Sustainable Finance and Energy Taxation Initiatives

In order to direct investments towards sustainable products and activities, the EU has introduced a classification system, or “EU Taxonomy”. This EU Taxonomy is expected to play a crucial role in scaling up sustainable investment and implementing the European Green Deal by providing companies, investors and policymakers with definitions of which economic activities can be considered as environmentally sustainable. Under the Taxonomy Regulation 

, “Technical Screening Criteria (TSC)” have been developed for economic activities in various sectors. These TSC determine the conditions under which an economic activity qualifies as Taxonomy aligned and should be reviewed on a regular basis, and at least every 3 years.

On 9 December 2021, a first delegated act on sustainable activities for climate change mitigation and adaptation objectives of the EU Taxonomy (“Climate Delegated Act”) was published in the Official Journal 

. It included the activity on low carbon airport infrastructure as well as on manufacture of hydrogen and hydrogen-based synthetic fuels.

The Climate Delegated Act 

 was amended in 2023 to include the following additional aviation-related activities: manufacturing of aircraft, leasing of aircraft, passenger and freight air transport and air transport ground handling operations.

The new TSC focus on incentivising the development and market introduction of aircraft with zero direct (tailpipe) CO₂emissions, and the “best-in-class” aircraft (see 

) is just one element in a wider set of TSC. In addition, and as transitional activities, the TSC also incentivise the manufacturing and uptake of the latest generation aircraft that replace older, less fuel-efficient models without contributing to fleet expansion. The latest generation aircraft are identified by referring to a certain margin to the CAEP/10 ICAO New Type Aeroplane CO₂ standard, several other requirements and ‘do no significant harm’ (DNSH) criteria, including on emissions and noise. In addition, the TSC also puts a strong emphasis on the replacement of fossil jet fuel with Sustainable Aviation Fuels (SAF) and the technical readiness of the aircraft fleet to operate with 100% SAF.

Aviation fuel, other than in private pleasure-flying, is currently exempted from taxation under the EU Energy Taxation Directive. EU Member States could tax fuel used for domestic flights or for intra-EU transport if agreed between the Member States concerned on a bilateral basis, although none currently do so. As part of the ‘Fit for 55’ Legislative Package, the European Commission has proposed to introduce minimum rates of taxation for intra-EU passenger flights that would encourage a switch to sustainable fuels as well as more fuel-efficient aircraft 

. According to the proposal, the tax for aviation fuel would be introduced gradually over a period of 10 years before reaching the final minimum rate of €10.75/GJ (approximately €0.38 per litre). In comparison, sustainable aviation fuels would incur a zero tax rate during this same period and after that benefit from a lower minimum tax rate. No agreement on a final Directive has been achieved to date

In recent years, some airlines have introduced voluntary offsetting initiatives aimed at compensating, partly or in full, those CO₂ emissions caused by their operations that are not mitigated by other measures. Such voluntary initiatives have the potential to contribute to a more sustainable aviation sector, assuming that investments are channelled to high quality offset credits that meet certain quality criteria, e.g. additionality.⁸ However, there has been some criticism of the quality of offset credits in this unregulated voluntary market, as well as scepticism of such voluntary activity enhancing aviation sustainability 

.

STAKEHOLDER ACTIONS

Airbus developed ACCO with the aim to bring to the aviation industry high-environmental integrity, scalable and affordable carbon dioxide removal credits 

. ACCO looks to support the management of the remaining and residual CO₂ emissions of aircraft with the latest carbon removal technologies.

As a first step, Airbus partnered with 1PointFive for exploring direct air carbon capture and storage solutions for the aviation industry. In particular, 1PointFive is developing a large-scale facility expected to capture 0.5 million tonnes of CO₂ per year starting in 2025. Airbus has committed to purchase 400 000 tonnes of CO₂ removals. This initiative aims to support efforts for decarbonising and mitigating Airbus' Scope 3 emissions from the use of its sold product, and also contributes to the larger efforts already underway across the aviation industry.

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⁸ “Additionality” means that the carbon offset credits represent greenhouse gas emissions reductions or carbon sequestration or removals that exceed any greenhouse gas reduction or removals required by law, regulation, or legally binding mandate, and that exceed any greenhouse gas reductions or removals that would otherwise occur in a conservative, business-as-usual scenario.