Examination of Witnesses (Questions 139-159)
Wednesday 11 June 2003
MR ALASTAIR
MCDERMID
AND MR
TIM HAWKINS
Q139 Chairman: Good afternoon and
welcome. Thank you for your memorandum. Is there anything you
would like to say briefly before we take evidence from you?
Mr McDermid: I would just like
to make a few remarks by way of introduction and firstly to introduce
myself. I am Alastair McDermid, Airports Planning and Environment
Director for BAA plc. To my left is my colleague Tim Hawkins,
Strategic Planning Manager for BAA. As we said in our written
submission, BAA is still formulating its response to the consultation
paper concerning aviation and the environment. Our evidence is
therefore limited at this point in time. Nevertheless, we welcome
the opportunity to share our perspective with the Committee. As
you will have seen from our written submission, BAA believes that,
in common with other industries and modes of transport, aviation
should meet its external environmental costs. We believe that
the best way of achieving this, however, is through economic instruments,
which will provide our industry with incentives to reduce impacts
at their source, rather than through blunt instruments which provide
less or little incentive to reduce those impacts. Our view is
that this approach is consistent with another pillar of Government
policy, that action should be taken which, firstly, reduces impacts
at their source, and only then moves on to mitigate and compensate
where that is appropriate. Some environmental issues are best
addressed at local level, while others are best addressed at a
national or local level. In applying these policies, there are
certain principles which we believe the Government should use.
These include the need for policies to be proportionate; they
must clearly be effective; they should support other Government
policy objectives; and they should not put the UK at a competitive
disadvantage. We believe that the economic and social benefits
of air transport are considerable and we accept that there are
significant environmental effects. Environmental economic instruments
therefore play a key role in striking the right balance. This
is especially so in relation to climate change.
Q140 Mr Chaytor: For the projections
of the increase in air traffic growth to 2030 that the Government
has just produced, the aviation emissions are in the order of
between 67 and 77 million tonnes of CO2. We understand there is
this issue of radiative forcing as well, which multiplies the
impact of these emissions by two and a half times. Accepting some
scientific assumptions, if that is the case, it then seems to
me that about one-third of the UK's total CO2 emissions will come
from the aviation industry. Do you think there might come a crisis
when the aviation industry will get the same reputation, say,
at the nuclear industry, as one that is primarily characterised
by emissions of toxic substances? How do you see the reputation
of the industry in the future if these projections go forward?
Mr McDermid: Firstly, I would
say that we have not done any projections of our own. If those
projections were correct—and we are not saying whether they
are or not—accepting your premise, then I think there must
be some significant reputational risk to the industry. Our perspective
of it, although we have not done our own estimates, is that that
would be likely to be an overestimate—and I say this somewhat
off the cuff—because our industry, as with many other industries,
has moved consistently over time towards achieving performance
improvement in its environmental effects. We would expect that
to continue to be the case. Without having done our own estimates,
we would think it unlikely, I believe, that we would get to that
point in time.
Q141 Mr Chaytor: But the performance
improvements that have been made in recent years, if these projections
for passenger growth are correct, will be grossly outweighed by
the increase in passenger growth. There is going to be a net increase
if the projections of passenger growth are fulfilled.
Mr McDermid: There will be an
increase. In a growing industry where more airport capacity is
provided, it is bound to be the case that there will be a growing
level of emissions from the industry. I think at a global level
we have seen the material produced by the International Panel
on Climate Change suggesting that aviation emissions globally
over the next 50 years or so might grow from about 2.5% to 6%.
Whichever figures you use, the presumption is that there is likely
to be growth in emissions. What we recognise in BAA therefore
is that there is a need for the aviation industry to be brought
within international climate controls, such as the Kyoto Protocol.
That is something that we would favour. We think it would be necessary
to do that in order to provide the right checks and balances to
reduce those emissions compared to what they might be otherwise.
Q142 Mr Chaytor: Accepting your point
that BAA has not made these projections, elsewhere in the industry
have any of the airlines, or any other body, made projections
and, if not, do you not think this is a pretty essential task
that the industry should take on board?
Mr McDermid: I think it is an
essential task that the level of emissions is assessed and identified.
Whether or not they are best assessed within the industry or independent
of the industry I think is more open to question. I suspect that
those estimates that are undertaken independently of the industry
would probably command more support by independent commentators.
I do not think it is necessary for us to do our own forecast of
it. What I do think is necessary is for our industry to be party
to the actions that we need to take in order to reduce our emissions.
Q143 Mr Chaytor: Once the emissions
are identified and the estimates are accepted as being reasonably
accurate, it follows that there will be an increased attempt to
deal with the environmental costs as a result of that. You have
argued that it is impossible to identify environmental costs and
that you need more time to research this. How long do you think
it would take to get accurate assessments of environmental costs?
Mr McDermid: I would not care
to hazard a guess.
Q144 Mr Chaytor: This is an indefinite
task. That really suggests it is playing for time, does it not?
Mr McDermid: No. What I was going
to suggest was that I think it would take some time to establish
those costs. That is why we prefer a different approach to controlling
aviation-related emissions. The approach that we would prefer
is one in which there is a capped environmental emissions trading
system at an international level and that the cap is set at the
planet's carrying capacity of climate change emissions—aviation
is one of those and therefore it should be within the Kyoto Protocols—and
that within those caps permits should be traded between industries
and between different countries so that those who attach most
value to generating those emissions can do that for the generation
of them and that the costs of carbon, if that is to be the emission
which has the value attached to it, should be determined in the
marketplace at a level which achieves the environmental objective.
Q145 Mr Chaytor: How long do you
think it is likely to be before a global emissions trading system
is going to be established?
Mr McDermid: I have to be honest
and say that I think it is likely to be some time, but I do not
think that is the same thing—
Q146 Mr Chaytor: That is, not within
the current Kyoto commitment period, which is 2000. We are talking
beyond 2010?
Mr McDermid: But that is not the
same thing as saying that nothing should be done in the meantime.
I accept that up until abut a year ago BAA was very much more
focused on addressing the local environmental effects around each
of our airports and that we had not, up until that time, paid
very much attention to the climate change issue. What we have
done, through a process of dialogue with some of our stakeholders,
quite a number of stakeholder of whom Forum for the Future is
one, is become persuaded that the industry needed to become much
more engaged in that date than had been the case up until that
point in time. For that reason, we arranged a stakeholder workshop
a few months ago at which Government, NGOs and the industry were
represented. The question that was posed at that workshop was:
what would an environmentally credible emissions trading regime
look like? That question was debated at the workshop and a prospectus
put forward by all parties. The output of that now is that it
is moving on to the next stage where we have established a steering
group, which also involved the same three stakeholders of business,
Government and NGOs, which is overseeing a piece of consultancy
work being undertaken for that steering group, developing on the
ideas that came out of the workshop. Those consultants are due
to report back to the steering group in early autumn of this year.
I think that is a measure of the way in which we in BAA and the
airline community in Britain are beginning to engage in and show
a lead not just in this country but internationally as well.
Q147 Mr Chaytor: We have a workshop,
a steering group and a consultancy, but for at least 10 years
we have not had an emissions trading system. During that time,
on the current projections, the emissions will go up in the order
of 10 million tonnes of CO2. Are you suggesting that there is
no measure that can be implemented within the UK context within
the next ten years that will mitigate those emissions?
Mr McDermid: No, what I was getting
at was that I think there is a process which has now started.
We would intend that that should speed up the rate at which a
low emissions trading system is in operation, but in the meantime
I would also accept that that, too, is not enough. We are encouraged
by the UK emissions trading system; it is a start. Within BAA,
we are proposing to start our own internal emissions trading system
so that we can gain experience of this. The ideas are developing.
We are also encouraged by action which the European Community
is proposing to take. I think there are milestones. I think there
would have to be milestones along the way to a global emissions
trading system.
Q148 Chairman: If you have an emissions
trading system, of course, you would have no control over the
price consequences at all and therefore you obviously accept that
prices may rise far more than is strictly attributable to environmental
costs per se.
Mr McDermid: We would accept that.
We would accept that the price is what the price is.
Q149 Chairman: Even though the price
may be very high indeed?
Mr McDermid: Even though the price
may be very high indeed. As you will be aware, there are very
many estimates prepared on this subject of what the price may
be. We do not know what the right price will be, but the price
would have to be whatever the price has to be in order to achieve
the environmental objective.
Q150 Mr Challen: You said in your
submission that an efficient form of delivery rather than revenue-raising
is your preferred objective. Do you think these things are mutually
exclusive? Can we not have both at the same time?
Mr McDermid: It is in theory and
in practice, I guess, possible to do both at the same time and
to do one as a step towards the other. Our perspective on this
is that as we embark on this journey, we think it is very important
that we move down the most appropriate road for fear of less appropriate
means of controlling these emissions actually frustrating progress
and achieving the best and most effective means. I do not really
want to get too much into the issue of air passenger duty, but
we would describe air passenger duty as a tax which probably at
the margins has had a small effect in reducing the level of demand
for air transport which would have existed otherwise, but only
a small effect. What we do not think it has done anything for
is to encourage our industry to reduce those environmental effects
which are of most concern. That is what we are really trying to
avoid here. I know there is a balance to be struck between making
progress and making progress in the right way. What we would be
most concerned to ensure is that we embark on a process of making
progress in the right way.
Q151 Mr Challen: Are you worried
that the fiscal objective that the Government may have, whether
it is for general revenue or even hypothecated, would have a knock-on
effect and the numbers would climb? Let me illustrate what I mean.
In 1990 it cost about £200 to fly to New York single. This
year it costs round about £200 to fly to New York return.
There is bound to be, with this vast increase in passenger traffic,
a vast increase in CO2 and you are just not keeping pace with
taxes on other forms of transport.
Mr McDermid: Can I just try and
separate a couple of issues here as we would see this? I think
from our perspective we would argue that lowering the cost of
travel is a good thing. It is a good thing in terms of making
UK business and industry more competitive if people can travel
at a lower cost, and it is good for social inclusivity as well.
From our perspective, lowering the cost of travel is a good thing.
What is most important to ensure here is that, because of this
environmental impact, air transport costs are internalised. There
is no dilemma in our way of thinking between at the same time
lowering the cost of travel and moving aviation towards meeting
its internal environmental costs. We do not see those as mutually
exclusive objectives. On the second part of it, I think there
is a clear distinction to be drawn between, on the one hand, meeting
your external environmental costs and, on the other hand, trying
to tax away demand in a rather blunt way. It seems to us that
some commentators in this area are proposing a rather different
policy objective from which the industry internalises its costs.
A different policy objective therefore, it seems to us, is that
the policy should become one of taxing away demand, irrespective
of what the environmental effects are going to be, irrespective
of what the competitive benefits or disbenefits are going to be.
Q152 Mr Challen: But taxing away
demand is not necessarily a bad thing because it does away with
a bad thing. I understand that 75% of passengers now are there
for leisure reasons rather than business. We used to tax at a
higher rate leisure goods. Is that not still a fair argument?
Mr McDermid: It would be a fair
public policy objective if it were a public policy objective that
the Government chose to follow. It is not what we understand to
be the Government's current public policy objective. We understand
that to be one of getting the industry to meet its external environmental
costs. That is different, as I say, as a policy objective from
taxing away demand.
Q153 Mr Challen: So you are not really
in any way unhappy with what many perceive as an unequal treatment
for aviation compared to other forms of transport?
Mr McDermid: We have heard remarks
about the industry benefiting from subsidies, and I am quite sure
that is an issue on which many member of this Committee will have
their own views. From our perspective, we take the view that the
users of airports and aviation pay the full direct costs they
incur. That is unlike other forms of transport, and it is a matter
of public record that the rail industry, for example, does benefit
from direct subsidies. Air users pay for the full direct costs
of the facilities that they use.
Q154 Mr Challen: What I am saying
is that you are in receipt of a massive indirect subsidy through
the absence of taxes.
Mr McDermid: That is not the way
we see that, as an indirect subsidy. We see that question more
accurately put, and I am only giving you our perspective on it,
as not a subsidy to airlines, not a subsidy to airports; it might
be argued by some that it is a subsidy to the consumer, a subsidy
to the passenger who is not having to pay that tax while he is
undertaking his journey. From our point of view, even at that
level it is not a subsidy because air passengers are already,
in addition to paying their full direct cost of using the facilities,
paying an air passenger duty as well. We have some difficulty
with this notion that our industry is benefiting from subsidies.
I know that is a different view probably from that of many people
on this Committee and from what other witnesses have put forward
to you, but we do not see it that way.
Q155 Mr Challen: Let us try another
example. If there were, say, congestion charges for road traffic
going to and from Heathrow, might it not also be argued that you
could have a massive environmental benefit if there were congestion
charges on the aircraft that use over-congested airports, thereby
saving extra runways, and then distributing that traffic to other
airports which are perhaps under-used? Would you support that
kind of argument?
Mr McDermid: We certainly would
not support the latter part of that argument where you would be
forcing users of air transport to use airports which are not the
airports of their first choice. We do not actually see that as
a terribly sustainable solution to anything. If that were to involve
someone who lives in Surrey being forced to use an airport in
Manchester, we do not see the forcing of that to happen to be
a sustainably successful solution. On the issue of congestion,
our perspective on that is that congestion of airports occurs
in a different form from the way in which it occurs on roads.
Because people are free to use their cars on roads, demand is
not easily controllable, other than through increasing the costs
on that road. Demand for air transport, on the other hand, is
controlled in a rather different way. The number of aircraft movements
that there are on a runway is determined by the safety separation
of aircraft in the air and on the runway, so there is not the
same sort of free-for-all at airports that you can get on roads.
That is one of the reasons why we take the view that air transport
is a form of public transport, along with road, and can be distinguished
from road transport in that and in a number of other different
ways as well.
Q156 Mr Challen: Of course they are
not exactly alike, but might it not be a good idea to use fiscal
tools to try and get a more even distribution of passengers across
our other airports rather than forcing them into this kind of
hub-and-spoke method where there are great costs for the passenger
to get from the region down to the Heathrow, costs which could
be saved and make Heathrow more viable environmentally and boost
traffic elsewhere? That would be more environmentally friendly
and more direct?
Mr McDermid: I understand your
question. Again, it is the solution which we would not favour.
We would argue that the situation that exists at the moment is
that the capital of the UK enjoys airport capacity, a range of
airport services which are available from London. About 20% of
passengers using London Airport do not have their origins and
destinations in the south-east of England. That 20% is very thinly
spread across the UK. The largest proportion of them come from
the south-west of England, which is not well served by airport
capacity. The rate of services that are available therefore from
London that are not available from the regions we see as meeting
a UK market demand and in some senses some of those are meeting
a western European marked demand. That is a policy approach which
we believe goes with the grain of working with the market rather
than trying to work against the market.
Q157 David Wright: Can I dwell a
little on Heathrow as we have moved on to that? You have changed
your position on this, have you not, since 1999? In April 1999
Sir John Egan said: We have since repeated often that we do not
want, nor shall we seek, an additional runway at Heathrow. I can
now report that we went even further at the inquiry and called
on the Inspector to recommend that, subject to permission being
given for T5, additional Heathrow runways should be ruled out
for ever. You have changed your view. Why have you done that?
Mr McDermid: I certainly accept
that our position has moved on. I am not sure that it has changed
in quite the way you were suggesting there. What we said previously
was, during the time of the Terminal 5 public inquiry, and it
was our value judgment at the time, that we did not believe that
another runway at Heathrow was environmentally sustainable. We
also argued that it was not necessary in order to support the
fifth terminal, which patently on that part of it is the case
because we are pressing ahead with the fifth terminal independent
and irrespective of what the decision is on anther runway. We
did call on the Government through their Inspector at that inquiry
to rule out the third runway at Heathrow. The Government chose
not to do that and made it very clear in continuing with the service
that it was not going to accept our value judgment that another
runway at Heathrow was environmentally unsustainable. It wanted
to test that proposition further. Hence, it put a Heathrow option
into the consultation document. We responded to that consultation
document. What we said is that if the Government still wants to
make that value judgment, and we believe it is right that the
Government should make that value judgment, then we have put forward
a view that says there is a case on technical grounds for the
London area and the south-east of England having up to three more
runways and that, on a technical basis, Heathrow is one of those
locations on which the Government could choose a technical solution.
The Government has yet to choose whether or not it is environmentally
acceptable, and we have not offered an opinion as to whether or
not it is on this occasion.
Q158 David Wright: Are you going
to do that?
Mr McDermid: No.
Q159 David Wright: Why not?
Mr McDermid: Because we have come
round to the view, with the benefit of the experience of having
stated that position, that the range of issues that has to be
taken into account here goes way beyond the range of issues on
which we are, frankly, competent to comment. These are issues
of the national economy, the competitiveness of regions, the competitiveness
of the UK airline industry, regional planning, housing provision,
social policies and a long range of issues on which our view has
come round to one of believing that, frankly, the Government,
and only the Government, can and should be making that judgment.
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