Select Committee on Environmental Audit Minutes of Evidence

Memorandum from the Aviation Environment Federation

  The AEF welcomes the Committee's timely investigation into the issue of aviation's environmental costs and we also submit some background documents the Committee might find useful. These are referred to in the text. We have tried to answer the Committee's specific questions as briefly and factually as possible.

1.   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?

  The range of aviation's environmental impacts can be identified. These are: climate change; local air quality and noise; health impacts; safety (accidents/third party risk); land take; habitat (bio-diversity), heritage and tranquillity losses; property devaluation; congestion; and an element of up/downstream processes. It is possible to arrive at reasonable cost estimates of these impacts. The best study we have found that tries to comprehensively assess these factors and apportion costs accordingly is the INFRAS/IWW study "External Costs of Transport", March 2000. This can be located at See also the CE Delft study "Economic incentives to mitigate greenhouse gas emissions from air transport in Europe" at

  The INFRAS/IWW estimate for the external costs of UK air transport presently unaccounted for and unpaid, is about 44 euros (£28.39) per 1,000 passenger kilometres. So, for instance, on a return flight from Luton to Glasgow each passenger should pay an additional £28 for the external costs of their environmental impacts. We believe these figures may be on the low side.

  This study also ranks the external costs of different modes of transport and provides an important contextual framework for sustainable mobility policy development, ie the transfer of short haul air to rail. The main practical issue is reaching agreement on the real costs of each impact.

  We feel that an assessment of catastrophic risk can reasonably be made—take for instance, DEFRA's long term assessments of climate change. Over this coming summer, we will be asking re-insurance companies for their views on catastrophic climate change risk/cost factors and also whether transport companies using fossil fuels might face increased insurance premiums and possible legal liability claims in the future because of their easily identified contribution to climate change.

2.   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.

  Not very, but they are an acceptable start. We find it somewhat confusing that both Ministries seem to believe that the costs of air transport in the UK will continue to keep falling over the next 30 years and that they appear to dismiss the impact of internalising the sector's costs on demand. The DfT states that in its view, external costs will add 10% to ticket prices over this period and that for every 1% increase in ticket prices there will be a corresponding 1% fall in demand, with a minimal effect on demand. This may be because the elasticity of ticket prices means only a very high increase will affect demand. Over 30 years, a 10% rise in ticket prices would unfortunately in our view have precisely zero impact on growth.

3.   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?

  No. The correct environmental policy objective for air transport is to set realistic targets to control and reduce the sector's environmental impacts. An appropriate level of taxation, whether internalising external costs and/or an alternative policy of equitable tax treatment for aviation (see the AEF paper "The Hidden Cost of Flying")[6]should form part of such a policy.

  The DfT's policy objectives are "predict and provide", pure and simple. "Mitigating" aviation's environmental impacts, is a million miles away from controlling and reducing them.

  We would like to point that if this sector pays more tax, in whatever form, that income to the Treasury creates and sustains economic activity and employment elsewhere in the economy. Similarly, if the UK population finds its future consumption of air transport limited by demand management, then those very same consumers will spend that slice of their disposable income previously allocated to flying elsewhere in the economy too, also adding to economic activity and sustaining the UK economy. And because air transport is highly capital intensive, money spent elsewhere in the wider economy might create even more jobs!

  Whilst we welcome the joint DfT/HMT consultation and policy development exercise, it must not be used as an excuse to add a very small sum to ticket prices, then claim externalities have been met, allowing and indeed facilitating "business as usual".

  We would also like to state that the current Air Passenger Duty is emphatically NOT an environmental tax in any way, size, shape or form. It is simply a tax placed on a severely under-taxed sector of the economy as a revenue raiser.

4.   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?

  Probably not. Our recent submission to the UK Parliamentary Transport Committee outlined our comprehensive views on how best to reduce and control aviation's impacts. Sadly, we are of the view that this sector is already environmentally unsustainable.

  In practice, a range of approaches are required to develop an effective strategy to reduce aviation's environmental impact, although an emphasis on regulatory control will always be required. Voluntary measures can often be introduced quickly and can encourage companies to go beyond any legal requirements, but ultimately it is not in their shareholders interest to voluntarily impose measures that will restrict their business.

  Experience also suggests that many voluntary, and even same statutory, agreements only remain in force while an airport is able to comply with them. As soon as an agreement starts to hinder the day-to-day operation of an airport, or requires any significant growth restricting action, many agreements are amended, renegotiated or ignored.

  Economic instruments are important for several reasons: in addition to being used as a demand management tool, they may be applied, as already discussed, to internalise the external environmental and social costs of aviation; create an incentive to operate clean and quiet aircraft; help other modes of transport such as high speed rail to compete more effectively; and to stimulate R&D projects. As noted in the Arthur D Little report for the current DfT consultation process, although new technologies are a possibility, they may require economic or regulatory measures to create the necessary "market" that makes it commercially viable for manufacturers to go from the design stage to production. Without these measures acting as a driver, there is no incentive for airlines to go beyond minimum environmental standards—a cynic might say undoubtedly so, as Transport Ministries, Civil Aviation Authorities, regulatory bodies such as ICAO and airlines and airports regularly collude to prevent the industry "suffer" what in their collective view might be "unnecessary" cost burdens.

  However, since it is often difficult to predict how the market will react to the introduction of environmental levies, there is no guarantee that economic instruments will deliver a given target. For this reason, the Government will always need to provide regulatory safeguards to protect residents and the global environment from unacceptable levels of noise, air pollution and so on.

  Hence, regulation should establish limits, while other measures should be used to encourage best practice. Without local or global limits, the industry will probably continue to become more efficient through some supply-side improvements but its cumulative environmental impacts will continue to grow.

  In our 10-page submission to your sister Committee we also covered the obvious tension that exists around climate change scenarios. We are not big fans of emissions trading schemes as currently envisaged for this sector. We include the relevant section of our Transport Committee submission below to complete our answer to Question 4.

  Climate change studies, and commentaries on the effects of air transport emissions on the global atmosphere, stem from the seminal 1999 UNIPCC Special Report, "Aviation and the Global Atmosphere". There is no doubt that the entire range of emissions and consequent greenhouse effects from flight operations are a major and growing source of climate change. We would make three observations at this point:

    —  The climate change contribution from aircraft emissions is more than CO2 alone and all impacts should be considered when developing control strategies.

    —  The present enthusiasm from industry and policymakers for emissions trading solutions is speculative and misplaced.

    —  The industry is unfortunately still engaged in wilful attempts to "deny, minimise and delay" the science of climate change.

  The DfT, to its credit, has realised that these global impacts are a significant problem. The regional study documents forecast the likely range of both internal and international CO2 emission increases but unfortunately omitted a base case for comparisons to be made. We are glad that following our prompting, DfT did commission its consultants, Halcrow, to identify and publish this baseline.

  The table below puts all the UK aviation CO2 emission forecasts in the context of current national reduction targets for this gas.

The UK CO2 and Aviation CO2 Emissions Scenario

Total UK CO2 emissions in 1990
603 million tonnes (mt)
(source: Netcen)
Reduction required to meet Kyoto target by 2012 (5.2% below 1990 levels) 31.4 mt
Reduction required to meet UK voluntary target under "Kyoto Plus"

by 2012 (12% below 1990 levels)
72.4 mt

UK Aviation

(a)  1990

Total UK aviation CO2 emissions in 1990 from bunker fuels

(source: Netcen)
14.8 mt

Estimated total UK aviation CO2 emissions including domestic in 1990

(approximately 4%)
15.4 mt

(b)  2000

Total UK aviation CO2 emissions including domestic in 2000
33.4 mt
(source: Halcrow. Netcen is 31.8 mt)
(c)  2030

Total UK aviation CO2 emissions including domestic in 2030
66.99 mt—low traffic growth
(source: Halcrow)76.5   mt—high traffic growth

  Between 1990 and 2030, UK CO2 aviation emissions are forecast to increase by up to 60.1 million tonnes. This nearly offsets (83%) the total reduction in CO2 emissions required to meet the Government's commitment, treaty plus voluntary, under the Kyoto Protocol.

  This level of emissions growth is unsustainable. Any workable emissions trading scheme would have to identify savings elsewhere in our economy, or further afield, at least in the region of the 60mtc UK "aviation excess", which would be allocated to and then purchased at an appropriate cost within any trading scheme. And an "open" scheme would pit aviation against other industrial sectors that may also want to buy growth through this mechanism. Environmental taxation in whatever form should, in our view, aim to achieve a significant reduction in air transport's forecast contribution to climate change, not be a means of paying a low price to ensure "business as usual".

  When we say at least in the previous paragraph, this is because of the complications involved in establishing an emissions trading scheme for this, and indeed any other, sector:

    —  Any scheme would have to be on an agreed "cap & trade" basis ie an absolute base level of emissions is set and then the excess traded from verifiable sources but

    —  The emissions "bank" can only come from reductions over and above Kyoto and any subsequent international or voluntary targets to avoid double counting—it is extremely difficult to avoid what is termed "hot air" (non-existent savings) creeping into schemes which essentially are variants on a "robbing Peter to pay Paul" scenario.

    —  As yet there is no agreement on how to allocate international emissions from air transport.

    —  Aviation emissions are not exempt from the Kyoto agreement: the sector's regulatory body ICAO, through its CAEP entity, and the UNFCCC SBSTA (technical) and COP (negotiating) bodies have been charged with developing an appropriate allocation system for international emissions and an emissions trading scheme as part of a range of market-based options to control and reduce emissions from the sector—progress is painfully slow.

    —  Our research into the claims made for existing emission trading schemes have left us very, very sceptical about their real effectiveness,

  And on this last point, the Committee might like to know our views on the DEFRA-managed UK Emissions Trading scheme, which began in March 2002.

  The UK's flag carrier, British Airways, became the first airline in the world to take part in an emissions trading scheme with the aim of stabilising CO2 emissions. In doing so, it will qualify for Government grants worth more than £6.5 million. The airline has promised to reduce CO2 emissions from its domestic flights and premises by 125,000 tonnes (out of a total of approximately 17 million tonnes that the company produces each year right now!). BA has reduced its global CO2 emissions by over 500,000 tonnes in the past two years. But this has been achieved largely through cutting loss-making flights and downsizing its workforce to reduce operating costs. BA claims to be making savings by moving to newer more fuel-efficient aircraft. The airline is also shifting parts of its older, smaller regional fleet to be operated by other airlines.

  So the mix of CO2 emissions BA is currently trading comes from some small energy efficiency gains but mainly from reduced economic activity due to route cuts; transferring some emissions to other airlines outside the scheme by giving them some of its internal UK routes and planes; and loss of market share to low-cost carriers who are outside the scheme as well.

  Even if BA fails to reach its reduction targets, and assuming a market price of £5/tCO2e (a high estimate) it would need to buy emission credits worth about £1.9 million over the scheme's five years. But this figure is dwarfed by the £6.67 million incentive BA will receive from the Government. It is plainly wrong that less successful companies should be receiving payouts of this magnitude largely for "virtual" savings. And set against the future growth in UK air transport CO2 emissions, of which BA will have its fair—and massively increased—share, the short term nature of such schemes are exposed plainly and simply as climate fraud. This is a most perverse reversal of the "polluter pays" principle!

  [The previous paragraphs are based on the article Hot air blows gaping hole in emissions trading scheme from The Ends Report, March 2002. ]

  5.   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?

  The Government should aim to internalise aviation's external costs on all internal UK air transport in the 2004 Budget. The forthcoming 2005 UK Presidency of the European Union provides a real opportunity for the Government to aim for a Europe-wide fair taxation policy for air transport. The Amsterdam Treaty commits European Governments to internalise the external costs of transport modes and recent Commission policy proposals commit Europe to taking unilateral action if discussion at ICAO fails to produce meaningful results on how best to deal with aviation's climate change impacts. A UK-led Europe wide diplomatic and technical initiative on fair taxation/internalising external costs should be spelt out with targets and a timetable in this autumn's White Paper.

  Here at home, DEFRA and the Environment Agency should play a larger statutory role in developing policies to control and reduce the sector's impacts. The DfT should be made to respond formally to the Royal Commission on Environmental Pollution's various reports since 1994 concerning aviation.

  The sums for the alternative "equal tax" route are as follows:

  Taxing aviation fuel at the same rate as motor fuel (45.8 p per litre); adding VAT at 17.5% to air travel; abolishing duty free on all flights; and abolishing APD would amount to £9.2 billion at 2002 levels. These changes could be phased in from 2005-25 and would allow any Government to spend more money on a range of public services as it sees fit.

  Whether externalities are internalised or aviation is taxed just like any other business, the most important starting point is to set environmental limits within which the air transport sector must operate and develop a menu of policy options to achieve those targets. Large decreases in aviation's impacts can only be achieved by a combination of methods including large increases in ticket prices to dampen demand.

May 2003

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