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Air France-KLM Leads Tax Pushback In Climate Vs. Recovery Fight

Published on Oct 1 2020 12:43 PM in Features tagged: Air France-KLM

Air France-KLM Leads Tax Pushback In Climate Vs. Recovery Fight

Air France-KLM is battling new green taxes on top of the coronavirus crisis in a test of growing policy tensions between righting Europe's crippled airlines and delivering on climate goals.

The Franco-Dutch group, which is being sustained by €10.4 billion in state-backed loans, faces higher duties in both home markets as well as EU plans to hike a.irlines' carbon costs.

The struggle unfolding around Air France-KLM is part of a larger reckoning for carbon-intensive industries as efforts to tackle global warming spawn more taxes and regulation.

While campaigners say those are long overdue, crisis-hit airlines warn their timing and severity will cost thousands more jobs and hurt development of lower-carbon technologies.

New taxes "do not support emissions reductions", Air France-KLM chief executive Ben Smith said in response to proposed increases to French passenger duties.

"In fact, it's counterproductive and would deprive us of finances that could otherwise be invested in environmental projects," he told an online industry forum this month.

Tensions can only rise as emissions goals are toughened to slow dangerous climate change. The European Union's executive now wants to cut greenhouse gas output by 55% in the next decade rather than the previous 40%, from a 1990 baseline.

While the COVID-19 pandemic has dampened climate protests led by Extinction Rebellion and Swedish activist Greta Thunberg, their political legacy must be squared with the economic emergency.

Green Wave

French municipal elections saw the ecologist EELV party take Lyon, Bordeaux and Strasbourg in a June 28 "green wave". The next day, President Emmanuel Macron promised to advance 146 proposals from a "citizens' climate convention".

Those include an airline duty increase to €30 per short-haul economy passenger and €400 for long-haul business, from their current €1.50 to €18 range. At 2019 traffic, officials say the sector would pay €4.2 billion.

Key members of the government, which underwrote €7 billion for Air France, are backing away from the pledge as officials draft legislation in response to the convention.

"It would be grotesque to take back with one hand what we'd given the sector with the other," French finance minister Bruno Le Maire told French daily newspaper Les Echos.

Le Maire and his Dutch counterpart were among nine EU finance ministers who had called for "taxation or similar policies" to curb emissions by raising air fares.

From January 1, the Netherlands is introducing passenger duties worth €220 million at pre-crisis traffic. A Greenpeace legal challenge is also demanding steeper emissions cuts in return for KLM's €3.4 billion aid package.

Offsets Upset

Airline emissions account for 2.5% of the global total, but are set to triple by 2050. Under a UN-brokered programme, CORSIA, the industry aims to counter emissions growth from international flights with carbon offsets, the effects of which are contested.

Airbus has given itself until 2035 to put a "zero-emission" plane into service, but many are sceptical about that deadline. Synthetic fuels are also too scarce and expensive to offer a near-term solution.

For intra-European flights, airlines would face a higher bill for European carbon credits under plans outlined this month to reduce free permits for the sector.

EU officials have also signalled likely moves to end a tax exemption for jet fuel enshrined in international treaties, a process that could take several years.

Germany, which has pushed ahead with an airline tax increase to fund cheaper rail travel, plans binding minimum quotas for carbon-neutral alternative jet fuel.

Far from giving struggling airlines a break, campaign groups are urging governments to use bailouts to force faster progress.

"Airlines' reliance on governments strengthens the case for acting to cut their emissions," Andrew Murphy of Brussels-based Transport & Environment said.

Assuming a slow recovery, research commissioned by the group suggests CORSIA's market mechanism would price emissions as low as 17 cents per long-haul flight, leaving little incentive to curb greenhouse gases.

ICAO, the UN aviation agency that developed the programme, said that it "cannot comment on advocacy studies that have not been peer-reviewed", and stated that CORSIA complements a "carbon-neutral growth strategy" agreed among member governments that also draws on technology, operational gains and alternative fuels.

Not Fare

Other emissions-cutting proposals may divide the industry.

Air France-KLM's Smith called on French ministers to consider a minimum fare instead of taxes, citing the €40 minimum recently introduced in Austria. "Let's discuss that," he said in a newspaper interview.

While minimum fares can curb overall traffic and emissions without hurting traditional airlines' profits or jobs, they punish budget carriers and their customers.

"This is another mad idea from a high-fare airline that can only survive with over €10 billion of illegal state subsidies," Ryanair said. The low-cost giant is challenging rivals' EU-approved bailouts in court.

"Ordinary consumers all over Europe have benefited from and will continue to demand low fares, choice and competition," it said.

However these tensions play out, airlines face a rising tide of carbon costs on top of their current woes.

Christian Egenhofer of Brussels-based think tank CEPS said that maintaining fuel tax exemptions would present a "flagrant inconsistency" with EU climate goals.

Egenhofer stated that taxing fuel would be an important step even if rates started low, and asserted, "You know what happens with taxes - they always go up."

News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.

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