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 at the Global Business Travel Association (GBTA). 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.”