New NEF report on the Frequent Flyer Levy: “WHY DEMAND FOR AVIATION MUST BE CAPPED”
The Climate Change Committee has advised the UK government that aviation CO2 emissions should not rise more than 25% above their level in 2018 by 2050. However, with anticipated levels of demand, it is likely the CO2 will increase far more than that. So demand for air travel needs to be reduced. A new report by the New Economics Foundation (NEF) reiterates the suggestion that a Frequent Flyer Levy (FFL) should be used. This would mean people pay increasing amounts of tax on each successive leisure flight they take during a year. This rising price, depending on how often people fly, is intended to overcome the problem of flying being out of the price range for many people, leaving the rich to continue flying a lot. It would be more fair if everyone, regardless of wealth/income could have one flight per year relatively cheaply. Currently Air Passenger Duty (APD) is £13 for a short haul flight, or £78 for a long haul flight. To keep UK aviation demand to the level in 2018, by 2050, people could have one flight with no tax, but £350 in tax by the 5th flight. But to keep demand 66% lower than in 2018 by 2050, there would need to be £80 tax on the first flight, and £800 on the 5th flight.
A FREQUENT FLYER LEVY
Sharing aviation’s carbon budget in a net-zero world
BY ALEX CHAPMAN, LEO MURRAY, GRIFFIN CARPENTER, CHRISTIANE HEISSE, LYDIA PRIEG (By New Economics Foundation – NEF)
10 JULY 2021
WHY DEMAND FOR AVIATION MUST BE CAPPED
Responding to the Paris Climate Agreement to limit warming to 1.5oC, the UK government passed into law in 2019 a commitment to deliver net zero greenhouse gas (GHG) emissions by 2050. The Climate Change Committee (CCC), which advises the government on climate policy, calculates that to meet this deadline aviation growth must be slowed so that emissions do not exceed 25% above current levels. Aviation demand is forecast to grow well above this level and, while the international response to the Covid-19 pandemic has temporarily reduced departure levels, experience from previous shocks to the sector suggests demand will soon bounce back.In the UK, 15% of people take 70% of all flights, while nearly 50% of the population do not fly at all in a given year. This is a hugely unequal division of the carbon budget for aviation (and a large share of the UK’s total carbon budget). A just transition to net zero emissions has to reduce aviation emissions in a way that accounts for this inequality. Any aviation policy used to apply a cap on flights across the population will reflect a judgment – either explicitly or implicitly – on how these flights should be distributed.
ANY CAP MUST ADDRESS EXISTING INEQUALITIES
The total amount of flights – the 25% cap – is determined by the carbon budget for aviation. In this sense the ‘size of the pie’ (available flights) is fixed, but through policy it is possible to affect who gets what slice, and at what price. There are two broad approaches to reducing passenger numbers: restricting aviation capacity – such as through regulation and reduced airport expansion, and restricting demand for flights – such as through taxation. Both approaches are likely to lead to price increases, either directly, or due to the price effects of demand exceeding capacity. But thedistributional effects of different options are highly variable. Policies designed to help cap the growth in aviation passenger numbers face a difficult challenge in keeping to a carbon budget for the sector, while considering how access to this carbon budget is distributed across society. Just as there is a risk of too much air travel breaking the carbon budget, there is also a risk that the choice of policy design puts air travel out of reach for many.
A FREQUENT FLYER LEVY IS THE FAIREST WAY TO DO THIS
In 2015, a report by the New Economics Foundation for the ‘A Free Ride’ campaign proposed a frequent flyer levy (FFL) to achieve the combined aim of limiting aviation emissions while ensuring a more progressive distribution of flights. The FFL applies a charge, starting at zero for the first flight, but increasing for every subsequent flight taken within a year. It would replace the existing Air Passenger Duty (APD) – £13 for short haul and £78 for long haul in economy class – that currently applies to every passenger ticket.
In 2018, a survey revealed that a FFL is the most popular option among a number proposals for reducing passenger numbers. This report presents new modelling comparing the distributional effects of an illustrative FFL with an increase to APD and restrictions on airport capacity.
All three options were set at a level consistent with a 25% cap in aviation growth by 2050 and compared to a baseline scenario of unconstrained growth. The distributional analysis of available supply and demand side aviation policies reveals that not only is a FFL the most popular of the available policies, it is also the most progressive.
NEF modelling shows that under our FFL scenario, the highest income 20% of the UK population reduces their flights significantly (by around 30%) compared to a world of unconstrained growth. At the same time, the lowest income 20%, which currently fly five times less frequently than the richest 20%, would be able to take just as many flights as if there was unconstrained growth. Under increased APD the opposite is true: as all tickets increase in price it is the lowest income quintile that reduces their flights the most (-19%) and the top quintile that reduces their flights the least (-13%).
A similar pattern is seen when examining the direct tax burden. On average, the lowest income 20% of the population would pay just £7.75 a year in FFL payments. This is less than the minimum tax burden paid under APD, irrespective of whether current rates are maintained (£13 per year) or whether APD rises consistent with a 25% cap (£41 per year). A far higher proportionate share of the FFL tax burden falls on the richest, with the highest income 20% paying on average £165.85 per year.
Constraining airport capacity would also represent a regressive policy choice in terms of greater reductions in flying in lower income groups due to a rise in average ticket prices. The regional impact of constrained capacity would be more mixed, with poorer groups losing out most in regions where the greatest gap between demand and airport capacity arose. By contrast, the FFL would generate larger reductions in London and the South East where a higher proportion of high-income earners and frequent flyers are located.
A JUST TRANSITION
Any caps or restrictions placed on aviation with the aim of achieving the UK’s international climate commitments are likely to have knock-on effects on employment in the sector. However, in the medium term, the pre-eminent threat to employment remains automation and ongoing efficiency drives which have been accelerated through the Covid-19 pandemic. The chosen emissions reduction policy does, however, have relevant impacts on the likely regional distributional impact of any resulting job losses. In this regard the FFL is arguably, again, the most progressive policy, as it does the best job of protecting jobs in the UK’s regions outside London and the South East where, at least historically, unemployment rates have been higher. In all eventualities it is critical that the government establishes a wider policy package for aviation which ensures a just transition for workers impacted by climate policy. This includes protecting their long-term employment prospects through new job creation, and where necessary supporting up-skilling and retraining for workers to access the zero carbon jobs of the future. In delivering this agenda, it is vital that a just transition puts worker voices, and their union representatives, at the heart of the policy decision-making process.
See tables on Page 32 for the rates (see table at link above for higher resolution)