ESRI: Airline emissions best tackled by taxes on fuel, not passenger levy 

The ESRI has said an EU-wide tax on jet fuel, rather than the re-introduction of passenger taxes, would be most effective in lowering aviation-related carbon emissions.

Taxing jet fuel would be the best way to lower airline-related carbon emissions, rather than imposing a passenger tax and charging Vat on flights, the Economic and Social Research Institute (ESRI) has advised.

In relation to climate action, the ESRI said the most effective, and cost-effective, uses of taxation are those which target C02 directly. 

In this regard, it said taxing kerosene fuel and charging airlines to purchase emissions allowances to cover their emissions would lead to the greatest emissions reductions at the lowest cost to the Irish aviation industry and the economy.

It said other measures, such as imposing a passenger tax or charging Vat on flights, as other countries do, would be costly to the airlines and the economy.

Need for action

Ireland is targeting net-zero emission status by 2050. The recent Cop26 negotiations highlighted the need for action to be taken in all industries. Since 2005, air passenger numbers have increased 60% across the EU, with aviation emissions surging.

The European Commission has proposed a taxation on kerosene fuel and the ESRI said removing free emissions allowances from the EU Emissions Trading System (ETS) is also key.

“There is increasing commitment to decrease the EU’s aviation emissions and we can expect increasing taxation on aviation. However, even if the recently proposed EU policies come into force, impacts on the emission reduction will be small without an increase in the ETS price,” said the ESRI’s Kelly de Bruin.

“Taking further policy actions, on the other hand, such as a passenger tax, would be harder in the short run due to the harsh impacts of the Covid-19 crisis on the industry and less cost-effective. 

"In the case of Ireland, as a small island state, the lack of substitutes for aviation requires in-depth considerations of further policy actions,” she said.

The ESRI said all forms of taxation lead to an increase in the price of aviation and result in a decrease in demand and decreased economic activity.

However, it said the spillover effects to other economic sectors, most notably tourism, would be limited if aviation is taxed directly, such as on jet fuel, rather than indirectly through a re-introduction of controversial passenger taxes.

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