Europe Proposes Fuel Tax, SAF Quota, Tougher Offsetting Rules

Credit: Joe Pries

FRANKFURT—The European Commission (EC) is proposing sweeping new sustainability legislation for aviation that includes tighter rules for its emissions trading scheme (EU-ETS), quotas for sustainable aviation fuel (SAF) and a fuel tax for intra-European flights. 

While supporting the initiative in principle, industry bodies raised concerns about distorted competition and burdening airlines for the same emissions more than once, thus hurting them financially at a time when they need to invest in future technologies more than ever.

The proposals are part of a much broader climate initiative called “Fit for 55,” itself part of the European Green Deal. Fit for 55 aims to reduce greenhouse gas emissions inside the European Union by 55% compared to 1990 levels and is an interim step on the road to reaching carbon neutrality by 2050. The legislation includes a complex, detailed set of measures across various industries, such as a ban on fossil fuel-powered new cars from 2035. 

It is subject to negotiations with the 27 EU member states that have to adopt the package and its elements. Therefore, the final rules are likely subject to substantial change and are years away.

“The aviation sector is particularly difficult to decarbonize due to its exclusive reliance on fossil energy, the limited technological options available for reducing its emissions and the long lifespan of aircraft,” the EC wrote. “New zero emission aircraft technologies such as electric- or hydrogen-powered aircraft are promising but not expected to be mature soon enough to play a significant role in commercial aviation in the next decades. Because aviation needs to address its carbon footprint already by 2030, the role of sustainable aviation liquid fuels will be essential.” The EC expects SAF use and offsets to contribute 75% to emissions savings by 2050.

The EC described three scenarios for the SAF rollout needed to reach its long-term climate targets. According to its medium scenario, SAF would have to reach a 5% share of total consumption by 2030 and 63% by 2050. Another scenario assumes a slower start at 4% in 2030 that has to be made up for by a higher share in 2050 (68%). A third possible roadmap is for 8% in 2030 and 63% in 2050. The regulation includes a sub-mandate for synthetic fuels reaching 0.7% in 2030 and 28% in 2050.

Also, the EC is proposing that “energy products and electricity” for intra-European flights “should be taxed.” In order to ensure a “smooth implementation,” the EC says that the minimum level of taxation for motor fuel use would be reached over a transitional period of 10 years. SAF and electricity would have a tax rate of zero for 10 years. Cargo-only flights are to be exempt from fuel taxation, although member states can decide to impose it anyway on domestic flights, or if bilateral or multilateral agreements with other EU countries can be reached. Flights to and from destinations outside of the EU are exempt.

Separately, the EC wants to phase out free-emission allowances for aviation over time and align that with the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). “As airlines increase their use of SAF in the years to come as a consequence of ReFuelEU Aviation, this means that the volume of allowances needed by the aviation sector will decrease over time,” the EC argued.

According to the proposals, the current level of free allowances will be cut by 25% annually starting in 2024, thus eliminating them completely by 2027.

Reactions to the proposals are predictably mixed. Airlines for Europe (A4E) stated that the package “will significantly impact European airlines in the years to come.” A4E pointed out that the airlines already have their own targets in line with the Paris Agreement.

“The proposals unveiled today will have a transformative impact on the sector,” A4E MD Thomas Reynaert said. “We reaffirm our position, however, that climate policy regulation can be ecologically and economically counterproductive. Badly designed European taxes will not reduce emissions. By making flying more expensive, it may shift demand globally and reduce traffic locally. But it will not tackle the source of the emissions,” Reynaert warned.

He demanded that “we need to invest in solutions that offer real reductions in CO2 emissions per aircraft. Increasing costs reduces our capacity to make these investments while CO2 emissions are potentially shifted to other regions.”

IATA DG Willie Walsh stated that “aviation is committed to decarbonization as a global industry. We don’t need persuading or punitive measures like taxes to motivate change. In fact, taxes siphon money from the industry that could support emissions-reducing investments in fleet renewal and clean technologies. To reduce emissions, we need governments to implement a constructive policy framework that, most immediately, focuses on production incentives for SAF and delivering the Single European Sky.”

“Axing jet fuel’s tax exemption in Europe is a vital step towards ending decades of subsidized pollution, which even included fuel for private jets,” Transport & Environment aviation director Andrew Murphy said. “But by not removing the tax exemption for flights outside of the EU, it still lets the majority off the hook.”

Murphy welcomed the suggestion that “the aviation industry will be required to start using greener fuels on all European routes, which unlike the other proposals includes the long-haul flights that cause the most emissions. Setting a sub-target for e-kerosene is crucial as it is the only green fuel with the potential to be scaled up to meet the sector’s demands. However, that target should be set even higher, to really drive down emissions from flying.”

Jens Flottau

Based in Frankfurt, Germany, Jens is executive editor and leads Aviation Week Network’s global team of journalists covering commercial aviation.