Norwegian aviation levy outrages airlines

British Airways refuses to pay CO2 tax, UK accuses Norway of breaking bilateral agreement

The Norwegian government has sparked an international row by imposing a tax on aviation fuel in a bid to combat increasing carbon dioxide emissions from the rapidly growing aviation industry.

Norway unilaterally introduced a tax on kerosene (jet fuel) at the start of this month. Airlines, accustomed to tax-free fuel around the world, have reacted furiously, with at least one company - British Airways - refusing to pay.

The company says it is following the advice of the UK environment ministry, which it claims has instructed airlines to refuse to pay the tax. The UK government claims that the levy contravenes a bilateral agreement with Norway that exempts aviation fuel from tax.

An official at the German airline Lufthansa said he also believed the tax broke all the bilateral deals which, under an international protocol, ensure that aircraft fuel is sold tax free. He said European airlines, including KLM, Sabena and Crossair (part of Swiss Air) were coordinating action to put pressure on Norway to lift the tax.

The Norwegian parliament approved the tax - of NKr0.26 (euros 0.03) per litre, last summer. Without the tax, kerosene costs about NKr1 per litre in Norway. The new levy is designed to be revenue neutral as, at the same time, Norway reduced its existing environmental levy on passenger places. Giving an indication of the scale of the fuel tax, an official at the Scandinavian airline SAS said that the firm paid about NKr600m under the environmental levy last year.

A company wishing to withhold payment of the new tax could do so easily as fuel invoices clearly show how much of the bill is tax. If airlines refuse to pay this, as British Airways is doing, the pressure will be on fuel suppliers to take issue with the Norwegian tax authorities.

No one at the Norwegian finance ministry was available for comment this afternoon, but the SAS official speculated that the government might not be able to resist the international pressure and might make a rapid policy U-turn. Norway could choose to retain the tax for domestic flights, which are not covered by international agreements.

The Norwegian debacle comes just weeks before the European Commission is due to receive the results of a feasibility study it has ordered which looks at the possible consequences of imposing a fuel tax in the EU (ENDS Daily 23 March 1998). The results are likely to affect the text of a forthcoming communication setting out the Commission's thoughts on air transport and environment.

Follow Up:
Norwegian finance ministry, tel: +47 22 24 41 00.

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