This paper discusses the contribution that kerosene taxes could make to decarbonising international air travel post COVID-19. Reaching climate neutrality by mid-century requires that all sectors, including aviation, cut emissions strongly. The paper argues that clarity on decarbonisation targets, including through carbon price signals in the form of kerosene taxes, will support an orderly transition in aviation. A gradually increasing tax on kerosene can strengthen the incentives for investment and innovation in clean aviation technologies. Taxing kerosene would also provide implementing countries with tax revenues that could be used to support clean investment and innovation, while addressing competitiveness and equity issues. Where legal obstacles to taxing kerosene exist, these can be overcome by renegotiating the relevant air service agreements. International aviation’s emissions are significant and remain largely untaxed. If international aviation were a country, it would be among the world’s ten largest emitters of CO2. The aviation sector as a whole accounts for approximately 11% of CO2 emissions from transport. Given that emissions from other modes of transport are typically more heavily taxed, this creates an uneven playing field, which also has equity implications, as richer households tend to fly substantially more than poorer ones. Reaching climate neutrality by mid-century requires that all sectors, including aviation, decarbonise. One of the challenges in aviation is the current lack of inexpensive low- and zero-carbon technologies, which means that substantial progress is needed to develop cleaner alternatives. While urgent action to reduce emissions in the aviation sector is required, the sector is also trying to recover from the massive impact of the COVID-19 pandemic. With many airlines and related industries receiving considerable government support, now is the time for policymakers to be setting the ground rules for the industry in a decarbonising world. In this context, a strong commitment to a meaningful and predictable long-term carbon price trajectory is needed. This can be achieved through kerosene taxation as long as countries credibly commit to gradually increasing tax rates over time. Where legal obstacles to taxing kerosene exist, these can be overcome by renegotiating the relevant air service agreements. The Chicago Convention is not an obstacle to taxing kerosene that is taken on board at the point of departure. The European Union’s Energy Tax Directive, which is currently under revision, already contains a procedure that would allow European countries to enter into bilateral agreements to start taxing kerosene for flights between themselves. A predictable carbon price can support the process of ‘building back better’ and create the incentives needed to accelerate investment and innovation in clean aviation technologies. Taxing kerosene would also provide implementing countries with tax revenues that could be used to support clean investment and innovation, while addressing competitiveness and equity issues. Failure to create the conditions today for the decarbonisation of the aviation sector will leave the industry and its workers more vulnerable in the future. Clarity on decarbonisation targets including through carbon price signals will support an orderly transition in aviation, avoiding elevated mitigation costs associated with sudden decarbonisation at a late stage. Flying blind can only get the sector so far; better incentives are needed to reach climate goals fairly and cost-effectively.
