Coronavirus redraws battle lines on airline emissions

PARIS/BRUSSELS (Reuters) – European airlines crippled by the coronavirus have demanded lasting relief from environmental taxes – in a move that pits their immediate survival against longer-term emissions goals.

The looming tax tussle underscores shifting environmental battle lines and a broader question for governments injecting billions into their afflicted economies: Should bailouts come before climate objectives or rather be used to advance them?

The airline sector has been fighting a losing battle against tax in Europe. Governments have imposed new levies to slow growth in traffic and emissions, while the European Union plans to begin taxing jet fuel.

“This industry is going to have more taxes, not less taxes, and I think you all know it,” top EU transport official Henrik Hololei told airline CEOs in Brussels this month.

“So you can indulge yourselves with a study of what it would be like if there were no taxes – but the reality is unfortunately much harsher.”

That reality is being put to the test.

Within days of the meeting, the pandemic had dramatically worsened, forcing airlines to suspend most flights, lay off thousands of staff and seek government aid to avert collapse. Besides public cash, airlines are pushing to defer or waive of a swath of European taxes and duties.

“After the crisis we hope governments will understand that the fragility of this industry is due to low margins and heavy cost of capital,” the head of the International Air Transport Association (IATA) said.

“And that it is not economically and financially wise to increase taxation on a sector that is structurally fragile and financially weak,” Alexandre de Juniac told reporters.

BAILOUT CONDITIONS

With airlines at the front of bailout queues, green advocates fear climate action may lose momentum, just as it did after the 2008 financial crisis. Collapsed oil prices also work against pricier aviation biofuels.

Some are calling for aid to depend on emissions cuts.

“Public money should support the technologies of the future and not reinforce the mistakes of the past,” said Andrew Murphy of Transport & Environment. The campaign group wants airlines to be forced to use more low-carbon fuel and pay tax on kerosene and international ticket sales, in return for bailouts.

“Airlines calling for public support in bad times should accept they need to start paying taxes in good times,” he said.

U.S. Democratic lawmakers have also proposed requiring airlines to cut emissions by 25% within 15 years and 50% by 2050 in return for $40 billion in grants.

In Australia, any Qantas (QAN.AX) rescue would likely require faster progress on carbon, sources with knowledge of the matter told Reuters.

The coronavirus shutdown is likely to result in a full-year decline in emissions from aviation and other industries. Some experts say that could dilute public support for climate action.

IATA now expects 2020 air traffic to fall by more than 16%, potentially cutting carbon dioxide emissions by 100 million tonnes, based on earlier forecasts and emissions data.

Any “short-term blip” should not prevent governments from using coronavirus stimulus to achieve longer-term reductions, Fatih Birol, head of the International Energy Agency, said in a recent commentary.

“Rather than compounding the tragedy by allowing it to hinder clean energy transitions, we need to seize the opportunity to help accelerate them,” Birol wrote.

Aviation emissions account for 2.5% of the global total but are expected to triple by 2050. Under a U.N.-backed scheme, the industry plans to use carbon offsets to counter their growth beyond 2020.

Airlines caught in the crisis remain determined to get a long break from taxes including the proposed European fuel duty. The region’s carriers pay 6 billion euros ($6.4 billion) in annual tax, according to lobby group Airlines for Europe.

“We in Europe are worse hit than airlines in some other regions,” said a government relations executive at a major European carrier, who declined to be identified.

The airline is pressing its government for a moratorium on new taxation, “in particular the tax being discussed within the European Green Deal”, the executive said. “It could seriously weaken European airlines against the global competition.”

The fate of European attempts to rein in airline emissions is among many such trade-offs yet to play out across economies ravaged by the coronavirus pandemic.

Policymakers need to “sit back, make the right choices and not lock in the fossil-fuel economy,” said Laurence Tubiana, who helped broker the 2015 Paris Agreement as France’s climate ambassador. “It’s a make-or-break moment.”