EU countries mull 20-year tax holiday for jet fuel, document shows

By Kate Abnett

BRUSSELS (Reuters) - European Union countries are considering delaying the introduction of EU-wide taxes on polluting aviation fuels for 20 years, as they seek a breakthrough on tax reforms that have been negotiated for years with little progress, a draft document seen by Reuters showed.

The European Commission proposed an overhaul of energy tax rules in 2021 to make them more climate-friendly, including by gradually introducing taxes on fuels for flights within the 27-nation bloc, which currently escape EU-wide levies.

After countries could not agree on earlier proposals that would introduce a minimum EU tax rate for jet fuel from 2028, they are now considering exempting both aviation and maritime fuels from these taxes for a further 20 years, a draft compromise seen by Reuters showed.

"Since currently there is not enough sustainable alternative fuel (SAF) on the market, the taxation of aviation fuels would result in price increases of air tickets and not in a general switch from fossil fuels to SAF," the document said.

Only small aircraft with a maximum of 19 seats, and boats used for "private pleasure navigation" would face minimum EU taxes before the 20 years are up, it said.

For other aircraft and vessels, countries can introduce national levies if they choose - but they are not obliged to.

Under the draft compromise, EU countries would reconsider in 15 years whether to start applying EU minimum tax rates to aviation and maritime fuel once the 20-year holiday ends.

Other fuels, such as petrol used in cars, as well as electricity, already face minimum EU tax rates.

The compromise was drafted by Hungary, which holds the EU's rotating presidency and therefore chairs negotiations among EU countries until the end of the year. A spokesperson for Hungary's representation to the EU did not immediately respond to a request for comment.

EU country diplomats will discuss the proposal later this month.

Changing EU tax policy is fiendishly difficult because it requires unanimous approval from EU countries - meaning any one government can block it.

Climate campaigners, who have long called for an end to jet fuel's EU tax holiday, said a 20-year delay would be at odds with the EU's target to reach net zero emissions by 2050.

"By the time this tax would be in effect, the world is meant to have reached climate neutrality," said Jo Dardenne, aviation director at non-profit group Transport & Environment.

(Reporting by Kate Abnett; Editing by Mark Potter)