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Why is the pricing difference of jet fuel between North America and Europe extremely small, unlike automotive gasoline?

As of June 22, 2018, the prices in USD per barrel of it between the two continents are 88.0 and 87.8 and slightly older data confirm the existence of a small difference (I have not encountered a comprehensive dataset). Yet automotive gasoline in Europe usually costs 2-3 times the price it does in the US, comparing each US region to the very roughly analogous European one (based on income, geography, etc.). Why is this?

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    $\begingroup$ Welcome to Aviation SE! While this question impacts aviators this question falls more in line with economics and they Economics Stack Exchange may be the more appropriate forum to ask this question. See economics.stackexchange.com $\endgroup$ – DLH Jul 2 '18 at 15:53
  • $\begingroup$ @DLH Sorry---yes, that is what I was looking for---I was unfamiliar with the other subfora, and decided to simply post it on this familiar one. $\endgroup$ – Ruslan Nabioullin Jul 2 '18 at 16:11
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    $\begingroup$ Europe claims to deliberately raise the cost of automotive fuel to help discourage automobile use (studies show it does not work). The total US tax is ~\$0.50gal while Europe averages ~\$3.00gal. taxfoundation.org/how-high-are-other-nations-gas-taxes $\endgroup$ – jwzumwalt Jul 2 '18 at 16:49
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Jet fuel for international commercial aviation is effectively not taxed due to an agreement between ICAO member states. (See here ICAO PDF ). Therefore the prices closely track to cost of production and distribution. These are similar worldwide. Differences exists due to local taxes on companies, difference in costs of transport, effects of competition on price etc, but these effects are limited.

Automotive fuel is taxed. I am originally from the Netherlands, where we have one of the highest taxes in the world when it comes to fuel taxes. Petrol costs at the moment approximately 1.66 Euro/litre, of which 68.84% is taxes.

In the US, the average total tax (federal plus local) is \$0.4818 on a gallon of gas (equivalent to \$0.1289 per litre).

So the difference in tax makes most of the difference in automotive fuel prices.

Sources: wikipedia

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  • $\begingroup$ Is there a way to rationalize this inequality? Are European consumers of jet fuels imposed a separate carbon and pollution externality tax? $\endgroup$ – Ruslan Nabioullin Jul 2 '18 at 17:56
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    $\begingroup$ @RuslanNabioullin, the tax is not so much pollution tax as infrastructure tax. Roads are paid from public funds, and the need for investment in roads is closely correlated to the miles driven, so it makes a lot of sense. Airports and ATC services are however paid separately, so there is no point in such tax for aircraft. $\endgroup$ – Jan Hudec Jul 2 '18 at 18:51
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    $\begingroup$ Re "In the US, the tax is 48.18", that might be the federal tax. In reality, states and localities within states add their own taxes on top of this. (For instance, there's about a 30 cent/gal difference between same-company stations 15 miles north & south of me, due to different city & county taxes.) Also in some states, there's a tax on aviation fuel too, that goes to support airports &c. $\endgroup$ – jamesqf Jul 2 '18 at 19:11
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Automotive fuel prices are also very similar between the US and Europe, when comparing pre-tax figures. For instance:

  • The current pump price for regular gas in Pennsylvania is \$3.00/gal, of which \$0.77/gal is tax (\$0.184 federal + \$0.582 state), making a pre-tax price of \$2.23/gal.

  • The current pump price in Germany is €1.47/L. Before 19% VAT that's €1.23/L, and less €0.65/L fuel tax, the pre-tax price is €0.58/L, which at the current rate of exchange is $2.55/gal, about 14% higher.

The difference is simply that the total effective tax rate on gasoline in PA is about 35%, while in Germany gasoline/petrol is taxed at an effective rate of 153%.

For jet fuel sold to airlines, on the other hand, both places offer much more favorable tax rules, so as not to cripple the aviation industry. The total tax applicable in PA is $0.03/gal, and my understanding is that in Germany, both fuel tax and VAT are entirely refundable for airlines, so the net tax is zero. Since the taxation is minimal in both cases, the drastic difference in taxation doesn't exist, and so the drastic difference in retail prices also goes away.

Aviation gasoline tends to be treated more like other gasoline, and private pilots generally don't qualify for tax exemptions (and the price of avgas is rather high to begin with), so the differences there may be much more drastic from place to place than with jet fuel.

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    $\begingroup$ It's not to cripple the aviation industry - politicians would be happy to tax jet fuel if they could. But then the airlines would fuel up in cheaper places. Arbitrage would make any local tax increase impossible. Note that aviation gasoline is also heavily taxed in Europe, because the limited range of GA aircraft makes arbitrage much harder. $\endgroup$ – Peter Kämpf Jul 2 '18 at 19:57
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    $\begingroup$ Airlines are very careful not to load more fuel onto an airplane than it needs to make the hop, plus reserves, because overdoing the fuel load amounts to burning extra fuel to carry unnecessary fuel. What would happen if the various European states and municipalities started taxing Jet-A is that airfares to and from those places would rise, fast, to cover the taxes and headaches. This would in turn cause tourism and business traffic to those places to drop, which would cause MAJOR political heartburn. $\endgroup$ – John R. Strohm Jul 2 '18 at 21:17
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    $\begingroup$ @Peter Kämpf: Not necessarily so. See my above comment about the about 30 cent/gal auto gasoline difference between two localities about equidistant from me - yet the gas stations in the more expensive one haven't gone out of business. And in the same localities, 100LL is \$5.89 in one, \$4.99 at the other (and \$4.89 at another nearby airport), which means a \$40+ difference filling the Cherokee. $\endgroup$ – jamesqf Jul 2 '18 at 23:09

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