EU's 'Fit for 55' climate plan to have long-term impact on aviation, McKinsey says

The package is expected to have 'substantive' financial and administrative effects on a pandemic-hit industry, DLA Piper says

A climate change plan proposed by Europe will have a transformative effect on the future of airlines, industry experts said. EPA

The EU’s “Fit for 55” package of regulatory proposals, which aims to reduce emissions by 55 per cent by 2030 compared with 1990 levels, is expected to have long-term consequences for the aviation sector, according to global consultancy McKinsey.

The legislative package will include an EU-wide tax on polluting aviation fuels and a series of proposals aimed at incentivising the aviation industry's switch to cleaner fuel sources.

However, the International Air Transport Association, the main lobby group for global airlines, said the aviation sector is already committed to decarbonisation and does not need persuading or punitive measures such as taxes to spur change.

"Taxes siphon money from the industry that could support emissions-reducing investments in fleet renewal and clean technologies," said Willie Walsh, director general of Iata.

"To reduce emissions, we need governments to implement a constructive policy framework that most immediately focuses on production incentives for sustainable aviation fuel and delivering the Single European Sky."

The aviation industry contributes about 4.5 per cent of the EU's total emissions. Even before the Covid-19 pandemic brought air travel to a near-standstill, the sector was under scrutiny by environmental activists, policymakers and the flight-shaming movement that began in Sweden.

The EU climate change plan will mean that airlines will lose a tax break on jet fuel, pivot to using more sustainable alternatives and pay a bigger emissions bill even as they continue to burn through cash reserves during the pandemic.

However, the legislative package could lead to "substantive" costs for an industry still reeling from the devastating impact of the Covid-19 pandemic, according to law firm DLA Piper.

"The proposals, which cover aviation fuel, taxation and the Emissions Trading Scheme – to name but a few – will be cautiously welcomed by many as a set of ambitious but necessary tools to combat climate change, but are likely to have substantive financial and administrative effects on an already reeling industry," DLA Piper analysts said in a July 23 report.

While airlines welcomed some of the measures, they noted that air transport must remain affordable.

The Fit for 55 policies should support future industry investment in new aircraft technology and sustainable aviation fuels – two key tools to decarbonise aviation by 2050, according to lobby group Airlines for Europe, better known as A4E.

The Brussels-based group is Europe’s largest airline association, with members including Air France-KLM Group, easyJet, International Airlines Group, Lufthansa Group, Norwegian, Ryanair and TAP Air Portugal.

"We look forward to working with policymakers to ensure airlines can deliver on our commitments while, at the same time, making sure regulators also play their part. In the end we must keep air transport affordable and accessible to all citizens,” said Thomas Reynaert, managing director at A4E.

“We reaffirm our position, however, that climate policy regulation can be ecologically and economically counterproductive. Poorly designed European taxes will not reduce emissions but will make flying more expensive, shift demand globally and reduce traffic locally," he said.

"We need to invest in solutions that offer real reductions in carbon dioxide emissions per aircraft. Increasing costs reduces our capacity to make these investments while carbon dioxide emissions are potentially shifted to other regions."