2nd November, 2018
Alongside this week’s Budget Statement, HM Revenue and Customs published a proposal for a UK Carbon Emissions Tax to be implemented if a ‘no-deal’ Brexit results in the UK ceasing to participate in the EU Emissions Trading System (EU ETS). If introduced, the new tax is aimed at supporting “the UK’s strong environmental signals and contributing towards the UK meeting its legally binding carbon reduction targets after EU exit”. However, the proposed Carbon Emissions Tax would apply to stationary installations only, excluding the proportion of UK aviation emissions currently covered by the EU ETS.
AEF recognises that there may be a legitimate policy rationale for taking this approach, not least that a carbon tax on aircraft emissions would risk being challenged legally as representing an indirect tax on fuel, which is currently prohibited by many existing air service agreements especially if imposed unilaterally. Nonetheless, carbon pricing sends an important signal to the aviation sector. Without it, it’s unlikely that market forces will drive the necessary carbon mitigation technologies and sustainable alternative fuels that are required for the sector to play its part in a net zero future. In fact, there is strong evidence that carbon prices on aviation will need to increase significantly to drive change at the pace required to meet our commitments to achieving the temperature goals in the Paris Agreement.
Given the importance that the UK has attached to delivering its contribution to the Paris Agreement and the significant and growing proportion of the UK’s emissions associated with aviation, it is vital that these emissions are subject to effective policy, including through price mechanisms. After all, the Department’s own CO2 forecasts assume that 10% of the projected carbon reduction for the aviation sector will be delivered through carbon pricing.
Following the release of the HMRC proposal, AEF has written to the Aviation Minister asking for the Government’s reassurance that the aviation sector will not be given preferential treatment in relation to its environmental costs, noting in particular the Government’s statement in 2012 that “emissions from international aviation and shipping should be treated the same as emissions from all other sectors, in order to reach our long-term climate goals”. In a situation where the UK no longer participates in the EU ETS (the only carbon price mechanism currently applicable to aviation), we trust that the Government will seek to find workable alternatives in the same way that it has for stationary installations.
The future inclusion of aviation in the EU ETS is, in any event, uncertain given the European Commission’s proposed review next year in light of the proposed introduction of ICAO’s offsetting scheme for international aviation, CORSIA. However, AEF does not see waiting for CORSIA as a direct replacement for the EU ETS since it would not apply a carbon price to domestic flights, or to emissions below a 2020 baseline (as opposed to the EU ETS’s declining cap below a 2004-6 baseline and use of auctioning). Additionally, the carbon price arising from CORSIA will be less responsive to any increases in climate ambition, as supply in the voluntary carbon markets is not limited in the same way that it is for declining caps under the EU ETS.
In its letter to the Minister, AEF welcomed the Government’s recent announcement that it will join the Carbon Neutrality Coalition, and its request to the Committee on Climate Change to advise on how to ensure that the UK’s long-term emissions targets are consistent with the Paris Agreement. But, the letter concludes, the forthcoming Aviation Strategy must consider how the aviation sector will play its part in delivering both national and global climate commitments.