The EU Airline Carbon Emission Tax: Bold or Damaging?

By Thomas Aitchison, Transatlantic Community Analyst

As of the 1st January 2012, the EU took a bold and daring step introducing the Emission Trading Scheme (ETS) to airlines forcing airlines landing or taking off in Europe to offset their carbon emissions by trading carbon permits in the ETS. This move has angered many nations who have threatened retaliation. However, this ‘tax’ solves the problem all environmental policies have, which is free loading. Through this ‘tax’, the EU has found the best way the world can collectively tackle the global problem of climate change. Europe has once again shown itself to be the leader in environmental policies and in doing so forced others into acting.

The airline industry currently pays no tax on its fuels or emissions as they are an international entity, and as such there is no global government to impose taxes. Yet, the airline industry is one of the fastest growing emitters of CO2, increasing by 98% between 1990 and 2006, with the UN predicting it will rise by a further 63% by 2020. Aviation emissions may seem marginal, circa 3%, but if the airline industry was a nation it would be the seventh largest emitter in the world. The EU sees aviation as getting off lightly, ‘it argues that because no global agreement on emissions reduction from aircraft is in place, it has the right to take the first step’.


The ‘tax’ works by forcing airlines to reduce their CO2 emissions by 5%. Each airline requires a permit for each ton of CO2 they emit. Most of these permits will be given to airline for free. However, airlines will still need a number of permits to conduct flights. Thus, airlines have to enter into the EU ETS to trade permits to amass enough to fly to Europe. The EU ETS is not just a market for airlines but also for a range of industries. The vision is that airlines will exceed their CO2 targets, thus reducing the cost to fly to Europe, but also making a profit in the ETS.


Although the exact costs are unknown rough estimates for a round trip flight between the US and Europe are an extra $30 per passenger. Moreover, a recent study suggests that airlines are more likely to profit than make a loss. Airline charges a would be a flat fee which would not account for fluctuating flight time, permit surplus or the price of fuel, thus ‘airlines are setting themselves up to make a killing’.


Although this is the first carbon tax, it is not the first travel charge. Therefore, the criticism that it will reduce the amount of travelers is not only exaggerated but hypocritical. In 2010, the US introduced the ESTA a $14 charge for all incoming and transferring flights. China has a travel visa requirement which costs between $30 and $160. Russia, charges airlines a fee for flying through its airspace which is estimated to cost Europe €300 million annually. Therefore, how can the US, China and Russia, three of the biggest and most vocal opponents, justify their own fees but claim an EU ‘tax’ is detrimental to travel?


The EU tax is more than the environmental benefits; it is about changing the way nations and industries think. The threat by external nations to impose CO2 counter-taxes on EU aircraft is encouraged by the EU. The EU views any CO2 counter-tax as a success as they have forced other nations to be environmentally proactive, by setting the agenda. ‘Countries that choose to take similar action at home will be able to [be] excluded from the E.U. program […] there is no need to control the same pollution twice’. However, non-CO2 taxes placed on EU flights will be seen as spiteful and result in increased tensions.


The biggest concern is that the airline ‘tax’ will invoke trade wars, whereby nations penalize one another hoping to achieve concessions. China threatened to cancel a Hong Kong Airlines contract with Airbus worth $3.8 billion, but eventually backed down. It is yet to be seen if any other trade is affected by this tax but it is an area of concern.


Those that oppose the ‘tax’ argue that it restricts the Freedom of the Air agreements. The Air Transport Association argues that it is unfair to charge for the whole flight as most CO2 emissions would be released outside of EU airspace. Yet, this misses the point, it is not about improving European air quality, but tackling the problem of the aviation industry, which is bigger than just the EU.


The initiative also hopes to change the priorities of aviation manufacturers when designing new aircraft. Boeing’s Dreamliner ‘will have a carbon footprint that is 20 percent smaller than similarly-sized aircraft’. Airbus in response to Boeing’s green Dreamliner, which has been immensely popular for its fuel efficiency, are in the process of building a greener aircraft too. Some have argued that this would have happened anyway, and that may be true, but it would not have happened fast enough. Standard and Poors argue that carbon emissions will increase quicker than the industry can improve their fuel efficiency; as such the EU is trying to close that gap.


The EU’s initiative was forced by slow progress internationally compared to fast growing aviation emissions. The International Civil Aviation Organization (ICAO) has tried to cut carbon emissions in the past but has failed. The EU hopes that in the meantime, whilst the ICAO is looking for a global solution, it’s ‘tax’ system can maintain pressure on the ICAO whilst also cutting carbon emissions.


It is shortsighted to see the EU airline tax as a green greedy tax. Instead, Europe is educating the world about collective responsibility and forcing its hand to deal with an international issue equally. The EU has always been the leader when it comes to green issues, but this time it is not just forcing the world to sit up and watch, but instead it is forcing the world to take part.

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