Memorandum from British Airways plc
INTRODUCTION
1. British Airways welcomes the opportunity
to submit evidence to this Environmental Audit Committee inquiry.
British Airways is the UK's largest airline, providing passenger
and freight services from London and regional airports to destinations
throughout the world. We operate a fleet of 330 aircraft to 157
destinations in 75 countries.
2. British Airways is the fifth largest
airline in the world, measured in terms of passenger kilometres
travelled, and the largest outside the United States on this measure.
BA employs around 50,000 employees worldwide, 85% of whom are
based in the UK, and generates annual revenues of £7.7 billion
(2002-03).
ROLE OF
AVIATION IN
A SUSTAINABLE
ECONOMY
3. British Airways seeks to promote and
enhance aviation's role as a contributor to the sustainable development
of global society, recognising that sustainability must strike
a balance between economic, social and environmental objectives.
4. Aviation plays a fundamental role in
global society, as it brings significant social and economic benefits.
It is an important sector of the British economy, contributing
1.4% of GDP, or around £12.6 billion in 2002[1]and
supporting 180,000 UK jobs directly and a further half a million
indirectly. Air services to and from the UK also facilitate the
export of a wide range of goods and services from all sectors
of the economy, as well as encouraging inward investment. Aviation
is an industry in which Britain still plays a world leading role.
5. British Airways has a strong record in
addressing the social and environmental impacts of its operation.
We have reported annually on our environmental performance since
1990 and have played an active part in national and international
efforts to reduce the problems of aircraft noise and emissions—including
involvement in the work of the UN International Civil Aviation
Organisation (ICAO) Committee on Aviation and Environmental Protection
(CAEP). British Airways has also taken a number of voluntary initiatives
to improve its environmental performance, including commitment
to a 30% fuel efficiency improvement between 1990 and 2010 and
participation in the UK Emissions Trading Scheme.
6. British Airways is also contributing
to the consultation currently being conducted by HM Treasury and
the Department for Transport on the use of economic instruments[2]to
address the environmental impact of aviation.
ECONOMIC INSTRUMENTS
7. Economic instruments are part of a wide
range of instruments available to address the environmental impact
of aviation. Other instruments include various forms of regulation,
aircraft certification, operating procedures at airports and voluntary
measures. In deciding how to deploy these instruments, British
Airways supports the ICAO principles that measures should be:
environmentally beneficial, economically reasonable and technically
feasible.
8. We also believe that any policy initiatives
to deploy economic instruments need to reflect the following principles
into account:
Recognise economic benefits as well as environmental
costs
9. Aviation gives rise to external environmental
costs but it also generates significant external economic and
social benefits. When adressing externalities, it is important
to ensure that both areas are taken into account. A policy of
sustainable development needs to strike a balance between economic,
social and environmental objectives.
Avoid damaging international competitiveness
10. Initiatives to tackle aviation emissions
should be considered within a global framework. As agreed in the
Kyoto Protocol, ICAO is the appropriate international body.
11. The impact on international competitiveness
needs to be taken into account in any unilateral UK or regional
EU initiatives. Measures, which disadvantage either the UK aviation
industry or harm the competitiveness of the UK as a whole will
generate significant economic losses which must be set against
environmental benefits. Unilateral initiatives to tackle the global
external costs of aviation risk damaging the international competitiveness
of UK aviation, simply exporting emissions and jobs elsewhere.
12. As the Treasury has pointed out: "For
global and transboundary problems, actions by individual countries
will have little effect on their own, and may achieve nothing
at all if the result is that polluters simply move to other countries
which have not taken any action."[3]
Ensure measures are cost-effective
13. A key principle of any environmental
economic measure is that it is designed to achieve environmental
benefits in the most cost effective way. Article 3 of the UN Framework
Convention on Climate Change (1992), which defines the "precautionary
principle", states that "policies and measures to deal
with climate change should be cost-effective so as to ensure global
benefits at the lowest possible cost."
Incentivise environmental performance improvement
14. Any measures targeting environmental
impacts must be designed to incentivise improvements in environmental
performance. We endorse the CBI view that Government should place
more emphasis on incentives rather than on penalties.[4]
QUESTIONS POSED
BY THE
ENVIRONMENTAL AUDIT
COMMITTEE
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?
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.
15. We believe that the three main areas
identified by the two government papers—global warming emissions,
aircraft noise and local air quality—include the main adverse
environmental effects of aviation. However, there must be a great
deal of uncertainty placed around the costings of these effects
presented in the DfT/Treasury Aviation and the Environment paper,
particularly those applied to global warming costs.
16. First, there is still significant scientific
uncertainty, both in terms of the environmental impacts of greenhouse
gas emissions, and the contribution of aviation to those emissions.
An area of particular uncertainty is the "radiative forcing"
effect of upper atmosphere emissions from aircraft, which is estimated
to multiply the global warming effect of aviation carbon dioxide
emissions by a factor of 2.7. This is a central estimate taken
from the authoritative IPCC report[5]but
that report highlights the range of uncertainty around it, pointing
out that: "the total radiative forcing may be about two times
larger or five times smaller than the best estimate" (page
8). In other words the top of the uncertainty range is ten times
the lowest value!
17. Second, the £70/Tonne cost of carbon
can only really be regarded as "illustrative", as the
range of estimates is very wide. In 1996, the IPCC suggested that
the range of estimates for the current decade (2000-10) could
be as wide as $9 to $197 per tonne of carbon (at 2000 prices),
which gives a range of around £6 to £130 per tonne in
sterling. If this is a reasonable estimate of the range, the government
figure could be 50% too low or more than 10 times too high!
18. Third, the forecasts of global warming
emissions make no allowance for increased fuel efficiency, which
the IPCC projected at around 1.3% per year until 2050 in its 1999
report. Making allowance for this trend would cut the estimated
contribution of aviation to global warming in 2030 by a third.
19. Uncertainty in valuing external costs
is not a reason for doing nothing to mitigate environmental effects.
However, it does suggest that market mechanisms—rather than
theoretical estimates—should be used if at all possible
to establish costs and prices. This is one of the reasons why
British Airways favours emissions trading as the approach to deal
with global warming emissions—where the uncertainties are
probably greatest. Under an emissions trading regime, the market
decides the price necessary to achieve the environmental objective—a
reduction in global warming emissions.
20. In general, we believe that the focus
of environmental policy should be on using policy instruments
to reduce or mitigate adverse environmental effects, rather than
using a theoretical estimate of external costs as the basis for
imposing additional financial burdens on the aviation industry.
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?
21. We do not believe it is correct to characterise
the government's environmental policy objective for aviation in
such simple terms. In both section 1 and section 2 of the DfT/Treasury
Aviation and the Environment paper, the notion of "paying
for external or environmental costs" is referred to as an
objective of government policy. But these statements of policy
are set in the set in the context of a broader framework of sustainable
development and subject to a wide range of qualifications.
22. In section 1 it is the second of six
objectives, but is an objective to be pursued within a broader
sustainability framework: "The development of aviation should
be sustainable: that is to say, a proper balance should be struck
and maintained between economic, environmental and social considerations.
Policy for airports should aim to maximise the significant social
and economic benefits, whilst seeking to minimise environmental
impacts." (paragraph 1.3)
23. In section 2 of the paper, the notion
of paying for environmental costs is qualified by a whole range
of other factors the government will take into account in deciding
where it is "appropriate" for an industry to pay its
environmental costs. These include economic impacts, competitiveness
effects, environmental effectiveness, trade-offs between objectives
and the efficiency of the instruments being considered.
24. The government therefore makes clear
that while environmental costs can be a useful reference point,
many other considerations need to come into play in deciding the
appropriate use of economic instruments to achieve environmental
objectives. In addition, the overall framework for government
policy is sustainable development, which involves balancing economic,
social and environmental issues.
25. British Airways supports this sustainability
framework as the basis for aviation policy. As we have highlighted
above, four principles are particularly important in applying
it to the choice of policy measures, including economic instruments:
— Recognising economic benefits as
well as environmental costs.
— Avoiding damaging international competitiveness.
— Ensuring measures are cost-effective.
— Incentivising environmental performance
improvement.
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?
26. Whether the "incorporation of environmental
costs" is sufficient to achieve sustainability in air transport
depends very much on the specific measures taken. The management
of noise is a good example of how the industry has successfully
reduced its environmental impact, while continuing to expand its
operations and deliver enhanced economic and social benefits.
27. For example, at Heathrow Airport, the
noise disturbance created by the airport has been cut by 80% over
the last three decades. The large amount of mitigation applied,
through various forms of regulation and the impact of a series
of noise certification standards, is reflected in the government's
financial estimate of just £25 million for the environmental
cost of noise pollution around all UK airports.
28. We believe that local air quality problems
can be dealt with in a similar way—using a combination of
mechanisms. This would include reductions at source—ie lower
aircraft nitrogeon oxide emissions—and improved operating
procedures by airlines and airports. Road traffic is a major contributor
to local air quality problems around airports, so improved public
transport and road traffic management need to be part of the package
of measures deployed.
29. For greenhouse gas emissions, it is
important to recognise that the problem is a global challenge
and any measures taken by the UK can only be effective if they
are part of a coherent international response. British Airways
has consistently supported the participation of international
aviation in an open emissions trading scheme for carbon dioxide,
and has supported that approach in the discussions at ICAO. We
believe this is the most economically efficient and environmentally
effective way of ensuring aviation reflects the cost of carbon
dioxide emissions.
30. By including aviation in an open emissions
trading scheme for carbon dioxide emissions, its contribution
will be limited by the cap applied to the scheme. Airlines would
either need to cut their emissions directly, or effectively pay
other industries to make an equivalent reduction by buying permits
from them. However, there would need to be international agreement
on the caps applied for this system to work and a fair allocation
across sectors and between countries. It would be totally ineffective
for the UK to make a 60% reduction if at the same time other much
larger countries (eg the United States) were increasing their
emissions. It remains to be seen whether international agreement
can be reached on such a stretching target as a 60% reduction
by 2050.
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?
Local airport issues
31. Local airport issues—noise and
air quality—can be successfully managed through a "balanced
approach"—a mix of measures which can be tailored to
the local situation. British Airways supports the ICAO recommended
Balanced Approach to Airport Noise Management. The Balanced Approach
defines a process for evaluating four potential elements to determine
the most cost-effective solution:
— Improvements at source (quieter aircraft)
— Operational procedures (altering
flight paths and descent approaches)
— Land-use planning (eg noise zones
in which new housing developments are restricted)
— Operational restrictions (eg night
noise regulations and noise contours)
32. Although there are differences between
the impacts of noise, which is aircraft dominated, and air quality,
which is heavily influenced by road traffic emissions, a similar
"balanced approach" could also be applied to the management
of air quality around airports.
33. In managing these issues, economic instruments
could have a role to play, such as noise and emissions charges
or tradable quotas. However, these instruments are unlikely to
be effective if deployed in isolation. They should be deployed
as part of an airport environmental management plan, which aims
to combine economic instruments with other regulatory or operating
measures to achieve a clearly identified environmental objective.
It is also important that revenue generated should be hypothecated,
either to incentives for good environmental performance, or to
mitigation measures.
Climate Change
34. For CO2 emissions, British Airways has
consistently supported the participation of aviation in an open
emissions trading scheme as the most economically efficient and
environmentally effective way of ensuring aviation reflects the
cost of these emissions. Under such an emissions trading regime,
the market will determine the cost of carbon necessary to meet
the agreed target. Unlike a tax, where the level of tax needed
to achieve the environmental objective is unclear, the environmental
objective is assured by the overall cap on emissions.
35. Another advantage of emissions trading
is that it works with the grain of incentives, combining a "carrot"
alongside the "stick". Assuming a grandfathered system
of allocation, firms which achieve the biggest reductions can
gain by selling their permits into the market. This reinforces
the financial incentive for investing in technology which will
enhance emissions reductions.
36. As a signal of its commitment to emissions
trading, British Airways has joined the UK Emissions Trading Scheme.
Because international aviation emissions are not included in the
agreed Kyoto caps, the scheme can only include our domestic services
and UK ground energy sources. For 2002, BA has reported a 16%
reduction in its carbon dioxide emissions covered by this scheme,
compared with the 1998-2000 baseline.
37. The incorporation of aviation into a
global emissions trading system should, however, be the long-term
goal. UK government policy should be aiming to support this through
its participation in ICAO and other international forums, consistent
with the strong support for emissions trading set out in the latest
Energy White Paper. The UK government should also be exploring
the technical, environmental and economic consequences of incorporating
intra-EU aircraft emissions within the EU emissions trading scheme.
38. The participation of aviation in an
open global emissions trading regime is complicated by the Kyoto
treatment of emissions from international bunker fuels, which
has the result of excluding international aviation emissions from
the global caps which have been agreed for the current commitment
period. The UK government should be working with other parties
to ensure that international aviation is properly included in
the emissions caps agreed for the second Kyoto commitment period
from 2010.
39. While the government may be under pressure
to introduce new taxes and charges as an "interim solution",
or as a supplementary measure, this pressure should be resisted.
In particular, unilateral measures taken by the UK government
outside of any agreed international framework for aviation risk
seriously damaging the competitiveness of the UK aviation industry.
40. Aviation already pays a specific "environmental
tax" in the form of Air Passenger Duty (APD). Though this
tax is not a very effective environmental instrument, as it simply
taxes air travel rather than penalising any specific adverse effects,
it does raise nearly £1 billion each year for the Exchequer,
none of which is recycled back to any specific support for the
airline industry. Airlines in the UK also pay their full infrastructure
costs, unlike the main competing public transport mode—rail,
for which infrastructure costs and many services are directly
subsidised.
CONCLUSION
41. British Airways is committed to sustainable
development, based on a balanced assessment of economic, social
and environmental impacts.
42. Environmental economic instruments could
have an important role to play in aviation, particularly in tackling
global warming, through an international framework for emissions
trading. We see a much more limited role in tackling local issues
at airports which are already being largely addressed through
existing regulations and voluntary action.
43. In seeking to apply economic instruments
to aviation, therefore, the government's main objective should
be the inclusion of aviation into an internationally agreed framework
for managing and trading CO2 emissions on a competitive and cost-effective
basis.
June 2003
1 Oxford Economic forecasting Report 1999. £12.6
billion is calculated as 1.4% of UK Gross Value Added at Factor
Cost of £903.3 billion in 2002. Back
2
Aviation and the Environment Istruments-HM Treasury/Department
for Transport, March 2003. Back
3
HM Treasury, Tax and the environment: using economic instruments,
para 5.28 November 2002. Back
4
CBI, Green Taxes; Rhetoric and reality, April 2002. Back
5
Intergovernmental Panel on Climate Change, Aviation and the Global
Atmosphere, 1999. Back
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