House of Commons - Environmental Audit

Select Committee on Environmental Audit Minutes of Evidence

Memorandum from the Air Transport—Greener By Design Group

This submission has been produced by the Air Transport—Greener By Design Group, a DTI-funded grouping bringing together airlines, airports, aerospace manufacturers, Government Departments and agencies and research bodies to evaluate and promote options for addressing aviation's environmental impact. A list of GBD members is attached at Annex 1. The Committee's questions are addressed in turn:

Can the full environmental costs of aviation be identified? What are the main issues of principle and methodological difficulties in attempting to do so? Can remote but potentially catastrophic risks be properly reflected in such an approach?

1. It is important to distinguish between environmental and external costs and between costs and impacts. Costs can be identified although there is little consensus among academics as to methodology (see 5. below), with the result, for example, that cost estimates per tonne of carbon have diverged widely.

2. The 100% shortfall between assessed costs and revenues suggested by ECCM in February 2003 in its study for the Sustainable Development Commission is misleading since ECCM only considered the extent that fuel tax revenues (currently nil) covered external costs. It is not appropriate only to take account of fuel taxes since at present they are imposed with little reference to external costs and, as ECCM points out, they are rarely hypothecated for environmental ends. Furthermore, no other commercial transport mode bears a passenger tax in the UK. There is no reason why that tax should not be allocated to environmental externalities since aviation covers its non-environmental external costs through other charges. Alternatively, if more directly related environmental charges are favoured and are proven to be efficient mitigation mechanisms, Air Passenger Duty should be offset against them in order to avoid double taxation.

3. The environmental impact of aviation is much less certain. The Intergovernmental Panel on Climate Change noted that "There are a number of key areas of scientific uncertainty that limit our ability to project aviation impacts on climate and ozone:

— The influence of contrails and aerosols on cirrus clouds.

— The role of NOx in changing ozone and methane concentrations.

— The ability of aerosols to alter chemical processes.

— The transport of atmospheric gases and particles in the upper troposphere/lower stratosphere.

— The climate response to regional forcings and atmospheric perturbations".

Aviation and the Global Atmosphere, IPCC, 1999, p 12)

4. Only one of the nine aviation-related factors listed as contributing to climate change can be assessed with a good level of scientific understanding, according to IPCC. The range of uncertainty is also great: the IPCC report states that "total radiative forcing may be about two times larger or five times smaller than the best estimate." (ibid)

How comprehensive and accurate are the environmental costs included in Aviation and the Environment: Using Economic Instruments, and in the Department for Transport's consultation The Future Development of Air Transport in the United Kingdom?

5. It is difficult to tell. The estimated carbon cost of £70/tonne cited in Aviation and the Environment: Using Economic Instruments is opaque—it would have been useful if the calculations on which it is based could have been reproduced—and does not appear to take account of market forces. It will be the market that determines the price of CO2 and we have not seen evidence of relevant analysis of this. For example, the price within the UK emission trading scheme has varied between £2.5 and £12.5 per tonne of CO2. There is also a fair degree of disagreement between calculations which underline the Committee's concern over the reliability of monetary valuations. Pearce & Pearce calculated known environmental costs of around £3 per passenger on short-haul flights and £20 per passenger on long-haul flights (Valuing the External Costs of Aviation, Department for Transport, December 2000)—an overall cost that is covered by revenue from Air Passenger Duty. On the other hand, Airport Watch (Aviation and External Costs, November 2002) has suggested that costs could be as high as 15% of fares. The Pew Center (1999) has indicated that there could be significant differences between the marginal cost without and with trading. Its estimates are higher than those of DRI.WEFA (2002) which estimated a price of about $60/tonne of CO2 from the UK from 2008—12, rising under proposed targets after that. For a 60% reduction target from 2000 to 2050 the price would rise to around $75/tonne. The DfT/HMT paper cites a CE Delft study, which quotes Eyre et al at a discount rate of 3% giving a marginal cost of CO2 emissions between 2000 and 2010 of $20/tonne and $104/tonne for 0% discount, with both reducing to less than half when equity weighting is included. The values of Eyre et al are at the high end of those quoted in the CE Delft study.

Has the Government defined the correct environmental policy objective for aviation—that, where appropriate, the industry should pay for its environmental costs? How does this relate to the Government's primary objective for airports—to maximize the significant social and economic benefits, whilst seeking to minimize the environmental impacts?

6. The Polluter Pays principle is accepted by the UK aviation industry. However, covering costs may not equate to environmental efficiency since, for reasons explained in 7. below, at the present state of technological development the scope fully to mitigate emissions is limited unless large numbers of people are excluded from access to air travel. It is also important to distinguish external costs (which may be defined to include airport infrastructure) from the environmental impact of airport expansion—ecological mitigation; noise; local air quality; and transnational emission mitigation requirements.

Would the incorporation of environmental costs be sufficient to achieve sustainability in the air transport sector? What additional measures, if any, would need to be taken if this were to have little impact on rates of growth? To what extent is there a tension between the policy of incorporating environmental costs (especially of carbon) and the Government's long-term objective of a 60% reduction in CO2 by 2050?

7. One point that has rarely been debated is the question of whether, although the aviation and aerospace industries endorse the Polluter Pays principle, ensuring that external costs are fully met will lead to any material environmental benefit:

— It is likely that known operational improvements, already largely in train because of the universal drive to reduce fuel burn, will only produce an additional 2-3% efficiency gain over current levels. Technical limitations mean that increasing the cost of fuel is unlikely to exert any greater stimulus to extend the achievable gain.

— The efficiency improvement that will result from reduced Air Traffic Control delays and more direct routings (approximately 6%) will be determined by governments, not by economic instruments.

— By far the greatest ongoing contribution to reducing aviation's environmental impact will come from engine and airframe design development. Greener By Design's modelling of a series of options has shown that projected reductions in fuel burn could range from 17% for a swept winged aircraft with hybrid laminar flow technology to more than 50% for a flying wing with wholly laminar flow. Looking forward 50 years, our projection for the most radical configuration was that its fuel burn would be between a quarter and a third that of today's long-range aircraft. If in addition it proves possible, by advances in engine design and a suitable choice of design cruise altitude, to reduce the effects of NOx and contrails appreciably, there is a prospect that we should be able substantially to offset the effect on climate of the envisaged growth in air traffic over the next 50 years through innovative design .

— While the ability to reduce external impacts will to some extent depend on policy priorities (for example, noise regulations impose an operating cost and fuel burn penalty, thereby increasing CO2 emissions because they add weight and reduce performance and, in some cases, result in the adoption of a higher by-pass ratio than the one which gives minimum fuel burn), it may be possible to accelerate research through recycled charges. However, if the impact of such charges is that airlines have to slow the rate of fleet replacement (the UK fleet is younger than the European average of eight years and is replaced around 50% faster than the US fleet) the full benefit may be deferred. There is a need for the aviation industry to maintain economic performance in order to fund pollution charges

— Although the environmental impact of aviation is increasing relative to other manmade CO2 sources, this must be considered in proportion. Globally, aviation accounts for some three per cent of manmade CO2 emissions and around 12-13% of transport emissions. Its contribution to the UK CO2 inventory is only 0.5%. Other emission sources will remain far more significant than aviation even if their inventory reduces appreciably.

— For air travel, focusing on CO2 is likely to be environmentally counter-productive. Because CO2 accounts for less than half of the contribution of aviation to climate change, increased pressure to reduce CO2 emission may well drive engine and aircraft design in a direction which increases rather than reduces impact on climate change. Although the atmospheric science is not yet sufficiently robust to be certain on this point, it is possible that impact on climate could be reduced significantly in future aircraft and engine designs by accepting a small increase in CO2 emission. If this proves to be the case, aggressively targeting aircraft CO2 emissions today will prove counter-productive in the long run.

8. If Polluter Pays principles are applied for the purpose of demand management, two principal implications will be apparent:

— Demand rationing by price will inevitably be regressive, excluding access to air travel to those who have been given the opportunity to fly through highly competitive pricing over the past two decades and more. The most recent CAA Passenger Survey suggests that some 65% of leisure travelers, and around 40% of business passengers, are drawn from the C/D/E socio-economic categories.

— However, demand management may not have any direct relationship to environmental mitigation. If demand-related tools are to be used, they must be directed at stimulating a reduction in the number of services or a shift in patterns of demand (for example, away from very short-haul domestic services). However, it may require a very significant fall in demand before services are consolidated; and as sector lengths increase and the realistic scope for use of alternative modes reduces, cross-elasticities reduce. Allowance must also be taken of the extent to which carriers will feel able to pass on increased costs in a competitive market—aviation fuel prices (accounting for 15-20% of direct operating cost) rose by more than 330% over a 15 month period in the mid-late 1990s but fares did not increase as a result. This means that even a significant demand management penalty may have only limited environmental impact.

9. Furthermore, although The Future Development of Air Transport in the United Kingdom suggests that very high fuel taxes or charges would be needed in order to reduce demand by only 10%, that would equate to only some two or three years' growth in the global market.

Given the international context, what practical options for incorporating environmental costs are really available to the Treasury and the Department for Transport, and how should any revenues be used?

10. The recent DfT/HMT paper on economic instruments suggests that Government's policy objective is that aviation should cover its external costs. We believe that this confuses means and ends. Such an objective should be secondary to addressing aviation's environmental impact. If the covering of costs does not efficiently achieve this, the principle (while supported by the industry) may appear academic. Greener By Design has therefore spent over two years evaluating the likely impact of taxes, environmental charges and emissions trading on environmental behaviour.

11. Solutions based on fuel taxation and/or emission-related charges have been promoted by Ministers, the European Commission, the Commission for Integrated Transport, the Royal Commission on Environmental Pollution, the Sustainable Development Commission and NGOs for a while, but the impression is that they are favoured for purely revenue raising purposes or because classical price/demand theory suggests that they will manage demand and/or stimulate improved environmental performance. There has been little attempt to consider offsets or recycling of funds to technology development or to assess the likely impact of fiscal instruments in the real world of the aviation industry:

— Fuel already constitutes a significant proportion of airlines' operating costs. No further incentive is needed to persuade airlines to seek reduced consumption (although the weight penalty associated with muffling of engines in order to meet noise limits necessitates higher consumption and therefore CO2 production).

— A significant question missing from the recent DfT/HMT paper on economic instruments is the ability of technology to deliver solutions within an acceptable timescale. Do the solutions exist? Is an economic stimulus needed to accelerate development?

— Assuming current operating requirements such as service frequency and sector patterns, will UK airlines be operating at or close to environmentally optimal levels through currently forecast fleet replacement and operational improvements such as Cleaner Flying techniques, or is a stimulus needed?

— Will the impact of taxes and charges merely be to price the C/D/E socio-economic groups, which constitute 65-70% of leisure air travellers and 40% of business passengers, out of the market without affecting service patterns?

Greener By Design shares the view of ECCM and others that fuel taxes and environmental charges are likely to be inefficient mechanisms for securing environmental management goals compared to the predictable results implicit in an emission trading system with a cap. However, revenue-neutral charges, offset against Air Passenger Duty (no other UK public transport mode bears a passenger tax) and incorporating performance incentives, may have a value if their revenues were to fund research to accelerate the development of fuselage and engine technology. It would also be desirable to explore the possibilities for introducing trading in other areas such as noise and local air quality (for the latter at least there are precedents in "bubbles").

12. An emission trading system for aviation would have to be open and international in structure. Securing international agreement is likely to take some years and issues such as the cost of CO2 offsets need to be studied. In the interim an agreement, similar to that concluded between the EU and the automotive industry and covering improvements in operating and ATC efficiency, could be concluded between UK airlines and the UK Government (an advantage of such an approach is that it could be put in place quickly and without the need for international agreement). Recent Rolls Royce projections of likely fleet replacement, taking account of the availability of improved technology, concluded that over a slightly truncated Kyoto timescale (1990-2012) UK airlines have the potential to improve fuel efficiency by 34% (Rolls concluded that there was likely to be little difference between anticipated and "environmentally optimal" replacement plans over that length of time), with an additional 1-2% arising from operational improvements and another 6% from improved ATC systems. These targets could be backed by the threat of regulation if they are not achieved. While an agreement based only on fuel efficiency gains may only compensate for around a third of any growth in emissions resulting from increased traffic, it is the simplest way forward and attempts to cover a basket of emissions may delay agreement.

CONCLUSION

13. For the reasons set out above, we submit that policy should adopt a two stage approach:

(a) It should first seek to determine what can be done to reduce environmental impacts to the greatest degree consistent with balancing technological and operational limitations and economic sustainability.

(b) If rising demand means that a) is still considered to produce unsustainable environmental impacts, a decision needs to be taken on the balance between demand management and social exclusion.

April 2003

Annex

AIR TRAVEL—GREENER BY DESIGN GROUP MEMBERSHIP

AEA Technology

Airbus

Aircraft Research Association

A T Kearney Limited

Aviation Environment Federation

BAA

BAeSystems

BALPA

Board of Airline Representatives in the UK