Regional airports annually serve 140 million passengers. A $10 per passenger eco-tax would generate $1.4 billion for reinvestment in mass transit – double the revenue generated by the George Washington Bridge.
Remarks to Port Authority of NY&NJ 11.21.2019
Last month, I called upon the Agency to implement CORSIA1 guidelines to mitigate greenhouse emissions from air travel. Today I will expand on those remarks.
Europe Air Travel Taxes
Attached is an ICF study2 detailing European efforts to both manage the near-term effects of “flight shame” and reconcile the industry’s long-term growth with the goal of carbon-neutrality.3
France called an éco-contribution of €1.5 for economy class within the EU and up to €18 for business class flying outside. This eco-tax is projected to raise €160 million ($200 million) per year.4
The Netherlands, at the behest of industry, proposed to tax departing passengers €7.5 Broadly, European taxes on air travel comprise 3% to 14% of total airfares.
ICF compares eco-taxes to “sin” taxes levied on products like tobacco and alcohol. The goal is to both modify consumer behavior as well as offset incurred costs. Each objective though, requires significant levies to be effective, partly because it takes a big financial hit to modify user behavior and partly because remedial actions, like health care and education, are so expensive.
Eco-Taxes in the U.S.
I believe European taxes provide a workable model for the U.S. and that the Agency is the logical candidate to administer it locally. It operates the region’s airports and can certify that the funds will be directed to transportation.
The NY-NJ governors should be in favor. Each has committed to aggressively address climate change. Each has cash-strapped mass-transit systems for which they’re held accountable.
Carriers have traditionally opposed airport fees, but the growing threat to their businesses should change that.
JFK, Newark and Laguardia airports annually serve 140 million passengers.6 A $10 per passenger eco-tax would generate $1.4 billion for reinvestment within the Port District – double the revenue generated by tolls across the GWB. Added costs would be administrative, not capital.
Legally, the Agency is constrained how much it can levy in passenger facility charges (“PFC”) and for what purpose7 – it has been fined for “improperly subsidizing” non-airport-related projects.8
However, unlike PFCs, the purpose of an eco-tax would not be to create infrastructure to encourage more flying. Rather to mitigate its impact on the environment. An eco-tax should be feasible if the PA can prevail upon carriers to raise fares and then ring-fences the proceeds into a transportation lock box.
Restrictions comparable to PFCs apply to air freight.9 But that industry will also be held to account for emissions generated by older, less efficient fleets, retired from passenger service.10 Certainly, FEDEX is the new poster child for non-payment of taxes.11
Awareness of aviation’s role in climate change is growing. The World Travel and Tourism Council designated climate change an existential threat to the industry.12 Citibank projects that the cost to offset U.S. travel could rise to $3.8 billion per year by 2025 – for economy seats alone.13
Presuming air carriers are aware, they could be motivated to overcome their traditional opposition to airport taxes.14 But, whether or not the industry acknowledges it, climate change poses a fundamental challenge to its business.
It cannot continue to externalize the costs of its carbon emissions without consequence. It must show that fees (profits) generated by flying reduce significantly more emissions than it generates. Otherwise, it faces a generational boycott15 and the degree of opprobrium now accorded to tobacco companies and, increasingly, to the oil industry.
Ultimately, federal legislation will be required. Climate change, a global problem, cannot be addressed by individuals or states alone. Carbon-efficient mass transit is an essential part of the solution, but new funding sources, such as eco-taxes are needed.
The Agency can play a major role in moving that agenda forward right now. It certainly has the mandate and the wherewithal.
To quote former General Electric CEO Jack Welch: “Change before you have to.”
EcoTax followup – 12.12.2019
Last month, I called upon the Agency to work with air carriers to implement a carbon tax. The question then arose if there were such arrangements in the U.S.
I’m not aware of any, but I did find that Lufthansa will offset corporate travel starting in 2020. And EasyJet, a British-based carrier serving the EU, now offsets all flights at an annual cost of $33 million. EasyJet flew 96 million passengers in 2018.16 17
1 “CORSIA”, Complete George, https://tinyurl.com/s25x676
2 “Aviation taxes and their role in managing aviation’s carbon footprint”, ICF, 2019, https://tinyurl.com/yx26a7k8
3 “There’s no way to ‘put a passenger jet on a long-distance flight without burning through 100 tonnes of fossil fuels.’ says Mike Berners-Lee, a carbon footprint specialist and professor at Lancaster University., Flight shame: Airlines are under rising pressure to cut their carbon emissions.”, Los Angeles Times, 8/28/19, https://tinyurl.com/y2rjej7t
4 “Economy class flights within the EU will be taxed €1.50. Business class flights out of the EU will have the highest tariff of up to €18. The tax is expected to raise $200 million per year after 2020., France plans ‘eco-tax’ for air fares.”, BBC,7/9/19, https://tinyurl.com/sesh3xs
5 “Flight-Shaming” Taxes: Climate Policy or Opportunism?”, Forbes, 10/29/19, https://tinyurl.com/sh2vg5j
6 Air Travel Report 2018, Port Authority of NY&NJ, p. 1, https://tinyurl.com/y6ql5hag
7 “Passenger Facility Charge (PFC) Program – Airports”, Federal Aviation Administration, https://tinyurl.com/skym9v7
8 “The FAA said there was no way to figure out how the Port Authority comes up with the fees it charges. Willis found “no established, consistent, clear and fully justified method of establishing the rate base on a predictable schedule.” United said the PA’s current rate formula results in fees that are 38 percent above actual costs. FAA Blasts Newark Airport for How It Charges Airline Fees”, Bloomberg, 2018, https://tinyurl.com/tsqwr9v
9 Federal Excise Taxes on Air Freight (A Twisted Logic Game), Wiley Rein, 2011, https://tinyurl.com/wwbwbwx
10 “Now entering their golden years, many of the remaining 640-or-so 757-200s are finding new homes as freighter aircraft., Amazon And Alibaba Save The Boeing 757”, Forbes, 4/2/19, https://tinyurl.com/up7xoq6
11 “How FedEx Cut Its Tax Bill to $0”, NY Times, 11/17/2019, https://tinyurl.com/v2gm2dw
12 “Changing climate could destroy industry, travel CEOs warned”, Travel Weekly, 9/26/19, https://tinyurl.com/wtngopy
13 “‘Flight Shame’ Predicted to Make Carbon Offsetting Big Business”, Bloomberg Environment, 10/23/19, https://tinyurl.com/w9kn2yv
14 “Five Reasons Airports Don’t Need A PFC Increase.”, Airlines for America, https://tinyurl.com/rzaelry
15 “I’d assumed that electricity and driving were my largest sources of emissions. Instead, it turned out that the 50,000 miles I’d flown that year utterly dominated my emissions., How Far Can We Get Without Flying?”, YES! Magazine, Spring, 2016, https://tinyurl.com/s3627lj
16 “EasyJet to offset carbon emissions from all its flights”, The Guardian, 11/19/19, https://tinyurl.com/wk5jtnm
17 “Can carbon offsets tackle airlines’ emissions problem?”, The Guardian, 11/19/19, https://tinyurl.com/rlksflz