Clearing the air on how we tax aviation fuels

“The fact that airlines pay no tax on fossil fuels in 2024 is indefensible on many levels. It’s incoherent with the climate challenge, it’s unfair to other sectors and the general public, and it sends the wrong market signals to industry. The first question – can governments legally tax aviation fuel – is answered in our paper. The second question is, will they be bold enough to do it?” David Kay, Legal Director, Opportunity Green

Background

Despite the growing recognition of the polluter pays principle – the idea that those responsible for emissions should also pay for them – aviation has slipped under the radar when it comes to taxation. Aviation fuel enjoys a privileged tax regime, in that it is not taxed at all. Many consider aviation fuel tax to be restricted under international law and international legal agreements, such as the Chicago Convention or Air Service Agreements.

New legal analysis from Opportunity Green, Clearing the air on how we tax aviation fuels, supported by expert legal opinion, shows that there are fewer legal obstacles to taxing aviation fuel than commonly thought. In fact, the decision not to tax aviation fuel is more likely a political rather than a legal one. 

Many countries could introduce an aviation fuel tax on flights relatively easily – it would only take one bold move to catalyse change. If the UK decided to tax fuel used on flights to the EU, for example, it’s likely the EU would reciprocate. That could potentially unlock the political debate in the EU about whether or not to tax international jet fuel more widely.

The scale of the problem

• Aviation is already responsible for 4% of global heating – and by 2050, could account for as much as 22% of global CO2 emissions. Yet, aviation fuel is not taxed.
• Meanwhile, petrol car users in the UK, for instance, pay around 50% of the final pump price in tax.
• Global aviation has increased from 310m passenger journeys in 1970 to 4.5bn passenger journeys in 2019. 

What’s covered in the report?

Opportunity Green’s latest legal analysis:

• Busts the myth that the 1944 Chicago Convention – the treaty establishing international air transport principles – prevents states from taxing international aviation fuel. In fact, it shows that states can tax the intake of aviation fuel by international aircraft under the Convention.
• Shows that the common fuel tax clause that fuel is exempt from tax “on the basis of reciprocity”, which is included in international agreements about air travel between states, does not prevent states from taxing aviation fuel.
• Explains that EU Member States can tax fuel for domestic flights and intra-EU flights where the relevant Member States agree.
• Outlines that at the date of this paper, EU Member States cannot generally impose fuel taxes on international flights outside of the EU, subject to certain exceptions.
• Highlights that following Brexit, the UK and EU can tax fuel used on flights between the UK and EU.  

A staggering 80% of the world’s population has never set foot on a plane, meanwhile 1% of the population is responsible for 50% of aviation emissions. A jet fuel tax could address this imbalance by redirecting revenues to countries that are most vulnerable to climate change. 

This presents a huge opportunity for creating new streams of revenue for governments as they face the climate emergency. Studies suggest untapped revenues of £6.7bn in the UK, and €11.6bn in the EU. This money could go a long way to contributing to loss and damage funds and making the aviation industry pay its fair share for contributing to the climate crisis, in line with the polluter pays principle. 

Learn more by downloading the legal briefing.