The tax privilege of airplane kerosene that Europe has been dragging for 80 years

BrusselsWith a quick search on the internet, you can find round-trip plane tickets between Barcelona and Brussels for less than 70 euros. The same journey by train (where you have to make a transfer) costs more than 200 euros. And if done by car, between fuel and tolls, it would cost at least 400. How is such a big difference possible? The answer lies, in part, in the tax exemptions that kerosene enjoys.

The war in Iran has pushed the price of oil upwards, a fact that has especially affected hydrocarbons. A liter of gasoline costs about 0.4 euros more today than in February, and in many Catalan gas stations it exceeds 2 euros per liter. This means that filling a standard 55-liter tank is about 20 euros more expensive than seven months ago.

Of this amount, nearly half are taxes. In Spain, the price includes the special tax on hydrocarbons —with a temporarily reduced rate— and VAT.

What happens with kerosene for aviation? As a petroleum derivative, this fuel has become significantly more expensive since the outbreak of the conflict in the Persian Gulf in March. According to the European Organisation for the Safety of Air Navigation (Eurocontrol), the price of fuel for aircraft this month of September has been 4.63 dollars per gallon (1.06 euros per liter), "more than double" the levels of January and February of this year.

But the tax level is completely different: kerosene supplied for international commercial flights and for most flights within the EU is exempt from levies.

Post-war aid

The origin of this exemption dates back to the 1940s, when Europe was just emerging from World War II. In this context of reconstruction, 52 states signed an aviation treaty that would lay the foundations for this precedent. It agreed that the fuel already carried in an aircraft's tank upon landing in another country would be exempt from certain customs duties. Later on, the recommendations of bodies such as the International Air Transport Association and the International Civil Aviation Organization, the United Nations specialized agency for aviation, along with various bilateral agreements signed between states, ended up extending the tax exemption on fuel for international flights.

This regime was consolidated in 2003 in the European Energy Taxation Directive, which establishes that commercial aviation remains exempt from general fuel taxes. Private leisure aviation, however, does have to pay taxes. The directive, however, leaves a window for states that wish to do so to tax fuel for domestic flights and for, if two states decide it bilaterally, them to be able to apply taxes to fuel for flights connecting their territories.

Environmental organizations such as Greenpeace, T&E, or Ecologistas en Acción consider that this legal loophole demonstrates that applying levies is a matter of political will. T&E calculates that this tax exemption is equivalent to an indirect subsidy of more than 30 billion euros per year for EU airlines, which is to the detriment of more sustainable modes of transport such as the train, which does pay taxes on the electricity it consumes. "It is a significant subsidy for fossil fuels that makes flying artificially cheap, shifts environmental costs to the public, and disadvantages cleaner alternatives like the railway," argues Wouter Lemm, representative of Greenpeace in the Netherlands, to ARA.

Airlines, however, are not exempt from taxes. They pay airport fees and in some countries there are taxes on tickets. The sector's employers' associations argue that another tax, in this case on kerosene, in Europe would not reduce consumption, but rather would cause planes to fill their tanks outside the EU.

Javier Gándara, president of the Association of Airlines (ALA, the Spanish employers' association for the sector), recently argued that taxing aviation fuel "does not decarbonize and has a very harmful impact on connectivity and the economy". In his view, this would cause planes to carry more fuel than necessary to save on taxes and would increase CO₂ emissions.

Veto by tourist countries

The increasingly shared consensus that we are living through a climate crisis has translated into various legislative proposals in the EU to revise sector levies. Ursula von der Leyen's European executive promoted a reform in 2021 to introduce a mandatory minimum tax in the EU on kerosene for intra-European commercial flights. However, the veto from the most tourist-oriented states such as Spain, Greece, or Portugal blocked the measure. The Danish presidency of the EU proposed postponing any tax on kerosene until 2035.

As an alternative, Brussels established in 2023 the progressive withdrawal of free carbon dioxide (CO₂) emission allowances, which forced companies to pay for what they emit on flights within the EU. Likewise, last year a regulation came into force that requires suppliers to incorporate a proportion of sustainable aviation fuel: it is currently 2% and must reach 70% by 2050.

Since taxing fuel directly is complex at an international scale, various countries (such as France, Germany, or the Netherlands) have opted to apply "eco-taxes" directly on the passenger ticket, which can be used to finance rail transport.

Regarding these mechanisms, Lemm believes that they can address "a small part of the climate impact of aviation," but argues that "they do not compensate for the absence of an adequate tax on kerosene." "Maintaining this exemption until 2035 would be a climate failure," because "it would prevent investing this money in affordable public transport, railways, and support for vulnerable households," he concludes.