20-year tax holiday on jet fuel will stall SAF

opinion

by Fayaz Hussain

September 16, 2024

Everyone knows that sustainable aviation fuel (SAF) costs more than jet fuel. But taxing fossil fuel for its environmental damage would cut this delta. The European Union has been discussing this for the last two years. It proposed changes in the Energy Taxation Directive (ETD) in 2021 to levy minimum tax rates on jet fuel.

“Kerosene used as fuel in the aviation industry… will no longer be fully exempt from energy taxation for intra-EU voyages within the EU … Over a decade, the minimum tax rates for these fuels will gradually rise, while sustainable fuels will benefit from a zero minimum tax rate to promote their adoption,” said the ETD directive.

The tax, with a gradual step up in the next decade, would inevitably force aviation sector players to make investments in alternatives including SAF. But it is not popular with every EU members. Countries argue that the plan to tax kerosene does not work because there is not enough SAF in the market to motivate airlines to make the switch.

The Hungarian presidency has proposed exempting aviation from the fuel tax for 20 years, suggesting the EU revisit the issue after 15 years. It argues that there is not enough SAF.

Airlines 4 Europe (A4E), the largest EU airline association, agrees.

“An aviation fuel tax will be counterproductive, jeopardise the competitiveness of the European airline sector and potentially drive passengers to non-EU airports. This will not help decarbonise European aviation any faster. Airlines already pay significant sums of tax, while also paying for things like infrastructure and security, as well as directly for their emissions through the EU’s ETS,” Kevin Hiney, communications director for A4E, tells SAF Investor.

He said the tax will be an additional burden on airlines who are already investing in alternate fuels and technologies.

“By 2030, A4E airlines will pay over €10bn each year to the ETS. Investing in SAF development and more sustainable aircraft technologies is key to decarbonising aviation. A4E members plan on investing €14.8bn in SAF and €165bn in new aircraft by 2030.”

However, EU-based clean energy advocacy group Transport & Environment does not agree with the Hungarian argument.

“It’s hard to find the words to describe the absurdity of a proposal to delay the introduction of a jet and maritime fuel tax to 2049, if not for ever. With its proposal, the Hungarian government has completely obliterated the very purpose of this last piece of the Green Deal which was to put a price on dirty fuels,” Jo Dardenne, aviation director at clean transport advocacy group Transport and Environment told us.

The discussions on the proposal are set to resume next year after the EU SAF mandate kicks in.