EU targets airlines in major climate policy shakeup

Airlines may lose a tax break on jet fuel that has drawn fire from environmentalists, while having to use more non-petroleum alternatives and pay a bigger emissions bill, under major proposals to make Europe the “first climate-neutral continent”.

Proposals issued after intense last-minute negotiations inside the EU’s Brussels headquarters called for a progressive introduction of taxes on fuels for flights within the 27-nation bloc, which currently escape EU-wide levies.

Climate groups have long criticised the existing tax exemption, while airlines have lobbied to keep it and say badly designed taxes will not cut emissions.

Under the plans, which must be agreed by EU nations, jet fuel would be taxed in line with other transport sectors, following a phased introduction over 10 years to allow the aviation sector to recover from the impact of the COVID-19 crisis.

A separate proposal would force suppliers to blend a minimum of 2% of sustainable aviation fuel (SAF) into their kerosene from 2025, rising to 5% in 2030 and 63% in 2050.

SAF includes bio-based fuels obtained from recycled waste such as used cooking oil or other non-oil sources and – on a much smaller scale so far – hydrogen-based synthetic or e-fuels.

A portion of the total binding target for SAF – 0.7% in 2030 rising to 28% in 2050 – would be reserved for the novel e-fuels, which are currently scarce and costly compared to kerosene.

Parallel restrictions would limit a practice that allows airlines to fly in cheaper fuel from elsewhere for the return trip – a process known as “tankering” – meaning the new SAF quota on suppliers would more easily translate into use by airlines.

In a separate bid to overhaul the EU’s carbon market, the Commission proposed phasing out free CO2 permits by 2026 for airlines whose flights within Europe are covered by the scheme.

That would force carriers to pay more for their emissions, a cost that may be passed on to consumers through higher fares.

Brussels gives carriers most of the CO2 permits they need to comply with the carbon market for free, capping their exposure to the price of the permits, which has hit record highs of above 58 euros per tonne of CO2 this year.

NEGOTIATIONS AHEAD

Taken together, the measures would force airlines in Europe to pay a higher price for their emissions and kickstart a market for green jet fuels, which are prohibitively expensive and, as a result, make up less than 1% of jet fuel consumption.

Airlines, which have set out their own 2050 decarbonisation roadmap, reiterated calls for a pact with policymakers in an implicit appeal for government support to help meet the targets.

A4E, which represents major European carriers, said the EU’s “Fit for 55” policies threatened the competitiveness of airlines and the tourism industry and warned airlines could end up paying twice for emissions through overlapping measures.

Global airlines body IATA said the EU tax proposal would be counter-productive.

Environmental groups, by contrast, say the EU could do more on items like fuel taxes, which will remain limited to intra-EU flights, and the promotion of the cleanest e-fuels.

“They are making up for decades of inaction to regulate aviation emissions, but don’t go far enough,” said Andrew Murphy, aviation director at Transport & Environment.

Most of the policies will need to be negotiated and approved by a majority of the EU’s 27 countries and the European Parliament, which could take up to two years.

EU tax changes need unanimous approval from EU governments – a daunting political threshold since each country has a veto.

Analysts say decarbonising aviation is more complex than most other modes of transport, since radical new technology is not expected this decade except for the smallest planes, increasing dependence on biofuel and other measures.

Brussels says every sector of the economy must contribute.

By Kate Abnett & Tim Hepher www.reuters.com