Climate finance has always been a contentious subject, not only the contribution from different sectors of the global economy, but also on how the funds should be disbursed. Proposals put forward by some UN bodies and international organizations, including the International Monetary Fund, identifying aviation and maritime sectors as potential sources of funding, have been met with skepticism.
An article on the International Civil Aviation Organization (ICAO) website says the proposals are “deeply concerning” as they undermine the efforts and achievements by ICAO to develop a single global market-based measure, the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). However, could a frequent flyer tax or kerosene levy be the answer to climate finance shortfalls?
The Climate Finance Gap
Creon Butler, Director, Global Economy and Finance Programme, Chatham House, says “More than $1.7 trillion was invested in clean energy alone in 2023, but this compares poorly with a total estimated climate finance need of $8 trillion a year today, rising to $10 trillion a year after 2030.”
In 2009, developed countries agreed to raise $100 billion annually to support climate action in the developing world, which was replaced by a new goal of $300 billion a year at COP29 in Baku last November, potentially scaling up to at least $1.3 trillion a year by 2035.
The Global Solidarity Levies Task Force: For People and the Planet, formed at the COP28 in November and jointly led by France, Kenya, and Barbados, launched the Coalition for Global Solidarities as an international platform advocating for climate justice, with 17 country members mainly from the developing world.
According to the United Nations Environment Programme, the adaptation finance gap is estimated at US$194–366 billion annually, with current international public finance flows for adaptation falling significantly short.
Data shows that the number of air passengers is projected to more than double by 2050, causing surging fuel demand and undermining the aviation industry’s steps to reduce its emissions.
The Proposals on the Table
A report presented by the Global Solidarity Levies Taskforce during COP29 proposed consideration of a levy on aviation kerosene, with options including a “coalition of the willing” working towards a global kerosene levy or implementation of a kerosene levy on private jets, and/or a levy on aviation tickets that targeted “luxury flights” or a frequent flying levy.
The report argued that international aviation is usually exempt from VAT or sales taxes and could therefore contribute to balancing the tax burden with other sectors, and taxing aviation fossil fuels is the most efficient way to price carbon emissions and to raise funds, but requires addressing concerns around level playing fields.
The report estimated that a levy of €0.33 per litre globally from the consumption of kerosene jet fuel for international flights would generate around €18 billion ($19bn) per year. Moreover, a frequent flyer levy starting at $9 for a person’s second flight and rising to $177 for their twentieth flight within the same year would generate an estimated $121 billion per year.
However, these proposals have not been without opposition. A statement by ICAO highlights that the proposals on aviation emissions levies are deeply concerning since they risk undermining the significant achievements and extensive efforts made to develop a global Market-Based Measures (MBM) for international aviation.
According to ICAO, it is a misconception that the Chicago Convention completely prohibits the taxation of all aviation fuel. However, it only applies to taxation of fuel already on board of an aircraft and does not prevent the taxation of aviation fuel uptake.
The statement further urged stakeholders to recognize the history and significance of the global MBM scheme for international aviation and to continue supporting the implementation of CORSIA as the only global MBM scheme for international aviation.
CORSIA is the only global market-based measure applying to CO2 emissions from international aviation so as to avoid a possible patchwork of duplicative State or regional MBMs, thus ensuring that international aviation CO2 emissions are accounted for only once.
However, levies have proved to be successful when imposed correctly. The French Solidarity Levy on air passenger tickets had generated around €227 million annually since 2016 and a total of €1 billion between 2006 and 2013. The Solidarity Levy (known as UNITAID) is widely recognized for funding global health programs, particularly for HIV/AIDS, malaria, and tuberculosis treatments in developing countries.
Negotiations are ongoing over the UN Framework Convention on International Tax Cooperation, which is aiming to close gaps in existing tax systems that prevent many countries, particularly in the developing world, from collecting cross-border tax revenues, for example, from the digital economy.
The convention could also help align global tax systems with environmental goals and is looking at environmental taxes, like those on fossil fuel production, aviation, and shipping, which would allow developing countries to increase their tax base while addressing climate change. The aim is to finalise the convention and its protocols by 2027.
The International Institute for Sustainable Development proposed that a global coalition of countries could overcome current resistance at ICAO to start negotiating such an agreement. This could also increase fuel efficiency and accelerate the transition to sustainable aviation fuels.
However, the lingering question is, ‘Is the global community strong enough to ask flyers to help fund the planet’s future?’
