Aviation Fuel Tax

The world has a large and increasing problem with pollution; this has been recognised with the recent signing of the Kyoto protocol by some 187 countries worldwide. A clear commitment has been made towards economic environmental sustainability in the future, now is the time to make positive steps to back up such fine ideals.

Carbon emissions: aviation versus domestic

Source: Environmental Audit Committee

With the anticipated rapid growth of air traffic over future decades, it is estimated that by 2050 air travel will account for up to 17% of all emissions involved in global warming. The graph illustrates a fourfold increase in emissions in the UK from aviation sources between 1990 and 2030. This will offset many of the positive steps being taken to reduce emissions from all other sources.

Following the events of 9/11 the three day grounding period in the US showed a sudden drop in 'global dimming' contributed from aeroplanes¹. This illustrates that a decrease in everyday emissions would have an enormous positive impact on the environment.

Action must be taken to reduce this expected dramatic growth in jet emissions. Therefore, we propose that the Chancellor push for the EU to introduce a tax upon aviation fuel. Unlike many other fuels, most notably petrol and diesel, kerosene is currently exempt from taxation; it seems unjust this should be so when its usage produces the same harmful 'greenhouse' gases as other fuels; this damaging loophole must be closed.

Research has shown that jet fuel is consumed much quicker in the initial take-off and altitude gaining phase than when cruising; '...the average consumption per passenger is 6.5l kerosene per one hundred kilometres on long-distance flights, but 10.5l on short-distance flights'¹. Therefore, 'over short distances air travel produces around three times more CO2 per passenger than rail'², and so the use of less harmful alternatives to air travel must be encouraged. Introducing this tax would be highly effective in achieving this, since raising the cost of flights to a level that accounts for all the social costs combined (as presently airlines only charge passengers for their private costs) will push consumers to switch to cheaper methods of transport.

To achieve this substitution effect, the revenue raised by the tax (worth billions of billions of pounds across Europe each year) could be spent upon improving the public transport alternatives to domestic flights, such as the development of faster, more reliable rail services. Alternatively, the revenue could be used to encourage environmentally beneficial schemes such as the development of renewable energy sources and sustainable transport policies.

Image copyright: Jasper Zeinstra, stock.xchng

An example of the latest generation of fuel efficient planes are the Boeing 7E7 and the giant Airbus A-380, which consume significantly less fuel per passenger per km than older models such as the Boeing 747 series (based upon each of the planes operating at capacity).

It is important to recognise that airlines already operate on very tight budgets; major flight routes often see extremely fierce price competition. With airlines already operating on very small profit margins on many tickets, some fear that imposing this tax would send many such firms (e.g. Ryanair and easyJet) out of business - following the September 11th attacks most airlines recorded large losses and many have only recently returned to profit. However, we do not feel that the tax would unduly affect competitiveness, as all airlines will be operating under the same conditions; airlines should be able to pass the cost of the fuel tax on to their consumers; this seems perfectly fair, since after all it is the consumers who are gaining utility from the flights.

No major country has yet imposed such a tax, although the US states of Wisconsin and Utah currently charge a tax on kerosene at a rate of 6 cents/litre. These figures provide a benchmark by which the Chancellor should base his case for the tax. The EU has actively discussed an aviation fuel tax. Austria's finance minister, Karl-Heinz Grasser, believes that the tax could raise £12-14 billion annually, based upon the 2002 EU kerosene consumption of 60 billion litres and a tax of around 20p/litre. We believe that the tax must be introduced conservatively at first, enabling airlines to adapt to the changes more easily, and ensure the long term success of the scheme. We propose an initial rate of tax at 10p/litre, generating £6-7 billion a year. This has the advantage of allowing the rate to be increased at a later date if it is considered appropriate.

The most important impact of the tax may be as a precedent; the UK will demonstrate that such a tax can be imposed without harming the competitiveness of airlines, whilst also achieving its aims by reducing fuel consumption and the pollution it causes. With such success, the EU may act as a lead for other countries previously concerned about unilaterally imposing a similar tax, and encourage the adoption of air fuel taxes across the globe.

Sources:

1. Global Dimming on the Horizon programme
2. Speech by Caroline Lucas, MEP for the South East of England to the IATA Fuel Trade Meeting