Taxing kerosene on flights, at the level paid by motorists, could raise £6.7 billion a year for the UK Treasury
Revenues generated from a UK aviation kerosene tax could accelerate the reduction in aviation CO2 emissions, a new study by Transport & Environment (T&E) found. They calculated possible revenues that could be raised by the Treasury if the UK government were to impose a duty on the fuel (in a similar fashion to how road fuel is taxed) uplifted to planes in the UK. Airlines currently pay no fuel duty at all. To make matters worse, in further ignorance of the polluter pays principle – long-haul flights are not included in the UK ETS (the carbon market for aviation), long haul carrier airlines do not pay a penny for any of the emissions they cause. In contrast, jet fuel taken on for domestic aviation has been taxed for many years in countries such as the US, Japan, India and Brazil. In 2019 a kerosene tax at the same level as motorists pay, airlines would have collectively had to pay £6.7 billion for their fuel. Taxing domestic flights, which represent 19% of all UK departing flights, but only 4% of total jet fuel used, could generate £0.26 billion. For flights departing to the EU (65% of flights and 30% of jet fuel), revenues calculated were £1.93 billion. For flights to the US, the Treasury could generate £1.6 billion.
Taxing kerosene on flights could raise £6.7 billion a year for the Treasury
NOVEMBER 14, 2022 (Transport & Environment)
Revenues generated from a UK kerosene tax could accelerate the transition to net zero aviation in the UK, a new study by Transport & Environment (T&E) finds.
A new study by T&E has, for the first time, calculated possible revenues that could be raised by the Treasury if the UK government were to impose a duty on the fuel (in a similar fashion to how road fuel is taxed) uplifted to planes in the UK. In 2019, by imposing a kerosene tax at the same level as motorists pay, airlines would have collectively had to pay £6.7 billion for their fuel .
In the UK, fuel duty is an excise duty levied on petrol and diesel used for road transport. Unlike truckers and motorists, airlines have never paid a single penny of duty on the fuel they uplift at UK airports. And as – in further ignorance of the polluter pays principle – long-haul flights are not included in the UK emissions trading scheme, (the carbon market for aviation), long haul carrier airlines do not pay a penny for any of the emissions they cause. In contrast, jet fuel taken on for domestic aviation has been taxed for many years in countries such as the US, Japan, India and Brazil.
Matt Finch, UK Policy Manager at T&E, said: “The UK is effectively a tax haven for airlines. Any British motorist paid more fuel duty last time they filled up than British Airlines has ever paid. A kerosene tax makes environmental and social sense, in times of climate and economic crisis.”
The study modeled possible revenues for a kerosene tax applied to flights to different destinations. Taxing domestic flights, which represent 19% of all UK departing flights, but only 4% of total jet fuel used, could generate £0.26 billion. For flights departing to the EU (65% of flights and 30% of jet fuel), revenues calculated were £1.93 billion. For flights to the US, the Treasury could generate £1.6 billion.
Some of the revenues raised by the government should be reinvested in the decarbonisation of the aviation sector, T&E says. In particular, this money should be spent on accelerating the uptake of sustainable aviation fuel (SAF) – most importantly the development of e-kerosene – and the development of zero-emission aircraft.
“Early investment in the decarbonisation of aviation will be key, if the sector has any chance of reaching net-zero. This new government should tax kerosene and use the revenue generated to fund clean aviation. The absolute priority must be sustainable aviation fuels, specifically e-fuels – which hold the key to green flying in the long run”, concluded Matt Finch.
Note to editors:
 Calculations were made using a tax rate of 57.95p a litre – which is the rate fuel excise duty will be from April 2023. Currently, the charge is 52.95p a litre on all fuel purchased – but this is a temporary price, implemented as a result of the current economic crisis.
EC draft shows EU to propose aviation fuel tax in efforts to cut European CO2 emissions
The European Commission has drafted plans to set an EU-wide minimum tax rate for aviation fuels, as it seeks to meet more ambitious targets to fight climate change. The EC is drafting an overhaul of EU energy taxation, as part of a package of measures it will propose on July 14, to meet a target to reduce EU greenhouse gas emissions by 55% by 2030, from 1990 levels. The draft proposes taxing aviation fuel, as its continuing exemption “is not coherent with the present climate challenges and policies.” From 2023, the minimum tax rate for aviation fuel would start at zero and increase gradually over a 10-year period, until the full rate is imposed. The draft proposal did not specify what the final rate would be. A recent survey suggests that Europeans support the taxation of aviation fuel. Even factoring in the impact of the pandemic, aviation emissions are expected to grow between 220-290% by 2050 compared to 2015 levels, which would be disastrous for the climate. Airlines favour carbon offsetting schemes, rather than fuel tax; but these allow them to continue polluting even though offsets have been repeatedly found to be largely ineffective.
EU Treasury Ministers support future tax on fossil aviation fuel (after decades)
For decades, there has been no international agreement on the taxing of aviation fuel, and it has been wrongly assumed that taxing it was impossible. But now the EU is considering how the fuel should be taxed, as part of the bloc’s attempts to cut carbon emissions over all its activities. The EU now has the target of a 55% cut in CO2 emissions by 2030, and reach “net zero” by 2050. Aviation must play its part in the reductions. Higher fuel prices would increase ticket prices, thus reducing slightly demand for air travel. In July, the European Commission will put forward an overhaul of its energy taxation directive that sets minimum taxation rates for fossil fuels, but has not been updated for nearly 20 years. There have been difficulties in getting agreement on carbon cuts from the newer EU members, and every country effectively holds a veto on taxation policy. Some countries such as the Netherlands have been pushing for aviation fuel taxation, and says it will introduce a national aviation tax in the absence of an EU-wide agreement. Aviation should also be charged through the EU Emissions Trading System, which currently only adds small costs to intra-European flights.
Experts say legal obstacles no barrier to introducing aviation fuel tax for flights in Europe
EU countries can end the decades-long exemption on taxing aviation fuel. Legal experts say it is possible to tax kerosene on flights between EU countries. This could either be done at EU level through a series of bilateral agreements or by agreement between individual countries. Transport & Environment (T&E) has found that the old argument that foreign carriers’ operating within the EU – de facto a small number of flights – can’t be taxed can be overcome by introducing a de minimis threshold below which fuel burn would not be taxed. At present (and for decades past) airlines, unlike almost all other forms of transport, pay no fuel tax on flights within or from the EU – even though aviation causes 5% of global warming. They also pay no VAT. Despite the aviation industry’s attempts to hide behind the 1944 Chicago Convention, when the agreement was made on not taxing aviation fuel, that is not what is preventing fuel taxation. In fact it is old bilateral ‘air service agreements’ that European governments signed up to years ago that include mutual fuel tax exemptions for non-EU airlines. It remains too hard to tax fuel for international, non-EU, flights.