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Revealed: Airlines want £2bn handout to cover cost of ‘green’ fuel

Virgin Atlantic, BA and EasyJet blasted over ‘outrageous’ request for taxpayers to subsidise their passengers

Ben Webster
15 November 2022, 5.00am

The engines of British Airways Airbus A319/A320/A321 aircraft. BA's owner International Airlines Group, EasyJet, and Virgin Atlantic were among airline companies that lobbied for taxpayer cash to cover the costs of using 'green' fuel


Colin Fisher/Alamy Live News

Airlines are lobbying the government for billions of pounds in handouts to help them cover the cost of new ‘greener’ fuel, openDemocracy can reveal.

Freedom of Information requests by this website found Virgin Atlantic, British Airways and easyJet are among the companies demanding public money to help them meet a requirement to use “sustainable aviation fuel” (SAF).

But green campaigners said it was “outrageous” that taxpayers – 50% of whom do not fly at all in any given year – were being asked to stump up for SAF. Under a planned government mandate, 10% of jet fuel will have to be made from ‘sustainable sources’ by 2030.

Documents released to openDemocracy from a Department for Transport consultation last year show Virgin Atlantic demanded a “price support mechanism” to help build the industry needed to produce SAF in the UK. It said the mechanism – which insiders say could cost more than £2bn a year by 2030 – “could be part funded if government were to shift funding and incentives from road to aviation”.

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BA’s parent company International Airlines Group (IAG) also sought taxpayers’ money, saying development of the fuel could be funded by revenues from the UK emissions trading scheme. The scheme, under which participants are required to obtain allowances to cover their greenhouse gas emissions, raised more than £1bn last year and revenues currently help fund public services.

EasyJet called for “direct price support for SAFs by the UK government for SAFs produced in the UK”.

And Airlines UK, a trade body, sought “£500m of government support over the forthcoming CSR period to support SAF commercialisation and R&D [research and development]”.

IAG said last month that the recovery of leisure travel since the pandemic had helped produce a surge in operating profits to just over €1.2bn (£1.05bn) in the three months to 30 September.

Airlines have consistently failed since 2007 to meet their own goals for using SAF, which costs three-to-five times as much as fossil jet fuel.

The industry says the fuel is made from waste products such as used cooking oil and claims that it delivers up to 80% emissions savings compared to fossil jet fuel. But Alethea Warrington, campaigns manager at climate charity Possible, said there were very limited supplies of genuinely waste feedstock to make into alternative fuels, meaning airlines were exaggerating the potential for SAF to help them reduce their emissions.

Airlines already benefit from tax-free jet fuel on airline tickets.

Green campaigners say passengers, particularly frequent flyers, should pay the costs of decarbonising aviation because their trips are causing the pollution and they tend to be wealthier than the average person.

In the UK, 15% of people take 70% of all flights, according to analysis of ONS travel data.

The poorest 20% of the population fly five times less frequently than the richest 20%.

Airlines want the government to guarantee “contracts for difference” (CFDs), under which SAF producers receive agreed prices for their fuel even if market prices fall below those prices. (A CFD means they would theoretically lose out if the market price moves above the agreed price, though SAF is likely to remain much more expensive than fossil jet fuel.)

An aviation industry source said the cost of funding CFDs could be about £2.1bn a year by 2030.

An internal paper produced last year by aviation and fuel industry trade bodies stated that options for funding SAF production included “general taxation… to avoid overburdening the aviation industry in the post-Covid period” and “a levy that ultimately falls on air passengers (e.g. via a fuel surcharge or other options)”.

The paper, obtained by openDemocracy, added: “The lack of SAF investment in the UK points to a clear market failure, on which it is reasonable to spend taxpayers’ money.”

The industry is now preparing a new proposal for funding SAF due to be published next month.

Fairer funding

Our source said there were differing views within the industry on the question of how to fund CFDs. Some companies want to press the government for subsidies via the emissions trading scheme but others argue that the Treasury is so strapped for cash that the CFDs will have to be funded via a levy on sales of fossil jet fuel which would ultimately be paid by passengers.

Campaign group Transport & Environment said a tax on fossil jet fuel would be a much fairer way of funding SAF use.

It has calculated, in a new study published today, that taxing fuel delivered to aircraft in the UK at the same rate motorists pay for road fuel could raise £6.7bn a year for the Treasury.

The group’s UK policy manager Matt Finch told openDemocracy: “It’s outrageous that the airline industry expects the taxpayer to fully pay for it to decarbonise, especially considering the miniscule levels of tax it currently pays.

“Applying a tax to jet fuel – in exactly the same way as Britain's drivers are charged when they fill their tanks up – makes sense from an environmental and fairness point of view. This would also provide the government with some funds to invest back into SAF and zero-emission aircraft.”

Warrington from the group Possible added: “With an ongoing cost of living crisis, it would be groundless for even more public money to go to airlines so the wealthiest in our society can continue to pollute while claiming to be going green.

“What we need instead is bold investment in an affordable and accessible rail network, so we can clear the runway in favour of climate-friendly travel.”

Biofuel production has been linked to deforestation by increasing demand for palm oil and some suppliers have been accused of passing off virgin vegetable oil as used because it attracts a higher price.

“The harm caused by the climate crisis is escalating, but the aviation industry is hell-bent on pursuing unlimited growth by claiming to fly ‘sustainably’ using alternative fuels,” said Warrington.

“The reality is that these fuels, made from waste or biomass, offer at best only marginal improvements on the fossil fuels they are substituting for when it comes to their impact on the climate.”

The government has already committed £217m to help develop a SAF production industry in the UK.

Airlines, airports and SAF producers this month sent a joint letter to transport secretary Mark Harper asking the government to provide “price certainty” to enable investment in up to 12 SAF plants in the UK.

The letter, obtained by openDemocracy, said a UK SAF industry “could boost the UK economy by up to £7bn by the end of this decade, through construction and SAF production. More than 20,000 construction jobs would be needed to build UK SAF plants and the industry would directly employ thousands more people in areas from Teesside and Humberside to south Wales and the north-west.”

An Airlines UK spokesperson said: “This decade airlines will be paying hundreds of millions of pounds a year for the carbon they emit through schemes like the UK and EU Emission Trading Schemes and the UN-sponsored global Carbon Offsetting and Reduction Scheme for International Aviation.

“As will happen under the EU ETS, we believe that a proportion of the revenue raised from airlines should be earmarked to support aviation decarbonisation, including support for a UK SAF industry, and zero emission flight technology.”

An easyJet spokesperson said: “Decarbonising aviation is a vital step for the UK to reach net zero while preserving the social and economic benefits of flying.

“It is important there is price stability in SAFs to encourage long-term investment. We believe there is a role for using the funds aviation contributes – for example, of carbon charges or APD – to support the transition.”

A government source said no decisions had been made on a price support mechanism for SAF.

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