Assessing the impact of the European Commission’s ‘Fit-for-55 package’ on the aviation industry in Malta

Abstract

Member States of the European Union (EU) are currently debating on the introduction of the proposed directives under the Fit-for-55 package. The proposals identify the aviation sector as a key contributor towards carbon neutrality by 2050. Such goal is the basis for the proposed revision of the “Energy Tax Directive” (ETD), of the revision of the EU Emissions Trading System (ETS) and the proposed ReFuel-EU directive published in July 2021. All the proposals are backed with an Impact Assessment analysing the effect on EU Member States. However, the studies lack analysing the collective impact of the directives on individual Member State’s industries. Thus, this dissertation aims at assessing the impact of the three proposed directives on the aviation industry in Malta. Data on the aviation industry in Malta was gathered and a sensitivity analysis was carried out to study the impact of a tax on fuel, of obliged uptake of Sustainable Aviation Fuel (SAF) and of a downward revision of the emissions allowances. The package aims to reduce aviation CO2 emissions within the EU; however, carbon leakage is expected to arise due to shifts in demand outside the EU. The Fit-for-55 package is projected to create substantial costs for air transport users. An increase in costs is expected to reduce demand for air services, especially for Malta given it is an island at the periphery of the EU. A loss in competitiveness and connectivity for Malta is expected as a shift in demand causes airlines to switch to more profitable routes. Such proposals are expected to have negative implications on the airline’s revenue, particularly given the aftermath caused by the COVID-19 pandemic. The conclusion of this dissertation is that a solution taken within the EU alone may create significant problems for Malta’s aviation industry, given its geographical position.