EU draft exempts private jets, cargo from jet fuel tax

Market: Emissions, Oil products
06/07/21

The European Commission has proposed exempting private jets and cargo flights from the planned EU jet fuel tax. A draft indicates that the tax would be phased-in for passenger flights, including ones that carry cargo.

The draft, which the commission will on 14 July present with its proposed revisions to the bloc's 2003 energy-taxation directive, indicates there could be an exemption from taxation for energy products and electricity used for intra-EU air navigation of cargo-only flights. It proposes allowing EU states to only tax such flights either domestically or by virtue of bilateral or multilateral agreements with other member states.

The commission is worried that taxing fuel for cargo-only flights would adversely affect EU carriers. Third-country carriers, also with a significant share of the intra-EU cargo market, have to be exempted from taxation due to aviation services agreements, the commission argues.

Private jets will enjoy an exemption through classification of "business aviation" as the use of aircraft by firms for carriage of passengers or goods as an "aid to the conduct of their business", if generally considered not for public hire. A further exemption is given for "pleasure" flights whereby an aircraft is used for "personal or recreational" purposes not associated with a business or professional use.

Non-governmental organisation Transport & Environment (T&E) called the proposal "generally good".

"The downside, though, is the commission is considering exempting cargo carriers that are often US-run," said its aviation director Andrew Murphy, who noted "multiple" solutions for taxing jet fuel used by cargo carriers that "tend to use older, dirtier aircraft".

In May, Murphy co-authored a report indicating that private-jet CO2 emissions in Europe rose by 31pc between 2005 and 2019, with flights to popular destinations up markedly during summer holiday seasons. He has argued for a fuel tax for this "leisure-driven" private jet sector.

Airlines for Europe (A4E) fears that setting minimum tax rates for intra-EU flights could lead to distortion of competition. The industry association, which counts 16 airline groups as members including Ryanair, Air France/KLM, Lufthansa, IAG, easyJet and Cargolux, indicated that the commission's proposal could lead to aircraft deliberately carrying excess fuel bought outside the EU specifically to avoid the bloc's jet fuel tax.

Airlines should not pay extra under the revised energy taxation directive when they are already paying for CO2 under the EU's emissions trading sytem (ETS) and participating in the International Civil Aviation Organisation's Carbon Offsetting and Reduction Scheme for International Aviation (Corsia).

More generally, the commission sees collection of aviation fuel tax as not problematic, with fuel suppliers collecting it and transferring to relevant tax authorities. The commission estimates the administrative cost of this at 0.65pc of revenue.

The draft may change before 14 July, and does not contain the all-important annexes with tax rates. To enter into force it must be approved by all 27 EU member states, and it may change markedly over the coming months. A commission proposal made in April 2011 to update EU energy taxation rules failed after finance ministers could not agree by unanimity in 2014.

The commission wants to align energy taxation with EU climate goals, meaning that taxes should be based on the net calorific value of the energy products and electricity and that minimum levels of taxation across the EU would be set out according to environmental performance and expressed in €/GJ. These minimum levels should be aligned annually on the basis of the EU's harmonised index of consumer prices, excluding energy and unprocessed food.

Next week, the commission will propose changes to the EU's emissions trading system (ETS). A draft of these did not detail how aviation will be treated, but no free allocations are envisaged for maritime, road transport and buildings sectors. Officials will also present the commission's mandate for sustainable aviation fuels (SAF), whereby all firms could be expected to fill up with blended jet fuels at EU airports.

By Dafydd ab Iago

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Viewpoint: USGC gasoline oversupply unlikely to ease

Houston, 31 December (Argus) — Refinery closures and increased export opportunities in the US Gulf coast (USGC) will likely do little to alleviate an oversupply of regional gasoline in early 2025 as refining capacity in Mexico expands. LyondellBasell's 264,000 b/d Houston refinery tentatively plans to shut down during the first quarter of 2025 after previously delaying an end to production from the final quarter of 2023. Though some refiners welcome refinery shutdowns to provide a lift to falling margins , market participants have suggested that the upcoming closures will not considerably reduce the oversupply of product in the region. The Gulf coast's weekly average output totaled 2.2mn b/d in 2024, over one-fifth of the US's 9.7mn b/d weekly average. LyondellBasell's Houston refinery closure could cause total weekly production in the region to contract by as much as 12pc if it goes as planned. Product supplied, a proxy used by the US Energy Information Administration (EIA) for finished motor gasoline demand nationwide, has not recovered to pre-pandemic levels. Demand had fallen to fresh lows of 8.15mn b/d in 2020, when Covid-19 pandemic restrictions limited travel, but marginally regained strength after those measures were lifted. In the five years prior to the pandemic, gasoline product supplied ranged between a yearly average of 8.86mn-9.34mn b/d. In 2024, it averaged 8.85mn b/d, just below the pre-pandemic five-year average, but has grown for a second consecutive year after hitting a record low of 8.1mn b/d for 2022. In its energy outlook for 2025, the Louisiana State University's (LSU) Center for Energy Studies said it expected domestic demand to remain relatively flat, but that increased US net exports could shave off excess supply. Gulf coast gasoline stockpiles have exhibited steady growth since 2022, largely outpacing demand for the product, EIA data indicates. In the five years prior to the Covid-19 pandemic, weekly inventory averages ranged between 75mn-83mn bl. After hitting a record weekly average of 86.9mn bl in 2020, stockpiles have hovered above the pre-pandemic range for every year since, with 2024 weekly average inventory levels totaling 83.1mn bl. Gasoline prices peaked in 2022 due to rebounding gasoline demand since the pandemic. Though prices remain above the $2/USG mark since 2020, cash prices for 87 conventional finished gasoline in 2024 averaged 68¢/USG lower than in 2022 and 23¢/USG less than 2023's average, further depressing refining margins from a year earlier. Exports: a closing door Both exports to Latin America and domestic shipments to the US east coast have historically absorbed excess supplies of Gulf coast gasoline, but increased refining capacity and a potential trade war between the US and Mexico could choke off exports to Latin America. Market participants point to exports as a favorable outlet for excess gasoline supply with export data showing a strong correlation with the stock build in the Gulf coast since 2022. The US Gulf coast exported an average of 251,000 b/d in 2024 after four consecutive years of gains, according to trade analytics firm Kpler. Export levels out of the region are more than double the pre-pandemic four-year average of 121,750 b/d. However, Pemex's 400,000 b/d Dos Bocas refinery in Mexico is projected to come on line in late 2025 and will likely reduce the Gulf coast's share of the gasoline export market. Mexico imports nearly 90pc of its gasoline from the US , while roughly 82pc of Gulf coast exports land in Mexico, according to separate Kpler data. Mexican president Claudia Sheinbaum has continued expanding Mexico's energy independence, with 2024 marking the closest in nine years that gasoline production has approached import levels . Furthermore, US president-elect Donald Trump's potential 25pc tariff on imports from Canada and Mexico, including oil and gas, could spark retaliatory tariffs from Mexico, previously threatened by Sheinbaum. Should Trump go through with the tariffs when he takes office on 20 January, the tariffs between both countries would cut off gasoline exports and leave stockpile levels in the Gulf coast significantly higher. By Hannah Borai Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Viewpoint: Power demand could bolster RGGI allowances

31/12/24

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31/12/24

Viewpoint: Power demand could bolster RGGI allowances

Houston, 31 December (Argus) — Regional Greenhouse Gas Initiative (RGGI) CO2 allowances in 2025 could get a boost from a projected increase in electricity demand, despite uncertainty over the RGGI states' ongoing program review. Allowance prices hit record highs this past year, particularly during the summer as high temperatures raised expectations for emissions, increasing compliance demand. The first three auctions of 2024 cleared at record levels, draining the cost containment reserve (CCR) — a mechanism where additional allowances are released to temper rising prices — during the March auction . Prices followed suit in the secondary market, reaching multiple all-time highs before peaking on 20 August, with Argus assessing December 2024 and prompt-month allowances at $27.82/short ton (st) and $27.31/st, respectively. 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Viewpoint: US Supreme Court tees up more energy cases

31/12/24

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31/12/24

Viewpoint: US Supreme Court tees up more energy cases

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Viewpoint: Bearish year ahead for NOx markets

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30/12/24

Viewpoint: Bearish year ahead for NOx markets

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Viewpoint: Chancay port may increase Peru bunker demand

30/12/24

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30/12/24

Viewpoint: Chancay port may increase Peru bunker demand

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