Taxation and Charges
Taxes and charges can, independently or complementary to other measures, contribute to reducing the environmental impact of the aviation sector. Currently, fuel used for international aviation is generally exempt from taxation due to a multitude of bilateral air service agreements (ASAs) established between countries over the past 70 years. By some estimates, the exemption totals some $65 billion each year.
This exemption undermines the ability of aviation of grow sustainably. By artificially lowering the price of fuel in this manner, it reduces incentives for manufacturers to make substantial investments in newer, more efficient aircraft. It also reduces the rationale for operators to purchase newer aircraft over leasing older, less fuel efficient aircraft. Above all, the tax exemption acts as an effective subsidy to airlines, reducing overheads and fares. Cheaper airfares increases demand which in turn increases emissions.
Fuel taxation can be introduced at the global, regional, national, or local level. Properly crafted, it would create the long-term certainty necessary to ensure investment in low-carbon technology while possibly providing revenue to assist the sector in adapting to climate change. In order to be introduced most effectively, many ASAs may have to be renegotiated.
Charges seek to recover the environmental cost of providing services, with the added benefit of incentivizing the take up of new technology. Some airports currently structure charges based on the environmental impact of planes servicing them. These charges reward operators that use aircraft with the lowest environmental impact – a model that should be expanded further – while potentially contributing to the funding efforts to mitigate the environmental impacts of aviation.