Sustainable Column | Fair Question: Should Airlines Impose a "Climate Tax" on Passengers?

The industrial transformation in the climate issue is a complex cost calculation problem, with some ambitious climate activists planning to shift the pressure to end consumers.

Lufthansa recently announced that starting next year, airlines under the group will levy additional fees of up to 72 euros per ticket to offset the costs generated by the EU Emissions Trading System and mandatory sustainable aviation fuel requirements.

In a press release, Lufthansa admitted that in the coming years, it is unable to bear the increasing additional costs due to regulatory requirements alone. Previously, the company complained that round-trip tickets from Madrid to Shanghai via Frankfurt by 2035 would increase by about 220 euros.

Looking at other information, Swiss Air, Austrian Airlines, Brussels Airlines, Dolomiti Airlines, Eurowings, Air France, KLM, British Airways, Iberia, and others are also planning to join the ranks of airlines charging passengers a "climate tax".

End consumers seem to be the simplest solution to the climate cost calculation problem. Some analysts believe that in the aviation industry with relatively few market competition participants, consumers have to passively bear such changes. However, some also argue that there is inequality in air travel itself, and levying a climate tax upholds fair distribution of carbon emission responsibilities in another dimension.

High Green Costs

It is estimated that currently, for domestic and intra-European flights, the climate tax has increased economy class ticket prices by 5 euros and business class ticket prices by up to 7 euros. On intercontinental flights, business class prices will rise by 18-36 euros, and first class prices will increase by up to 72 euros.

A key part of these revenues will be used to offset the airlines' fuel costs.

It is reported that traditional aviation fuel consumed by aircraft operations is fossil fuel, which generates a large amount of carbon emissions when burned. Overcoming the drawbacks of fossil fuel consumption requires thorough energy innovation. Fuel costs account for about 30% of operating costs in civil aviation transport, so the cost issue must be considered in fuel renewal.

Member countries of the International Civil Aviation Organization (ICAO) have developed sustainable aviation fuels, which use renewable biomass or waste resources as raw materials to replace fossil fuels. This not only reduces carbon emissions in the production process but also reduces particulate emissions due to significantly lower sulfur content when used. It is a reform that is not thorough but meets sustainability standards for aviation alternative fuels, playing an important role in achieving short-term aviation emission reductions.

Sustainable aviation fuels can also be directly blended with traditional aviation fuels without the need to upgrade aircraft, engines, and refueling equipment, with relatively controllable costs and time costs, and can reduce up to 80% of carbon dioxide emissions at most, making it the most feasible alternative in the short term.

According to ICAO's plan, in the most ideal scenario, sustainable aviation fuels will completely replace traditional aviation fuels from 2040 onwards. However, the high price of sustainable aviation fuels, exceeding traditional aviation fuel prices by 2-5 times, has become a significant factor hindering airlines' fuel switching actions. Earlier this month, ICAO also set a target of net zero carbon emissions for international aviation by 2050, marking the first global commitment to addressing aviation emissions. However, the cost of this target is as high as $4 trillion, which includes not only fuel but also the cost of low-carbon aircraft and infrastructure needed to achieve significant emission reductions.

Airlines burdened by costs have set their sights on passengers' wallets. However, some analysts in the industry believe that the calculation of "climate tax" and how airlines manage it currently lack the necessary transparency in disclosure.

Climate Fairness?

According to authoritative statistics, the aviation industry accounts for only about 3% of total carbon emissions from fossil fuels. While aviation carbon emissions do not make up a high proportion of global carbon emissions across industries, they are growing rapidly on an annual basis. In addition, civil aviation aircraft cruise at altitudes concentrated between 9,000-12,000 meters, leading to emissions into the upper troposphere and lower stratosphere, exacerbating the global greenhouse effect. Therefore, the aviation industry has become one of the key industries under scrutiny.

According to ICAO estimates, if aviation carbon emissions are left unchecked, global annual aviation carbon emissions are projected to increase significantly from the current approximately 700 million tons to 2.6 billion tons by 2050.

So, does it make logical sense for passengers to share the cost of climate transition?

Globally, there is a severe inequality in aviation travel opportunities. In 2019, the wealthiest 20% of the global population took 80% of flights. 2% of the global population took more than six flights, accounting for 40% of total passenger traffic.

The industry is calling for a model that can fairly distribute costs to regulate the sharing of the burden among passengers with different flight frequencies, travelers with different incomes, and countries with different historical emission levels. The current one-size-fits-all price increase approach is likely not the optimal solution.

The International Council on Clean Transportation's aviation research team has introduced an alternative model called the "frequent flyer tax," which taxes based on the mileage flown within a year, known as the "flight mileage tax." Some initial mileage is exempt from taxation because the correlation between flight distance and emissions is higher than flight frequency.

According to this research, using the frequent flyer tax generated $121 billion in tax revenue in 2019 (annualized amount of $4 trillion). Taxes increase with each flight taken in a year, starting from $9 for the second flight and increasing to $177 for the 20th flight. The first flight in any year is tax-free. This taxation model concentrates the tax burden on frequent flyers who are wealthier and typically reside in high-income countries.

The study also estimates that if the frequent flyer tax is adopted, 81% of revenue will come from the 2% of the global population who take more than six flights, and almost all (98%) of the revenue will come from the wealthiest 20% of the global population. Therefore, for passengers who only occasionally fly, the impact of this tax on travel expenses is minimal.

In contrast, if a uniform climate tax is levied on each flight, those with lower incomes will have to reduce their travel the most because they are more price-sensitive. Conversely, wealthier frequent flyers may continue to take many flights as they did without the tax, thus losing the regulatory function of fair climate burden sharing. **

In addition, the opportunities for air travel vary greatly among countries. In 2019, residents of developed countries took an average of two flights, while residents of other countries around the world took an average of 0.36 flights. Due to the higher proportion of frequent flyers in developed countries, 67% of the revenue from frequent flyer taxes comes from developed countries, compared to 51% under a unified climate tax. This concentration of cost burden is closely related to the historical emissions of each country: from 1980 to 2019, developed countries emitted approximately 70% of aviation carbon dioxide.

From the perspective of climate fairness, high-income countries should bear the majority of decarbonization costs, even though their growth rates may not be as fast, and simply raising ticket prices cannot address the inequality in air travel within each country/region.

It is reported that the concept of a frequent flyer tax was initially proposed as a demand management policy in the UK. In the UK, 20% of households took about 75% of flights; if the tax can encourage each frequent flyer to reduce a few flights, emissions would be significantly reduced without burdening other areas of the country.

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