As the climate crisis intensifies, governments and tax authorities are increasingly looking for ways to collaborate to curb carbon emissions from high-polluting sources. Two popular policy positions which have gained some traction are “frequent flyer” and private jet taxes. In each, the idea is to internalize the externalized costs of air travel, raising the cost of commercial and private flights for frequent fliers.
Such taxes are rhetorically aimed at reducing carbon emissions from aviation. In addition, a recent studyfound that a tax on frequent flyers in Europe could raise €64bn annually—so they are certainly, at least on paper, substantial revenue generators.
The contemplated tax in Europe would increase incrementally with each additional flight a flier takes within a year, injecting a layer of progressivity—if you take travel frequency as a proxy for income—into the policy. This raises a crucial question, however: what is the true aim of these sorts of taxes? Is the goal to raise revenue that can be reinvested into clean technologies and infrastructure to combat climate change? Or is the goal to curtail luxury air travel and reduce overall emissions?
The answer to these questions is crucial, as they determine how the tax is structured and what a successful outcome looks like. If the primary goal is to raise funds, then the focus should shift predominantly to how those funds are allocated after they are raised—there is little doubt tax policy can successfully raise tax revenue, it’s proper spending that is key.
If the goal is behavioral change, a high total amount raised is actually problematic. Year-over-year increases in tax revenue from the policy would be indicative that the rate may need to be significantly higher and income-adjusted to deter the wealthiest travelers from continuing their carbon-positive lifestyles. Success in the latter case, then, would be raising the tax rates to a level such that the revenue from the policy is zero—because, owing to the tax, no one is engaging in the deleterious behavior.
Funding Climate Solutions
If the primary goal of a frequent flyer tax is to raise revenue, then the success of the policy from a climate change perspective turns on how the raised funds are spent. Taking the European example, €64bn in additional revenue presents a significant opportunity to fund projects that contribute to reducing carbon emissions and mitigating the climate crisis. However, the question of how to spend that revenue most effectively remains an open one.
One potential investment point for aviation tax revenue are sustainable aviation fuels (SAFs), which currently suffer from high production costs. Governments could use tax revenue to subsidize the research and production of SAFs or to incentivize airlines to transition away from traditional jet fuel. The result would be a within-industry offsetting of additional carbon emissions from private jets by reduced emissions from commercial airlines.
Looking outside of aviation, tax revenues could be invested in alternative transport infrastructure, such as high-speed rail and electric bus systems. The policy logic would be that if more frequent flyers had access to alternative transportation means, they might opt to remain grounded for carbon-intensive shorter trips.
Ultimately however, to achieve any climate change-centric policy outcomes, the funds raised from these taxes must be explicitly set aside for climate action rather than thrown into the pools of general government budgets. Corresponding transparency and accountability in revenue spending is necessary to maintain public support and ensure the policies achieve the intended environmental goals.
Curtailing Excessive Flying
Alternatively, if the aim of frequent flyer or private jet taxes is to reduce carbon emissions by changing behavior, the current proposals may not go far enough. While increasing the cost of each additional flight is a step in the right direction in terms of pricing-in emissions to flight costs, modest price hikes are unlikely to be a serious deterrent for wealthy travelers.
The European study examined a proposed €100 additional levy for extra return flights—a rate far too low to cause jet setters to rethink their chosen mode of transportation. Frequent fliers are disproportionately higher income and higher net worth individuals, so a tax aimed at that group would generate 80% of its revenue from the richest 20%. The downside of a tax that successfully targets wealthy individuals is its effect on behavior may be blunted—wealthier people are less sensitive to cost increases.
For policies to lead to a meaningful reduction in air travel, particularly among the super-wealthy, the taxes would need to be significantly steeper and progressively structured based on income and flight frequency. Put simply, there would have to be a point at which it is nearly impossible for anyone to afford one more flight in a given year.
Considering private jet taxes, the need for steep rates is even more pronounced. A €100, €1,000 or even €10,000 surcharge per flight would be unlikely to significantly change private jet users’ travel habits as the flights are already expensive. Income-based levies or higher surcharges for luxury travel would need to be high enough to make the flights prohibitively expensive for all but the most important trips.
A policy with behavior change as its success metric would need to go beyond merely making flying more expensive or raising some additional revenue, it would need to shift social norms around frequent travel. In a manner similar to how we have seen shifts in social attitudes towards smoking, excessive energy consumption, or conspicuous pollution, private jet use and frequent flying would need to be framed as socially irresponsible. Public campaigns, alongside steep taxes, could help make it clear that frequent flying is not only an expensive indulgence, but a significant contributor to climate change.
Outlook
The debate over aviation taxation ultimately hinges on the goals of the policies—if the goal is merely to raise revenue, then the emphasis should be on how that revenue is spent. If the goal is to significantly reduce the emissions caused by frequent flying, the tax structure must be much more aggressive.
If, ultimately, a successful end state is that these practices are taxed out of existence, policymakers should be cautious about becoming reliant on the revenue streams generated. Building up extensive infrastructure or long-term investment plans creates a conflict of interest, at best, and at worst betrays the expectation or resignation that the practices will continue indefinitely—and these taxes are merely a cash grab.
In sum, unless we have a foolproof technology to scrub the atmosphere of carbon that tax revenue can be invested in, these policies should be seen as temporary tools for driving change—not sustainable sources of income. Acknowledging that reality, existing frequent flier and private jet taxes must be raised substantially.
Read the full article here
