Economy or the environment?

Germany’s governing “traffic light” coalition collapsed last week. Business
travel buyers might apply the same metaphor to Europe’s inconsistent, even self-contradictory,
approach to aviation growth. All too often the region seems to flash red, amber
and green signals simultaneously as buyers try to understand how government
policies might affect air fares, route networks and their own sustainability
strategies.

At state level, France, Germany and the UK have all increased their
passenger taxes by significantly above inflation in 2024. Yet Sweden, the
country that coined the term “flight shame”, is to scrap its passenger tax of
up to €44 per ticket, explicitly to stimulate passenger demand.

The same tension is evident in a long-running argument over whether
Amsterdam Schiphol airport can, and should, reduce capacity.

Meanwhile, the European Union’s ReFuelEU Aviation initiative is aimed at increasing
production of what it calls “sustainable aviation fuel” as Europe’s best
opportunity to “decrease aviation CO2 emissions.” But an Amsterdam court ruled
under EU law in March 2024 that this term is misleading because “at the moment,
the share of SAF in total fuel consumption (and therefore also in the reduction
of CO2 emissions) is still very limited for various reasons. A more substantial
share can only be expected in the distant future and is therefore uncertain.”

The mixed signals are understandable: European governments are trying to
balance two seemingly irreconcilable priorities. Aviation is considered vital
to economic growth, yet Europe also seeks to avoid environmental catastrophe through
decarbonisation – and transport, especially aviation and shipping, is
considered the toughest of all sectors to decarbonise.

Despite all EU measures to reduce aviation’s carbon footprint, continued
airline growth means “emissions overall
are forecast by Eurocontrol to be roughly what they are now in 2050, and even
that may be wildly optimistic,” says Mark Watts, director of public affairs
consultancy LP Brussels, which advises BT4Europe, an advocacy network for many
of Europe’s travel management associations.

Transport as an economic driver

The signs are that economic growth will prevail over decarbonisation in
aviation policy making. September 2024’s Draghi report on European
competitiveness, which is expected to guide the newly appointed European
Commission’s overarching strategy, is firmly pro-growth and acknowledges the
“risk that decarbonisation could run contrary to competitiveness and growth.”
It also states that “transport enables the prosperity of other branches of the
economy” and estimates that decarbonising aviation would cost €61 billion per year.

“Where is the EU going to find that money?” asks Watts. “I think we’ve
got a policy crisis. Other sectors are on course to decarbonise by 2050. The
only laggard is transport. We’re not having an honest debate and that leaves
voters cynical and frustrated and drives them to the far right because no one
is really telling the truth.

“There’s no chance of European governments curbing aviation, even though they
may chip away at it, like at Schiphol Airport, or putting up passenger charges,
because it’s one of the drivers of the economy. The single market is all about
moving goods and services and people around the EU, and one of main ways we do
that is aviation. We have to be professional and mature enough to say we
haven’t got an answer.”

The EU is looking to decarbonise aviation where it can, says Delphine
Millot, senior vice president for advocacy and sustainability with the GBTA
Foundation, the advocacy wing of the Global Business Travel Association. That
includes development of alternative aviation fuels and attempting to harmonise member
states’ air traffic control regimes.

However, she adds, any contemplation of more radical measures must be
understood in a global context. “Trying to use [reduced] demand for aviation as
a lever is unique to Europe,” says Millot. Some governments or parties are
considering this as part of their toolbox to achieve decarbonisation goals but
this isn’t working on a global basis. It’s just going to transfer demand
outside EU countries, so it’s not solving the challenge of decarbonisation,
which is global.”

Those remarks seem all the more relevant in light of last week’s election
of a president of the USA for whom balancing economic and environmental
priorities is a non-existent conundrum. “Anything we try to do to decarbonise
aviation is going to become more difficult now,” admits Celeste Hicks, policy
manager for pressure group the Aviation Environment Federation, citing her
group’s wish for a global tax on kerosene as an example.

A taxing situation

AEF supports a kerosene tax because “it just doesn’t feel right for a lot
of people that everything else is taxed but kerosene isn’t,” says Hicks. “Any
industry not paying tax on its fuel is able to operate in a different economic
environment. There needs to be a rebalancing across the whole economy. There is
good evidence which debunks the idea that aviation growth automatically
increases economic growth overall. The UK is already so well connected.”

Although a kerosene tax seems remote, business and other air passengers
are not escaping completely. To date, direct passenger tax increases seem
aimed more at filling exchequers than deterring flying. But EU decarbonisation
measures such as the Emissions Trading Scheme and minimum alternative fuels
mandates are beginning to increase fares indirectly.

Effective 1 January, Lufthansa passengers will pay an “environmental cost
surcharge” of up to €12 in economy and €36 in business class. Virgin Atlantic
has said it will introduce a similar surcharge by the end of 2025. British
Airways has signalled higher ticket prices for the same reason. In its third
quarter results, BA owner International Airlines Group stated the cost of
complying with emissions trading schemes in the first nine months of 2024 was €251 million,
although that did not deter IAG from returning an operating profit of €3.3 billion for that period.

Get used to it, warns Hicks. “There will be more environmental costs
coming in the next few years,” she says. “The costs of decarbonisation will
need to come from somewhere. We don’t want government paying for that.”