Good riddance to Dutch travel tax

The Dutch travel tax has been so successful, it has to be scrapped:

The Dutch Government is to scrap from July 1 its air passenger ticket tax, first dubbed the ‘eco’ tax when it was introduced against major opposition by aviation and local industry last year. The controversial departure tax, which ranges from 11 to 45 euros, is blamed for a steep decline in passenger traffic at the main Dutch airports, particularly at Amsterdam Schiphol.

The tax was billed as a “green tax,” meaning that it was intended to raise the cost of flying sufficiently to deter passenger travel — and hence greenhouse gas emissions — on the margin. It apparently did this swimmingly well, better than I would have expected:

Schiphol Airport, Europe’s fifth biggest in terms of passenger enplanements, recorded a drop of 430,000 passengers in February, a 13.7% fall against the same month a year ago. The number of locally boarding passengers fell by 17.7%. The number of transfer passengers, who were exempted from the tax, declined by 8.5%.

As the story notes, this tax was not levied on transfer passengers in an attempt to keep KLM and its Schiphol hub competitive with airlines based at Paris, London Heathrow, Frankfurt, and Copenhagen. Since transfer passengers make up a huge share of Schiphol’s business, the surcharge would never have made much of a dent in the Netherlands’ aviation carbon footprint. The fact that transfer passengers were exempted and that the tax is pulled just when it seems to be working vindicates the complaints that it is a “revenue grab.”

The suspension of this tax also illustrates a tax problem. In an age of free movement across jurisdictional boundaries, tax competition is heightened, especially in areas like the low countries where a competing, lower-tax airport may be just a short drive away. “The airport operator along with Dutch carrier KLM had previously warned that potential passengers would try to avoid the tax by flying from airports across the border in Belgium or Germany,” the story report. “The Belgian Government has already abandoned a proposal to introduce a similar tax.” Unless the EU or a larger jurisdiction is going to impose a charge like this one, countries that impose it on themselves in a global downturn are making an economic death wish.

See my previous posts on the Dutch travel tax here, here, and here.

[H/T: Cranky]

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Britain keeps, raises Air Passenger Duty

Britain is keeping in place — and raising — its Air Passenger Duty, a per-passenger charge levied on airline itineraries originating in Britain. The government had promised to design a new charge based on aircraft; the current charge does not correlate actual emissions to charges for them. Two aircraft of identical capacity but with different fuel efficiencies are assessed the same amount of APD. Even worse, private aircraft, cargo aircraft, and transfer passengers (mostly at Heathrow) are exempt from APD, meaning that commercial travelers to destinations in Britain are bearing the brunt of aviation’s climate impact there. If Britain is serious about taxing its own travelers and airlines to mitigate climate change, then it needs to align charges with actual impacts.

See also my earlier post on the challenges of green taxation in aviation.

UK flight taxes to rise as reform dropped [FT]

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What’s Dutch for “told you so”?

The Dutch “green tax” on aviation, which I’ve blogged about here and here, is already negatively affecting Amsterdam’s Schiphol Airport, according to a report:

Some 50,000 fewer passengers are expected to use Amsterdam Schiphol airport, one of Europe’s busiest, this summer on account of a Dutch environmental tax on flights, it was reported Saturday.

“We’re expected zero growth in 2008, and in fact a decrease (in passenger numbers) in July and August,” an airport spokesman was quoted as saying by the domestic ANP news agency.

Tax means fewer travellers at main Dutch airport: report [AFP/Breitbart]

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The “green” tax dilemma

News came out today that the U.S. embassy in London has responded harshly to plans by HM Treasury to change the Air Passenger Duty into a per-plane tax at great expense to airlines and, ultimately, travelers. Air Passenger Duty was last raised dramatically in 2006 as an anti-climate change measure. Then-chancellor (and current prime minister) Gordon Brown said that APD was only a temporary solution to restraining aviation’s climate impacts until the sectors scheduled 2010 inclusion in the European emissions trading scheme. Airlines were starkly opposed, claiming that it was merely a revenue grab, and environmental campaigners dismissed its “green” credentials.

The current plan, outlined in a consultation document [PDF] released earlier this year, is to change the per-passenger charge into a per-plane charge based on maximum takeoff weight as a factor of three distance ranges: the European Economic Area, less than 3,000 miles from London (non-EEA), and more than 3,000 miles from London. The argument is that a given plane produces the same emissions whether it is fully loaded with APD-paying travelers or just half-full. The current £40 APD for economy-class long-haul travelers could climb as high as £100, according to the Daily Telegraph — which might severely affect traffic at British airports, especially connecting flights through London’s Heathrow Airport. Indeed, the Treasury acknowledges this in its consultation: “London Heathrow airport has the highest number of international transfer passengers of any airport in the world; transfer traffic there represents 34 per cent of all passenger traffic. Some airlines argue that the knock-on impact of aviation duty would reduce UK transfer traffic by imposing an effective cost on the provision of transfer traffic; and that this would have negative consequences for the UK economy, including through a reduction in the frequency and variety of services that can be offered directly from London.” This exposes one of the major obstacles facing those who would implement regional “green” taxes: competition.

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Revisiting climate change: a crow appetizer

Returning to these posts and this article, I think I need to clarify and reframe my comments. First, Daniel is right that increasing the cost of carbon-based fuels will drive innovation in more fuel-efficient technologies. It did just that: in the late ’90s, Boeing pitched a fuel-wasting concept, the Sonic Cruiser. Airlines were standoffish at first, but as the price of oil began spiking, everyone disclaimed interest and Boeing scrapped the project for its much more environmentally (and bottom line) friendly 787. But this innovation-fueling (pun not intended) only works up to a point, when the increased costs reach such a level as to drive airlines out of business and leave the aerospace firms in the lurch without enough clients to justify further R&D. So, then, the climate challenge is to find the optimal point at which carbon pricing or emissions trading incentivizes climate-friendly aerospace innovation without breaking the airlines. What that optimal point is, I, a non-economist, am not able to say.

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Response: emissions regulation and aircraft R&D

Update on this post is here.

Daniel Hall at Common Tragedies has responded to my request for economic analysis. I was really wondering about the effects of different types of regulation–say, a mandate for minimum fuel-efficiency standards versus an overall greenhouse gas cap or tax. He writes, “I’m skeptical there’s much room in the aircraft market for efficiency standards that are economically justifiable.” But some of his additional comments taking on my TCS Daily article will not hold for airlines. Let’s take a look at them:

Evan . . . repeats what is apparently the latest conservative meme on climate change policy: that reducing emissions through a carbon tax or a cap-and-trade system will be far more economically costly than innovating our way into emissions reductions.

Climate change is not my bailiwick, so I’m not sure what the “latest conservative meme” is, unless my being conservative and saying something makes it a meme. I’m writing strictly about aviation, not all emitting sectors, and I’m not committed to a particular policy solution. (I am interested in seeing what happens with the forthcoming inclusion of aviation in Europe’s Emission Trading Scheme; I do not think many of the the various country-level travel taxes being proposed or enacted in Europe make economic sense or are particularly “green.”) Furthermore, Aviation has some unique characteristics. Airline deregulator Alfred Kahn’s wise quote, “I really don’t know one plane from the other. To me, they are all marginal costs with wings,” does not always apply.

It’s not past inter-industry profits that drive innovation; it’s the promise of future returns that leads investors, both inside and outside an industry, to pour in investment funding to encourage innovation.

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Feds weighing market-based solutions to JFK snarls

Well, it’s been an exciting few days in the aviation policy world. I’ve been swamped with work at my day job, but I’ve been looking forward to this post for some time. Last Thursday, Transportation Secretary Mary Peters came much closer to endorsing a congestion-pricing plan for crowded airports than ever before. The next day, the FAA released its targets for caps on operations at New York’s delay-prone JFK airport–much to the ire of the airlines. Over the weekend, Delta’s buildup at JFK (a major contributor to congestion since 2005) was featured in the Atlanta Journal-Constitution. Today, the FAA began meeting with airlines and Port Authority of New York and New Jersey (PANYNJ), the agency that runs JFK.

First, congestion pricing: Secretary Peters’s testimony to the Senate Commerce Committee was a sort of “state of transportation” in which she pulled no punches about the problems facing U.S. aviation, especially in terms of delays. I covered these a while back in a post about a big House hearing. Peters:

There is a pressing need to overhaul the Nation’s aviation system infrastructure to improve economic efficiency and maintain an impressive record of safety performance. . . . We project tremendous growth in the system. We expect over a billion passengers to be flying on U.S. commercial carriers by 2015, partly as a result of the success we have had in gaining access to international aviation markets around the world. This increased demand will bring new airlines, aircraft, flight crew, and controllers into the system. That is clearly a safety challenge, but it also is an increased burden on system performance. More and more, our skies and our airports are choked with aircraft, passengers are badly delayed in reaching their destinations, and the inefficiencies that we see are hampering growth across the economy. Simply put, today’s air traffic management system is incapable of meeting the challenges presented by projected air travel demands in the future. . . .

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Congestion pricing on the table

A federal task force of aviation stakeholders is meeting to discuss ways to reduce delays in the New York area, per Transportation Secretary Mary Peters’s orders.

The talks, led by the Federal Aviation Administration, have been closed to the public, but participants report that one of the primary topics will be “congestion pricing,” a scheme to reduce delays by making airlines think twice about scheduling flights during the busiest times of the day.

Generally, the plan would implement higher fees for planes operating at the airports during the aviation rush hours, which, in New York, coincide roughly with morning and evening commutes.

Good idea.

FAA and Airlines Brainstorm on NYC Airport Gridlock [AP via Aviation.com]

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Does the Dutch travel tax cost too much?

The Dutch government has decided to impose an additional tax on all passengers departing or arriving in the Netherlands (primarily affecting Amsterdam’s Schiphol Airport and the airline that hubs there, KLM). Like Britain’s Air Passenger Duty (APD), the Dutch tax differentiates between European flights (€11.45 per segment) and longer-haul flights (€45). The levy is part of what the Dutch finance ministry calls “the greening of taxation,” according to ATW Daily News. But the tax might not actually quell flying from Schiphol (ostensibly the reason for an environmentally friendly tax)–it may just push a lot of it to nearby airports in Belgium and Germany.

So how much will this set back travelers to the Netherlands? I did some research to compare flights to Amsterdam and to Brussels from the same airports on the same airlines on the same days, and here are my results. All total fares below are inclusive of taxes and fees.

• Vienna-Brussels on Austrian Airlines
  10/18-10/21
  Total: €271.96
  Tax: €90.96
  Tax breakdown:
  • Security and fuel surcharge: €44.00
  • Passenger Service Charge: €15.29
  • Passenger Security Charge: €8.00
  • Passenger Service and Security Charge: €23.67
• Vienna-Amsterdam on Austrian Airlines
  10/18-10/21
  Total: €335.29
  Tax: €95.29
  Tax breakdown:
  • Security and fuel surcharge: € 44.00
  • Passenger Service Charge: € 15.29
  • Passenger Security Charge: € 8.00
  • Passenger Service Charge: € 13.22
  • Noise Isolation Charge: € 2.00
  • Security Service Charge: € 12.78

  Total tax after “greening”: €117.79

In this case, one can save almost €30 in tax by flying to Brussels.

• Charleroi-Madrid on Ryanair
  10/17-10/21
  Tax: €16.42
  Tax breakdown:
  • Airport Taxes: €5.78
  • PSC–Non-Refundable: €4.85
  • Insurance & Wheelchair Levy: €5.79 (a Ryanair specialty)
• Eindhoven-Madrid on Ryanair
  10/17-10/21
  Tax: €27.20
  Tax breakdown:
  • Airport Taxes: €12.25
  • Government tax: €9.16
  • Insurance & Wheelchair Levy: €5.79

  Total tax after “greening”: €49.70

Again in this case, one can save more than €30 by flying from Belgium rather than Holland.

• Brussels-JFK on Delta
  10/18-10/21
  Total: €411.34
  Tax: €41.00
  No tax breakdown offered
• Amsterdam-JFK on Delta
  10/18-10/21
  Total: €478.34
  Tax: €52.61
  No tax breakdown offered
  Total tax after “greening”: €142.61

Remarkably, the Dutch tax puts a €100 transatlantic premium on this flight. If I lived in the southern part of Holland, Brussels would be sounding pretty good right now.

Britain’s APD increase has driven air traffic to continental European airports; the Netherlands now seems to want to replicate that feat. For now, KLM’s large hub operation will remain intact. Unlike APD, the proposed Dutch tax exempts passengers merely changing planes at Schiphol. But how green is that? Do planes carrying mostly transfer passengers somehow emit less carbon dioxide or nitrous oxide? Such an exemption lends credence to the Association of European Airlines’s claim that this is a revenue measure masquerading as a pro-environment measure.

Regardless of motivation, my brief analysis shows that passengers will experience dramatic increased costs. Some will simply stop flying; others will seek cheap flights from other nearby hubs. Brussels is only 130 miles from Amsterdam, a two-hour drive; Dusseldorf is only 145 miles away; and low-fare hub Charleroi is 170 miles away. There are many other airports intruding in the Dutch “catchment area” for airline passengers, and “the greening of taxation” will drive many passengers away.

The tax will be debated next month in the Dutch parliament. One can be sure that these calculations will figure into the debate.

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Congress: Who’s to blame for airline delays? And how do we end them?

The House Transportation Committee’s Subcommittee on Aviation held a major hearing on airline delays and consumer issues, and your humble blogger was there to pass on the highlights. The hearing came at the heels of “the worst summer for airline delays” since the Bureau of Transportation Statistics began keeping records thirteen years ago. Only 72.2 percent of flights were on time. Why? Weather, crowded skies, airline issues, scheduling problems, congestion, everything else that regular readers of this blog will be familiar with. The first panel of the hearing featured government officials, including the acting FAA chief, and the second featured aviation stakeholders.

Readers of this blog will be familiar with the background of the current aviation “crisis.” For those who need more, a background paper is here. The hearing was held against the backdrop of the House’s FAA reauthorization bill, which rejected the airlines’ preferred user fees approach to funding air traffic control, instead pumping more money into the agency and continuing to rely on fuel taxes.

I’m not going to summarize what each person said or go over each exchange. Instead, here’s the highlights reel:

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