German Government Proposes Eco-tax on Air Travel


Image: Lufthansa A380

Everyone knows by now that the European member states have started a belt-tightening kick. Germany's Chancellor Merkel has presented an austerity plan that includes an eco-tax on air travel. And the air is already heating up: airlines claim the tax is a body-blow, too close on the heels of losses related to the volcanic ash. Advocates hope for new revenues of 1 billion euros from the eco-tax on air travel. The opposition claims the German government is using the environment as a lame excuse to raise taxes. So is it an eco-tax? Or just a tax? And can it work?The proposal offers solidarity with Great Britain, which started air travel duties in 2007 and will raise the air tax significantly later this year. Although the details are not yet clear, it is expected that Germany will follow Britain's model, applying lower duties to shorter flights and penalizing long flights more severely, in relation to their higher emissions. The Industry association IATA estimates the plan would increase ticket prices 12 to 14 euros, on average. But if the British model is followed, long-range flights could be up to 200 euros more.

The first blow across the bow of Germany's proposal to add a special environmental tax on air travel departing from German airports comes in the form of an accusation that the tax is not "environmental" at all, but merely a desperate attempt to tap new sources of income for the state, at the expense of taxpayers and businesses. But the Netherlands, Belgium and Spain have already dropped taxes on air travel, under pressure from the airline lobby, and after the revenues failed to meet predictions due to lost business as travelers made plans to avoid the extra charge. Clearly, an air travel tax is not a reliable contribution to a balanced budget.

The second blow comes in the form of a threat that airlines will suffer under the tax. The claim may meet deaf political ears though, in light of how airlines have driven the cost of flying so low, making it up in volume.

Also, the airlines point out (correctly) that taking a modern plane is more fuel efficient than driving alone in a car. Is it really necessary to discourage flying? The problem with flying it that the emissions are released high in the atmosphere, where they can cause more problems than an equal amount of emissions from a car on the ground. Furthermore, this overlooks the option of train travel. The European continent benefits from an excellent train network -- that is suffering from the competition of the cheap airlines.

And here is the real meat of the matter: if the eco-tax works as an environmental measure, the airlines will lose passengers. That is the point, isn't it? A business model that prices air travel as a last resort rather than as mass transport could succeed in spite of eco-taxes -- but only if there is a level playing field. While Germany and Great Britain are the only countries taking such measures, traffic will merely be diverted to neighboring countries. And people still won't be taking the train, just hopping shorter flights into an airport without a departure tax intended to discourage flying.

In fact, if Germany wants the air travel tax to work -- both in terms of reducing air travel and increasing revenues, the politicians cannot rest on the passage of the new measures. This calls for advocacy, diplomacy, and leadership: convincing the rest of Europe, and the world, to price environmental externalities into the cost of travel is the real challenge.

More on environmental taxes:
Environmental Duties Make Flying Significantly More Expensive(Der Spiegel)
Carriers Criticize German Air Fare Tax (NYT)
German Government Adopts Flawed CO2-Based Car Tax
Poor Countries Ask for Aviation Tax to Help with Climate Adaptation
Easyjet Steps Up Its Eco-campaign

Tags: Airlines | Air Pollution | Germany | Taxes

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