As thousands of Extinction Rebellion protesters marched on London City Airport and super-glued their bottoms to the floor of the airport rail station earlier this month, a quieter environmental show was taking place in Denmark. Together with other members of the aviation industry, Copenhagen Airport and SAS Airlines offered to raise a new tax of $2-3 per departing passenger to fund environmental research. While not widely covered in the international press, it was remarkable nonetheless because it highlights one of the central questions facing the aviation climate debate: what’s the purpose of the tax?
Over the past year, the volume of talk about aviation and the environment has risen from a murmur in the shadows to a loud debate in the public square. “Flight-shaming” gained ground this year – and could cost airlines billions, according to Citi. Elsewhere in Scandinavia, at least, 20% of Swedish travelers surveyed claimed to have reduced the number of flights they have taken in deference to the environment.
Climate Change Camp Protest, August 19, 2007
Creative Commons
The recent Danish tax proposal is notable in two ways: for one, it appears to have been initiated by industry, rather than by government despite the fact that airlines and airports have firmly opposed new taxation, green or otherwise, until now. Even more important, the Danish plan directs the funds it raises specifically toward environmental R&D.
Many countries have introduced some form of “eco-tax” on aviation, but virtually none has ring-fenced the funds raised. For example, the French government said that its new éco-contribution will be invested in other forms of transport, but there does not appear to be a formal mechanism tying the two. In seven other European countries, taxes of 3-14% may be described as eco-taxes. But are they really? Regardless of the language, these aviation taxes go to the general fund and may never make it back to the industry’s pockets or environmental projects.
Every kind of tax makes some kind of social impact. Some taxes effectively redistribute income, some taxes reward good behavior and some taxes aim to penalize individuals for the negative effects their behavior has on others. In Europe, passenger taxes have frequently been mooted as a way to mitigate aviation’s impact on climate change. If that is the objective, then aviation eco-taxes may need to take a different form.
To manage emissions from aviation, a tax approach would either need to counter the effects of aviation carbon or cut the industry’s total output, presumably by reducing demand for air travel. To be sure, any tax on aviation dampens demand for flying somewhat: air travel is a normal good, after all, and customers respond to higher prices by flying less. The question in this case, however, is one of degree.
Analysis conducted for an upcoming report by my ICF colleagues, Dan Galpin and Flurin Mehr, suggests that achieving carbon-neutral growth of air travel would require more than a 1-14% ticket tax. For an example, look to the “sin” taxes that many governments imposed on cigarettes starting in the 1990s . Today, cigarette taxes in most of Europe and many other developed countries are in the range of 60-80% of the retail price. By some estimates, every 10% increase in the price of cigarettes reduces smoking by 4-8%.
In practice, the relationship is not linear. As prices rose to transform a pack of cigarettes from a casual purchase into a serious budget item, there were inflection points in behavior change. In turn, robust public health messaging, including gruesome photos on cigarette packages and bans on smoking indoors, helped shift public opinion.
Another useful example is the tax on motor vehicle fuel. Whereas fuel tax averages 19% in the US (depending on the state), it is 45% in the UK. This differential has more or less persisted for decades, during which time consumers in the UK have consistently chosen vehicles that averaged about 30% better fuel efficiency than vehicles in the US.
In both of these examples, the kinds of consumer taxes that changed behavior were in the neighborhood of 50% of the retail price or more. Another way to look at it is that cigarette taxes and the UK’s higher petrol tax hit consumer pocketbooks by over $1,000 per year. With median after-tax household incomes of $38,000 (UK) to $45,000 (US), expenditures north of $1,000 catch consumers’ attention.
By contrast, ticket taxes of 3-14% are not there yet. For the 27% of Americans or the 38% of Britons who take between 1 and 3 air trips per year (roughly half of Americans and Britons do not fly at all in most years), ticket taxes that total $100-200 for the year are meaningful, but not sufficient to change behavior. On top of the tax, in many cases, there are not many good alternatives to flying. Whereas the smaller car that saves you money on gas tax gets you where you are going just as fast, the substitute for a plane ticket can be a time-consuming journey.
Does that mean that governments should be looking at higher taxes on aviation to reduce emissions? Unfortunately, the solution is not so simple. Unlike cigarettes, which we can live without, aviation underpins major sectors of the global economy and society. Analysis commissioned by the Air Transport Action Group, an industry association focused on promoting sustainable aviation growth, puts the economic impact of aviation at close to 8% of global GDP, with 25% of all companies’ sales dependent on air transport. It is likely much higher. For the economy, restricting access to air travel is a lot more like rationing oxygen than it is like cutting off nicotine.
Truth is, there is no one-trick solution to managing aviation and the environment. In order to minimize “Flight-shaming” and maximize social impact, the global aviation industry needs to do a better job explaining measures they are taking and exactly how they have halved emissions per passenger mile in recent decades (according to ICF analysis comparing Boeing 737-800 in 2017 compared to DC-10 in 1990, flying from Boston to Los Angeles). This is especially important because companies’ green credentials will become an increasingly significant factor in consumer choice, and the most progressive will benefit from a competitive advantage.
On the other hand, consumers need to become part of the solution. They should be able to select flights with lower emissions and pay taxes accordingly, for example. And those taxes collected in the name of the environment should go toward the environment. After that, there will still need to be new investments in alternative fuels, technologies and ideas. Innovation in aviation moves slowly, but over time, it changes the world.
