Report: The Impacts of Aviation Taxation in Ireland

The Aviation Carbon Tax Project models the impact of potential aviation carbon taxation and pricing measures. Modelling has been done on parts of the European Commission’s “Fit for 55” package, Ireland’s GDP, the contribution aviation makes to the economy and on sectors related to aviation.

The research was carried out by the Economic and Social Research Institute (ESRI) using their I3E Model. This model reproduces the structure of the economy in its entirety. It was designed to better understand the economic and environmental impacts of policies, and to inform the policy-making process.

This project was part funded by the IGEES Research Fund. It involved a project steering group chaired by the Department of Transport and included representatives from the Department of Public Expenditure and Reform, Department of the Environment, Climate and Communications, Department of Tourism, Culture, Arts, Gaeltacht, Sport and Media, and Department of Enterprise, Trade and Employment.

Key findings of the study were:

• The most effective method of taxation are those which target CO2 directly. This leads to the greatest emission reductions at the lowest cost to the economy or the aviation sector. This is in line with previous research which shows that taxing CO2 directly by targeting the carbon content of fuel is more efficient than taxing flights or passengers.

• The removal of free EU ETS allowances that airlines receive and taxing kerosene fuel would lead to the greatest emission reductions at the lowest cost to the Irish aviation industry and the economy. This is compared with other measures such as the implementation of passenger taxation or charging VAT on flights.

• The impacts of recent EU aviation taxation proposals under the Fit for 55 package will heavily depend on the future development of the EU ETS allowance price.

The Report and the Summary of Key Findings Document are presented below.