EU on course for taxing jet fuel, and a clash with the UK

Quantum Commodity Intelligence - The EU Commission has drafted plans to set an EU-wide minimum tax rate for jet fuel on passenger planes after being given the green light by EU finance ministers in May, according to Reuters, a move that will likely create a two-tier tax system with countries, such as the UK, favouring a different approach.  

From 2023, the minimum tax rate for aviation fuel would start at zero and increase gradually over a 10-year period, until the full rate is imposed.

The draft proposal did not specify what the final rate would be, and it would not apply to cargo, business, or pleasure flights, Reuter reported.

The EU Commission will formally announce its proposals on July 14 in a move that could see planes fill up in the UK tax free, which does not levy any duty on commercial aviation fuel or VAT on airline tickets.

Instead, the UK levies Air Passenger Duty, a tax levied on bookings by individual passengers, and collected when an occupied seat has been flown.

In Lisbon, EU finance ministers agreed, in general, in May to remove the exemption of tax on jet fuel to better align the region with its new climate change policies to reduce EU greenhouse gas emissions by 55% by 2030, from 1990 levels.

Sustainable fuels, including renewable hydrogen and advanced biofuels, would not face minimum EU taxes during that 10-year period.

Some EU countries have led the charge to end tax exemptions for jet fuels, and the Netherlands has already promised to introduce a national aviation tax in the absence of an EU-wide agreement.

But there could still be opposition from other countries that are more dependent on the airlines industry, such as Malta and Cyprus.

"The EU27's smallest 13 emitters account in fact for just 10% of intra-EU27 fuel burn/emissions while the top 6 EU27+ emitters – Germany, Spain, Nordics, Benelux, France and Italy – account for 72%," a research paper by lobby group Environment & Transport noted.