Air France’s bailout ‘climate conditions’ and possible future aviation taxes

Date added: 29 September, 2020

The state bail out of Air France by the French government earlier in the year got a lot of publicity. Some of the conditions looked as if they could be effective in cutting emissions. Now the restrictions on air travel look set to continue for many more months, airline finances and state help need to be reassessed. The pandemic has been a unique opportunity to shrink the sector, and insist that it takes effective action in future to significantly cut its carbon emissions. The NGO Transport & Environment (T&E) have assessed the potential effectiveness of the conditions, and are not impressed. They say the Air France conditions included improving fuel efficiency (which it will do anyway, to save money); also removing the shortest flights (which will have minimal impact on the airline’s overall emissions). And use of low carbon novel fuels, but if first generation biofuels were used, this would increase – not cut – CO2 emissions. Last T&E says the climate conditions attached to the bailout are not legally binding, leaving it to the good will of Air France. Each condition should be made mandatory, with clear financial penalties for failure to comply. The French government has now proposed reasonably high taxes on flights, of €30 for economy short haul, and €60 economy long haul (>2,000km) but this has to be approved by the political process.
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Air France leads tax pushback in climate vs recovery fight

By Laurence Frost, Kate Abnett (Reuters)

28.9.2020

PARIS/BRUSSELS (Reuters) – Air France-KLM AIRF.PA is battling new green taxes on top of the coronavirus crisis – in a test of growing policy tensions between righting Europe’s crippled airlines and delivering on climate goals.

The Franco-Dutch group, sustained by €10.4 billion ($12.2 billion) in state-backed loans, faces higher duties in both home markets as well as EU plans to hike airlines’ carbon costs.

The struggle unfolding around Air France-KLM is part of a larger reckoning for carbon-intensive industries as efforts to tackle global warming spawn more taxes and regulation.

While campaigners say those are long overdue, crisis-hit airlines warn their timing and severity will cost thousands more jobs and hurt development of lower-carbon technologies.

New taxes “do not support emissions reductions”, said Air France-KLM Chief Executive Ben Smith in response to proposed increases to French passenger duties.

“In fact it’s counterproductive and would deprive us of finances that could otherwise be invested in environmental projects,” he told an online industry forum this month.

Tensions can only rise as emissions goals are toughened to slow dangerous climate change. The European Union’s executive now wants to cut greenhouse gas output by 55% in the next decade rather than the previous 40%, from a 1990 baseline.

While the pandemic has dampened climate protests led by Extinction Rebellion and Swedish activist Greta Thunberg, their political legacy must be squared with the economic emergency.

GREEN WAVE

French municipal elections saw the ecologist EELV party take Lyon, Bordeaux and Strasbourg in a June 28 “Green Wave”. The next day, President Emmanuel Macron promised to advance 146 proposals from a “citizens’ climate convention”.

Those include an airline duty increase to €30 per short-haul economy passenger and €400 for long-haul business, from their current €1.50-18 range. At 2019 traffic, officials say the sector would pay €4.2 billion.

Key members of the government, which underwrote €7 billion for Air France, are backing away from the pledge as officials draft legislation in response to the convention.

“It would be grotesque to take back with one hand what we’d given the sector with the other,” Finance Minister Bruno Le Maire told daily Les Echos.

Le Maire and his Dutch counterpart were among nine EU finance ministers who had called for “taxation or similar policies” to curb emissions by raising air fares.

From Jan. 1, the Netherlands is introducing passenger duties worth €220 million at pre-crisis traffic. A Greenpeace legal challenge is also demanding steeper emissions cuts in return for KLM’s €3.4 billion aid package.

OFFSETS UPSET

Airline emissions account for 2.5% of the global total but are set to triple by 2050. [Much more – 5 or 6% – when the non-CO2 climate impacts are taken into account]. Under a U.N.-brokered programme, CORSIA, the industry aims to counter emissions growth from international flights with carbon offsets, whose effects are contested.

Airbus has given itself until 2035 to put a “zero-emission” plane into service, but many are sceptical about that deadline. Synthetic fuels are also too scarce and expensive to offer a near-term solution.

For intra-European flights, airlines would face a higher bill for European carbon credits under plans outlined this month to reduce free permits for the sector.

EU officials have also signalled likely moves to end a tax exemption for jet fuel enshrined in international treaties, a process that could take several years.

Germany, which has pushed ahead with an airline tax increase to fund cheaper rail travel, plans binding minimum quotas for carbon-neutral alternative jet fuel.

Far from giving struggling airlines a break, campaign groups are urging governments to use bailouts to force faster progress.

“Airlines’ reliance on governments strengthens the case for acting to cut their emissions,” said Andrew Murphy of Brussels-based Transport & Environment.

Assuming a slow recovery, research commissioned by the group suggests CORSIA’s market mechanism would price emissions as low as 17 cents per long-haul flight, leaving little incentive to curb greenhouse gases.

ICAO, the U.N. aviation agency that developed the programme, said it “cannot comment on advocacy studies that have not been peer-reviewed.” CORSIA complements a “carbon-neutral growth strategy” agreed among member governments that also draws on technology, operational gains and alternative fuels, it added.

NOT FARE

Other emissions-cutting proposals may divide the industry.

Air France-KLM’s Smith called on French ministers to consider a minimum fare instead of taxes, citing the 40-euro minimum recently introduced in Austria. “Let’s discuss that,” he said in a newspaper interview.

While minimum fares can curb overall traffic and emissions without hurting traditional airlines’ profits or jobs, they punish budget carriers and their customers.

“This is another mad idea from a high-fare airline that can only survive with over €10 billion of illegal state subsidies,” Ryanair RYA.I said. The low-cost giant is challenging rivals’ EU-approved bailouts in court.

“Ordinary consumers all over Europe have benefited from and will continue to demand low fares, choice and competition,” it said.

However these tensions play out, airlines face a rising tide of carbon costs on top of their current woes.

Maintaining fuel tax exemptions would present a “flagrant inconsistency” with EU climate goals, said Christian Egenhofer of Brussels-based think tank CEPS.

Taxing fuel would be an important step even if rates started low, Egenhofer said. “You know what happens with taxes – they always go up.”

https://uk.reuters.com/article/uk-health-coronavirus-airlines-climatech-idUKKBN26J0UP

The possible new taxes on airline tickets, proposed on flights from French airports:

What would this new environmental tax look like for airline tickets?

For economy flights of under 2,000km, the tax would be 30 EUR one-way
For economy flights of over 2,000km, the tax would be 60 EUR one-way
For business class flights of under 2,000km, the tax would be 180 EUR one-way
For business class flights of over 2,000km, the tax would be 400 EUR one-way
For private jet flights, the tax would be 2,400 EUR one-way

See more at

https://onemileatatime.com/france-considers-massive-airline-eco-tax/

Air France’s bailout ‘climate conditions’ explained

3rd June 2020 (Transport & Environment)

By Eoin Bannon

See the infographic:

https://infogram.com/1pd2npzgk26kprhmwkpyqvk7zeskrw6v3xg

Airline polluters are now seeking tens of billions in taxpayers’ money, according to the European airline bailout tracker. Air France recieved €7 billion, with the French government announcing “climate conditions” attached to this state-aid. While these are a first for airline bailouts, much improvement is needed for them to be effective and to achieve the stated objective of making Air France “the most environmentally friendly airline” on the planet. Our analysis below explains the conditions in detail and how to improve them.

Climate conditions explained

Air France received €7 billion state aid as part of its rescue package, with the French Government announcing “climate conditions” attached to this aid. While these are a first for airline bailouts, much improvement is needed for them to be effective and to achieve the stated objective of making Air France “the most environmentally friendly airline” on the planet. This infographic explains the conditions in detail and how to improve them.

French aviation emissions grew 71% since 1990.
Air France’s total emissions are not public. For their flights within Europe, the airline emitted 2.5 Mt of CO2 in 2019. That excludes long-haul, which is responsible for the bulk of the airline’s climate impact.

French aviation emissions grew 71% since 1990. Air France’s total emissions are not public. For their flights within Europe, the airline emitted 2.5 Mt of CO2 in 2019. That excludes long-haul, which is responsible for the bulk of the airline’s climate impact.

The conditions and the T&E explanations of them:

Improve efficiency of the fleet (in CO2 per passenger km) by 50% by 2030 vs. 2005: this was a voluntary commitment made by Air France last year. Efficiency improvements rarely decrease emissions, as they are often cancelled out by an increase in passenger numbers.

T&E say: Checking aviation’s climate impact starts with setting absolute, not relative emission targets. Air France must commit to cuts in actual emissions, in a timeline consistent with achieving net zero emissions by 2050.

Reduce 50% emissions from domestic flights by 2024: no comparison year was set for this target, and it is unclear what measures will be adopted to promote rail. The current proposal limits this to where rail journeys under 2h30 exist, cutting French aviation emissions by only 0.8%.

T&E say: This should be expanded to where rail journeys under 5h exist, increasing this cut to 4.5%. Domestic/ short haul flights are a small portion of emissions. Ending them will have a negligible impact on aviation emissions.

Fuel mandate: the proposal includes a requirement to burn a minimum of 2% alternative fuels in 2025, up from zero at present. That’s similar to a policy launched earlier this year by the French Government, and lacks detail.

T&E say: The type of fuel used is missing. If Air France burns 1st generation crop-based biofuels, then that will result in higher emissions. Instead, it should be required to burn new, near zero fuels such as synthetic kerosene

The climate conditions attached to the bailout are not legally binding, leaving it to the good will of Air France.

T&E say: Each conditions above should be made mandatory, with clear financial penalties for failure to comply.

See full infographic at

https://www.transportenvironment.org/publications/air-frances-bailout-climate-conditions-explained

Climate conditions on airline government bailouts are rare—and the coronavirus likely won’t be an exception

BY KATHERINE DUNN
June 26, 2020

The Dutch government on Friday said a multibillion-euro bailout for KLM, the country’s national carrier and one-half of the Air France–KLM group, will have green strings attached, in a bid to cut the emissions of a sector that has proved notoriously difficult to decarbonize.

The 3.4 billion–euro ($3.8 billion) bailout will require cuts to dividends and jobs, alongside a one-fifth reduction in evening flights, in part to encourage rail journeys, as well as a requirement to reduce emissions per passenger by half by 2030. Those conditions come on the heels of similar restrictions for Air France, which received a 7 billion–euro ($7.9 billion) bailout from the French government, including a requirement that domestic flights be cut by 40%. The airline had already committed to reducing emissions per passenger by 2030. Pre-pandemic, both governments held individual stakes of about 14% in the company.

The idea of attaching “green strings” to government bailouts for sectors that struggle to decarbonize has been cited repeatedly by climate advocates, including former Bank of England governor Mark Carney, now a United Nations adviser. But despite the EU’s overarching commitment to build a “green” recovery from the COVID-19 pandemic, as well as its pre-pandemic commitment to reduce emissions to net zero by 2050, the Dutch and French bailouts are outliers—not the norm.

Lufthansa, the continent’s largest carrier, will receive a 9 billion–euro ($10.1 billion) bailout from the German government, without climate strings attached. Besides Air France–KLM, only Austrian Airlines, a national subsidiary of Lufthansa, will face climate conditions for its government bailout, mainly focused on reducing flights for destinations that could be reached by train within three hours, according to a tracking project from Transport & Environment, Greenpeace, and Carbon Tracker. Aid to airlines in the U.S. does not include climate conditions.

Though Amsterdam and Paris are key international travel hubs and tourist hotspots, the continent also has a vast network of budget tourism, fueled by cheap, convenient flights. But as continent-wide lockdowns kept people at home over the spring and into this summer, the impact on the region’s carriers was immediate, nearly eliminating air travel, with most carriers requesting government assistance. There are strong signs that the industry won’t recover to pre-pandemic levels for years, if ever. This week, scheduled flights out of France were down 83% compared with last year, according to flight data provider OAG.

Though global emissions are expected to be sharply down this year as a result of the lockdowns and ensuing economic crisis, aviation is still one of the most intractable sticking points in plans to dramatically lower emissions. Though the sector, pre-pandemic, made up less than 3% of total energy-related emissions, and though design efforts have made planes dramatically more fuel-efficient over the decades, individual flights are incredibly carbon intensive.

An EU study found that flying was eight and a half times as carbon-intensive as rail travel, the least carbon-intense means of travel, and a study from the University of Michigan found that a single roundtrip flight from San Diego to Frankfurt was equivalent to driving a light-duty vehicle for an entire year.

Meanwhile, there are few viable options to decarbonize planes: Biofuels remain expensive and niche, and there are no large-scale, commercially available electrified planes. Beyond developing alternative fuels and researching electric planes, the simplest way to reduce aviation emissions is simply to make flying more expensive and less convenient, largely through a combination of taxes, including on jet fuel, which is currently untaxed, and limits on short-haul or domestic flights.

Not only are their routes already covered by extensive European rail links, shorter-haul flights are typically more carbon-intensive per kilometer because a large proportion of the plane’s fuel is burned during takeoff and landing.

Even industry associations have said that the sector must find a way to dramatically lower emissions. A joint letter by 13 European-based aviation associations, including the International Air Transport Association (IATA), to EU ministers and EU commissioners said that “air transport must be at the very core of the strategy the EU is charting for its recovery.”

The letter called for the development of sustainable fuels, incentive programs to scrap older and less efficient aircraft, and public investment in research, though it stopped short of advocating taxes or bans on domestic flights.

But both climate change and COVID-19 threaten the long-term future of aviation, albeit on different time scales, argued Dan Rutherford, the program director for marine and aviation at the International Council on Clean Transportation, in a recent post.

With a carbon price of even $40 per ton, a number backed by the conservative-leaning Climate Leadership Council and businesses like IBM, airlines would become loss-making, he argued.

“Today, airlines face a short-term liquidity crisis triggered by the coronavirus and a long-term solvency challenge from climate change,” he said. “To succeed, public bailouts need to address both.”

https://fortune.com/2020/06/26/airline-bailouts-climate-conditions-coronavirus/