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