Brussels will set out plans this week to increase taxes on polluting fuels and introduce an EU-wide levy on aviation kerosene for the first time, under measures intended to put it at the forefront of global efforts to reduce carbon emissions.
The European Commission will propose a revamp of its 15-year-old rule book on carbon taxes to provide an incentive for low-emissions fuel and impose levies on heavily polluting energy used in the airline and shipping industry. The measure is one of a dozen policies to be unveiled on Wednesday to ensure the EU can meet a goal of reducing average carbon emissions by 55 per cent by 2030. Others include an extension of the EU’s emissions trading scheme, tougher CO2 rules for cars and a carbon levy on some imports.
A draft legal text of the energy taxation directive, seen by the Financial Times, proposes gradually increasing minimum rates on the most polluting fuels such as petrol, diesel and kerosene used as jet-fuel over a period of 10 years. Zero-emissions fuels, green hydrogen and sustainable aviation fuels will face no levies for a decade under the proposed system.
The “Fit for 55” package puts the EU at the vanguard of decarbonisation efforts but the proposals risk a backlash from some governments and the public.
Introducing environmental taxes is likely to be among the most politically sensitive measures in the commission’s plans. Unlike most of Brussels’ new green policies, updating the energy taxation directive will require unanimous backing from the EU’s 27 member states to become a reality.
Paolo Gentiloni, Brussels economics commissioner, has called the reform a “now or never moment”.
“Paradoxically, [the current energy taxation directive] is incentivising fossil fuels and not environmentally friendly fuels. We have to change this”, Gentiloni said at a meeting of G20 finance ministers this weekend.
The EU’s energy taxation rules date back to 2006 and have created a system that “favours fossil fuel use” owing to a series of exemptions and loopholes for dirty energy across different member states, according to the text. The directive is designed to set a series of minimum tax rates for energy products across the bloc.
One of the big changes being proposed is an end to exemptions for heavily polluting fuels such as kerosene used in aviation. The draft says jet fuel used in intra-EU flights should be subject to a new minimum rate of taxation, the details of which have not yet been decided, said officials. The rules should, however, exempt cargo-only flights, and apply lower rates for non-commercial flights, according to the draft.
Although a kerosene tax has been welcomed by many EU countries, it has sparked resistance from the aviation industry. Brussels is also planning to phase out free carbon credits provided to the sector under its ETS. Along with the taxation rules, the phase out of free allowances would significantly increase the pressure on aviation to reduce its emissions or pay for polluting.
The draft says gradually increasing minimum taxes during a ten-year transition would help avoid the problem of “double taxation” for the maritime and aviation industries which risk being subject to two forms of CO2 pricing.
Airline group A4E has said new carbon taxes for the sector are “ecologically and economically counterproductive” and that market-based carbon pricing should be the only main form of CO2 pricing placed on the industry.
“An intra-EU kerosene tax could lead to a competitive distortion within Europe’s internal market and globally,” said A4E. “A possible kerosene tax that would set minimum tax rates for intra-EU flights is likely to have the most negative impact, as it may open the door to different rates inside the single market.”