EU Set To Add Additional Taxes For Aviation Fuels

A draft of the new EU Energy Taxation Directive shows that the bloc is gearing up to introduce a new aviation fuel tax. While airlines have been exempt from fuel taxation up until now, if the proposal goes through, it would mean a gradual ten-year approach towards an EU-wide minimum rate, starting in 2023.

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The European Commission intends to introduce taxation for conventional jet fuels. Photo: Getty Images

Minimum rate reached over a decade

The European Commission is endeavoring to embark on more ambitious climate policies moving forward. As part of the new strategy, it looks as if it will be targeting the previous exemption for airlines for traditional aviation fuels. The potential EU-wide minimum policy is part of a wider overhaul of fiscal strategy from the bloc.

The draft document, seen by Reuters, states that the exemption is no longer in line with “the present climate challenges and policies.” If the draft proposal goes through, it would mean a new tax on energy supply sold in the form of jet fuel within the EU. Sustainable Aviation Fuels, SAFs, will not be included in the policy, nor will renewable hydrogen.

The EU would not be looking to add a ton of extra expenses to an already crippled industry overnight. The suggested minimum tariff would begin at zero from 2023. It would then gradually increase over the following ten years until the full rate is reached. The draft did not specify any proposed final rate.

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Sustainable biofuels and renewable hydrogen will continue to be exempt from the minimum taxation requirement. Photo: Neste

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Billions of euros worth of taxes

Prior to the proposal – which may change before the final version is presented – EU Member States have been allowed to exempt airlines from paying tax on fuel. The tax exemption is estimated to be worth €27 billion ($32 billion). Meanwhile, Switzerland and Norway have taxed domestic aviation fuel for many years.

The managing director of aviation body Airlines for Europe (A4E), Thomas Reynaert, said in an interview with International Tax Review in November last year that aviation fuel taxation would have little to no impact on emissions in the long term. He also stated that fuel taxes would take money away from the industry, which would be better used towards decarbonization.

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There are concerns that making flying more expensive in the name of protecting the climate would not only be inefficient but also contribute to broader divisions in society. Photo: Getty Images

There are other concerns regarding increasing taxation for aviation beyond the direct financial implications for carriers. If flying becomes prohibitively expensive for lesser-income families, this will serve to increase social gaps and division in society. If people on islands or other remote areas who depend on air connectivity can no longer afford to fly, they may be increasingly cut off, and rural communities may dwindle further as a result.

Do you think the EU is right to want to introduce taxes on aviation fuel? What do you see as potential benefits or drawbacks? Leave a comment below and let us know. 

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