Examination of Witnesses (Questions 200-219)
Wednesday 11 June 2003
DR ANDREW
SENTANCE
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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