Select Committee on Environmental Audit Minutes of Evidence


Further memorandum from the Aviation Environment Federation

TAKING ACCOUNT OF THE ENVIRONMENTAL COSTS OF AVIATION: EXAMPLES OF MEASURES INTRODUCED, OR PLANNED, IN OTHER COUNTRIES

INTRODUCTION

  The AEF supports the principle of internalising the environmental costs of aviation. At present, with the exception of local noise charges at some airports, this does not happen in the UK through the application of economic instruments.

  This supplementary evidence provides examples of economic instruments applied in other countries to tackle aviation's environmental effects.

BACKGROUND

  One of the reasons as to why aviation does not meet its external costs, is the absence of any tax on kerosene. The interpretation given to Article 24 of the Chicago Convention of 1944, is that it prohibits the imposition of taxes on fuel kept on board aircraft and consumed on international flights. This has been reinforced by its incorporation into bilateral air service agreements worldwide.

  However, taxation of fuel used on domestic flights is permitted. We understand that the EU is currently drafting an Energy Products Directive that is likely to reinforce this position. Furthermore, as drafted, it permits member states to enter into a bilateral agreement to tax the fuel used by carriers operating between those countries. We view this as a welcome step towards the goal of a lifting of the worldwide fuel tax exemption afforded to international air transport.

  The rest of this evidence focuses on specific economic instruments that have been applied to address aviation's environmental effects. This paper is not intended to provide a comprehensive assessment of where economic instruments have been applied. Instead, with reference to examples, it highlights the scope for applying economic instruments.

LOCAL MEASURES

(a)   Noise-related Charges

  The purpose of noise charges is to recover the costs applied to the alleviation or prevention of noise problems around airports.

  This has led to two basic approaches to noise-related airport charges. The first approach seeks only to promote the use of quiet aircraft by varying landing fees according to noise performance, permitting quieter aircraft to receive a discount on the applicable landing fee, while noisier aircraft pay more. The schemes are revenue neutral.

  The second approach is a more direct means of cost recovery, where airports (and in some cases governments) levy a surcharge to specifically meet the costs of implementing a noise mitigation programme. In most cases these are a surcharge on the landing fee. The charges are structured to be revenue neutral (ie they raise no more than the cost of the noise projects being undertaken) and frequently combine the first approach so the charge relates directly to the contribution of each aircraft to the overall airport noise exposure (again, creating an incentive for the operation of quiet aircraft).

  There are several common types of charging system:

    —  Charges based on certificated or actual noise data.

    —  Scale of charges based on aircraft weight and noise performance (this is easy to calculate since most airport landing fees are already based on aircraft weight).

    —  A fixed charge per decibel above a maximum permitted noise level at a specified distance from the airport.

    —  A charge, often used in combination with the above, for night operations or sensitive times.

    —  Fixed passenger charge (for example, Sydney airport where each international passenger can pay AUS$3.40—this is a commercial charge that is being imposed by individual airlines at their discretion to recover the costs they incur in paying the airport noise levy).

  In the Netherlands, the Aviation Act requires houses exposed to higher noise levels to be sound-proofed. The costs of these programmes are recovered through noise related charges. However, in addition to the noise charge that may be imposed by the airport, there is an additional Governmental noise charge. The Governmental noise charge has two elements. The first is constant for all aircraft and relates to the expected annual cost of the sound-proofing programme (this can be adjusted annually). This constant is then multiplied by noise performance of the individual aircraft (based on noise certification levels) in order to obtain the charge.

  In the US, planning for aviation noise compatibility on and around airports is guided by Federal regulations, most notably Part 150, Airport Noise Compatibility Planning. Under this regulation, airports must prepare Airport Noise Compatibility Programs (NCPs) for approval by the Federal Aviation Administration (FAA). The airport submits a series of measures to mitigate the airport's noise impact with the aim of reducing or limiting non-compatible land uses around the airport and of preventing the introduction of additional non-compatible land uses. Such measures may include land use controls, building codes, soundproofing, acquisitions and relocations. Noise mitigation projects necessary to implement an NCP are generally eligible for federal funding through the Airport Improvement Program and using grants from the Aviation Trust Fund which is itself sustained by "an advalorem plus flight segment tax on tickets", and by taxes on fuel (for general aviation) and on air cargo. This ensures that the monetary cost of the programs "is largely paid for by those who benefit from aviation service". It is, in effect, a form of hypothecated tax.

  Revenues are generally used for land/property acquisition, soundproofing of noise sensitive buildings, provision of noise barriers, provision of noise monitoring and track keeping equipment, and other community benefits.

(b)   Emissions

  Zurich Airport has implemented an emission charge, based on engine emissions and performance parameters, for many years. It is a "revenue-neutral" landing and take-off charge. The charge is based on the NO pollution class of an airplane's engine. Five pollution classes are linked to a charge that varies between 0 to 40% of the landing fee. The revenues are used to cover expenses related to aircraft emission reduction programmes. The charge is revenue-neutral because the revenues for the airport remain unchanged as the general landing fee has been reduced by 5%. According to the airport, the aim of the charge is not to make aviation more expensive, but to give airlines flying to Zurich Airport an incentive to fly with cleaner aircraft. The most polluting aircraft pay 40% extra on their landing fee while the "cleanest" planes get a 5% reduction.

  Sweden has also introduced emission charging in the form of emissions-based landing charges. The system applies to aircraft with a maximum take-off weight of over 9 tonnes, and airports with more than 300,000 passengers or 30,000 tonnes of freight per year. The system of charges is based on a classification of aircraft emissions during the landing-take-off (LTO) cycle. Information on aircraft emissions are provided by the airlines and based on ICAO statistical material. Aircraft emissions of hydrocarbons and nitrogen oxides determine are divided into seven categories. Engines generating the least emissions are in Class 6, and those generating the most emissions are in Class 0. Depending on the classification, a supplement ranging from 0% to 30% is added to the aircraft landing charges.

  The European Civil Aviation Conference has recently designed a common classification system for emissions-based landing charges in Europe, known as ERLIG.

GREENHOUSE GASES

  Switzerland applies a carbon tax to domestic flights.

  Norwegian aviation charges: On the 1 April 2002, the passenger levy, of NKr 128 was removed. It has been replaced by a National Aviation Green Tax of NKr 108 per tonne of CO2 (or NKr 0.28 per litre of fuel, compared to NKr 0.73 per litre for petrol). International aviation is exempt from green taxes. (112.8 NKr = £10, appr.)

VAT ON AIR TRAVEL

  " . . . there is no VAT on any aspect of air travel, not on airline tickets, nor on purchase of aircraft, nor on their servicing, nor on their fuel, nor on air traffic control, nor on baggage handling, nor on aircraft meals. Everything to do with air travel, after passport control, is zero rated."

    (The Hidden Costs of Flying, Brendon Sewill, AEF, 2003)

  This is the situation today in the UK. However, many European countries do apply VAT to domestic air travel, as shown in the following table:

  VAT Rates on air travel as at 1 May 2002 (source: European Commission)
BDK DELE FIRLI LNLA PTFINS UK
Domestic air transport6 Ex168 75.5Ex10 31910 5860
International air transport0 000 0000 000 0000

Notes: 0 = zero rated Ex = exemption

  While most countries not applying a zero-rating, or exemption, to air travel choose to apply the same rate of VAT to all forms of passenger transport, this is not true in every case. The Netherlands applies a rate of 19% to air travel (the same as for the private motorist), but charges rail, road and water transport only 6%.

  The German parliament has also signaled its intent to extend VAT on air travel to international flights (for the proportion of the flight within German airspace). A proposal is in preparation and will soon be brought before parliament. If approved, it will then be sent to the assembly of German states (the "Bundesrat") for a second vote. If the Bundesrat votes against its implementation, a "Vermittlungsausschuss" will be established to find a solution. The minimum timeframe for this process is about three months.

PASSENGER TICKET TAXES

  In the US, the government levies a passenger ticket tax on domestic flights and a passenger segment fee. The passenger segment (a segment is defined as one take-off and landing cycle) fee is $3 per segment per passenger and raised $1.7 billion in 2000. The passenger ticket tax is 7.5% of the ticket price (originally 10%) and raised $5.1 billion in 2000. The rate will stay at 7.5% until at least 2007. Both the passenger ticket tax and the passenger segment fee go into the Aviation Trust Fund, set up to implement the Federal Aviation Administration's programmes, including environmental measures.

May 2003





 
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