View from Brussels: Jet fuel on EU’s tax radar

Kerosene enjoys tax-free status in Europe but the chances of jet fuel continuing to enjoy a free ride look slimmer by the day, as rulemakers are poised to review how energy is taxed.

Jet fuel’s enviable exemption from taxation dates back to the mid-1940s and the Chicago Convention, an international agreement set up to promote civil aviation. Politics and vested interests have prevented any major updates to the deal ever since.

As the European Commission – the EU’s executive branch – mulls how to review all the bloc’s energy and climate laws to promote more emission cuts over the coming decade, kerosene’s free ride is standing out more and more as an inexplicable anomaly.

The forthcoming rule changes will include shipping in emissions trading for the first time, slap a carbon price on fuel providers and aim to increase renewable power capacity. Those sectors are eyeing aviation and asking themselves why air travel is not on the radar.

That is why the climate update will propose changes to the energy taxation directive, a rulebook that has not been reviewed for nearly two decades and which most observers say is extremely out of date and not fit for purpose.

According to officials charged with drafting the revision, kerosene’s exemption will be subject to a gradual phaseout starting in 2023 and will be fully scrapped by 2031, in order to give airlines time to adapt to the new costs.

Irish MEP Ciaran Cuffe, a member of the Greens, says that “the tax rate needs to be set at a rate that will incentivise decarbonisation and must come into force immediately if we are to tackle emissions”.

Cuffe criticised the Commission’s plan to kick off the common tax rate at 0 per cent and only gradually phase in the waiver. The final document is still subject to change and could be amended before it is published on 14 July.

The devil will be in the detail, as the directive review is also on track to maintain the exemption for cargo operators and private jet owners.

Stay Grounded Network, an NGO dedicated to reducing the number of flights to reduce absolute emissions from the sector, called that prospect “unacceptable”.

“Private jet flights are the definition of luxury – they should not be exempt from jet fuel tax, but pay a higher rate than normal flights,” the group said in a statement about details that were leaked to the press.

Once the Commission has published its proposal, it will be up to the European Council of EU members and the European Parliament to hammer out a compromise on the law. This process could take up to two years depending on how much common ground there is.

Taxation falls fully into the national domain of politics so sweeping changes to the directive will need unanimous approval, a tough ask in the current climate of divisions between the 27 member countries.

However, minimum tax rates can be set and agreed by a qualified majority of countries instead, a fact the Commission is counting on to get its way. The EU executive could also decide that the issue is purely about environmental protection and opt to broker a deal using majority voting as a last resort.

Kerosene’s tax-status is not the only issue directly affecting aviation to look out for in the 14 July update: there is also the question of a sustainable fuels mandate the Commission wants to set up and emissions trading.

Currently, airlines get a chunk of free pollution permits that they can use to offset their emissions and avoid paying charges under the EU’s carbon market. This may also be scrapped or phased out to help boost train travel over short-haul flights.

To continue torturing the aviation metaphors: this particular batch of EU rule changes is still parked at the gate waiting to depart, it will be a long takeoff and flight, followed probably by a very bumpy landing. Best buckle up now.

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