[eru]

> How much should it be taxed to factor in the external cost?

I don't know. But that can be treated as a technical problem to figure out. (Problems being technical is good! Much more tractable than political or social problems.)

> Air fuel is taxed very little due to the Chicago convention.

I'm not quite sure how much the Chicago convention would hinder a clever law drafter. Judging by what I can see at Wikipedia on it, I would imagine you could technically tax not kerosene itself, but the burning of kerosene inside your airspace.