Select Committee on Environmental Audit Minutes of Evidence

Examination of Witness (Questions 120-138)

Wednesday 4 June 2003


  Q120  Mrs Clark: How do we cope with that or how does monetisation cope with it? Surely it is very inaccurate?

  Mr Pearce: That is a difficult issue. For issues like climate change there are direct impacts. For instance, some of the estimates of the costs of climate change are based on calculations of how agriculture might be adversely affected by sea level change. In terms of the preferences, in terms of the values that people in low income countries would place on reducing emissions then that is affected by their level of income. These numbers are relative, which is why in the Treasury numbers it does make an adjustment for the level of income. In countries with low incomes your valuations will necessarily be lower for reducing environmental impacts because you have got more important demands on your resources. The Treasury does make an adjustment for that.

  Q121  Mrs Clark: Finally, how does it in fact go about that because it just seems very vague to me, very scatter-gun, perhaps a broad brush? How can you get to the precise type of valuation that would actually be valuable?

  Mr Pearce: I think it is a mistake to think that we can get a precise valuation. This is not a natural science. Social science is necessarily very probabilistic. You will get an uncertainty. I do not think that any other technique though will be more accurate. I mean, if you had a panel of experts you would not necessarily get a more accurate figure here.

  Mrs Clark: Thank you.

  Q122  Sue Doughty: Looking again at other ways of valuing the impact, the Treasury discussion document really failed to measure the likely impact of the expansion of aviation on other factors like landscape, tranquillity, heritage and biodiversity. Do you think this is a major gap?

  Mr Pearce: I think one major gap is local air quality. The Treasury and the DfT felt it was not possible to put an estimate on the damage done by nitrogen oxides and other local air pollutants. Potentially of course that could well be a major impact through health effects on local residents and through acidification. For instance, a Dutch study that the Treasury quotes in the paper has made some estimates which I would argue could be used. I think the other environmental impacts on landscape and on heritage do tend to be very site specific. Clearly there is a value to damage to those aspects caused by capacity expansion—

  Q123  Sue Doughty: Or even total demolition?

  Mr Pearce: Well, quite, yes. I think the point I would make and I think the point the Treasury makes is that they tend to be very site specific. The impact on the church or the river or the area of woodland will be very different depending on where it is and for the purposes of the Treasury consultation on setting a tax or some other economic instrument it has thought, I think quite rightly, that that is not the best policy approach to dealing with those and they should be dealt with on a much more site specific basis, perhaps using the planning approach.

  Q124  Sue Doughty: So it has not looked entirely at these, and I take your reasons for why it has not. Are there any further reasons why it might not have done or is it just purely because of this site specificity?

  Mr Pearce: I think also it might be because we do not have a lot of accurate valuation estimates for these sorts of environmental impacts so it is quite difficult with the information that we have at our disposal to make valuations of damage to these other aspects.

  Q125  Sue Doughty: When you said that we do not have much information on which you can measure, is that in terms of what the Treasury has available? Is there other information perhaps out there where one could start drawing on that information? Is it just a total lack of information in the field or a total lack of information perhaps relating to the United Kingdom, or a total lack of information relating to these sites?

  Mr Pearce: Yes. There have been studies done on many of these aspects but it is very difficult to transfer those studies to the sites because the sites vary depending on where the location is. If one would want to put a value on damage to these aspects I think the Treasury would have to commission new studies on that.

  Q126  Sue Doughty: Do you think it should?

  Mr Pearce: I think there is probably more value in looking at non-economic instruments to manage those environmental impacts, as I say, through the planning system or through regulatory approaches. Economic instruments, if you want to set a tax or have a permit, are much more suitable for things which are sort of similar across airports and across locations like CO2 emissions, noise and local air pollution.

  Q127  Sue Doughty: In the information you have provided on noise you have argued that the Treasury is wrong to base its figure of £25 million for all airports on the basis of marginal costs. On the other hand, we have got this figure which Professor Pearce has provided of £66 million for Heathrow alone. How far do you think that is accurate and comprehensive? Do you think in fact the total cost of noise might be even more than that?

  Mr Pearce: I think it could well be, yes, because those two numbers come from two different ways of measuring noise—the lower number coming from the noise emitted from the various types of aircraft which fly into Heathrow on a typical day and the higher number from the noise recorded on the ground through the noise contours. Both of them really are based on the value to local residents of a reduction of one decibel from existing noise levels. The only way in which those would represent the total value of that to local residents is if the value of an extra decibel reduction was the same at all levels and one would imagine that at a quieter airport or at a point where Heathrow was much smaller actually an extra aircraft would be much more disturbing. An extra aircraft when there are 50 aircraft would probably be more disturbing than an extra aircraft when there are 300 aircraft going, which would suggest that the total damage is actually higher than either of those figures quoted.

  Q128  Sue Doughty: Then there is a problem about the accuracy or comprehensiveness of the Treasury's figures where we have got health impact as a result of local air pollution. Have you any views on that?

  Mr Pearce: Yes, I think the Treasury has been looking at the evidence that there are health impacts from say nitrogen dioxide and the evidence is just not there at the moment, according to the Treasury. But there is, as I say, a Dutch study which uses other medical evidence of the dose response impact, the impact on health from nitrogen dioxide, also particulates. They have been able to come up with some valuations. So I think that other researchers have come up with some estimates that the Treasury has felt unable to do.

  Q129  Sue Doughty: There is one more aspect about costing and that is congestion, which I would like to look into. The Treasury document states that external costs are likely to be minimal, the cost of congestion. Do you think it is right? The Treasury seems to dismiss the internal costs. What is your view on the cost of congestion?

  Mr Pearce: That it is very real. Clearly the skies are crowded and there is an issue of surface transport congestion and in fact I think the Treasury does say quite clearly that there is an external cost to surface access congestion which has a real cost and needs to be addressed, perhaps through instruments such as local congestion charging. I think the point they make about congestion in the skies is that the cost is reflected in the cost of air travel being higher than it would otherwise be. If you had less congestion there would be more flights and therefore one would imagine that the cost of air travel would be lower than it is at the moment. So I think they are right in that sense. The cost is to the industry and to air travellers.

  Sue Doughty: Thank you.

  Q130  Mr Challen: In arguing that the aviation industry makes a huge economic contribution to the country the Government relies a great deal on the 1999 Oxford Economic Forum study. That has been criticised, I understand, and I am just wondering what your view is on the study, whether you share those criticisms and your view on the economic contribution of aviation generally?

  Mr Pearce: My understanding of the economic benefit numbers that the Government has been using is that they do focus very much on direct benefits to passengers and to freight and it is very careful, I think, to limit its use of the calculations of economic benefits. But I know others who have been using the Oxford study say there are wider economic benefits from the aviation industry and actually the Government has been using an under-estimate. I think the Oxford study was a very comprehensive assessment but it has been, I think quite justifiably, criticised on a number of aspects. One is the emphasis it places on the use of the jobs created by the industry as a measure of its benefit. I am sure the Treasury would dismiss that because if the industry was not employing those people another industry is likely to do so, so in a sense that is double counting from a national point of view. Quite clearly there are wider economic benefits from the industry because it offers a transport network, so there are benefits to other industries from that network and certainly for the transport industry as a whole clearly it offers vital network benefits that enhance the productivity of many industries. I think the criticism of the Oxford study is that they suggested that expansion in airport capacity would bring about an increase in those productivity benefits for other parts of the economy and I think the evidence on that is not proven; indeed the Oxford study itself could find no statistical evidence that extra air transport infrastructure would actually improve productivity.

  Q131  Mr Challen: I am just wondering in this post 9/11 world whether the 1999 study took into account things of that order, which have done tremendous damage to the aviation industry, or whether it is flexible enough to accommodate blips of that type?

  Mr Pearce: I do not think the basis on which economic benefits are calculated, which would be the value passengers place on being able to fly over and above the price of their ticket and the value to freight carriers and indeed to the Treasury of revenues. I do not think that will change.

  Q132  Mr Challen: So it would not need updating, the assumptions that it makes?

  Mr Pearce: Having said that, I suppose there is a possibility that 11 September has made people more cautious about flying and they would place less value on the choice they are given for holiday destinations and travel but I would not like to say that that was going to be a permanent impact.

  Q133  Mr Challen: It seems to have had a fairly permanent impact on the executives of airlines, who now plead cap-in-hand, particularly in the States, as I see it, to governments asking for subsidies and other reliefs?

  Mr Pearce: Yes. However, if we are making a decision here about infrastructure that will be there for 50 or 100 years I would not be confident enough to say that this was a permanent effect on the demands that individuals would have for air travel.

  Mr Challen: Thank you.

  Q134  Chairman: How do you think we should look at this choice between taxation and charging on the one hand and capping emissions and trading on the other? What considerations do you think should guide us between choosing between those two alternative ways forward?

  Mr Pearce: I think the first point I would make is that it seems to me the important thing is to get a price incentive for the industry to specifically address reducing emissions of particular types. So I think it is very important that any tax is well designed to do that. APD, air passenger duty, for instance, does not do that at all. It offers no incentive for any of the operational improvements that we heard from an earlier submission. One point I would make is that what needs to be done is that those incentives could be created by a charge on the emission or on noise and it could be revenue-neutral and have a beneficial impact on increasing the incentive for a faster turnover of the fleet to get the operational and technological improvements that we heard earlier. That is my first point, my second point being on climate change. I think it is very important to integrate the industry into the international agreements on restricting greenhouse gas emissions, the Kyoto system, which is a permit based system, a cap and trade based system. It would seem to me that that would certainly be the way forward.

  Q135  Chairman: Do you think there should be any attempt to equalise the taxation of aviation with any other form of transport or is that just a completely different story?

  Mr Pearce: It is not a completely different story. I think the issue that the Treasury document addresses and the one I have been addressing today is the importance of creating the incentives for the industry to bring about these operational improvements, which means changing the price. Industry at the moment are not really paying for its emissions or its noise. There is a second issue of whether through implicit subsidies, through exemption from certain taxes the level of output of aviation is in some senses too high and therefore emissions are too high. So yes, I think there is a case for looking at it.

  Q136  Chairman: What is your view about that?

  Mr Pearce: It certainly does seem to be the case with the exemption from fuel duty in particular that there seem to be implicit subsidies.

  Q137  Chairman: Do you think that is likely to be a big factor?

  Mr Pearce: I do think it is a big factor because the numbers we are talking about from the estimates that I have seen for fuel duty, for instance, are large. So yes, I think that is an important issue. I think, though, that we could also address the incentives and the lack of pricing of environmental impacts separately and have an important impact. So I think those two issues could be addressed separately.

  Q138  Chairman: I am sorry, I do not quite follow. How do you mean addressing it separately? Pricing the environmental impact separately?

  Mr Pearce: Yes. I think, for instance, it is very important that some system such as a cap and trade system is put in place in the industry to address climate change impact. I think it is important that perhaps some sort of charging system is put in place to address the noise impacts of the industry. That could be done in a revenue-neutral way and I think still have very useful impacts in reducing environmental effects. The tax equalisation issue is one of taking money away from the industry in order to get the level of output to a level commensurate with other substitutes.

  Chairman: Thank you very much indeed, Mr Pearce. It has been an extremely valuable session.

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