Fossil Fuel Subsidy Reform in Aviation and Shipping

The document analyzes how international agreements, regional legislation, and industry competition hinder the removal of fossil fuel subsidies in aviation and shipping. It argues that while fuel taxation is often restricted by bilateral agreements or regional directives like the EU's Energy Taxation Directive, emissions levies through the ICAO and IMO offer viable pathways to reduce greenhouse gas emissions and fund the transition to sustainable fuels.

• International aviation fuel is rarely taxed due to the 1944 Chicago Convention and the common practice of bilateral air service agreements (ASAs) that include restrictions on taxation based on reciprocity.
• Domestic aviation fuel is taxed in 42 countries, but rates are typically significantly lower than those for other fuels; for example, in the US, domestic flight fuel taxes average USD 0.07 per litre compared to USD 0.15 for automotive gasoline.
• The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is considered ineffective for decarbonization because it is voluntary until 2027, excludes domestic aviation and non-CO2 impacts, and relies on questionable carbon credits.
• International bunker fuel is seldom taxed, primarily due to international competition between ports, as ships can travel long distances on one load of fuel to seek the lowest-cost suppliers.
• The International Maritime Organization (IMO) is negotiating an emissions levy that could raise EUR 100 billion per year, with proposed rates ranging from USD 18.75 to USD 150 per tonne of CO2.
• The European Union's Energy Taxation Directive (ETD) currently exempts international commercial aviation and maritime fuel from taxation, and its reform is considered essential for achieving European fuel tax reform.
• To align with a 1.5°C transition, the document recommends an IMO emissions levy of more than USD 100 per tonne of CO2, with revenues split between climate finance for the Global South and shipping industry green transitions.

APA

Posada, E., Culbert, V., & Wendenburg, A. (2025). Fossil Fuel Subsidy Reform in Aviation and Shipping. International Institute for Sustainable Development. https://www.iisd.org/system/files/2025-02/fossil-fuel-subsidy-reform-aviation-shipping.pdf

Chicago

Posada, Eduardo, Vance Culbert, and Anne Wendenburg. Fossil Fuel Subsidy Reform in Aviation and Shipping. International Institute for Sustainable Development, 2025. https://www.iisd.org/system/files/2025-02/fossil-fuel-subsidy-reform-aviation-shipping.pdf.

Wikipedia

{{cite report |last1=Posada |first1=Eduardo |last2=Culbert |first2=Vance |last3=Wendenburg |first3=Anne |title=Fossil Fuel Subsidy Reform in Aviation and Shipping |publisher=International Institute for Sustainable Development |date=February 2025 |url=https://www.iisd.org/system/files/2025-02/fossil-fuel-subsidy-reform-aviation-shipping.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{posada2025fossil, author = {Posada, Eduardo and Culbert, Vance and Wendenburg, Anne}, title = {{Fossil Fuel Subsidy Reform in Aviation and Shipping}}, institution = {International Institute for Sustainable Development}, year = {2025}, month = feb, url = {https://www.iisd.org/system/files/2025-02/fossil-fuel-subsidy-reform-aviation-shipping.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }