ICAO “deeply concerned” over proposals to raise global climate finance through international levies on aviation

In a letter to its 193 member states, ICAO Secretary General Juan Carlos Salazar has urged them to “express a clear concern” over proposals elsewhere for countries to impose new taxes or levies on international aviation to help mobilise global climate finance. 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. A number of UN bodies and international organisations, including the International Monetary Fund, have put forward proposals that identify the aviation and maritime sectors as potential sources of funding. An article on the ICAO website says the proposals are “deeply concerning” as they undermine the efforts and achievement by ICAO to develop a single global market-based measure – CORSIA – for international aviation.

“As the specialised UN agency for international aviation, ICAO has worked tirelessly to develop a global solution to address international aviation emissions, with the strong support of its member states and the aviation industry,” says the article, which traces the work at ICAO starting back in 1995 that culminated in the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).

Having recognised emissions from international aviation – ICAO’s remit does not cover domestic emissions – had to be addressed, the UN agency first looked at levies, or charges, on fuel, tickets, routes or airports, with findings presented to the 32nd ICAO Assembly in 1998. However, diverging views emerged, with developing countries saying that a CO2 charge would impose financial pressure on their air carriers, detrimentally impacting their long-term growth and economic and social development.

Levies and taxes were subsequently ruled out as they were considered, says the article, to suppress demand without incentivising fuel efficiency improvements, involve unresolved legal issues, would not facilitate access to carbon markets, increase the economic burden and fail to align with guiding principles for market-based measures (MBMs) guiding principles. Other MBMs were considered, such as an open emissions trading system and a carbon offsetting mechanism.

After further work was carried out by various high-level groups and amid often fractious negotiations, ICAO member states passed a resolution at its 39th Assembly in 2016 agreeing to the CORSIA scheme, based on carbon-neutral growth of the aviation sector from 2020. The resolution also determined that “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 should be accounted for only once.”

At its 41st Assembly in 2022, states further adopted a collective long-term global aspirational goal (LTAG) of net zero carbon emissions by 2050. Subsequent technical analysis showed that access to an estimated $3.2 trillion would be required to support the LTAG in developing and deploying sustainable aviation fuels and other cleaner aviation energies.

“It is crucial to understand that the transboundary nature of international aviation operations requires a globally harmonised MBM in the form of CORSIA to effectively and feasibly address international aviation emissions. Moreover, it is important to recall that the purpose of an MBM scheme is to address aviation emissions that cannot be reduced through in-sector measures, rather than to generate revenue for other purposes,” says the article.

“The recent revival of proposals on aviation emissions levies by certain UN bodies and other organisations are deeply concerning since they risk undermining the significant achievements and extensive efforts made to develop a global MBM for international aviation that was agreed by the ICAO Assembly and will hinder the implementation of the basket of measures including SAFs.

“We urge all stakeholders to recognise 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, ensuring the sustainable development of the sector and effective mitigation of aviation emissions.”

Among those proposing an extra tax or levy on international aviation (and shipping) is the International Monetary Fund (IMF). A staff paper published last October said the need to decarbonise the two sectors had “long been overlooked” and accounted for a small but rapidly growing share of global CO2 emissions.

“Pricing these emissions could help global climate policy in two ways. First, it could accelerate technological development while incentivising efficiency, kick-starting the [two] sectors’ transition to net zero while addressing the sectors’ hitherto favourable tax treatment. Second, pricing could raise up to $200 billion a year in revenues by 2035, which could be allocated to climate finance or other uses.”

The paper acknowledges that there are significant political obstacles in reaching a consensus, notably on revenue allocation and managing price impacts, which could be substantive for flight tickets.

A report presented by the Global Solidarity Levies Task Force 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.

It estimated 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. 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.

While acknowledging ICAO’s commitment to reducing its environmental footprint through the CORSIA scheme and the LTAG, the report argued that international aviation is usually exempted from VAT or sales taxes and could therefore contribute to balancing the tax burden with other sectors.

“A discussion would need to be held whether the  revenues are to be recycled within the industry, or if it can be politically agreed to be used as direct compensation for the most affected countries, or a mix of both,” said the report.

“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,” it added.

“There are also legal barriers. Many bilateral air service agreements between states often prohibit taxation of kerosene and may need to be amended. However, the common ‘exemption’ on the ‘basis of reciprocity’ in these agreements is not absolute and permits states to introduce a fuel tax if they wish to.

“It is also a misconception that the ICAO Chicago Convention completely prohibits the taxation of all aviation fuel. In fact, it only applies to the taxation of fuel already on board of an aircraft and does not prevent the taxation of aviation fuel uptake.”

It noted the French Solidarity Levy on air passenger tickets had generated around €227 million annually since 2016 and totalling €1 billion between 2006 and 2013.

The Task Force, which is co-chaired by Barbados, France and Kenya, was established at COP28 and in 2024 launched the Coalition for Global Solidarities as an international platform “advocating for climate justice”, with 17 country members, mainly from the developing world, and three observers from Germany, the African Union and the European Commission.

Influential think tank the International Institute for Sustainable Development released a paper in February, ‘Fossil Fuel Subsidy Reform in Aviation and Shipping’, which said fossil fuel subsidies in the two sectors had led to higher GHG emissions, unequal tax burden sharing and an uneven playing field for competing modes of transport.

“The best way to achieve a globally implemented price on aviation fuels would be through an international agreement at ICAO on an emission levy,” it proposed. “With increased global attention on aviation fuel taxation as a form of climate solidarity levy, 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.”

Negotiations are also 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.

Meanwhile, at its latest meeting earlier this month, member states at ICAO’s sister UN agency the International Maritime Organization (IMO) voted to approve mandatory net-zero regulations for global shipping. Under the draft regulations, expected to be formally adopted this coming October before entry into force in 2027, large ocean-going ships will be required to comply with a reducing annual GHG fuel intensity (GFI) global fuel standard and a global economic measure in which ships emitting above GFI thresholds will have to acquire remedial units to balance deficit emissions, while those using zero or near-zero GHG technologies will be eligible for financial rewards.

The IMO Net-Zero Fund will be established to collect pricing ‘contributions’ from emissions and then disbursed. The IMO estimates $11 billion to $13 billion in revenue could be raised annually from fees set at a minimum $100 for every ton of GHGs emitted above certain thresholds.

The agreement was a compromise, with many developing and small island member states having called for a global carbon levy in which all ship owners would be required to pay for every ton of GHG emissions that they produce. As well as encouraging companies to switch to cleaner fuels, under the levy proposal a new fund would have been created with revenues used to support further climate action and even channelled into climate finance beyond the shipping sector.

Photo: The ICAO 39th Assembly in 2016 adopted CORSIA as “the only global market-based measure applying to CO2 emissions from international aviation”

Christopher Surgenor

Editor

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