Tackling aviation emissions, taxation needs regional strategy

David Jessop, Contributor

This week, the tax that the United Kingdom levies on travel to the Caribbean and other destinations will increase significantly, illustrating why there is a pressing need to resolve the contentious and political issue of global aviation emissions and the environment.

The issue is important for the Caribbean as its principal export industry - tourism - relies to an enormous extent on airlift and the level at which fares and associated taxes are set.

While carbon emissions from maritime transport and by extension cruise ships, has yet to be addressed, the taxation or licensing of aviation emissions has become a live international issue.

This is because growing numbers of nations are considering, or have unilaterally introduced, their own schemes in ways that benefit domestic revenue rather than resulting in the transfer of financial resources in ways that benefit the environment.

The consequence has been the emergence of arbitrary schemes such as the United Kingdom's Air Passenger Duty (APD), a flatter, albeit temporary, tax in Germany, or the regional licensing approach envisaged by the European Union, which is intended to bring aviation into its carbon emissions trading scheme known as the European Union Emission Trading Scheme (EU ETS) in 2012.

A multilateral approach

Aviation was not included in the Kyoto Protocol on climate change due to previous difficulties in assigning emissions to any specific country.

However, some progress was made towards adopting a multilateral approach in early October at the annual meeting of the International Civil Aviation Organization (ICAO), a United Nations agency, when governments attending agreed that aviation emissions would be capped by 2020.

At the meeting, a framework agreement was approved that committed airlines to improving fuel efficiency by two per cent annually up to 2050, achieving carbon neutral growth from 2020, and to a global carbon dioxide standard for aircraft engines by 2013.

The ICAO resolution, which will be presented at the United Nations Framework Convention on Climate Change summit in Mexico in December, also calls for the development of a global framework based on 15 agreed principles designed to, among other things, establish principles to be used for market-based measures affecting aviation, such as emissions trading schemes.

Although the agreement was hailed as a 'globally harmonised agreement' by the ICAO, the few Caribbean aviation ministers attending felt marginalised by the process, which they suggested had largely been sewn up by powerful nations in the developed world.

However, an indication of how difficult the issue of aviation emissions taxation will be to resolve conclusively is the uncertainty about whether the ICAO resolution has enabled or set back progress on the EU ETS.

Giovanni Bisgnani, the director general of IATA, believes the ICAO strengthens the case against any unilateral stand-alone scheme like the EU ETS, while the European Commission believes that the 15 principles agreed in Montreal strengthens Europe's ability to take forward its own scheme.

Why all this is of significant for the Caribbean is because it coincides with a run of events, in which its ministers will be involved, that relate to the effect that taxation on aviation emissions will have on the Caribbean economy.

The first of these occurs on November 1 when the UK significantly increases the level of its unilaterally imposed and discriminatory APD on tickets to the Caribbean and all other destinations.

Then the tax on tickets to the Caribbean will increase by 50 per cent in coach to US$18 and in all other classes to US$235.

This will further disadvantage the Caribbean in relation to the US, which remains not only in a lower tax band, but will only experience an increase of 33 per cent despite destinations like San Francisco or Hawaii being thousands of miles further from London.

The increase in APD occurs just before World Travel Market opens in London on November 8.

This annual event is one of the more important annual global business events at which tourism ministers, tourist boards, hoteliers, airlines, tour operators, and buyers and sellers of tourism products meet to do deals for the coming years.

Interesting thinking

There, a meeting will take place that will bring together tourism ministers from around the world in the margins under the auspices of the United Nations World Tourism Organisation that will, in part, consider the issue of the taxation of aviation emissions.

This, in turn, comes less than a month before the next UN summit on climate change in Cancún. Although this meeting has a far- from-certain outcome, there will be some consideration given to how aviation and the resolution adopted at the ICAO might fit into any future global agreement

In all of this, the Caribbean should monitor closely some of the interesting thinking coming out of aviation lobby groups, and those non-governmental organisations (NGOs) that take a practical approach to aviation carbon emissions. Papers produced by such groups suggest that if a global system of licensing can be agreed, the revenue generated from the auctioning of carbon allowances could be collected by a UN administering authority and used for climate-change initiatives in developing countries.

This, they argue, could result in between US$1.5 billion to US$5 billion being made available for redistribution.

Such an approach, they believe, would provide an innovative means for achieving a balance between developed and developing nations, and could hypothecate sums raised for application to clearly defined and transparent uses such as biofuel feedstock cultivation, biojet refining capability in developing countries, coastal defence, deforestation initiatives, and for the financing of research into innovative technology.

A more holistic approach

What all this points to is the need for a more holistic approach by the Caribbean.

The APD provides an important focus, but what is now happening globally on aviation emissions taxation is about much more. It requires ministers of tourism, finance, aviation and prime ministers, and the industry to all recognise the importance of full, nationally joined up and regional participation in all of the forums that are taking key decisions.

Anything less will mean that the Caribbean and other small states will be marginalised when it comes to aviation, the environment, and tourism, the industry that has become the economic driver in many regional economies.

David Jessop is director of the Caribbean Council.david.jessop@caribbean-council.org