Given the UK's current green obsession, the carbon footprint of the aviation industry has certainly received more than its fair share of criticism for its contribution to the UK's total carbon emissions.

To date, air passenger duty (APD) has been the method relied on in the UK to tax the environmental impact of passenger flights. Indeed, APD seemed here to stay when the government doubled the levy on all flights from 1 February 2007.

However, last month the government delivered proposals in its pre-Budget report to replace APD with a tax payable per flight, rather than per passenger, from 1 November 2009. A consultation will take place to determine the exact form of the replacement tax.

The argument behind the proposed reform of APD is that the system of taxation on aviation should incentivise airline operators to invest in fuel-efficient technologies and operate fuller flights. In turn, this should encourage customers to select those airlines that have lower emissions per passenger.

Plane speaking

The government's proposals are likely to appeal to consumers, provided there is sufficient transparency to make the relative carbon cost of a flight easier to understand. This should happen since the tax would be based on the level of carbon emissions per flight.

The present system of a 'flat-rate' APD imposes a standard charge on each passenger seat booked. It is levied at between £10 and £80, depending only upon whether the flight is categorised as short haul or long haul and the class of travel. Such a flat-rate tax is unlikely to lead to behavioural change among passengers, as it offers no scope to reduce the levels of taxation paid, for example by flying on more efficient aircraft with higher load factors.

In addition, APD is not currently set at a level that is likely to discourage people from flying and so arguably serves no clear environmental purpose - instead it simply raises additional tax. It has also been heavily criticised by many stakeholders for exempting approximately 40% of all UK aviation activity in the form of air cargo and private flights.

In contrast, having a tax based on the carbon cost of a particular journey should help encourage the use of newer, more efficient aircraft fleets. But despite the possible environmental benefits of a system of taxation based upon the levels of carbon emissions, there are many practical issues that would need to be considered before implementing such a tax. For example, how would the carbon impact of each aircraft type be measured and verified; how would figures be obtained from overseas airlines; how would passenger load averages be included and checked; how would passenger flights and cargo flights be dealt with under one regime and how often are all these figures updated? Further, would the costs then allocated to each passenger vary by class of travel?

The public would also want to know how the additional £520m that the government intends to generate would be spent. Hypothecation is something that governments traditionally fight shy of, but perhaps there is a reason for a different approach in consumer-based environmental taxation.

In practice, it may be hard to set the tax at a level that would have a genuine impact on travellers' flight choices without making flying prohibitively expensive for the less well off. With the tax levied on the airline and not the individual, it will make it less transparent for individuals to see the impact of their behaviour. While APD has dominated the debate about taxing the aviation industry's carbon emissions, other alternatives have been suggested. They include a tax on jet fuel, since this would also serve to encourage the use of more fuel-efficient planes with higher passenger densities and may be easier to implement, although it would not be directly linked to carbon emissions.

Still grounded

At present, VAT is not levied on domestic flights and some suggest that this should be introduced. It is not clear how effective these measures would be as most businesses would be able to recover VAT on flights. Also, there is limited scope for airlines to reduce the tax cost to private individuals by operating more efficient flights. VAT is, of course, an EU tax and any changes would need to be put forward in Europe generally.

The European Commission has adopted a proposal to include aviation in the EU emissions trading scheme (ETS). This has been welcomed by many in the industry as a way of encouraging airlines to use more fuel-efficient aircraft and increasing passenger load. As all flights in and out of EU airports will be affected, the proposals should not distort competition between EU and non-EU airlines.

However, some commentators doubt whether inclusion in the ETS will lead to a reduction in emissions in the air transport sector given increasing demand for air travel. It is possible, however, that the move will lead to compensatory reductions in carbon dioxide emissions elsewhere in the economy.

Flying solo

While many of us would be reluctant to give up our overseas holidays, there are a number of steps individuals can take to reduce their carbon emissions from personal and business air travel.

Choosing to fly on fuel-efficient planes isn't as hard as you might think. Information on the age and fuel efficiency of fleets is often available on operator's websites. In June, Flybe became the first airline to introduce the concept of aircraft eco-labelling. The scheme provides passengers with a detailed breakdown of the fuel consumption, carbon emissions and noise patterns of the aircraft to be used on their journeys at the time of booking.

Taking only direct flights wherever possible means fewer miles travelled and lower emissions. Try also to fly with airlines with high average passenger densities. Again, this information can sometimes be found on operator websites. As a last resort, you could offset carbon emissions arising from your flight through a reputable offsetting organisation. Although this does not directly reduce the emissions from the flight, it can be a helpful way to counteract the overall emissions.

Helen Devenney is a director in the indirect tax group at Deloitte