Select Committee on Environmental Audit Minutes of Evidence

Examination of Witnesses (Questions 139-159)

Wednesday 11 June 2003


  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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