New legal analysis clears the air on widespread myths about the legal obstacles to taxing aviation fuels  

(London, 11 November, 2024) New legal analysis from environmental NGO Opportunity Green, ‘Clearing the air on how we tax aviation fuels’, supported by an expert legal opinion, shows that there are fewer legal obstacles to taxing aviation fuel than commonly thought and the decision not to tax aviation fuel is more likely a political one, rather than a legal one. 

Aviation is already responsible for 4% of global heating – and by 2050, could be responsible for as much as 22% of global CO2 emissions. And yet, aviation has a privileged tax regime whereby international jet fuel is generally exempt from paying tax. This not only flies in the face of the ‘polluter pays principle’ which says that those that cause pollution should pay for the damage it causes, it is also unfair when compared to other sectors that use fossil fuels – users of petrol cars in the UK, for example, pay around 50% of the final pump price in tax.

Some politicians and industry members rely on legal arguments to defend this situation – often pointing to restrictions under international law and international legal agreements like the Chicago Convention or Air Service Agreements as the key reason why such exemption is in place. But new legal analysis from Opportunity Green clears the air on how we tax aviation fuels and shows these arguments are often myths or misunderstandings – it is, in fact, much easier to tax aviation fuel than commonly acknowledged.

The report concludes that internationally there is likely far more freedom to introduce aviation fuel tax than has been generally acknowledged. This paper demonstrates that the decision not to tax aviation fuel is on the whole a political decision, rather than a response to a legal restriction, and many countries could likely introduce an aviation fuel tax on flights relatively easily. It would only take one bold move for all this to unravel. If the UK decided to tax fuel used on flights to the EU, for example, it is likely the EU would reciprocate, and that could potentially unlock the deadlocked political debate in the EU about whether or not to tax international jet fuel more widely.

Opportunity Green’s new report:  

• Busts the myth that the Chicago Convention – the treaty establishing international air transport principles – prevents states from taxing international aviation fuel 

• Shows that the common fuel tax clause which is included in international agreements about air travel between states – that fuel is exempt from tax ‘on the basis of reciprocity’ – 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 

• Shows that following Brexit, the UK and EU can tax fuel used on flights between the UK and EU.  

David Kay, Legal Director at Opportunity Green and author of the report says:

“When a worker fills up their car during their commute in the UK or EU, they pay more tax on petrol than an international airline does when filling up a plane with jet fuel. In fact, the airline pays no tax. This is an incredibly unjust situation, but it also presents a huge missed opportunity for untapped financial flows that could be instrumental for driving the green transition.”

A staggering 80% of the world’s population have 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 the countries most vulnerable to climate change.

Taxing aviation fuel could present a huge opportunity for creating new streams of revenue for governments as they face the climate emergency. Studies suggest untapped revenues of £6.7 billion in the UK, and €11.6 billion in the EU – money that 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. To put these figures into perspective, at COP28 the new Loss and Damage Fund was filled with just $900 million, 0.2% of the roughly $400 billion estimated to be needed.

David Kay concludes:

“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?”

ENDS

Notes to editors

The full report, Clearing the air on how we tax aviation fuels, is available to read here.

External expert legal opinion was provided by Estelle Dehon KC and Dr Lois Lane of Cornerstone Barristers.

The Chicago Convention is the international treaty concerned with international aviation. There is no legal requirement to exempt international aircraft refuelling in a state from fuel tax under the Chicago Convention. The Chicago Convention only exempts from tax fuel which was already on board an aircraft on arrival in a contracting state and remains on board the same aircraft on departure from that contracting state.

Air Services Agreements are international agreements which refer to bilateral or multilateral agreements between states governing air transport. There are several thousand Air Services Agreements worldwide, and the only comprehensive database of these of which we are aware is held by the International Civil Aviation Organization (ICAO) behind a paywall of $3,500-4,000.

In the EU, fuel used in international flights is exempt from tax under the Energy Taxation Directive, however fuel used for international flights between EU Member States can be taxed with the agreement of the relevant Member States – an option no EU states have taken up. The European Commission recognises the inconsistency of the tax exemption with EU climate policy, and a proposal to remove the exemption has been on the table since 2021 (and was due to enter into force at the beginning of 2023). This is under threat, with recent reports suggesting the EU is considering extending the exemption until mid-century.

The EU law is not absolute, however. The EU/UK Trade and Cooperation Agreement explicitly permits the taxation of jet fuel used for flights between the EU and the UK. As an international treaty, the Trade and Cooperation Agreement takes legal precedence over the Energy Taxation Directive and jet fuel for UK-EU flights can therefore legally be taxed.