Award winning FairTax paper investigates a sustainable European carbon-based flight ticket tax
NEWS
On May 31, 2016, FairTax researchers Alexander Krenek and Margit Schratzenstaller from the Austrian Institute of Economic Research, WIFO, received the renowned “Progressive Economy Award”, in the European Parliament in Brussels. Their study on “Sustainability-oriented EU Taxes: The Example of a European Carbon-based Flight Ticket Tax”, is one of the first FairTax outputs, and was selected by an international Scientific Board as the winner in the financial instruments category.
Over the last decades, direct contributions from member states’ national budgets have become the main funding source for the EU budget. This system has been criticised, and it has been suggested that it should be replaced by own EU taxes. “Until now, the discussion about alternative own resources to finance the EU budget has hardly been linked to the central aim of the Europe 2020 strategy: to promote smart, inclusive and sustainable growth in the EU. Within the FairTax project WIFO is working on developing options for EU taxes, which may contribute to economically, socially and environmentally sustainable taxation in the EU and thus to the Europe 2020 strategy.” Says Alexander Krenek.
The central message of the award-winning study by Alexander Krenek and Margit Schratzenstaller is that a carbon-based flight ticket tax presents itself as measured in terms of sustainability criteria, and as a suitable candidate for an EU tax in several respects. Margit Schratzenstaller explains: “The aviation sector is a small but fast growing emitter of carbon dioxide. The failed attempts of several EU Member States to introduce a flight ticket tax and the pressure on those EU Member States, still levying such a tax clearly demonstrate the limits of national aviation taxation. Assigning any kind of taxes on flight tickets to the EU level would greatly reduce the tax enforcement problems inherent to mobile tax bases and put a stop to harmful tax competition between EU Member States.”
Flight ticket tax facilitates sustainability
A double dividend, consisting of a reduction of carbon dioxide on the one side and a boost for the economy on the other side, is a likely scenario if additional tax revenues are spent in the right way. “In the paper, we propose that all revenues from a European carbon-based ticket tax should be used to reduce contributions of Member States to the EU budget.” Margit Schratzenstaller continues. “This would allow national governments to reduce taxes more harmful for growth and employment, in particular the high tax burden on labour. Considering the insufficient coverage of carbon emissions from air traffic by the EU Emission Trading System, alternative price-based instruments to curb carbon emissions from air traffic are required. Given the current political and legal situation, a European carbon-based ticket tax has better chances of implementation compared to a tax on aviation fuel and is therefore a financial instrument which could foster sustainable growth in the very near future.”
New data set enables exact estimations
The paper estimates the expected revenue from implementing a carbon-based flight ticket tax at the EU level and revenue distribution across EU Member States. In particular, it is proposed that every passenger departing from an airport within the EU and every passenger arriving from outside the EU at an EU-based airport is subjected to this new carbon tax which is calculated individually for every route flown. “The paper uses a new and very exact data set. Depending on the country, it assigns approximately 75%-90% of the internal and external EU routes flown in the year 2014 their carbon dioxide emissions per passenger (using the ICAO (the International Civil Aviation Organization) methodology). Based on the demand elasticities provided by The International Air Transport Association (IATA) (2007), the tax revenues per passenger per route that could have been generated in 2014 by introducing a carbon-based flight ticket tax in the EU can be calculated exactly. The potential overall tax revenues from a carbon-based flight ticket for every individual EU Member State and the EU28 are estimated for three tax rates. They would have reached between € 3.9 billion and € 5.3 billion for a tax rate between € 25 and € 35 per tonne carbon emissions. Taking into account current estimates for the social cost of carbon emissions provided by a number of studies the tax rates applied, and thus also potential revenues, this rather represent the lower end of potential estimates.”
“Altogether, at the tax rates underlying our estimations, expected revenues from a flight ticket tax will be rather limited, so that they won’t be able to replace a substantial share of current EU revenues. Nevertheless, a carbon-based European flight ticket tax may serve as an illustrative example to demonstrate the chances and challenges associated with international taxes in particular regarding their potential contribution to sustainable development.”
The FairTax project is funded by the European Union’s Horizon 2020 research and innovation programme 2014-2018, grant agreement No FairTax 649439. The project is coordinated by professor Åsa Gunnarsson, Umeå University
