Commission likely to rebuff calls for tax on aviation fuel

Date: 18/02/1999

By Gareth Harding

THE art of taxation," wrote Louis XIV's Finance Minister Colbert, "consists of plucking the goose to get the most feathers with the least hissing."

Faced with the prospect of an EU-wide tax on aviation fuel, the airline industry has been making a lot of noise recently - and the European Commission appears to be listening.

In a report due out next month, the Commission is likely to recommend that the EU steps back from imposing a Union-wide kerosene tax as advocated by Germany, the Netherlands and a growing number of other member states.

However, Commission officials say they are not ruling out other charges in the future to stem the disturbing growth in aircraft emissions.

Although pollution from individual aircraft has dropped in recent years, this has been offset by the dramatic increase in air traffic. Since 1989, this has risen by more than 120% and is predicted to carry on growing at the rate of 5-6% per year over the next decade.

Apart from causing more noise and requiring more airports to be built, such levels of growth will lead to higher emissions of greenhouse gases, thus threatening the climate change commitments made by the EU at the Kyoto conference in November 1997.

The Commission is painfully aware of the environmental damage caused by aircraft. But it is equally aware of the fact that tackling the problem is fraught with difficulties.

Despite growing calls for the EU's tax exemption on aviation fuel to be lifted, the Commission has been reluctant to push this forward in the past because of its membership of the International Civil Aviation Organisation (ICAO), the body which regulates air traffic.

Never renowned for its progressive stance on environmental issues, the ICAO has always been fiercely opposed to taxing kerosene. At its last assembly in September, the United Nations body said such a charge offered the aviation industry "no guarantee of reasonableness nor equity" and warned that, if introduced, it would be "subject to the uncertainties of political pressures".

To stave off demands for urgent action, the organisation instead agreed to draw up a study on the economic effects of environmental charges on aircraft fuel in time for its next assembly in 2001.

This does not go far or fast enough for Germany, which has made getting agreement on an EU-wide aviation tax one of the priorities for its presidency of the Union.

But Bonn's hopes are likely to be dashed by the results of a recent study on the effects of such a tax drawn up for the Commission by a Dutch consultancy.

This non-binding report concluded that unilateral action by the EU to lift the exemption on aviation fuel would damage the airline industry's competitiveness, could run into legal difficulties with the ICAO and airlines, and would bring only limited environmental benefits.

If the Commission adopts these conclusions next month, the champagne corks will be popping in the offices of the Association for European Airlines, which has actively campaigned against the EU going it alone on kerosene taxes.

However, 'green' groups are unlikely to be celebrating. Frazer Goodwin of the Brussels-based organisation Transport and Environment insists there is "no reason why the aviation sector should have such a privileged position, when everyone else is subject to taxes".

With prospects of a unilateral aviation tax receding, Goodwin says the Commission should focus on other means of charging airline companies for the environmental damage they cause.

One idea which might gain greater support is to tax aircraft emissions rather than fuel. He argues that this would encourage better environmental standards by rewarding good practice and punishing bad.

Article forms part of a European Voice survey on taxation, p13-20.