Space Economy and Taxation
“To some this may look like a sunset. But it’s a new dawn.”
Chris Hadfield
What is space industry or space business?
PwC defines the space industry as the industry that includes all public and private entities involved in the development, manufacturing, operation and exploitation of space systems and related infrastructure, from innovative research activities to the supply of products and services to end-users. Space industry, especially due to the rise of the concept of “New Space” has been growing exponentially in the past years. PwC estimates that the overall market value of the industry reached USD 371 billion in 2020. While a big portion of this value (USD 226 billion) is attributed to downstream space activities which includes consumer equipment and space services, the next biggest share belongs to institutional budgets related to research and development, space exploration and military.
The space industry consists of several sub-areas such as satellite communication, Earth observation, navigation, launchers, exploration and more.
Earth observation (EO) is a growing sector with many applications across different sectors from precision farming, civil protection, insurance, natural resource monitoring, oil and gas exploration and meteorology. The value of the market was estimated as USD 5.3 billion in 2020 and average annual growth rate of EO value-added services was 15% over the course of 2014-2019.
The dynamics of the EO market has been changing recently. For example, we see that many players in the EO market have started to switch to vertically integrated business models in order to take advantage of synergies arising from economies of scale. Plus, there is a rising awareness in the sector for EO based products and services. Combined with this, there is a downward pressure on prices thanks to the increased demand and supply side shifts.
Satellites are used in fields such as streaming, communication, navigation, weather forecast, safety, climate and environment monitoring and many more. The satellite industry is the most lucrative domain of the space sector and it is at the heart of proper functioning of our everyday personal, financial and social lives. The estimated value of the global market for satcom services was USD 153 billion in 2020 and as of November 2019, there are more than 900 satellites in orbit sent by SpaceX and OneWeb. The competition in the sector is fierce as players such as SpaceX, OneWeb, Amazon and Telestat are expected to launch thousands of more satellites in the future.
It is also noteworthy that the satcom domain is moving away from traditional Geostationary Orbit (GEO) Large satellite constellations towards Low-Earth Orbit (LEO) small satellites constellations. This shift is eventually resulting in lower CAPEX and thus enables an increased number of satellites to be launched. However, the growth of the industry is not only defined by the increased number of satellites in space. There is demand from new market segments including mobility, IoT and M2M and this is transforming the satcom domain. On the supply side, one of the rising trends appears to be distribution partnerships. This changes the way businesses deliver their outcomes as distributor partnerships require operators in the sector to partner up with local distributors in order to gain access to niche regional markets and increase sales in developing markets.
Access to space is a concept that binds together all sub-sectors of the space industry since the absence of access renders trivial all efforts of the humankind towards becoming a space-faring race. The R&D behind launchers start at the design of the launch system and finally includes launch operations such as management, monitoring and the launch mission itself. The launch market is segmented into institutional services which include the use of local vehicles for local institutional players and the commercial segment which is currently a duopoly between SpaceX and Arianespace.
Having the technology to carry out independent launches has the utmost importance both for private companies and governments all around the world because it is the key to becoming independent in the space race. Launchers appear as strategic assets for spacefaring nations and the dynamic nature of the sector requires all private and institutional players to constantly adopt to the local and international practices. PwC argues that despite being subsidized by governments due to its strategic importance, the launch sector is expected to face stable or declining government financing for flagship space programs in the future. As a consequence, launch companies will have to evolve accordingly and will have to examine new markets. Even though not many nations have independent access to space, increasing number of private companies in the sector are spicing up the competition and pushing players to reduce development, manufacturing and operating costs. Companies are increasingly opting for micro launcher systems or modular launch systems that can be reused and this in return creates the need of developing spaceports to host operations for such vehicles.
On the other hand, enhanced operations of access to space means space tourism will also emerge as a developing sub-sector. Space tourism is a niche segment of the aviation industry that seeks to give tourists the ability to become astronauts and experience space travel for recreational, leisure, or business purposes. There are different kinds of space travel such as high altitude jet fighter flights, atmospheric zero-gravity flights, short-duration suborbital flights, and longer duration orbital trips into space. Companies like Blue Origin, SpaceX and Virgin Galactic are expected to be among the top players in the industry. NSR’s Space Tourism and Travel Markets report forecasts suborbital and orbital tourist services beginning in 2020 and 2021, respectively, generating USD 14 billion in cumulative revenues by 2028.
Lastly, space mining appears as one of the other sectors with high economic potential that will co-develop with the space exploration practices. It refers to the exploitation of raw materials from asteroids and other minor planets, including near-Earth objects. It has great economic potential because metals such as iron and nickel, and rare metals like platinum, gold, iridium, palladium, osmium, ruthenium and rhodium at an be found in asteroids at a concentration level several times higher than what is found on Earth. The global market value of the asteroid mining industry reached 712 million U.S. dollars in 2017. This figure is forecast to increase by 2025 to some 3.87 billion U.S. dollars. The success of space mining will also be the potential big leap for electronics in Earth especially in manufacturing of processors, energy cells and ultimately the ambition of quantum computers.
Enhanced operations of access to space means space tourism will also emerge as a developing sub-sector. Space tourism is a niche segment of the aviation industry that seeks to give tourists the ability to become astronauts and experience space travel for recreational, leisure, or business purposes. There are different kinds of space travel such as high altitude jet fighter flights, atmospheric zero-gravity flights, short-duration suborbital flights, and longer duration orbital trips into space. Companies like Blue Origin, SpaceX and Virgin Galactic are expected to be among the top players in the industry. NSR’s Space Tourism and Travel Markets report forecasts suborbital and orbital tourist services beginning in 2020 and 2021, respectively, generating USD 14 billion in cumulative revenues by 2028.
Lastly, space mining appears as one of the other sectors with high economic potential that will co-develop with the space exploration practices. It refers to the exploitation of raw materials from asteroids and other minor planets, including near-Earth objects. It has great economic potential because metals such as iron and nickel, and rare metals like platinum, gold, iridium, palladium, osmium, ruthenium and rhodium can be found in asteroids at a concentration level several times higher than what is found on Earth. The global market value of the asteroid mining industry reached 712 million U.S. dollars in 2017. This figure is forecasted to increase by 2025 to some 3.87 billion U.S. dollars. The success of space mining will also be the potential big leap for electronics in Earth especially in manufacturing of processors, energy cells and ultimately the ambition of quantum computers.
"The future is already here, it is just not evenly distributed yet."
Never in the history of the world has there been a period of such interest by businesses to engage in space activities before. We were only celebrating relatively small triumphs, like the first landing on the Moon just 50 years ago; cut to today’s world, companies are selling tickets to low orbit commercial flights and dreaming of colonizing Mars. Even though most of today’s space economy includes satellite and R&D activities, sectors such as space tourism, space mining, and logistics are gaining importance by the day. We could never know what the future holds, but it seems that investing in space industry will be a rising trend in the upcoming years as it is expected to generate an overall revenue of more than USD 1 trillion globally by 2040 according to Morgan Stanley. Moreover, it is estimated by UBS that in a decade, high speed travel via outer space will represent an annual market of at least $20 billion and compete with long-distance airline flights. UBS also predicts that long haul airplane flights that are more than 10 hours in duration will even “be cannibalized” by point-to-point flights on rockets.
Now, since space economy is still at a relatively early stage, revenue growth remains restricted for now. This means that most of these revenues generated so far were taxed by the relevant states in the relevant jurisdictions. However, we wanted to dive deeper into discovering what might be awaiting us in the future when businesses actually start generating revenues in the space. This article contains insight and evaluation on what might be the implications of rising privatization in space and what it would mean for individuals and businesses. After all, considering how our world and what we call “normal” is changing, faster than ever these days, it might not be long before we find ourselves in a spaceship traveling to Mars to unwind from work.
Considering the large-scale impact of the issue, it becomes important to see that where private sector falls short in providing what is needed by all, government intervention becomes a vital element and an international approach is crucial for a resolution. Even though there may be various ways of regulating the commercial activities in space through means such as incentives, law enforcement or price controls, this article evaluates taxation as a tool of addressing the market failures in space economy and problems that might arise in this respect. Taxation has always been a means by which companies and individuals contribute to the governance and functioning of societies and the current situation shows that it raised over the years as an integral part of a just regulatory system for space economies that could address the aforementioned dilemma. However, if private space activities will be taxed, then we need to justify by whom, how much and on what basis.
