Select Committee on Environmental Audit Minutes of Evidence

Examination of Witnesses (Questions 200-219)

Wednesday 11 June 2003


  Q200  Mr Ainsworth: And the government or the taxpayer is going to give you £6.5 million if you do that?

  Dr Sentance: The government set up an incentive and an auction whereby companies could bid in for the incentive. It was open to all companies to participate, and we took part in that auction.

  Q201  Mr Ainsworth: I am not criticising you for joining it: I am just concerned that it does not seem to be terribly good value for money on the part of the taxpayer. I appreciate it is not your problem!

  Dr Sentance: Do not forget these are cumulative reductions. If you look at the total amount we will reduce over the five years it is going to be 375,000 tons—125,000 just in the final year—and clearly there is some multiplier effect beyond that because we will have set in place measures that make sure that continues into the future. Just looking at that spread of 375,000 tons, it is £17 per ton of CO2 roughly speaking in terms of the incentive they are putting in.

  Q202  Mr Ainsworth: Have you not already reduced your global tonnage of CO2 by a billion tons in the last two years anyway because of the recession and reduced operations?

  Dr Sentance: It is part of our policy that we have fuel efficiency targets and we are trying to contain—we cannot necessarily always reduce—our global warming emissions and it is beneficial for us to do so because we burn less fuel, but our prime reason for going into the scheme was to get experience of emissions trading and to build it into our business structures alongside other activities.

  Q203  Mr Ainsworth: Has that experience then been worthwhile?

  Dr Sentance: I think it has. There are three ways I think, looking inside British Airways' business, where it has been significant. One is we now manage our emissions trading alongside fuel hedging and build it into the structure in the way we manage similar types of activities, and network planners, when they look at the cost of route changes and the cost of decisions, now take into account that emissions component because it is a potential financial cost to the company. Thirdly, the understanding of the issue and the exposure of senior levels of the company is much greater because we have taken voluntarily a high profile step in this area, so we think that is beneficial.

  Q204  Mr Ainsworth: I am glad something positive has come out of it because you will understand quite a lot of people think you are being paid quite a lot of money to undertake policies which you would anyway?

  Dr Sentance: We saw the financial incentive as off-setting quite a considerable degree of risk. We were taking on a commitment that other airlines were not taking on in a very intensely competitive industry so we could see that there was an argument for the incentive. If no incentive was provided there would be no incentive to take on this commitment voluntarily. The sort of schemes we would hope would be set up in the future and we would participate in would be ones that have much broader coverage of either the whole industry or parts of the industry, so the competition was covered and you would not need that incentive element.

  Q205  Mr Challen: Some environmental groups are sceptical of the commitment of the ICAO to make some real progress on the emissions trading scheme. What would you say are the barriers to progress?

  Dr Sentance: One important barrier is the position of the United States on global warming issues generally and Kyoto protocol in particular. ICAO is an organisation that obviously moves with the consensus of the member countries. The US is a particularly important player in aviation: about two thirds of world aviation is either in the United States or touches the United States. From an emissions trading point of view that cuts slightly both ways because the US is at least probably more enthusiastic, or relatively less unenthusiastic, about trading type mechanisms for dealing with global warming—that is one of the points they have made about the Kyoto protocol; they want to see more scope for trading—but the United States aviation industry has been hit by a major shock and much worse affected than, say, the European industry and that has clearly made it very difficult for us to make as much progress as we would like. From our perspective, ICAO is looking at three parallel approaches—voluntary commitments, charges and taxes and emissions trading. They have made some preliminary evaluation that suggests that emissions trading is likely to be the most environmentally effective and cost efficient approach and I would rather see them putting more push, and the United Kingdom government is pushing in this direction, to focus much more on emissions trading as the most likely long-term way forward.

  Q206  Mr Challen: Are there more things that the government could do in the interim, and do you think that they are making sufficient play on the United States' reluctance?

  Dr Sentance: The United Kingdom government are doing quite a bit. They have put money in to support the ICAO study on emissions trading that is part of the activity that ICAO is undertaking. There are two things in particular they could consider pushing for if they want to give emissions trading a bit more of a lift. Firstly, to do some evaluation of how aviation participates in the EU emissions trading scheme which would be set up in 2005. It is very unlikely that aviation could be included in 2005; it is probably too late for that but it could possibly be included in 2008, and I think possibly coming out of this Treasury and Department for Transport exercise some commitment to evaluate how that could happen would be helpful. Also, I think they could press for a fairly simple change in the rules for international aviation that where two countries agree as part of an air services agreement that there could be some overall limit and cap on emissions linked to an emissions trading scheme, that would be okay within the modern international air services agreement. In other words, to create a permissive mechanism that if two countries agree, such as two within the EU, that their international services were part of an emissions trading scheme, would not contravene the international air service agreements.

  Q207  Mr Challen: So are you totally against an interim solution? It seems to me that it will be the end of this decade, probably longer, before we get an ETS set up. Are you totally against an interim solution on the environmental front for taxes and charges and so on?

  Dr Sentance: We believe that a good interim solution, and I know this will not satisfy people who want to push the industry faster and harder, is to encourage airlines to make voluntary commitments of the sort that we want to make and to report on their emissions. If all airlines were doing that that would be a step forward. We are doing it but not all airlines are.

  Q208  Mr Challen: What is preventing other airlines from doing it? Is it just a lack of will?

  Dr Sentance: I think in Europe most of the leading airlines do report but in the United States there is not a recognition of the issue.

  Q209  Mr Challen: Just looking at the air passenger duty, I agree it is not a very good environmental tax as it does not differentiate between environmental performance of different aircraft. Would you agree it should be replaced with a more focused environmental charge of some sort?

  Dr Sentance: There are some arguments for that. I think that we would not like to see that distracting from pushing towards what we see as the better solution which is emissions trading, and we would put any caveat in terms of any change to APD that there should not be an overall increase in APD, but some restructuring is possibly of potential benefit.

  Q210  Chairman: Referring to the Department of Transport's and the Treasury's consultation and the expansion rate envisaged there, how is that compatible with anything you have said about sustainability?

  Dr Sentance: The expansion rate of the projected forecasts?

  Q211  Chairman: Yes.

  Dr Sentance: I think it is compatible with sustainability if you recognise that the global warming challenge which is the one people worry about most for the longer term is a global challenge on the whole of the planet's activities, of which the aviation contribution currently on international estimates is round about 3.5% and could clearly grow but it is starting from a relatively low base. The challenge for aviation should be either to limit its contribution to global warming or to fund reductions through other activities and other industries, and that is the benefit from emissions trading—that you get the either/or. You are not forcing the industry into perhaps excessively costly measures to limit its own impact; it can through an emissions trading scheme fund reductions in other activities.

  Q212  Chairman: That could be a way out, I can see, but putting on your two hats once again, are you saying to the Committee that you can conceive that there is no incompatibility between the sort of expansion envisaged by the aircraft industry, which is 4 % per year for the year 2030 on the one hand, and sustainable industry meeting its Kyoto targets on the other?

  Dr Sentance: If you accept that the industry meets its Kyoto targets by funding reductions in other activities there is no incompatibility.

  Q213  Chairman: But closing that off, it would be incompatible?

  Dr Sentance: The global warming contribution of aviation is likely to increase on those projections.

  Q214  Mr Ainsworth: Just quickly, because you are uniquely well placed to answer this question, when you go to bed at night do you think of the environment as being part of the economy or the economy as being part of the environment?

  Dr Sentance: I think they are interdependent—

  Q215  Mr Ainsworth: I did not think I would get a straight answer!

  Dr Sentance: They are all part of the way in which we are trying to live our lives on this planet in terms of improving the quantity of life and the quality of life, and we want policies that will enable us to do both.

  Mr Challen: Perhaps the follow-up question is which keeps you awake most at night?

  Q216  Mr Savidge: And do you try to count planes?

  Dr Sentance: I sleep quite well.

  Q217  Mr Chaytor: On the point about passenger duty, you said you envisage some restructuring of that, and presumably that makes it a more variable passenger duty because at the moment it is a fixed per capita payment, is it not? Could you elaborate?

  Dr Sentance: It is not something we would argue for and promote because I think we see the debate on taxes and charges is in a sense going down the wrong route. We accept air passenger duty was brought in as a sort of environmental tax and a sort of VAT substitute in the early 1990s. We do not think it is right to increase that and we do not think there is a case, partly because it is not environmentally effective. If there were proposals coming forward for restructuring that tax then we would certainly consider the merits.

  Q218  Mr Chaytor: So within an overall ceiling of existing revenue, how would you suggest it could be restructured to make it more environmentally friendly?

  Dr Sentance: We do not have any particular proposals but the general principle would be to link the existing revenue more to the environmental impact that aviation generates rather than simply to passenger numbers. That would be the general direction but we do not have any specific proposals.

  Q219  Mr Chaytor: So how would that principle be different from the principle of a tax on aviation fuel?

  Dr Sentance: As I say, it is not an approach we are pushing for, and we do not support tax on aviation fuel.

  Chairman: Thank you, Dr Sentance. That was extremely interesting and I am sorry it was interrupted.

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