Mitigating tourism impacts from a global aviation levy or greenhouse gas pricing mechanism

A global aviation levy could generate massive climate finance while reducing emissions, but the industry claims it would devastate tourism in vulnerable countries. Our research reveals these tourism impacts represent less than 0.05% of potential revenues – making them easily mitigatable and removing aviation's last excuse for avoiding climate action.

Background

Aviation, climate change and the case for action

Aviation is responsible for 2.5% of global, energy-related, CO2 emissions every year – as well as non-CO2 impacts which contribute significant additional warming. These climate impacts disproportionately burden the world’s poorest, while just 1% of the world’s population produce more than 50% of the sector’s CO2 emissions.

Despite this gross injustice, the industry has largely avoided contributing to global climate finance and has made little progress toward reducing its climate impact. There are growing calls for a global aviation fuel levy, or greenhouse gas (GHG) emissions pricing mechanism for the aviation sector, which could help drive emissions reductions while raising finance for global climate action.

Tourism impacts – an argument against action?

Because the additional costs from any form of levy or GHG emissions pricing mechanism will be passed on to passengers via ticket price increases, demand for international aviation could be anticipated to fall. In turn, this could have knock-on impacts for tourism in destination countries, including Small Island Developing States (SIDS) and Least Developed Countries (LDCs). The aviation industry has repeatedly used this reasoning to argue against the adoption of a fuel levy or GHG emissions pricing mechanism, often without comparing these costs to the revenues raised by these measures, or accounting for the growing costs of climate change itself.

What’s covered in the report?

To close this evidence gap, we estimate the tourism impacts of a global aviation fuel levy – equivalent to a global price on aviation’s CO2 emissions – on three countries: Belize, Madagascar and Vanuatu. As LDCs or SIDS, these countries experience the impacts of climate change acutely, and have economies heavily dependent on international tourism and aviation. We then compare these costs to the funds raised by the measure and explore how they could be mitigated.

Our research shows that Belize, Madagascar and Vanuatu will experience tourism impacts as a result of the introduction of a market-based measure on aviation. However, the economic impacts on each country are less than 0.05% of the overall revenue which would be raised. This shows that the economic impacts on these countries can be effectively mitigated by:

1. Distributing the costs of a fuel levy or GHG emissions pricing mechanism to business and first-class aviation passengers, who are most able to pay.

2. Designing the measure to reduce initial economic impacts, for instance by gradually increasing the levy rate – or emissions price – over time.

3. Equitably distributing funds raised to help reduce the economic impacts on vulnerable countries.

Our Scientific Officer, James Kershaw, explains:

“A global aviation fuel levy, or GHG emissions pricing mechanism, could drive decarbonisation and generate much-needed climate finance, but industry has voiced concerns about the economic impacts on tourism-dependent countries, including SIDS and LDCs. Using three country case studies, we show that through equitable mechanism design and distribution of the funds raised, tourism impacts on SIDS and LDCs can be effectively reduced. Tourism impacts on these nations are not, therefore, an argument against introducing GHG emissions pricing for aviation: as sectors like international shipping move to price their emissions, it’s high time the aviation sector steps up and does the same.”  

Our recommendations

We recommend that ICAO Member States agree to adopt a global GHG emissions pricing mechanism that will drive ambitious emissions reductions and generate revenue to support climate action.