profit.

A recent report by the International Air Transport Association contended that, despite a ten-fold growth in air travel since 1973, the industry’s current profit returns will not meet the $4-$5 trillion needed for its planned expansion, primarily in the Asia-Pacific region. And regional airlines contend they contribute significantly to reviving tourism in some areas of Europe, contributing to economic growth.

Airline demand and capacity are also both up around 5.7% on last year’s figures, operating profits are rising, and ratings agencies predict that they will continue to grow over the next year.

Airline emissions

Although airlines are today only responsible for around 2% of the world’s CO2 emissions, when NOx emissions, water vapour, soot and sulphates, contrails and enhanced cirrus cloud formations are considered, they account for some 5% of planetary global warming and the figures are rising fast.   

The EU cites estimates that by 2020, global international aviation emissions will be around 70% higher than in 2005 even if fuel efficiency improves by 2% per year. The ICAO forecasts that by 2050 they could grow by a further 300-700%.

The EU recently published proposals to cut direct state aid to the aviation industry, but T&E says they will allow European airlines to continue receiving €3 billion a year in subsidies to artificially expand demand by building new runways and cut airport costs.  

The consultation on the EU’s plans closes on 25 September.

Background

In an effort to tackle aviation's small but fast-growing contribution to climate change, the European Commission issued a legislative proposal in December 2006 to bring it into the EU's Emission Trading System (ETS).

This involved imposing a cap on carbon dioxide emissions for all planes arriving or departing from EU airports, while allowing airlines to buy and sell 'pollution credits' on the bloc's carbon market, and so reward low carbon-emitting  aviation.

The legislation took effect on 1 January 2012. But non-EU governments and airlines have threatened legal action or trade retaliation unless they are granted exemptions. China's official aviation body, the China Air Transport Association (CATA), says that the ETS would cost its airlines $123 million in the scheme's first year, and more than triple that by 2020. The country also claims special dispensation as a developing country.

The EU also allows ETS exemptions for governments that take equivalent measures to curb aviation emissions. But Brussels has not said what these might be. China's aviation regulator has already asked all airline carriers to cut their energy and carbon intensity by 22% by 2050.

Timeline

  • 24 Sept.-4 Oct. 2013: ICAO' Assembly is scheduled to meet in Montreal for its triannual 38th session
  • 25 Sept.: Consultation on EU state aid proposals due to close

Further Reading

European Commission

NGOs