EU set to grant airlines 10 more years of jet fuel tax breaks
September 2, 2025
The European Union is considering a proposal to delay taxes on jet fuel for an additional 10 years as it struggles to balance the levy against economic and political realities
Shipping, too, is being mulled for continued tax breaks. This would effectively keep both industries exempt from EU-wide excise duties until at least 2035.
“In 2035, the Commission should examine the possibility of taxation of air navigation and waterborne navigation and propose amendments to this Directive, where appropriate,” noted the draft document seen by Reuters.
The draft plan highlights the political challenges of implementing carbon pricing in two of Europe’s most carbon-intensive transport sectors. For their part, airlines argue that any taxation risks doing more harm than good.
From Fit for 55 to a decade-long tax holiday
The proposal stems from the reform of the Energy Taxation Directive, first tabled in the EU’s Fit for 55 climate package in 2021. That package aimed to remove long-standing exemptions on kerosene used in commercial aviation, phasing in minimum excise duties to align the tax regime with climate targets.
But it requires the unanimous support of all 27 member states, and progress has been slow. Countries with strong tourism industries, shipping sectors, or peripheral geographies have consistently pushed back, warning of economic fallout.
Denmark, which currently holds the EU presidency, is now brokering a compromise that would postpone the introduction of aviation fuel taxes until 2035. Small aircraft and private pleasure boats could be subject to duties sooner.
Europe’s airlines push back against jet fuel tax
Europe’s airlines are unlikely to be satisfied with a ten-year reprieve. They view any fuel tax as a misguided policy altogether. Industry group Airlines for Europe (A4E) has repeatedly opposed the idea of an aviation fuel tax, warning it would fragment the EU’s single aviation market and distort competition.
“Climate policy regulation in the form of sector-specific taxes, levies, or bans is ecologically and economically counterproductive,” A4E Deputy Managing Director Lauren Donceel wrote in a position paper for the industry group in 2023.
“They reduce the aviation industry’s capacity to invest and innovate whilst potentially shifting CO2 emissions to other regions. Carbon pricing is already applied to aviation through the EU Emissions Trading System (ETS), and globally through CORSIA. Moreover, many airports in Europe apply differentiating fees for more polluting aircraft.”
The organisation argues that carriers are already paying heavily for carbon through the EU Emissions Trading System (ETS), which by 2030 will cost airlines over €10 billion annually.
Instead, A4E points to European airlines’ direct investment in decarbonisation. Its members plan to spend €14.8 billion on sustainable aviation fuel (SAF) and €165 billion on new aircraft by the end of this decade.
Deloitte study: SAF mandates could widen cost gap
The adoption of SAF by airlines comes with its own complications, including limited production and high costs, which also raise concerns.
A4E recently commissioned a study by Deloitte, which examined the economic effects of the ReFuelEU SAF mandate—requiring airlines to blend 2% SAF in 2025, rising to 6% by 2030.
The report, “Creating a Level Playing Field for Decarbonisation in Aviation,” warned that without measures to level the playing field, EU carriers could face a 15% cost disadvantage on key EU–Asia routes compared with competitors flying through non-EU hubs, such as Istanbul or Dubai.
Deloitte’s modelling suggested that as much as 26% of the expected emissions reductions from ReFuelEU could be offset by so-called “carbon leakage,” with passengers choosing itineraries that avoid EU carriers or hubs to escape SAF-related costs.
To address this, the consultancy proposed a SAF Border Adjustment Mechanism (SAF-BAM), mirroring the EU’s broader carbon border levy. Such a system would ensure connecting flights through non-EU airports carry the same SAF-related cost burden, eliminating leakage while restoring competitiveness “without raising consumer prices overall.”
Airlines cry out as environmentalists cry foul
While airlines warn of competitiveness risks, green groups argue that fuel tax exemptions are environmentally harmful subsidies. With aviation emissions projected to rise in the coming decade, campaigners say delaying taxation until 2035 undermines the EU’s net-zero target.
The debate highlights a central dilemma: how to decarbonise aviation without pricing Europe’s carriers out of global markets.
A decision on the tax holiday proposal is expected by November 2025. For now, Europe’s aviation sector remains caught between mounting decarbonisation costs, political pressures, and the need to stay competitive in a global industry where policies differ by region.
