Editorial | Aviation fuel tax is bad news for Malta

The Energy Tax Directive being proposed by the European Commission may have noble aims but the burden of reaching its goals must not be disproportionately shared.

One aspect of the directive is a proposal to progressively charge a tax on aviation fuel for intra-EU travel. The tax will start from a minimum rate of 0% in 2023, gradually increasing by a yearly 10% to reach 100% over a period of 10 years.

Air Malta, the national carrier, has said this proposal will lead to fuel costs rising by 90% until 2033. Undoubtedly this will have a knock-on effect on ticket prices, making air travel to and from Malta more expensive over the foreseeable future.

Air Malta has made its case against the proposal, insisting that as a regional carrier it will be disadvantaged when compared to other airlines that also operate flights to and from outside the EU. The airline has warned that the imposition of the fuel tax on intra-EU flights only will lead to serious distortion of competition among carriers by putting at a disadvantage those which serve the intra-EU market only.

The airline believes taxation is not the answer to aviation sustainability and the reliance on taxation as the solution for cutting aviation emissions in the EU’s ‘Fit for 55’ is counterproductive to the goal of sustainable aviation.

It has argued that the tax will merely siphon much needed funds from the industry that could support emissions reducing investments in fleet renewal, clean technologies and the transition to Sustainable Aviation Fuels.

Air Malta said that the proposal to tax aviation fuel should be replaced by production incentives for SAFs, which reduce emissions by up to 80% compared to the traditional jet fuel. Currently, SAFs are still very expensive.

Air Malta has argued that taxation will destroy jobs whilst incentivising the production of SAF will improve energy independence and create sustainable jobs.

The airline does have a point. While the aviation industry has to pull up its socks in the fight against climate change, the carrot must come before the stick in an industry that is susceptible to external shocks.

But the impact of the proposed new tax on jet fuel will not only be felt by Air Malta but also by the country at large.

With Malta being an island nation on the periphery of the EU, making jet fuel more expensive will not spur a modal shift to alternative transport. Anybody wanting to reach Malta or leave the country has only two options – by air or by sea – and the new tax will simply render free movement more expensive for Maltese residents.

And by making it more expensive to travel to Malta, the tourism sector will also be hit hard. A Spaniard opting for a holiday in Malta would be paying a higher priced ticket for his flight between Madrid and Malta, than a flight from Madrid to Tunis. It would simply drive intra-European tourism, on which Malta heavily depends, to seek alternative, competing destinations in Mediterranean countries not part of the EU.

This is an impact that cannot be underestimated, especially when Malta cannot rely on alternative modes of transport to attract tourists.

In its well-placed zeal to achieve its climate targets the EU must ensure that the burden of change is equitable. Malta will lose out strongly if the proposed changes go through.

Air Malta has said that preliminary costings showed that Malta, Cyprus and Iceland will be the worst affected because of their status as island nations on the periphery.

The directive does suggest a zero-tax rate for SAFs in the first 10 years to promote their uptake but more incentives may be required to ensure these fuels are cheaper at production stage.

Airlines must also be encouraged to invest in fleet renewal by opting for fuel-efficient technologically advanced aircraft. Tax incentives to instigate this changeover should be considered.

A complete exclusion of jet fuel from the directive, as Air Malta is calling for, may not be an option. No one industry must be made to feel special because what would stop other sectors from claiming exemptions?

But opting for a punitive tax regime may not be the best option, especially for a small country like Malta where air travel is a geographically-imposed necessity.

The government needs to state its case at European Council level that a one-size-fits-all solution will simply create hardship and antagonise public sentiment against the noble ideal of fighting climate change. An aviation fuel tax as proposed is certainly bad news for Malta.