Select Committee on Environmental Audit Minutes of Evidence

Examination of Witnesses (Questions 1-19)




  1. Welcome, Minister. Thank you for coming along today. Thank you also for the government response to our Pre-Budget Report that we received yesterday. As you know, we were very interested in the joint document put out by the Treasury and the Department for Transport on aviation and the environment. We want to spend some time on aviation, but we also want to touch on some of the other issues that came out of the Budget and the Pre-Budget Report. Would you like to say anything by way of an opening statement?

  (John Healey) Perhaps I may say something. Thank you. It is a pleasure to be back with you again. I should introduce Mr O'Sullivan, although his is probably a more familiar face to you than mine. He heads up the Treasury's Environmental and Transport Tax Policy Team. Since we last met to discuss these issues, the Committee has produced its report following the Pre-Budget Report and you now have my response on behalf of the Government. I hope that that has cleared up several points that we can put to one side. The first point is that there is a coherence to the approach that we take towards road fuel duties and that the environment is a significant element of the decisions that we take as part of our strategy. Secondly, there is a considerable amount of work across Government on waste, with the Treasury heavily involved. Thirdly, errors that the Committee and others received in the advice from the Association for the Conservation of Energy over the scope to introduce a reduced rate of VAT on energy saving materials for DIY installations has been cleared up. Fourthly, the latest figures published on climate change show that we are making progress rather than having problems with the strategy. Finally, I hope that my response has in some way been able to make clear to the Committee the nature and purpose of the important document that we discussed last time—the one that we published alongside the Pre-Budget Report in November—Tax in the Environment Using the Economic Instruments. Mr Horam, I hope that the Committee will welcome—and if it does not, I know that it will take an interest in—a number of developments since the pre-Budget Report, both in and beyond the Budget. Those are developments on which the Treasury has been in the lead or heavily involved. You mentioned publication of the discussion document about using economic instruments in the aviation area to ensure that the aviation industry pays its environmental costs. There is also the Budget announcements on cleaner fuels, Budget confirmation of the increases planned in the landfill tax rate and the agreement last month that I am sure will not have escaped the Committee's attention, of the Energy Products Directive within the European Union and the political agreement there that will mean that every Member State will need to introduce an energy tax. Added together, that work demonstrates the Government's continuing deployment of environmental taxes and other economic instruments as a central part of economic, social and fiscal policy development more widely.

  Chairman: Thank you very much indeed. That was very succinct and very helpful. We shall start with aviation and Mr Ainsworth will lead with those questions.

Mr Ainsworth

  2. Good morning. The Government have recently signed up to reducing CO2 emissions by 60% by 2050. I think that implies 343 million tonnes of CO2 by 2050. Extrapolating the figures that the Government have produced for aviation suggests that by 2030 aviation will have contributed something like 208 million tonnes of carbon dioxide. Do you accept those figures and is it acceptable that in some way in the middle of this century aviation will contribute 60% of our carbon dioxide emissions?
  (John Healey) I am not sure that I follow your calculations. Let me try to deal with the two parts of that. The first is related, as you correctly say, to the target that the Government have embraced in the energy White Paper as a long-term aspiration to see a 60% cut by the year 2050. That is a calculation that we have done in terms of the challenge and direction that that sets us on, with slightly clearer landmarks that we shall need to reach by 2020. It is an ambition supported by calculations that encompass in aviation terms the UK's aviation component of that. But it also highlights in the energy White Paper generally the need for substantially more progress on an international front if we are to deal with the climate change challenge effectively. In aviation terms, dealing with the international dimensions of the industry paying its way environmentally, we have to have in place part of that very long-term objective. You also mentioned the figures that I think you probably drew from our discussion document.

  3. I should make it clear that I was applying the factor for radiative force.
  (John Healey) In the figures that we published in the civil aviation discussion document, we identify a current environmental cost from climate change emissions from aviation in this country of £1.4 billion. That includes the radiative index. Then the 2030 figure clearly also includes the radiative index of 2.7, but it is based on an assumption that no policy change whatever is put in place. In other words, the escalation between now and then were we to do nothing at all, would lead us to a cost of £4.8 billion by 2030 and a commensurate increase in the proportion of our climate change emissions that would be produced by the aviation industry. That is just about doubling from 5% to 10% or 12%.

  4. Do you accept that there is a need for policy change?
  (John Healey) Yes. That underlies the purpose of producing a discussion document. It underpins the work that we are doing in the Treasury alongside that with the Department for Transport on the potential use of economic instruments as a way of trying to achieve some of those objectives in relation to the aviation industry. We aim to publish the conclusions in the White Paper on aviation, which at the moment is scheduled for later this year.

  5. I am pleased to hear that you accept that there is a need for change. The Government's environmental policy becomes incredible if there is no change in respect of aviation, given the huge contribution that it makes towards global warming and carbon dioxide emissions. Therefore, you accept, I take it, that there is a need for demand management when it comes to aviation?
  (John Healey) No. I think that there are three potential policy objectives for which economic instruments may play a part. The first one—we are very explicit about this in our discussion document—is that at present the aviation industry has environmental costs and consequences for the UK which are simply not internalised. In other words, it is not paying its way and the discussion document, as I have said, calculates that on the climate change consequences as £1.4 billion a year. The second objective would be to see the aviation industry play its part in the overall aim to reduce our climate change pollution—that is the 2050 aspiration that you mentioned. Clearly we want to see that as well. We believe—we are trying to resolve this in our examination and then selection of the appropriate instruments to use—that we can achieve both. We believe that we can first and foremost ensure that as a polluting industry, the aviation industry pays its way. Secondly, we can do that in a way that encourages it to reduce its environmental impact over time. The third point is arguably a potential policy purpose, but not one for which we are examining the use of economic instruments, which is a form of managing demand. Clearly there may be an impact on demand of any taxation or other economic instruments that we may introduce, but the principal purpose for looking at the options is not to manage demand. The question of appropriate development of capacity, appropriate levels of demand and supply, are really the guts of the Department for Transport's consultation paper on airport capacity. Clearly there are links. I want to make it clear that I do not accept that a part of the policy instruments that we are looking at at the Treasury with the DfT, the economic instruments, should be explicitly to manage demand.

  6. Do you accept that such arrangements rightly apply in terms of road transport? There is evidence that the Government think that and they are actively looking at road charging. If they are doing that for roads, why not for airports?
  (John Healey) To be honest, it is a little difficult to draw direct comparisons. The way in which the aviation industry is regulated, managed and organised, nationally and internationally, gives all sorts of options for managing demand and flight patterns in a way that just is not available for road transport. I do not think that you can draw that direct comparison.

  7. Do you think that to predict and provide is an acceptable approach towards planning future aviation capacity?
  (John Healey) I would not distill what is a complex set of consultation documents into a simple phrase like that.

  8. In effect, that is what you are telling the Committee.
  (John Healey) No. I am saying that the consultation that the Department for Transport is undertaking at the moment is to try to come to a better informed analysis of likely development of demand and to consult over what is appropriate in different parts of the UK in looking to provide for that.

  9. It feels very much like predict and provide to me. At the same time as you are undertaking these consultations in the Treasury, the Department for Transport is consulting on a massive increase in capacity, particularly in the South East, but also at regional airports across the country. There appears to be a lack of joined-up thinking at the moment.
  (John Healey) On the contrary. The document that we have published has been published jointly with the Department for Transport. We have published the discussion document on economic instruments and their potential use alongside the capacity consultations that the Department for Transport is running. The deadline for responses for both is the end of June. We have set out to publish our considered views, responses and proposals in the light of both, together in the White Paper at the end of the year. It is difficult to see the strength in your accusation that it is not joined up and that these are two separate exercises.

  10. Why is the Department for Transport's prediction and the entire consultation process based on the assumption that costs will increase over a period to 2030 by 60%? Why do they factor in an increase in the costs of air travel in this country?
  (John Healey) You will have to explore that issue with them if you want the detail. Essentially their modelling, based on the trends in the aviation industry, suggest that the cost of air travel is likely to be driven down. In the past two or three years we have seen a significant impact of low-cost airlines, not just in driving down the price of air travel on routes on which they operate, but more generally within the rest of the industry.

  11. Nobody doubts that costs are being driven down. My family and I went to Inverness over Easter. We flew there because it was cheaper to fly than to go by train. The Committee is looking at why that should be so and whether it needs to be so. Given the impact of aviation on the environment, the Government should be more pro-active in addressing the imbalance that exists between the various transport modes.
  (John Healey) That is a much wider question. As I explained earlier, our policy purpose here is to ensure that the environmental impact that the aviation industry has at present in the UK is in a sense properly covered and paid for by the industry itself. The consultation document and the analysis that it sets out demonstrates quite clearly that at present it does not.

  12. Have you looked at the additional cost that you would need to require from the industry to neutralise the environmental impact of the industry over the period to 2030?
  (John Healey) Yes, on climate change it is £1.4 billion at present. On noise there is quite a difficult calculation to do. But you will see from the document that across all UK airports, as far as it is possible to put any monetary calculation on that disruption and environmental pollution, it is about £25 million. It is relatively small. In terms of local air pollution in the UK, it is something of the order across all UK airports of around £190 million to £238 million.

  13. Have you looked at similar costs in relation to neutralising growth in demand rather than the CO2?
  (John Healey) No, because, as I explained earlier, the policy purpose of our work at the moment is not to use economic instruments as a tool for demand management.


  14. None the less, it will be a consequence of pursuing your objectives that demand is managed?
  (John Healey) I do not think that it will be a consequence of pursuing our objectives that demand will be managed. As I said earlier, there is likely to be an impact on demand.

  15. That is the same thing.
  (John Healey) We quantify that in the discussion document. We reckon that if we were to put in place a set of economic instruments that cover currently the cost that is not covered—the external environmental costs—the cost to the industry would rise by about 10% and probably the demand may be suppressed by the same amount. Having an impact on demand is different from actually managing demand.

  16. That is—
  (John Healey) Let me make it clear that our purpose in what we are doing is not to price people off planes.

  17. But it will have that effect.
  (John Healey) That is not—

  18. It may not be your purpose because as you have rightly said, your purpose is environmental.
  (John Healey) What you can assume is that there is likely to be some impact on demand. It is difficult to quantify and to model that because any increase in the aviation industry's costs as a result of any measures we may bring in, would not necessarily feed through to the price that passengers pay. It is possible that the industry will absorb some of the costs and it is also possible—certainly on the track record—that the kind of technological improvements in development would mean that the increase in price would not be paid in full by the passengers.

Mr Ainsworth

  19. I am quite baffled by these answers. I had expected that you would recognise some need to manage demand in aviation, which of course creates major impacts on the environment. While I accept that you do not want to price people off planes, is it not the case that the current policy subsidises people onto planes?
  (John Healey) To the extent that the industry does not pay its way in terms of the environmental economic costs that it imposes, you could argue that it is under-taxed and under-priced. But in a sense you are underlining for me the precise reason that we are now examining this area and the reason that we published the discussion document and why we are having the discussion with the key players.

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