ECONOMY

EU to target aviation in revamp of fossil-fuel levy

The EU is moving closer towards agreeing a tax on aviation as part of a wide-ranging revamp of fossil-fuel levies to help meet ambitious emissions goals. 

EU finance ministers meeting in Lisbon on Saturday expressed broad support for upcoming proposals for a Europe-wide tax on kerosene jet fuel used in aircraft, officials told the Financial Times. 

Brussels has struggled in previous years to extend its fuel taxation rules to areas such as aviation and maritime but the cause has been re-energised by the bloc’s commitment to reduce EU carbon emissions by 55 per cent over the next decade and net zero by 2050. 

The aviation industry, which has been battered by the pandemic, has previously expressed concerns about the plans for an EU kerosene tax. 

In July, the European Commission will propose a big overhaul of its energy taxation directive that sets minimum taxation rates for fossil fuels and has not been updated for nearly two decades. Agreement on the changes has been stymied by the need to win unanimous agreement from all 27 member states. 

Brussels has indicated it will extend the taxation rules to sectors such as aviation and maritime that have been exempt from the system. However, EU finance ministers expressed less support for the extension of the directive to shipping, with countries on the geographic periphery of Europe expressing concerns about the plans, said officials. 

The revamp of the energy taxation directive will be among the most politically sensitive parts of Brussels’ green deal agenda as every country effectively holds a veto on taxation policy. Valdis Dombrovskis, EU vice-president for the economy, said the directive was “outdated” and ministers expressed the “right political momentum to make changes”. 

João Leão, Portugal’s finance minister, who chaired the meeting, said his country backed the extension to the maritime and aviation sectors to help meet the EU’s ambitious environmental goals. 

Some EU countries have led the charge to end tax exemptions for jet fuels, with the Netherlands promising to introduce a national aviation tax in the absence of an EU-wide agreement.

Brussels’ revamp will also aim to root out exemptions provided by many member states to sectors such as agriculture, the coal industry, and for diesel. The commission is also considering a more stringent system where minimum fuel taxes are ramped up over a 10-year period, said an official. 

Energy taxes are one of the main regulatory tools Brussels can wield to help drive down emissions by making higher emissions technologies costlier for consumers and companies. The other significant carbon pricing initiative the commission wants to reform is the European Emissions Trading Scheme (ETS), which Brussels is also considering extending to cover shipping, aviation and cars.

During the discussion, some finance ministers voiced concerns about the imposing double charges on ships and airlines by including them in the ETS and the energy taxation rules revamp, said diplomats familiar with the discussion. 

The commission also presented ministers with its initial plan to introduce a carbon border levy that will tax imports into the EU based on their carbon footprint. The measure, which will be published in July, has raised alarm in countries such as Russia and Ukraine. Brussels has argued the levy is needed to protect the competitiveness of EU industry and avoid businesses being undercut by foreign companies that do not have to comply with emissions targets.

Dombrovskis said the border levy would only be introduced “gradually”, with its initial scope being limited to high emissions imports such as cement, steel, and fertilisers. “We are confident of having a consensus on a targeted carbon border adjustment proposal that is gradual over time,” he said.

@mehreenkhn



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