2030 Climate Targets: What an EU Aviation Tax would mean for Europe

Considering emissions by sector is an essential perspective for countries to understand where emission reductions might be most impactful. With aviation standing as an energy intensive sector that currently lies exempt from fuel taxation, the EU aims to revise the Energy Taxation Directive to remove such exemptions and motivate the adoption of clean technologies. Successful implementation carries implications for airline sector capacity, with potential increase in fare prices and decrease in demand. For Europe, it would offer an overall reduction in emissions and a contribution to national income that can be reinvested in airline adoption of sustainable technology. 

Strategic Overview

In 2019 the European Green Deal reflected the EU prioritisation of environmental safeguarding, establishing the primary goal of climate neutrality by 2050 with net-zero greenhouse gas emissions, including interim targets of 55% reduction by 2030 and 90% reduction by 2040. Unlike most other energy intensive industries, aviation is currently exempt from taxation despite attempts to update minimum taxation rates and free allocation allowances. Ongoing revision of the Energy Taxation Directive aims to reform industrial environmental standards and motivate the adoption of clean technology. A stricter approach to intra-EU aviation emission allowances better aligns with European environmental standards and climate targets.  

Operational Context

EU Emissions Trading System: Since 2012, the ETS has governed emission levels from energy intensive industries. Significant progress has been made in motivating emissions reductions and promoting renewable energy, however the systems efficacy is hindered by free allocation (the distribution of permits to emit to certain companies at no cost), particularly within the aviation sector.

The Energy Taxation Directive Reform: The revision aims to align the taxation of energy products with EU energy and climate policies, promoting the adoption of clean technologies and the removal of outdated exemptions and reduced rates that currently encourage the use of fossil fuels, specifically for intra-EU air transport, maritime transport, and fishing.

Industry Opposition: Increase in taxation rates for fossil fuels and energy sources has received strong opposition from heavy industry sectors, previously resulting in less ambitious proposals but continued advocacy for taxation of maritime and aviation fuels. This comes with impacts on airline sector operations and capacity.  

Geopolitical Tensions

EU Priorities: The EU 2030 climate targets are a significant motivation for stricter policy approach with airline emission allowances under the Energy Taxation Directive and Emissions Trading System.

National Variation: The impact of an increased aviation tax on national GDP would vary in accordance with aviation’s contribution to national income and tourism industry dependency. Of EU member states, Germany and France receive the most flights, followed by Spain and Italy, although all EU countries report a rising number of air passenger transport, continuing the trend of airline recovery since the pandemic. 

Aviation Sector: Airlines challenge that taxation puts the aviation industries contribution to GDP and jobs at risk. Increased taxation on this sector would challenge airline capacity, with costs passed down to passengers, meaning the price of flight fare increases. Taxing aviation is likely to push rising European travel costs further as rising fares cause fluctuation in demand.

Strategic Outlook

Key Point: Despite airline lobbying, signs point towards the likelihood of an increasing tax on aviation. The EU places a heavy emphasis on prioritising the environment, as evidenced by its ambition of becoming the world’s first climate-neutral continent. 

Additional Considerations: T&E suggest that revenues raised by taxation should be partly reinvested in green technologies such as e-kerosene, to support airline capacity to comply with EU climate goals. Evidence also shows that long-distance air traffic is a primary contributor to aviation emissions; successful and permanent reduction of aviation emissions requires they be a key focus of decarbonisation measures.

Implications for Europe

Economic: Aviation taxation could contribute significantly to national revenue. The countries with the largest number of flights stand to earn the most from adequate aviation tax. Depending on national priorities, generated revenue could also be invested in needed areas, whether that be infrastructure, education, housing or other. 

• T&E finds that even minimum taxation of aviation fuel for domestic and intra-EU flights could generate approximately €9.5 billion in additional revenues each year. 
• T&E highlights the UK, France, Spain and Germany as the four European countries with the largest tax gaps. 

Environment: Taxing airlines would motivate the adoption and advancement of sustainable technology and the decarbonisation of air travel. With government support, airlines can maintain capacity while complying to environmental goals. Rising air passenger fares would decrease demand and disincentivise emptier flights, resulting in fewer flights along less popular routes. Overall, the reduction of CO₂ emission levels would have a positive impact of the environment, reducing the aviation sectors contribution to climate change and its effects. 

Global Influence: The decision to reform the Energy Taxation Directive with a focus on significantly taxing aviation in the EU would establish new environmental and industrial policy standards on a global scale.