Why we are far from imposing a tax on kerosene

The tax exemption on kerosene dates back to 1944, when state parties to the Chicago Convention agreed to promote international civil aviation. Back then, the argument was that it could contribute to trust, friendship and understanding between the nations and peoples of this world. With increased environmental awareness today, things have changed. [Michal Bednarek/ Shutterstock]

France introduced a tax on airline tickets this week. However, kerosene remains tax-exempt across Europe. Why is that? EURACTIV Germany reports.

“We need to put an end to the preferential treatment given to airline companies,” said Manfred Weber, the spitzenkandidat put forward by the European Peoples’ Party (EPP) during the European elections campaign. On that point, Weber agreed with his rival Frans Timmermans.

However, environmentalists have been demanding the introduction of a kerosene tax for years. While there are taxes on diesel, petrol, oil and gas, kerosene is tax-exempt throughout the world.

Although German politicians from the Social Democrats (SPD), the Greens, the Left and the far-right AfD also favour higher taxation on flights, there is currently no corresponding draft bill in sight.

Following a request by the Free Democratic Party (FDP), the German government stated that it is considering abolishing the tax exemption that kerosene currently enjoys.

At the same time, however, national unilateral action would entail “considerable technical and administrative difficulties”, the government said.

After all, it would hardly be possible to measure what proportion of kerosene is being flown in or only absorbed in Germany. Airlines would then presumably engage in “fuel tourism”, simply by refuelling kerosene abroad before flying into Germany. This would “neither be desirable in terms of tax policy nor would it improve the environmental situation,” said Germany’s government.

“Air traffic is an international business, meaning unilateral solutions do not make sense,” said Bernd Reuther, a member of the Bundestag’s Transport Committee and one of the MPs behind the FDP’s request.

EU citizens insist jet fuel must be taxed

Airplane fuel’s tax-free status could soon be grounded after the European Commission agreed on Tuesday (30 April) to register an official petition that calls for an end to kerosene’s exemption.

After decades of tax-free flying, the issue seems to be currently preoccupying legislators in Brussels. A European Commission study published in May calculated how much CO2 could be saved with a Europe-wide kerosene tax.

The EU Commission made no comment on the study’s content. It confirmed, however, that several studies are examining the role of aviation in achieving the Paris climate targets.

An agreement from the Second World War era

The tax exemption on kerosene dates back to 1944, when state parties to the Chicago Convention agreed to promote international civil aviation. Back then, the argument was that it could contribute to trust, friendship and understanding between the nations and peoples of this world.

However, since then the number of flights has rapidly increased and will most likely continue.

A study by the European Organisation for the Safety of Air Navigation predicts that the current 10.6 million annual flights within Europe will increase by 53% by 2040.

Since the EU Energy Tax Directive was revised in 2003, EU member states could have introduced a tax on kerosene. Yet, except for the Netherlands, which has virtually no domestic flights, no country has done so yet.

Even in Germany kerosene continues to be tax-exempt, despite an energy tax law which theoretically provides for a tax of 65 cents per litre of kerosene, which is equivalent to the taxation of petrol.

In Germany, as in some other countries, flight passengers are taxed a few euros per ticket. However, these are capped at €1 billion, which does not stop people from flying frequently.

Jet fuel tax hopes lifted by leaked EU report

Aviation carbon emissions would fall by 11% or 16.4 million tonnes if the EU were to scrap jet fuel’s tax derogation, according to a leaked European Commission study.

Many billions of tax losses

The aviation industry argues against a tax on kerosene, by saying that they already pay for the costs of airports, noise and security.

In addition, the CO2 emissions of intra-European air traffic are limited by the European Emissions Trading Scheme (EU ETS), to which it has been subject since 2012. Therefore, airlines need to buy CO2 pollution rights to be allowed to fly.

According to Reuther of the FDP, a solid system is  the key to less air traffic.

“Only with the free emissions market can a correspondingly strong leverage effect be developed. When tickets become more expensive, people get on the train rather than the plane,” he told EURACTIV.

There are some international initiatives. As of 2021, the International Civil Aviation Organisation will start enforcing CORSIA, its climate protection instrument.

With CORSIA, all new emissions need to be offset by CO2 compensation measures. “This helps the climate more than additional taxes such as a kerosene tax or CO2 tax, which do not benefit the climate but merely shift traffic to competitors,” explained Matthias von Randow, the managing director of the Association of the German Air Transport Industry.

Still, it is difficult to deny the advantages that the air transport sector enjoys. In Germany, for example, VAT only applies to domestic flights but these only account for 16% of all flights. According to estimates by Germany’s Environment Agency, Germany lost €4.7 billion worth of taxes in 2012 as a result.

If a kerosene tax were introduced at the same level as the tax on petrol, another €7 billion could be collected, according to the environment agency.

This gives air transport advantages over other means of transport, say tax advocates.

“Aviation needs to finally play its fair part in achieving targets set out in the Paris climate agreement,” said Bas Eickhout, who was the Spitzenkandidat for the European Greens in the European elections.

“It is unacceptable that a large proportion of the carbon-producing aviation sector is tax-exempt, as this also distorts European competition,” he added.

Resistance from Mediterranean countries

However, at European level, only political demands have been made so far. And that is the case even if the Netherlands, Belgium, Luxembourg, France and Sweden have publicly spoken out in favour of a kerosene tax.

A Europe-wide citizens’ initiative was also launched in May of this year, and accepted as valid by the European Commission. The petition calls on the EU executive to “propose to member states the introduction of a tax on aviation fuel (kerosene)” claiming that “the aviation sector enjoys tax advantages despite being one of the fastest growing sources of greenhouse gas emissions”.

The Commission is currently pondering a revision of its energy tax directive. However, last time it did so in 2011, it omitted including a tax on kerosene tax.

So why has Europe failed to provide a solution?

On the one hand, it is because tax law is still a national matter, on which the EU has no competence. Even if a majority of member states were to back the introduction of a kerosene tax in their countries, a binding EU directive would require the unanimous agreement of all member states.

This is highly unlikely, because air traffic is essential, especially for Mediterranean member states that are heavily dependent on air tourism. It would not be in their interest to make air tickets more expensive.

The only alternative would be an “alliance of the willing” in which member states agree to tax kerosene on planes that fly between their countries.

The German Environment Agency is favourable to such a solution. It has developed a concept according to which Germany, together with its partners, would introduce a kerosene tax of 33 cents per litre, which corresponds to the minimum tax rate of the EU Energy Tax Directive.

Together with the already existing ticket tax, this would result in a price of approximately 65 cents per litre, ensuring the kerosene tax would be as high as the tax on petrol.

At the same time, the German environment agency recommends preventing airlines from buying pollution credits from other sectors on the EU carbon market. To make allowances more expensive for airlines, fewer free allowances should be issued and other greenhouse gases should also be included, it says.

International flights to stay free from EU carbon fees until 2021, MEPs vote

International flights to and from the EU will remain free from paying CO2 emissions permits but the exemption will cease in 2021 unless EU bodies meanwhile decide otherwise, the European Parliament’s environment committee agreed on Tuesday (11 July).

The German environment agency is currently calculating how much CO2 could be saved and what the costs would be for consumers in a study that will be published in November.

The role of carbon-neutral fuels produced from renewable energies should not be underestimated either, an agency official told EURACITV.

However, so-called ‘power to liquids’ (PtL) are considerably more expensive than conventional kerosene. So in order to advance the technology, binding PtL quotas are being mooted.

The Federal Association of the German Air Transport Industry is in favour of this, stating that “for the airlines to be able to refuel, it needs to be produced in large quantities, which requires an industrial policy strategy of the European Union”.

The German government is also counting on sustainable fuels, arguing that neither the EU ETS nor the planned CORSIA scheme would be sufficient to make an adequate contribution to the internationally agreed climate targets.

The German government did not discuss how it intends to advocate for taxing kerosene at a European level, however. At the request of the German news broadcaster ARD, the German ministry of Transport promised that it would work towards this goal during Germany’s EU Council presidency in 2020.

(Edited by Frédéric Simon)

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