Why Europe’s climate program for airlines is not a tax

By Annie Petsonk, International Counsel, and Adam Peltz, Legal Fellow

As the European Union gets closer to implementing a law to control greenhouse gas emissions from aviation, U.S. airlines are stepping up their efforts to mischaracterize and undermine the program by calling it a “tax” instead of what it really is – a market-based cap on pollution that lets them find the best and cheapest way to reduce emissions.

Adding "winglets" and other structural modifications to planes can improve flight efficiency and help airlines comply with Europe's law to reduce emissions from the rapidly growing aviation sector. (Thanks and photo credit to Flickr user Bow's Photography.)

It’s no surprise. It’s the same tactic some in industry used to mischaracterize climate change legislation in the U.S. during the last Congress, and they’re doing it again to undermine Europe's efforts.

The aviation sector today emits about as much climate pollution as all of the United Kingdom, and that amount is projected to quadruple by 2050. There will be a cost to reducing those emissions. But just because something has a cost, that does not make it a tax.

  • The EU law puts a quantity limit, or cap, on the total amount of climate pollution of all flights landing at or taking off from EU airports. Every company whose planes land at or take off from airports in Europe has to ensure that at the end of each year, the amount of pollution of its planes is less than the amount of its cap. It's that simple.
  • The EU could have slapped a tax on air travel in order to drive up the price and therefore reduce demand for air travel as a means of cutting down aviation pollution. But this law doesn't do that.
  • The EU could have required the airlines to install particular pollution control technologies. But the law doesn't do that either.

Importantly, the EU law also gives airlines very broad flexibility to decide how to meet their caps.  Airlines have wide latitude to choose among many competing strategies, and the competition among the strategies to deliver the most cost-effective emissions reductions help drive down the costs of all of them.

To meet their caps, airlines can make practical changes in their operations, such as:

  • Using gradual "continuous ascent" and "continuous descent", which saves a lot of fuel, instead of today's steep, fuel-guzzling climb-ups and climb-downs.
  • Using climate-friendlier fuels like sustainably produced biofuels.
  • Putting modern, high-efficiency engines on existing planes.
  • Adding "winglets" and other structural modifications to planes to improve flight efficiency.
  • Buying or leasing new, more fuel-efficient planes.
  • Purchasing pollution credits from a wide array of projects in different countries that reduce emissions outside the aviation sector, or purchasing emissions allowances from the EU.

Why do the airlines want the EU law called a tax? Because they don't like the law, and they want to argue that they shouldn't be subject to more taxes. It's inaccurate and wrong for the airlines to label the program as a tax on aviation emissions.

The EU chose a cap, rather than a tax, as the most efficient and cost-effective way to reduce aviation emissions. Don’t let the airlines fool you: the EU Aviation Directive is a cap, not a tax.

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3 Comments

  1. cykj
    Posted February 13, 2012 at 7:38 pm | Permalink

    Cap, Tax, Fee, whatever you call it in the end it's a rise in price for consumers.
    Do the fees they collect end up in the hands of government? That's a tax by another name.
    You don't think the cap will increase prices for air travel? Right…
    Any of those "practical changes" listed above will increase the operating costs somehow (perhaps with the exception of more fuel efficient engines/planes in the long term) and increased costs always translate to higher prices for the consumer. It's not to say that it's a bad idea to have this cap/tax in place. It does give the airlines flexibility in how to conform to the new regulations (which regulates results not the process). For the end-consumer, it'll still result in an increase in prices, however "cost-effective" it may be.

    • trey
      Posted February 20, 2012 at 5:37 pm | Permalink

      Hi cykj

      You're right about the rise in price for consumers, but this is the planet we're talking about here. Whether they put a cap or tax on it, it will still reduce emissions at the end of the day. Have you ever deeply thought about the pros and cons of a tax or cap on emissions? I wrote a blog on the topic at http://zacharytrey.blogspot.com/ and would like your input if you don't mind. Thanks!

      Trey F
      ztfinegan@yahoo.com
      The Green Room at Ohio University

  2. jeremybirch
    Posted February 14, 2012 at 9:02 am | Permalink

    The money paid for permits goes to other permit holders who have managed to cut their emissions and thus have spare permits. It does not go to a government. This is a "cap and trade" system ie a limit is set and permits to pollute to that limit are issued – in this case the vast majority of them for free. A company must have permits to cover its emissions, if it has not received enough of these for free then it needs to buy more from other permit holders. So if company A needs and extra 1000 permits, and company B has 1000 permits it does not need because it has managed to cut its emissions below the level that it receives permits for, then company B can sell them to company A. As there are many companies in this market (in the steel, cement, power generation and now airline industries) this means there is a market in the permits with a quoted price set by the market. This system has been used to try to find the most cost effective way to cut emissions below the cap, and the members of the market can use revenue from selling permits to other members to fund the necessary changes.
    Reducing emissions mostly comes from reducing fuel usage. If this is by being more efficient (rather than flying less) then this actually saves a significant amount of money on fuel – and the cost of buying permits is an extra incentive to make the necessary capital investment to make those fuel savings. Potentially a company that concentrated on becoming more fuel efficient could be a net financial winner.
    The airlines, IATA and ICAO have spent 20 years trying to avoid any form of constraint upon their emissions – the ETS is being introduced because of this intransigence.

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