This year, Code Rouge are setting their sights on aviation with their mass action, which will take place between Friday 15th and Sunday 17th December. The 'People Not Planes' mobilisation focuses on the climate injustice of the aviation industry and its determination...
Privileged position: revealing the EU’s web of aviation subsidies
Subsidies offered to the aviation industry are what allow airlines to offer flights for €20 and continue their unfettered growth, by masking the true environmental and social cost of flying. For decades aviation growth in the EU has been fuelled by a very complicated system of direct and indirect subsides. On September 14th Stay Grounded, along with Umanoterra, discussed this complex system and how we can tackle it in a webinar titled ‘Aviation and Subsidies in the EU’. Written by Franziska Schmidt.
How do you define a subsidy?
What exactly is a subsidy? Jonas Sonnenschein of Umanoterra, the Slovenian Foundation for Sustainable Development, started off our deep dive into the tangled world of aviation subsidies with some helpful general explanations: In general terms, subsidies are direct or indirect payments by governments to private firms or households that aim to promote a public objective – such as economic growth, investment, or the modernisation of private housing.
A short overview: direct and indirect subsidies
Subsidies, as this definition suggests, are wild and varied beasts. In the case of aviation, they could be anything from the Covid bailout money many airlines received to research and development grants for manufacturers and public investment in airport infrastructure projects. These are examples of direct subsidies, which basically means that some form of money is actually received. As you might be beginning to guess, all aspects of the sector benefit from public money, beginning with aircraft manufacturers and suppliers, covering air traffic control and airports and eventually, airlines themselves. Local councils often pump ridiculous amounts of money into maintaining otherwise unprofitable regional airports, and governments will give loans or loan guarantees and provide loss coverage to airports and airlines.
But hold on, there’s more. Indirect subsidies in the form of tax breaks or reduced infrastructure fees make up an even bigger part of the aviation subsidy pie. This isn’t money that the government grants to the industry, but money it doesn’t collect – and in fact, governments all over the world forego huge amounts of tax revenue to keep flying cheap.
Externalities: The damage we pay for, when companies don’t
Support for the aviation sector – especially tax breaks – means that flights can outcompete other transport options, but the side effects range from noise and air pollution right down to the destruction of habitats and arable land. Basically, all this destruction is being exacerbated and incentivised by taxpayer money.
In a fair economic model, businesses would be required to pay for all the damaging impacts they cause. This would in fact incentivise them to develop and invest in less harmful alternatives, this is a core assumption of the free market model. In reality, though, the market isn’t free in the sense of reflecting the true cost of a product or service, but in the sense that companies (and sometimes entire sectors) are largely free to transfer the social, environmental and health burden they cause on to the general public.
In aviation especially, unpaid-for externalities are a huge issue that subsidies encourage even further. If airlines were to pay a fair price for the climate destruction, noise, air pollution and land degradation they cause, flying would be more expensive by orders of magnitude.
Billions of potential tax revenue every year
So how much money are we talking about? Roman Mauroschat from Transport and Environment, a European-wide campaign group for clean transport, explained the situation in the European Union. During the two years of the pandemic, European airlines received over €37 billion in Covid bailout money – this illustrates aviation’s favourable position when it comes to public funding.
This, however, is just the tip of the iceberg. Research by Transport & Environment has revealed that the sector receives €26.4 billion of indirect subsidies every year through tax breaks on VAT (saving them €13.6 billion) and fuel tax (another €10.7 billion). In the EU, only domestic flights will pay VAT or value-added tax, giving planes an unfair advantage over train travel and effectively skewing the market.
At the moment, the European Council discusses extended taxation for intra-European flights, but talks between member states are proving difficult. Especially as Southern European states that are heavily reliant on tourism are opposed to flights becoming more expensive. Let’s not forget, though, that the revenue raised by taxing aviation could build hundreds of kilometres of high-speed rail infrastructure every year.
However, there are other options: Contrary to popular belief, countries could in fact tax kerosene. The much-cited Chicago Convention does not prohibit taxing the fuel a plane carries at take-off; it merely states that the fuel a plane brings into a country at landing can’t be taxed. Nevertheless, at the moment kerosene taxes in the European Union are effectively zero. In contrast, taxes on car fuel range between €0.36 in Bulgaria, Romania and Malta and €0.79 in The Netherlands.
Airlines also get a free ride on the European Carbon Trading Scheme (ETS): It only covers emissions from intra-European flights to begin with, thereby excluding much more carbon-intensive long-distance flights. What’s more, operators receive up to 50% of allowances for free, making the scheme largely meaningless. Effectively, European airlines pay between €7 and €49 for one tonne of carbon – an absolute bargain.
Whether it’s Slovenia, Hungary and Poland: Aviation subsidies are convoluted
After looking at the pan-European situation, three campaigners from Poland, Hungary, and Slovenia, gave us short overviews of the state of public subsidies and government support for aviation in their respective countries. What becomes clear is that, whether it’s Poland (presented by Wojciech Szymalski from the Insitute for Sustainable Development Foundation), Hungary (presented by Andraś Lukács from the Clean Air Action Group) or Slovenia (presented by Jonas Sonnenschein of Umanoterra), the sector receives favourable treatment, plenty of government investment, and frequently benefits from intransparent development schemes that avoid public scrutiny.
Subsidies, it becomes clear, can come in many forms meaning that it can be extremely difficult to disentangle who received what. What is also clear, though, is that aviation subsidies only benefit the small percentage of people who actually use planes. Even in Western Europe, 65% of Germans and 59% of Britons do not take a flight in any given year. The lower their personal income, the less likely people are to fly. Effectively then, aviation subsidies mean that the general public support the carbon lifestyle of the elite and shareholders’ profits. They take away possible funding from those in society who need it the most and block the de-carbonisation of the transport system.
Aviation subsidies are a social issue; and yet, any campaign to abolish aviation subsidies will have to be carefully designed. Not only will it have to include aviation workers from the start, it will also need to anticipate that people will be reluctant to give up their ‘cheap flights‘. Focusing on the positive effects of taxing aviation will be central: the money could build a carbon-free and accessible transport system for all instead of forcing people to shoulder the burden of aviation’s escalating externalities.
To explore aviation subsidies in your country, visit https://competition-cases.ec.europa.eu/search