Fossil Fuel Subsidy Reform in Aviation and Shipping

Fossil fuels are rarely taxed in the aviation sector. For domestic flights, there is generally no legal barrier to fuel taxation, and countries could implement these taxes to create a level playing field between aviation and other transport modes. Fuel for international flights is often not taxed due to international air service agreements and, in the case of the European Union, the Energy Taxation Directive (ETD). Implementing an aviation fuel tax when air service agreements do not explicitly prohibit it, reforming these agreements—or in Europe, reforming the ETD—are options for countries to address these fossil fuel subsidies. Engaging with other countries at the International Civil Aviation Organization may present opportunities to introduce a global aviation emissions levy.

For shipping, domestic and regional legislation would need to be reformed to introduce a tax on shipping fuel. Internationally, ports face competition-related pressure to avoid taxing maritime fuel, as ships can travel long distances on one load of fuel and choose ports that offer cheaper refuelling. Although there are no plans to introduce a shipping fuel tax internationally, an emissions levy with similar effects to a fuel tax is likely to be established by the International Maritime Organization later this year. Negotiations are ongoing, and countries should support introducing a levy of more than USD 100 per tonne of carbon dioxide, with revenues potentially used for improving ship efficiency and lower-emission fuels, as well as providing climate finance for countries in the Global South.