Carbon taxes on jet fuel will increase air fares but cut emissions, says ESRI

Carbon taxes on jet fuel will boost air fares but cut aviation emissions, economists say.

The EU plans to tax aviation fuel and change carbon prices in a bid to cut greenhouse gas emissions from air travel.

According to an Economic and Social Research Institute (ESRI) paper published on Thursday, taxing carbon would be the most effective way to cut emissions.

Kelly de Bruin, co-writer of the report, explained that taxing carbon would increase air fares, prompting fewer to people to fly, leading to less flights and thus lower emissions.

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The EU wants to phase out free emissions trading allowances given to airlines and end a tax exemption for kerosene – aviation fuel – as part of its efforts to cut carbon.

The ESRI calculates that charging airlines €100 a tonne for carbon by 2030 could cut the industry’s emissions by 14.8 per cent.

Profits

It would also cut aviation’s “value add”, the profits and other benefits that it generates, by 13.7 per cent by 2030, the ESRI believes.

The institute bases that figure on air travel recovering to 2019 levels by 2025 and then continuing to expand after that.

The knock-on impact of fewer people flying would reduce the EU economy by 0.6 per cent, as this would cut demand for various products and services.

“There is increasing commitment to decrease EU’s aviation emissions and we can expect increasing taxation on aviation,” Ms de Bruin said.

However, she noted unless there was an increase in emissions trading scheme prices, a smaller cut in emissions would result, even if recent EU proposals come into force.

“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,” she added.