Transport & Environment: Airbus ruling on EU subsidies shows it’s high time to stop the aviation subsidies binge
Date added: September 22, 2016
The WTO has ruled against the EU, on its $10 billion per year subsidies to Airbus. Back in June 2011, the WTO found that the EU and 4 of its member countries provided billions of dollars in subsidised financing to Airbus. And it has not stopped doing so since. There could be another similar ruling if rival plane maker Boeing is found to also have received public subsidies, which it has. Transport & Environment says this adds another $20 billion or more to the already very long list of subsidies granted to the aviation sector. These subsidies include around €20 billion per year in Europe alone due to the sector’s exemption from tax on aviation fuel – and up to $60 billion worldwide. Also airlines receive an effective subsidy worth another €7 billion in Europe because ticket prices are artificially suppressed by about 20% due to the VAT exemption on ticket sales. In addition airlines are bailed out on a regular basis, especially since the 2009 crisis. Already lenient state aid rules for airports have been regularly flouted – which is worth another estimated €3 billion per year, in Europe alone. Aviation in Europe also gets a €3 billion subsidy (one off) under the SESAR ‘joint undertaking’, to deliver the Single European Sky. T&E says one reason the aviation sector’s CO2 emissions are out of control is that flying is artificially cheap because of such subsidies. The subsidies above fall outside of WTO rules and will only be removed with action by governments.
Airbus ruling shows it’s high time to stop the aviation subsidies binge, says NGO
September 22, 2016 (T&E – Transport and Environment)
Today’s rulingby the WTO (World Trade Organisation) against the EU on subsidies to Airbus, and an expected similar ruling on Boeing, officially adds another €20 billion or more to the already very long list of subsidies granted to the aviation sector, sustainable transport group Transport & Environment (T&E) has said.
That list of direct and indirect subsidies includes:
Airlines enjoy universal exemption from fuel taxation, estimated at €20 billiona year in Europe and over€60 billion globally;
Airlines receive an effective subsidy worth another €7 billionin Europe alone because ticket prices are artificially suppressed by about 20% due to the VAT exemption on ticket sales;
Airlines are bailed outon a regular basis especially since the 2009 crisis;
Already lenient state aid rules for airports have been regularly flouted; worth another estimated €3 billiona year in Europe alone;
Manufacturers get a €1.8 billion subsidy under the ‘Clean Sky 2’ joint technology initiative;
Air traffic control gets a €3 billion subsidy under the SESAR ‘joint undertaking’.
Next week the ICAO assembly in Montreal will try to agree the details of a so-called ‘global market-based measure’ [ie. offsetting] to address the runaway CO2 emissions of aviation, the most climate-intensive of transport modes.
One reason CO2 emissions are out of control is that flying is artificially cheap because of such subsidies.
Meaningful action is urgently needed at ICAO but the very modest and inadequate plans being discussed at the global level will mean nothing so long as the sector binges on government handouts. The subsidies above fall outside of WTO rules and will only be removed with action by governments.
Bill Hemmings, director of aviation at T&E, said: “Today’s ruling is a wakeup call to anyone who believes that the ICAO assembly will solve aviation’s climate problem. Flying is the cheapest and quickest way to fry the planet because not only manufacturers, but also airlines and airports, are subsidised to the hilt.”
Today’s ruling is also significant because it was Airbus which in 2012interveneddirectly to emasculate the only international measure currently in place to address aviation’s climate problem, the EU’s emissions trading system (ETS). Airbus also played a key role in ensuring that ICAO’s fuel efficiency standard for new aircraft, decided in 2016, will be meaningless.
EU rapped by WTO for $10bn a year Airbus subsidies
The EU has failed to comply with rulings that it should cut subsidies to aircraft maker Airbus, the World Trade Organization has ruled.
Rival Boeing says it could pave the way for the US to seek up to $10bn (£8bn) in annual retaliatory tariffs.
It follows years of accusations between the two aerospace giants that each received state funding.
The WTO is yet to rule on a similar EU complaint that Boeing benefits from billions of dollars in tax breaks.
Washington responded to the ruling by calling for an immediate halt for EU subsidies to support US jobs.
Meanwhile Airbus said it would appeal the judgment and the EU said it found some of the findings “unsatisfactory”.
Analysis: Andrew Walker, BBC economics correspondent
There are two suppliers of large civil aircraft: Boeing in the US and Airbus in Europe.
The EU and the US have both taken complaints to the WTO about subsidies supplied by the other.
At the smaller end of the market segment there are other suppliers, and certainly the potential for more from China and Russia, for example, in the future – which could well involve state subsidies that eventually end up in front of a WTO dispute settlement panel.
For now, though the big stuff is a duopoly. There are two players with state backing, according to WTO judgements. For the rest of the world that is pretty good news.
It ensures there is at least some competition. And without the subsidies, a large plane could well be even more expensive.
It is the latest of a series of tit-for-tat transatlantic complaints about aircraft subsidies that make up the world’s largest and longest-running trade dispute, which has so far been bitterly battled out over 12 years.
In June 2011, the WTO found that the EU and four of its member countries provided billions of dollars in subsidised financing to Airbus.
The compliance panel has now ruled that the EU failed to comply with all but two of 36 earlier rulings to cut back subsidies European governments provided to Airbus.
The loans were a “genuine and substantial” cause of significant lost sales for Boeing, the WTO said.
The EU had argued that the most recent Airbus jet, the A350, fell outside the case, but that was rejected by the WTO which said funding for the jet had been subsidised.
However it rejected US claims that it fell into the most serious category of “prohibited” aid.
The WTO has also issued rulings over the years saying that Boeing was the recipient of banned federal and state support.
Dennis Muilenburg, Boeing chairman, said: “Today’s ruling finally holds the EU and Airbus to account for their flouting of global trade rules.”
“This long-awaited decision is a victory for fair trade worldwide and for US aerospace workers, in particular.”
US Trade Representative Michael Froman said the panel’s finding was “a sweeping victory for the United States and its aerospace workers”.
He called on the EU, Germany, France, the United Kingdom and Spain “to respect WTO rules”.
“We call on them to end subsidised financing of Airbus immediately,” he said.
In response, the EU said: “There are certain findings of the panel that we consider to be unsatisfactory. We are closely analysing the report.”
It said the findings should be read in the context of two other reports expected to address US subsidies in coming months.
Airbus said it mostly conformed with its global trade commitments and would appeal.
“We only needed to make limited changes in European policies and practices to comply,” it said in a statement.
“We will address the few still remaining points indicated by the report in our appeal,” Airbus said.
Both the EU and the United States have the right to appeal against the ruling.
ESTIMATED REVENUES OF VAT (€7 billion) AND FUEL TAX (€20 billion) ON AVIATION
International aviation is exempt from VAT, both on their inputs (e.g. on fuel or aircraft) and on their revenues (e.g. on tickets). In the EU, aviation fuel is also exempt from the minimum fuel excise tariffs.
This report calculates the potential revenues of VAT on tickets and fuel tax on jet fuel. If VAT were to be levied on tickets while other aviation taxes were simultaneously abolished, this would yield revenues in the order of EUR 7 billion. Excise duty on jet fuel would raise revenues in the order of EUR 20 billion.
These figures do not take into account the impact of the cost increases on demand for aviation into account. Since higher costs will reduce demand, the estimates can be considered an upper bound.
The report was commissioned by Transport and Environment.
Responsible flying grounded by aviation’s fuel tax exemption. €60 billion per year.
DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EurActiv.com PLC.
By Andrew Murphy (policy officer for sustainable aviation at Transport & Environment)
Countries must reform the International Civil Aviation Organisation’s position on fuel subsidies to bring them into line with well-established global objectives, writes Andrew Murphy.
Have you ever driven into a petrol station and daydreamed about how much heavier your wallet would be if you weren’t paying tax at the pump? For airlines, that day-dream is a reality!
Airlines pay zero tax on the fuel that they use, and this exemption amounts to an annual subsidy of €60 billion per annum [worldwide] to the sector, which creates unsustainable growth in its demand for fossil fuel – demand that will double by the 2030. What’s more, that subsidy is enjoyed by the wealthiest 2-3% of the world’s population who fly.
CO2 emissions from international aviation continue to grow unabated, and it’s the most climate intensive form of transport: aviation emissions have more than doubled in the last 20 years and the sector accounts for 4.9% of total worldwide emissions contributing to climate change equal to that of Germany.
As the world, both developed and developing, steps up efforts to decarbonise their economies, such policies are increasingly unacceptable. Countries must reform the International Civil Aviation Organisation’s (ICAO) position on fuel subsidies to bring them into line with well-established global objectives to phase out subsidies for fossil fuels consumption.
Aviation’s free ride – the fuel tax exemption
For aviation, decarbonisation must include phasing out the fuel tax exemption, which is inflating demand but is without any rational economic basis. This exemption, as aviation lawyers have pointed out, is rooted in legal agreements, however that is no reason to exempt it from scrutiny.
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.
The fuel tax exemption is rooted partially in the 1944 Chicago Convention, but is largely the result of industry lobbying to enshrine the exemption in thousands of bilateral agreements.
The fuel tax exemption amounts to an annual subsidy of €60 billion per annum to the sector. For every economy passenger flying between Europe and the US, this works out at a generous subsidy of almost €95.
All the while, those worst affected by climate change remain the world’s poorest and most vulnerable, as demonstrated by the recent Pacific cyclones.
Past its sell-by date
The International Civil Aviation Organisation’s support for this exemption is a ‘logical approach’ given the organisation’s mission to develop international aviation. However there is nothing ‘logical’ about this subsidy especially when aviation is by far the most carbon intensive form of transport and climate change now the greatest challenge facing mankind.
The IMF and the World Bank have not held back in describing the fuel tax exemption as an anomaly which subsidises the unsustainable growth in international aviation. While the exemption may have had some merit at the dawn of international aviation in the aftermath of WWII, it has no place in the 21st century, when the greatest challenge is to decarbonise our economies and arrest the growth in global emissions.
Indirectly ending the exemption could be done by increasing embarkation (departure) taxes on passengers, which are levied by many countries around the world. It is certainly an option, though once again such a move is likely to be opposed by the airline industry, as the US airline lobby has done with its legal challenge to the German departure tax.
But efforts to end this subsidy must target that subsidy’s origin: ICAO and the industry’s relentless, outdated and counterproductive lobbying.
This lobbying is a product of institutional bias and the airline industry’s profound failure to appreciate that its only future is a sustainable one. ICAO continues to promote the fuel tax exemption, highlights it as a key element for inclusion in all ‘air service agreements’ and restates its position in various Council Resolutions. The organisation founded to oversee the peaceful development of civil aviation continues to see fit to lecture states on national tax policies.
It is essential that countries 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 fuels 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 come overnight, but without first steps change will never come. Such a move should be matched by increased departure taxes and 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).
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.
EU makes €3 billion available to deliver Single Sky
5.12.2014 (European Commission0
Today the European Commission has signed a new partnership agreement, involving major Air Traffic Management (ATM) stakeholders. Airlines, airport operators and Air Navigation Service Providers (ANSP) will receive up to €3 bn in EU funding, in order to implement common projects and modernise Europe’s Air Traffic Management (ATM) System.
Today’s agreement with the SESAR Deployment Alliance consortium aims to enhance the performance of Europe’s ATM systems, in order to manage more flights in a safer and less-costly manner, while reducing the environmental impact of each flight.
Commissioner Bulc said: “Today’s agreement is a great achievement for EU aviation, forever changing Europe’s air navigation system, making it smarter, cheaper, greener, and safer. It also marks an important step towards the accomplishment of the Single European Sky. These projects will translate into economic benefits for the whole EU with a contribution of over €400 bn to its GDP, the creation of over 300,000 new jobs and saving 50 million tons of CO2 emissions.”
The SESAR JU[Joint Undertaking] was established in 2007 to coordinate all the ATM related research and development activities in the EU. Following a first programme covering the period 2007-2013, a second programme “SESAR 2020” will be coordinated under the 2014-2020 financial perspectives.
The Council has extended the duration of the Joint Undertaking until 31 December 2024. It is a unique public-private partnership that aims to develop a new generation of air traffic management (ATM) system capable of coping with growing air traffic, under the safest, most cost-efficient and environmentally friendly conditions. It is also the “guardian” of the European ATM Master Plan, the roadmap for all SESAR JU’s activities and their future deployment.
The SESAR Deployment Alliance (SDA) consortium has been established specifically for the purpose of deploying SESAR through the concept of Common Projects; it represents a large number of the operational stakeholders impacted by the Pilot Common Project (PCP).
The Innovation and Networks Executive Agency (INEA) was created by the European Commission to manage the technical and financial implementation of several EU programmes including the Connecting Europe Facility (CEF). Applicants can answer to the first call for proposal related to SESAR deployment project up to 26th February 2015. Annual calls are expected in the future.
A macro-economic impact assessment showed that SESAR would create a combined positive impact on EU GDP of €419 bn over the period 2013-2030, with an estimated creation of 328,000 jobs, including indirect and inducted impacts.
The European ATM system involves 37 Air Navigation Service Providers and is a business worth €8.6 bn, employing some 57,000 staff of which 16,900 are air traffic controllers.
European skies and airports risk saturation. Already some 800 million passengers pass through Europe’s more than 440 airports every year. Each day there are around 27,000 controlled flights – that means 9 million cross Europe’s skies each year. The management of all these flights is ensured by the ATM system.
Today’s situation is competently handled by the European air transport sector, but, under normal economic conditions, air traffic is expected to grow by up to 3% annually. The number of flights is expected to increase by 50% over the next 10-20 years.
The central problem is that Europe’s air traffic management systems are fragmented and inefficient.
EU airspace remains fragmented into 27 national air traffic control systems, providing services from some 60 air traffic centres while the airspace is divided into more than 650 sectors. That means airspace is currently structured around national boundaries and so flights are often unable to take direct routes. On average, in Europe, aircraft fly 42 km longer than strictly necessary due to airspace fragmentation, causing longer flight time, delays, extra fuel burn and CO2 emissions.
In addition, current air traffic management technologies were designed in the 1950s. They are now archaic.
The inefficiencies caused by Europe’s fragmented airspace bring extra costs of around €5 billion a year. These costs get passed on to business and passengers. Air traffic control currently makes up 6-12% of the cost of a ticket.
The US air traffic management system is twice as efficient as that of the EU; it manages double the number of flights for a similar cost from a third as many control centres.
Faced with these challenges, in the late 1990s, proposals were formed to create a Single European Sky, removing national boundaries in the air, to create a single airspace:
The SESAR JU has a critical role to play in developing the technology to deliver the Single European Sky, the flagship project to create a single European airspace: