Global Air Travel: The Battle of Sustainability, Sovereignty and Interconnectivity

By Kevin McDonald

Air travel has increasingly landed at forefront of the debate over global warming and the impact of carbon emissions from transportation.  Indeed, a January 26, 2013 article in the New York Times blared “Your Biggest Carbon Sin May Be Air Travel.” At the heart of this debate is the European Union’s attempt to impose a carbon tax on airplanes bound to or from EU airspace in an attempt to force air travelers to internalize the purported cost of carbon emissions in the hopes of altering behavior and incentivizing innovation to reduce emissions.  This plan raises significant issues, however.  The policy infringes on the ability of each nation to set its own taxing and regulatory decisions and encourages retaliatory actions that muddy the waters. It more importantly reduces the interconnectivity of the global economy by making travel more expensive and highly regulated. Although the European Union has the right to make taxing and regulatory choices to pursue policy decisions on behalf of its citizens, its willingness to try to extend this policy to the citizens of other polities threatens to disrupt global exchange of ideas and sovereignty.

The link between the need for carbon emission reductions and sustainability has become tightly intertwined due to the fact that most policymakers consider carbon emissions, which trap atmospheric heat, as the leading cause of global warming. They in turn consider global warming the biggest threat to the sustainability of global development.  The European Union, insulated from the pressure of electoral politics has been a global leader in attempting to address carbon emissions. This new airline carbon tax, due to take effect under EU rules in 2014, requires all airlines to pay a tax based on the total mileage of all flights departing or landing in the EU, including the portion outside EU airspace.

The first key issue of this policy is that it abrogates the sovereign authority of countries over their own airspace. By taxing a plane from Dallas to Frankfurt on its total flight miles, the EU is asserting its authority even over the section of the portion of the flight from Dallas to the shores of the UK.  Transportation represents the movement of goods and ideas, which is essential the success of a vibrant global economy.  Countries must jealously guard the prerogative of their citizenry to pass unimpeded because without that freedom, the sustainability of their nation’s innovation and economy is threatened.

The second, more challenging issue is the validity of the tax to achieve a more sustainable air travel system. A tax would undoubtedly reduce air travel demand and encourage airlines and manufacturers to introduce innovation into airplane design. However, a global solution where a working majority of leading nations could agree to shared goals should be the end goal. Piecemeal standards and beggar-thy-neighbor emissions taxes could result in a jaded public. Instead, policymakers should work together, especially when it may be possible to have technological innovation reduce emissions without actually forcing fewer people to travel.

 

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3 thoughts on “Global Air Travel: The Battle of Sustainability, Sovereignty and Interconnectivity

  1. I understand that airlines would prefer not to pay any taxes, and I agree that a carbon tax adds to transaction costs for global idea exchange. Yet, I support the EU’s decision to include airlines in its cap-and-trade system. In fact, I had been upset when airlines were exempted. Here is my critique of the blog post.

    First, I get the impression that the article questions the relevance of air travel for global warming. Granted, passenger air travel accounts for only 3% (or so) of global emissions, often the smallest visible part of emissions pie charts. Yet, these emissions are caused by a tiny wealthy group of citizens for many of whom air travel is actually the largest share of their personal emissions. My CO2 footprint of ~40 tons, for instance, is about eight times global average and four times German average (10 tons) – almost entirely due to air travel (31 tons). [The reason is NOT that I study in the U.S.; while in Germany, my emissions were 5 times average.] These numbers not only show that few people cause most of the damage, it also gives an idea of what is to come when billions of people in developing countries grow their incomes and start embarking on remote destinations for vacation. Also bear in mind that greenhouse gases cause 3-5x the damage up in an altitude of 30,000ft.

    Second, the article questions the right of governments to tax outside their borders. Intuitively, I would agree, but that agreement is limited to income, corporate, property and similar taxes only. Governments have the right to impose import duties or demand quality standards for products. And every sales or value-added tax, in fact, taxes foreign products as it applies to imported goods already today. I am a big fan of free market capitalism and free trade; facing the largest market failure in human history (externalized cost of GHG emissions), however, I would even support an import duty on products from countries without a carbon price that reflects its approximate emissions.

    Third, although I absolutely support a global policy framework to combat climate change, Kyoto has proven sub-optimal due to the prisoners dilemma that incents non-participation. Instead of a top-down approach, I am now convinced, only decentralized bottom-up initiatives will make a difference. Once 30+ U.S. states have introduced some sort of carbon price or renewable energy quota, the others and/or the federal government will likely follow suit. I believe, the same applies on a global scale.

  2. The argument against carbon taxation on air travel seems to rely on the ideal of perfectly open economies unencumbered by distorting public policy decisions. However, this same economic theory rests on the assumption that all costs present and latent are included when making economic decisions. From the cases that we’ve come across so far such as BRT in developing countries or protection of at-risk established cities, public policy decisions revolve around a trade-off between present cost and future benefit. What distinguishes the global warming topic is that the cost is palpable while the benefit is largely the avoidance of a reduction in standard of living at some future time perhaps even for a different generation which is hard for people to appreciate.

    The air travel tax is no doubt a complicated issue with many logical arguments on both sides. Looking at it at the surface, the effect of instituting taxes will as a first order condition reduce travel to and from Europe. The constituents most affected by this extra cost should be individuals and corporations in Europe who will see their tourism figures and international trade drop. At that point the viability of the tax will be a matter of the tension of how elastic those constituents’ demand for helping reduce carbon emissions. As a U.S. consumer I don’t feel like my liberties are somehow impinged because a foreign government taxes me for travel to its country. I will continue to make rational decisions. If a trip is now prohibitively expensive to Europe then I won’t fly there. Why should I agitate for wanting to fly without paying for my carbon footprint?

    Moreover, wouldn’t retaliatory action by other governments be a good thing? If EU taxes forced every other sovereign to impose a similar tax then that would effectively lead to a global carbon tax on air travel. In the meantime, private enterprises (e.g. Boeing, Airbus) would now have the incentives to come up with more efficient designs to recoup the lost revenue from reduced air travel.

  3. In my opinion, the EU imposing taxes on flights operating from their airports is to be understood as a beggar-thyself policy. Carbon emission taxes on air traffic are a decision from European policymakers to sacrifice their airlines’ economic competitiveness to a global common (climate change). The major economic costs of this measure are derived to European airlines, and not to non-European airlines flying to Europe. It is has not either been determined whether this tax would actually decrease air travel (and emissions).

    Every other flight of any European carrier will be carbon-taxed since, except for some rare fifth-freedom flights, those will be intra-European or using a European airport. Non-European airlines will be taxed only in their flights to Europe; flights that are only a part of their business. The impact on their total operating costs is likely to be less relevant. Eventually, non-European airlines would cancel unprofitable routes to Europe, leading to less competition and higher prices for European customers.

    Most importantly, the EU seems to deliberately ignore the hub model of global air traffic, and how airports outside the EU will comparatively benefit from this taxation. Air traffic from Europe is increasing fundamentally to Asia. Competition from carriers like Turkish Airlines, Emirates, Etihad and Qatar Airways is fierce and a major concern for European airlines, since they are tapping the Europe-Asia market with their convenient location between the two continents.

    For instance, a passenger flying between Madrid and Hong Kong (cities with no current direct service) might choose, among others, to fly via Frankfurt with Lufthansa or via Dubai with Emirates. Flying with Lufthansa, the passenger will pay carbon tax on the whole journey of 5,719 nautical miles. Flying Emirates, the same passenger would pay tax only on the 3,055 nm journey from Madrid to Dubai, but the 3,202 nm Dubai – Hong Kong flight will be exempt of any European carbon tax.

    European airlines will hardly avoid paying this tax, but foreign carriers from powerful countries are likely to litigate with the European Union. China’s four major airlines have refused to pay this carbon tax and the US Congress signed a bipartisan bill shielding US airlines from paying a carbon tax for flying to Europe.

    Ultimately, European airlines will be worse-off with the new tax imposed by the EU, while non-European carriers will be in a comparatively better position.

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