How A Jet Fuel Tax Would Impact European Airlines

The European Commission could soon push for an EU-wide jet fuel tax. Jet fuel is currently exempt from fuel tax within the EU, but the ever-present issues of carbon emissions and climate change are making a potential jet fuel tax more and more appealing.

A British Airways Embraer ERJ-190 SR is on stand, being refuelled.
Jet fuel is currently untaxed. Photo: Mike McBey via Flickr

Unlike other fuels, jet fuel is still untaxed tax in the EU. In fact, globally, jet fuel holds a tax status which is rather unusual compared to other types of fuel.

In 1944, a global agreement called the Convention on International Civil Aviation was signed which prohibits taxation of any jet fuel currently onboard an aircraft when it lands in another country.

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Recently, the EU has been looking into possible taxes which could be applied to jet fuel. These would help encourage the further reduction of carbon emissions within the aviation sector, as well as raise additional tax revenue. This could then be put towards national budgets and further green initiatives.

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Although EU member states are currently allowed to tax jet fuel used in domestic aviation, none do.

According to Euractiv, the European Commission conducted a study with a test taxation rate of 33 cents per litre of jet fuel. The study revealed that revenue from such a tax imposed across the EU would amount to €27 billion per year.

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A jet refuelling truck
Jet fuel could be a major source of income for European governments. Photo: w:es:Usuario:Barcex via Wikimedia Commons

There’s undoubtedly an environmental case for encouraging airlines to decarbonize further, and there’s certainly a financial incentive for governments across the EU to support such a tax on jet fuel.

But how would it affect European airlines themselves, considering so many of them survive of such tight profit margins?

The effect of a jet fuel tax on airlines

Aviation accounts for around 2% of total global CO2 emissions. In the grand scheme of things, it might not seem like that much, but there is potential for significant CO2 reductions if taxation is implemented correctly.

As reported by the Financial Times, a leaked European Commission report into the potential impact of a jet fuel levy gives us some figures to consider.

The report says that if jet fuel was taxed at €330 per thousand litres in the EU, average ticket prices would rise by 10%. Additionally, the number of travellers per year would fall 11% to 613 million. The key figure, however, is the 11% drop in emissions this fuel tax would drive. This would be achieved whilst having a ‘negligible’ negative effect on employment.

Royal Dutch Airlines Boeing 787-9 Dreamliner @ Amsterdam Schiphol
A tax on jet fuel could encourage further decarbonization in the aviation industry. Photo: Oliver Holzbauer via Flickr

Obviously, when it comes to winners and losers from a jet fuel tax, the more fuel-efficient airlines would come out on top.

Airlines with more fuel-efficient fleets and higher passenger load factors would feel much less of an effect from jet fuel taxation. Additionally, as all European airlines would have to pay the same taxation rate, they would all be put at the same comparative disadvantage.

Competition from outside the EU

However, an EU-wide jet fuel levy would cause some problems when it comes to competition from outside the EU. If foreign airlines continued to pay no tax on their jet fuel, EU airlines would immediately find themselves at a disadvantage.

As a result, coordinated action on jet fuel taxation would be required from governments around the world to really have an effect. But, after all, someone has to start somewhere.

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Anonymous

Ridiculous idea. The job losses would only be negligible if no further airlines go bust. Even without the increased costs this would bring we’re bound to see more airlines going out of business. Furthermore the environmental benefits are going to be wiped out by the airlines routinely tankering fuel from outside the EU to avoid the tax.

Joe

that’s why the article says this needs to be a global policy

Al Boer

Taxation is like Entrophy: it can only increase or – at best – remain the same….

Bryce

Agricultural diesel is also untaxed. If the EU is going to put a tax on aviation kerosene, then it would be fair to tax agricultural diesel also. Maybe the EU will then come to its senses when armies of angry farmers in tractors block the streets in Brussels. I fail to understand how anyone seriously thinks that an 11% drop in passenger numbers won’t lead to reduced employment. Margins in the airline industry are already very thin: cutting load factors by 11% (or more) will cause a major headache for airlines…and ultimately for aerospace suppliers also. Here’s a radical idea… Read more »

Boris

How could you possibly suggest such an immoral idea? Rising population levels have nothing to do with global warming. Or do they? 🙂

Boris

If they do that and ticket prices are going to rise 10% – that might hurt the hub model of several major European airlines, such as Lufthansa group and Air France-KLM. Smaller airlines , such as LOT will suffer as well. Just as an example, if you look at current economy ticket pricing from eastern Europe to US, or from middle east to US, Lufhansa, LOT and Turkish have similar pricing. Add 10% to the price of LH/LOT – and there is no good reason not to use Turkish instead. Or even fly direct. TLV-JFK-TLV is available from $999 direct… Read more »

Scott Tracy

Thailand already charges domestic airlines. They increased the tax 2500% recently. Now airlines are stopping flying on the less profitable routes.

Ian Harlow

There is no ‘Climate Emergency’.
There is no such thing as (man-made) Climate Change.
There is such a thing, however, as know-nothing, stupid politicians.
In fact there’s a surplus of these useless parasites.

Charliej

There are also know nothing brain dead civilians who are stupid enough to think that all scientists are lying to them. Climate change is real and all the denying it will not change that.

Gerry S

You have got to be the most foolish man alive. Are you also a flat-weather?

Gerry S

……and quit talking so badly about the Republican party.

mohave

The E.U. wants vacation travel by car, regional turboprop or train within the E.U. When Europeans vacation in the U.S., Canada, Africa, etc, that capital is gone.

Tom

This idea is extremely not good for many airlines flying in Europe or out of the continent. Making the fuel tax will increase the prices, even resulting in more airlines ceasing operations, and our tickets for economy or business will cost even more!!! Fuel prices are already too expensive to offer and the price tag for a simple tank can go sky rocking prices. Increasing the tax? that’s gonna make more job losses, planes that are very expensive to operate without the fuels, tickets very expensive to buy and airlines ceasing to halt. Pretty sure NOT a good idea to… Read more »

Bryce

The German flight tax has already halved traffic at Weeze / Niederrhein airport, and there are doubts that the airport will survive the next few years.
Perhaps that’s why Carsten Spohr (Lufthansa) supports the tax: because he knows it affects LCCs more than flag carriers, and he wants to weaken the competition…