Select Committee on Environmental Audit Minutes of Evidence


Memorandum from the Department for Transport

INTRODUCTION

  1.  The Department welcomes the opportunity to submit this Memorandum as part of the Committee's Inquiry into the Budget 2003 and aviation.

  2.  Aviation, along with its considerable benefits also brings a number of adverse environmental impacts—in common with other modes of transport. These include notably aircraft noise, impacts on local air quality and contribution to climate change.

  3.  As the Committee knows, the Government is committed to publishing an air transport White Paper setting out a framework for the future of air transport in the United Kingdom, looking ahead 30 years. A key principle, articulated in the Integrated Transport White Paper in 1998, is that aviation should meet the external costs, including environmental costs, that it imposes. That should be the case irrespective of any decisions about future airport expansion.

  4.  The Government's approach to valuing external costs, including climate change impacts, was set out in the publication Valuing the External Costs of Aviation in December 2000. This accompanied a wide-ranging consultation document, The Future of Aviation, which invited views on a range of aviation policy issues, including environmental impacts.

  5.  More recently, in February 2003, the Department published a discussion document on Aviation and the Environment—Using Economic Instruments. This outlined the Government's approach to policy appraisal and the use of economic instruments to encourage environmental behaviour, in line with the principles set out in the Treasury's publication Tax and the Environment.

  6.  The paper Aviation and the Environment identifies climate change costs as the largest environmental cost that can be quantified in monetary terms—estimated at £1.4 billion in 2000, rising to £4.8 billion in 2030 (making no allowance for demand and supply side responses to economic instruments, and therefore likely to be an over-estimate).

  7.  Forecasts for aviation's CO2 emissions from international and domestic aviation in 2000 and 2030 were set out in The Future Development of Air Transport in the UK: South East consultation document[1]Climate change costs identified in Aviation and the Environment are calculated using two further assumptions:

    —  Aviation's CO2 emissions are scaled up by a radiative forcing factor of 2.7 to account for the impact of emissions from aircraft at altitude (IPCC,1999), and converted into tonnes of carbon;

    —  In agreement with DEFRA, an illustrative cost of carbon is taken as the damage costs[2]arising from inaction in response to climate change, assessed at a global level. For 2000, this damage cost is assessed as £70 ptC, rising at £1 ptC p.a. to account for the cumulative effect of emissions, giving a cost of £100 ptC in 2030.

  8.  The total cost of noise impacts for all airports is estimated at around £25 million for 2000. This is assessed for all major UK airports (including Manchester, Birmingham and Edinburgh) and is based on a hedonic house price study undertaken at Heathrow. This concluded that a sustained 1dBA rise in the quantity of noise was likely to reduce house prices by between 0.5 and 1% relative to what they otherwise would have been. However, this has to be considered against a possible upward pressure on house prices from the convenience of being near to the airport.

  9.  As regards local air quality impacts (mainly NO2 and PM10), estimates of NHS costs of respiratory illnesses suggest the total amount would be too low to be expressly represented in any economic instrument.[3]

  10.  The discussion document Aviation and the Environment, published on the DfT website, formed the basis of a series of discussions in April and May with invited stakeholders across the spectrum of opinion on the scope for, and effectiveness of, different economic instruments to ensure that aviation is sustainable and meets its external costs. The outcome of these discussions will be reflected in the air transport White Paper.

  11.  Decisions in the White Paper on how much, if any, additional airport capacity should be provided—and if so where, and subject to what controls and conditions—will also be informed by the outcome of the airports consultation (see footnote 1). This suite of documents set out the current state of air transport across the UK and canvassed views on a range of possible options for future airport development, taking into account forecast demand and environmental concerns. The consultation period closes on 30 June.

  12.  The Transport Committee has recently been conducting its own Inquiry into aviation, in the light of this consultation. The Department submitted a Memorandum to that Committee on 31 January this year and the Secretary of State gave oral evidence to the Committee on 21 May.

The appraisal framework

  13.  From its outset, SERAS (South East and East of England Regional Air Study) was seen to be larger and more complex than comparable studies in the other regions: the size of the region, the scale of the demand it generates, the diversity and status of airports it contains and the range of air services available. Also, given the existing capacity constraints at some of the existing airports, SERAS had to look in greater detail at options for runway development. The scale of SERAS involved a comprehensive appraisal of a wide range of options. The method of assessing impacts was agreed inter-Departmentally and is described in The Appraisal Framework for airports in the South East and Eastern Regions of England, published by DETR in November 2000. This was reproduced in Annex B to the SE consultation document and is appended to this Memorandum (see Annex).

  14.  The SERAS appraisal is closely modelled on the NATA framework earlier set up to appraise the impact of projects in other transport sectors. Co-ordination of the other regional studies (known as RASCO) used the same methodology as SERAS with regard to potential major new airport infrastructure.

  15.  Wherever possible, monetary values are used to assess the environmental impacts, for example noise and climate change. The values referred to in Aviation and the Environment are consistent with the values in the air studies reports. In particular, the impacts described in the SE consultation document on demand for air travel taking into account the impact of aviation on global warming use the same illustrative "cost of carbon" as in Aviation and the Environment.

  16.  Where practicable, impacts have been looked at on the basis of packages of options—see, for example, economic benefits in Table 14.6 of the SE consultation document. But in practice, many environmental impacts are specific to particular airports. On noise, to take one example, the respective consultation documents and supporting papers set out, in each case, the impacts of development in terms of areas and population subject to daytime aircraft noise levels in excess of 54 dB LAeq in 2015 and 2030, along with an estimated valuation of the reduction in house values associated with aircraft noise. Illustrative examples of potential night-time noise disturbance have also been made, with 90 dBA SEL (Sound Exposure Level) footprints produced for the loudest aircraft likely to operate regularly at night for each runway option. Again, numbers of people subject to potential disturbance have been estimated.

  17.  The number of possible permutations, however, means that it is not practical to provide a single table setting out all the impacts at every airport for comparative purposes. In the final analysis, decisions will require a balance to be struck between the environmental, social and economic considerations, and since these cannot all be readily or comprehensively quantified and, since valuation methodologies are at varying degrees of robustness and formality, that will necessarily require a degree of judgement by Ministers.

  18.  Summary appraisal tables have been published—see SERAS supporting documentation on www.airconsult.gov.uk.

Integrated policy appraisal

  19.  The Integrated Policy Appraisal tool (IPA) was developed in the former Department of the Environment, Transport and the Regions. It is designed to give policy makers a checklist to ensure that the widest range of potential impacts from a given policy or programme—whether environmental, social or economic impacts—is considered, along with the possibility of differential impacts on particular groups eg by age, sex, race, disability and so forth. Impacts should be quantified, where possible, or otherwise subject to a qualitative assessment.

  20.  The IPA framework is being used within the Department to ensure that all relevant considerations are taken into account in reaching decisions about airport development. The Department is considering whether it should publish a version of the IPA to reflect the final decisions in the White Paper.

Strategic environmental assessment

  21.  Directive 2001/42/EC on the assessment of the effects of certain plans and programmes on the environment must be transposed into UK law before 21 July 2004. The Directive will require, among other things, environmental assessments to be carried out for programmes which set the framework for future development consents for a range of projects in transport and other sectors, including those for which an Environmental Impact Assessment (as set out in Directives 85/337/EEC and 97/11/EC and implementing regulations) would be required.

  22.  The Directive does not formally bite on developments/projects before June 2004 and in any event provides for exceptions in the case of work already under way at that time. It is hoped to publish the air transport White Paper by the end of 2003. But, in so far as the key principles of the SEA Directive require appropriate environmental assessment of plans and programmes, and prior consultation with environmental groups and the public, these principles are already being adhered to within the approach adopted for the current exercise.

Relationship to other Whitehall requirements

  23.  The Committee asks how the approach to environmental appraisal relates to relevant guidance or regulatory requirements—such as Regulatory Impact Assessments, the Strategic Environmental Assessment Directive, the "Greening Government" requirement to screen policies and conduct environmental or integrated appraisals where necessary; Treasury guidance (as expressed in documents such as Tax and the Environment, the Treasury Green Book and the Cabinet Office policy maker's checklist.

  24.  Some of these are touched on above. For the rest:

    —  Regulatory Impact Assessment (RIA) is primarily concerned with impacts of regulation or policy on small businesses. The air transport White Paper, when published, will be subject to an RIA in line with current practice;

    —  Treasury's Green Book is the definitive guide to appraisal for Whitehall Departments. The appraisal of airports options is in full accord with Green Book principles and practice, including the latest revisions updating the recommended discount rate;

    —  Health Impact Assessment (HIA) is nested within the Integrated Policy Appraisal framework. Formal detailed HIA will become appropriate if and when specific runway development options were taken forward in the planning system.

    —  Other screening requirements—The Department is making use of the Integrated Policy Appraisal tool, as described above. It is the Department's hope that the IPA, currently the subject of an inter-Departmental pilot, will be accepted as the natural successor to the policy maker's checklist and a number of existing screening requirements for individual impacts.

June 2003

Annex

SERAS appraisal framework

  (This Annex reproduces Annex B to the SE Consultation Document)

  This Annex explains the background to the SERAS study that was commissioned by the Government in 1999 to examine the demand for airports up to 2030 and consider options for airport capacity to meet that demand. It goes on to explain how SERAS was carried out including the different criteria that were used to appraise the various airport development options.

1985 White Paper

  The most recent major statement of the Government's airports policy was contained in the 1985 White Paper "Airports Policy". It was envisaged that the decision relating to expansion at Stansted, together with already approved plans for developing Gatwick (Gatwick North Terminal opened in 1988) and Heathrow (Terminal Four opened in 1986), would lead to the provision of enough capacity within the South East airports system to the mid 1990s. In the event, traffic at Stansted has grown more slowly than envisaged in 1985, despite the recent rapid growth of low cost carriers, but the use of Heathrow has grown to a level well beyond what was envisaged.

RUCATSE

  The last long-term airport planning exercise for the South East was RUCATSE (Runway Capacity to Serve the South East) carried out by a Working Group led by the Department of Transport. RUCATSE started in 1990 when the CAA advised that another runway's worth of capacity would be needed to serve South East demand by around 2005. RUCATSE looked for a full runway's worth of capacity, and did not look at variants offering less capacity but with reduced environmental impact. On 2 February 1995 the then Secretary of State for Transport, Dr Brian Mawhinney, announced that the Government was rejecting RUCATSE options for new runways at Heathrow and Gatwick (the statement was silent on the RUCATSE option for Stansted). Further work was commissioned from the CAA on making more use of existing capacity at Heathrow and from BAA to consider less environmentally damaging options for new runways.

The SERAS study

  The SERAS study was announced in March 1999 and had the following objectives:

    —  To assess the demand for airport capacity in the South East and East of England, consider options for how this might be addressed, and appraise their economic, environmental and social implications.

    —  To help the Government devise a 30 year sustainable development policy for UK airports.

  There are a number of lengthy reports and a larger number of supporting technical documents. A complete list of study documents is in Annex C. This consultation document contains the key information from those reports needed to understand the choice of packages and the options at each airport. But for a full understanding of the complex appraisal process you will need to look at the relevant supporting documents.

  From its outset, for a number of reasons, SERAS was seen to be larger and more complex than comparable studies in the other regions: the size of the region, the scale of the demand it generates, the diversity and status of the airports it contains, and the range of air services which are available. Also, given the capacity constraints that already exist at some of the region's airports, SERAS had to look in greater detail at options for runway and terminal capacity enhancement, including options for new airports. The scale and complexity of SERAS involved a comprehensive appraisal of a wide range of options.

The appraisal framework

  The method of assessing impacts in SERAS is described in The Appraisal Framework for Airports in the South East and Eastern Regions of England[4]The appraisal framework was used in SERAS to examine options over the next 30 years including:

    —  no development beyond that already envisaged in the land-use planning system

    —  development of terminal capacity to make full use of existing runway capacity; and

    —  development of additional runway and terminal capacity.

  The approach to airport appraisal follows that in the then DTLR' s Guidance on Methodologies for Multi-Modal Studies which sets out the Government's five objectives for transport investment—safety, economy, environment, accessibility and integration. A further consideration is commercial viability, which is a hurdle that must be passed for airport developments on both existing and new sites. A policy that relied on options that could not be funded by the private sector for the bulk of a major airport investment would not have been a useful outcome.

  The appraisal framework enables decisions to be made on the basis of trade-offs between indicators for each of these considerations. The framework does not make judgements on the relative value to be put on different considerations and does not provide a mechanistic way of reaching decisions. The weight Ministers put on each consideration will be made clear in the decisions set out in the air transport White Paper.

The stages of SERAS

  There have been four main appraisal stages in SERAS: Stage 0, Stage 1, Stage 2 and Stage 3.


SERAS stage 0

  Stage 0 involved a "site search" to identify new sites to serve the South East and East of England, so that these could be evaluated alongside further development of existing airports. Sites examined included those within the SERAS region itself and others in adjacent regions, that could serve at least part of the South East and East of England catchment area. The study evaluated the full range of potential new locations including "greenfield", "brownfield" and "offshore" sites (including several previous proposals eg Maplin, Foulness, Marinair and Cublington). Two types of new site were considered; a major new passenger airport and specialist facilities designed to cater for freight and low cost carriers.

  The new sites proposed in this consultation are Cliffe in North Kent for a major airport and Alconbury in Huntingdonshire for a more specialist airport.

SERAS stage 1

  The principal objective of Stage One of SERAS was to establish the feasible options for the development of capacity at each airport in the South East, and to appraise those options in order to determine which should be carried forward to Stage 2. In Stage 1 each airport was considered in isolation.

SERAS stage 2

  In Stage 2 the options selected from Stage 1 were appraised in more detail. Airport development options were combined and the economic and financial costs and benefits of those combinations of options (many of which comprise options at more than one airport) were assessed. In the SERAS study these combinations were referred to as "packages". A list of the packages is in Annex D.

  The study results quoted in this consultation document are taken largely from the SERAS Stage 2 Report.

SERAS stage 3[5]

  In Stage 3 sensitivity testing has been undertaken on selected packages. These tests have included:

    —  Government's policy requirement that aviation should bear its full costs, by estimating the effects on demand and economic and financial appraisal of incorporating environmental costs (based on Stage 2 findings in respect of noise, local air quality and global warming) into air fares;

    —  The effects on noise and local air quality, of alternative assumptions about the performance in those respects of the aircraft using different airports. We have used the results from this sensitivity work to inform our thinking on the measures that might be introduced to manage the adverse impacts of airport options; and

    —  Some limited revisions to the airport layouts and capacities in different packages and the phasing of options within packages.

How were different packages and options compared?

  The following is a summary of the appraisal process. It gives some background on how different criteria were appraised in order to help you understand the information presented in Chapters 7-12 about options at each airport and in Chapter 14 about the possible combinations ("packages") of airport development.

  The central objective of the study was to provide robust appraisal of various airport options and packages that would allow comparisons to be made between them. The SERAS methodology was therefore geared to assessing the relative impacts of options rather than the impacts of options compared to the present position or the mitigation of impacts that might be brought about through intervention (eg faster improvements in technology or regulation).

  Economic and financial appraisal was conducted over the period to 2030 and beyond, so that the effect of increasing airport capacity could be assessed year by year over the life of new infrastructure. These annual effects were summarised in net present values of providing increased capacity relative to the base case (no development beyond that already envisaged in the land-use planning system).

  To measure the impacts and benefits of developing airports over 30 years, two appraisal years—2015 and 2030—were used. The 2015 appraisal year was used for packages involving no new capacity; additional terminal capacity but no new runway; various options for one new runway; and for a new airport at Cliffe with two runways. The 2030 appraisal year was used for packages with larger numbers of new runways.

Key appraisal assumptions

  In order to compare options looked at in the SERAS study, a number of assumptions were made about how each new runway scheme might be taken forward. This enables us, for instance, to estimate the cost of construction and measure the impacts on people and the environment. Outline layout plans were produced for terminal and other facilities as well as an assessment of the road and rail infrastructure needed to support the airport development. A year for the opening of each runway was assumed. The capacity of different airport options was estimated and forecasts produced of how many passengers would use the new facilities.

  Key assumptions for the purposes of comparing options on a consistent basis were[6]

    —  the timing of construction of new runways. The first new runway (or the first two at Cliffe) is assumed to be open in 2011. In packages of three new runways, the second and third runways were assumed to open in 2018 and 2024. Cliffe's third and fourth runways are assumed to open in 2021, as is the second runway in packages with two new runways;

    —  the order of construction of new runways. In our modelling, the principle followed was to assume that the first runway would be built wherever there was the greatest pent-up demand and therefore the project was most likely to be commercially viable; and

    —  airport capacity in the regions outside the South East is always sufficient to meet demand. This includes a new runway at Birmingham, and possibly also (if necessary) at Manchester, to be built in 2021.

  We made the latter assumption because the Government's policy, set out in the 1998 New Deal for Transport White Paper, is to encourage the growth of regional airports to meet local demand for air travel where consistent with sustainable development principles. However, the Government has not yet reached a view on any specific projects at any of the regional airports, but will do that as part of the forthcoming air transport White Paper.

Appraisal of options and packages

  Many of the impacts of airport options can be identified on an option by option basis. Some impacts can only be addressed for the South East airports as a system ie in packages (eg economic benefits) or even at a national level (CO2 emissions).

Appraisal of options

  Chapters 7-11 identify the impacts of the options appraised at Heathrow, Gatwick, Stansted, Luton and Cliffe. The principal impacts reported in these chapters are:

    —  surface access;

    —  environmental impacts—

    —  land take, households displaced, heritage, ecology, water;

    —  noise;

    —  local air quality;

    —  employment;

    —  land use and urbanisation; and

    —  regional impacts.

  The full SERAS appraisal considered other impacts, for example safety risk. There is not space in this consultation document to set out all the results of the SERAS appraisal. These can be found in the SERAS Stage 2 and 3 reports.

Surface access

  The impacts of additional air travel on surface transport networks—airport access links and wider impacts on strategic road and rail networks—are potentially significant and have been modelled and assessed in some detail. Forecast airport-related trips—by passengers, employees, air freight and other—have been added to background, non-airport traffic for 2015 and 2030, and their combined consequences for road and rail networks assessed.

  Particular rail infrastructure and service improvements were assumed to accompany airport development options and their performance appraised. On the strategic road network, the principal intention has been to identify where airport-related trips would cause particular problems, and, if those problems were to be tackled through capacity enhancement, what that would entail.

  This work had to be undertaken while a transport strategy for the East and South East was still being developed. The Government's 10 Year Plan[7]sets a broad vision and investment levels for the current decade. Regional Transport Strategies will set out regional priorities for transport policies and proposals, across all modes, to support the wider spatial strategy in Regional Planning Guidance. These plans will be informed by the findings of the multi-modal studies (MMSs), some of which are due to present their strategies this summer, others later. The principal MMSs of relevance to SERAS are:

    —  Orbit: looking at orbital travel round London (the M25)[8]

    —  SWARMMS: London to the South West and Wales[9]

    —  Thames Valley: London to Reading[10]

    —  London—South Midlands[11]

    —  London—Ipswich[12]

  In January 2002, the Strategic Rail Authority (SRA) published its Strategic Plan setting out a series of projects and timescales to deliver the targets of the 10 Year Plan. SERAS is liaising with the MMSs and the SRA, and has passed details of airport-related trips to them for inclusion in their considerations.

Environmental impacts

  This part of the appraisal took the form of detailed computer modelling (for noise and air quality) and a more qualitative assessment based on desktop research (for other factors).

 (i)  Noise

Daytime noise

  SERAS modelled the impacts of daytime noise from aircraft based on the frequency and types of service (eg long or short haul) and, on this basis, a stylized depiction of the mix of different aircraft types that would use the airport. In the chapters describing the options at each airport there is information about the noise levels today and what they might be in 2015 and 2030 both with no new runway and with one or more new runways.

  Critical to the modelling of noise impacts were assumptions about future improvements in engine technology and the fleet mix at airports. These were intended to be fairly conservative (ie pessimistic). It is quite possible that the actual noise impacts of these airport developments could in fact be reduced, for example, through the faster introduction of quieter engines.

  Sensitivity testing was carried out to consider the possible improvements in the noise climate that might be achieved by: a faster retirement programme for aircraft types no longer in production; a better matching of future aircraft types to service requirements to minimise noise levels; and more stringent noise standards for future aircraft types—of 14 dB below Chapter 3 noise levels as opposed to the 8 dB assumed in the initial noise modelling and the 10 dB required by ICAO member states for new aircraft designs submitted after 1 January 2006. Since these more challenging assumptions better reflect the conditions that might prevail, it is the results of these extra tests that are presented in this document.

  Subject and pursuant to the "balanced approach" agreed by ICAO, and to EU Directives (in particular 2002/30/EC), noise impacts could also be reduced or mitigated in other ways, for example the use of operational controls (eg the way aircraft take off and land), by imposing noise limits or by providing noise insulation for those affected. Proposals for various policy measures of this kind to deal with aircraft noise are discussed in more detail in Chapter 16, Action To Tackle Environmental Concerns.

Night Noise

  Policies in relation to night-time noise at the major London airports have been implemented by limits on the overall number of flights plus "noise quotas", which take account of the number of night-time flights, permitted aircraft types and noise emissions by aircraft type. The October 2001 judgment by the European Court of Human Rights on night flights at Heathrow has been referred to the Grand Chamber of the Court[13]Until a final judgment is made, the implications for future night-time noise regulation remain uncertain.

  As illustrative examples of potential night-time noise disturbance, SERAS produced 90 dBA SEL (Sound Exposure Level) footprints for each runway option, for both arrivals and departures and for both directions of runway operation, based on a single movement by the loudest (QC2) aircraft typically likely to operate at night in the forecast years.

 (ii)  Local air quality

  The SERAS air quality assessment has focused on NO2 and PM10 as important air pollutants sensitive to increases in aviation activity and associated surface access movements. Mandatory EU limits[14]will come into force for these pollutants in 2010 (NO2) and 2005/2010 (PM10). The SERAS air quality methodology has been developed to provide a comparison between options in 2015 and 2030 using these mandatory limits. Where approximations or simplifications have had to be made, and where there is inadequate information, the SERAS methodology over- rather than under-estimates the air quality impacts.

  At Heathrow where the worst exceedances were identified, sensitivity tests have been run embracing more stringent NOx performance for future new engines and more precise estimates of the degree of thrust used by aircraft. The results are shown in Chapter 7.

 (iii)  Environmental appraisal

  With so many factors to take in account, SERAS required a carefully constructed and consistent approach to determining whether an environmental effect is significant and, if so, its level of severity. Criteria were established to define four levels of severity:

    —  High* adverse (HA*), an effect which in isolation should have a substantial bearing on decision making;

    —  High adverse (HA), an effect which in isolation could have a material influence on decision making;

    —  Medium adverse (MA), an effect which on its own could have some influence on decision making, particularly when combined with other similar effects; and

    —  Low adverse (LA), an effect which on its own is likely to have a negligible influence on decision-making, but when combined with other effects could have a more material influence.

  The impacts described in Chapters 7-11 on airport options are generally those that meet the definition of High* or High Adverse.

Employment/land use and urbanisation

  The development of an airport will have a number of consequences both for the area it is in and the wider region. Jobs will be created both at the airport and further afield generating demand for employment land and housing. The impact of this on the local housing market takes account of the potential need for workers from outside the airport catchment area (known as "in-migration").

  The SERAS appraisal allows us to consider whether the expansion of an airport might place demands on the housing market beyond what is currently envisaged by regional planning.

Regional impacts

  A qualitative assessment has been made of the impact of development options against existing regional policy, for example Regional Planning Guidance (RPG) published by Government Offices and economic strategies of the Development Agencies for the East of England, South East and London.

Appraisal of packages

  Principal impacts addressed on a package basis—with results described in Chapter 14, Airport Development up to 2030—deal with the economic benefits. Although important also in their own right, the treatment of principal environmental externalities also has to be considered.

Economic appraisal

  Economic appraisal requires assessment of both direct benefits, capital costs, and wider economic benefits.

Direct benefits

  As part of the SERAS Stage 2 study, an economic assessment has been carried out to measure the direct benefits and net benefits of each package. A model was developed to calculate direct benefits and to bring costs and benefits together so as to calculate the present value of the net benefits for each package.

  The key outputs are the present value of the net benefits (NPV), the benefit: cost ratio (BCR) and the NPV per additional million passengers per annum (mppa) of each package of investment[15]

  Much the largest element of benefit quantified is the benefits to passengers who in the absence of additional airport capacity would transfer to less preferred airports or not travel by air at all. Other benefits quantified are those to existing passengers from additional air frequencies because of higher airport capacity plus benefits to airports from additional capacity plus Air Passenger Duty plus benefits to air freight users less capital and operating costs of new airport developments.

  The assessment of economic benefits is conservative, as no account is taken of, in particular: suppressed traffic at the peak of daily and annual demand; the traffic which is already being suppressed at Heathrow and Gatwick; the market premium Heathrow currently enjoys; benefits to airlines including those of reducing aircraft delays as a result of higher airport capacity; and indirect benefits to the economy, including lower business costs, and the impact of additional air services on foreign direct investment, tourism and the UK's competitive position vis-a"-vis other European countries (but see below).

Wider economic benefits

  In addition to the direct benefits, increased airport capacity is expected to have wider, indirect economic impacts for the economy as a whole, for those parts of the economy most closely linked to aviation and air transport, and for those sub-regions most affected by airport development. Wider economic impacts identified and assessed in SERAS are:

    —  the potential increase in productivity across the economy as a whole due to an increase in aviation capacity;

    —  the increase in foreign direct investment; and

    —  the benefits in the tourism industry.

  The focus in the economic evaluation of the SERAS packages has been on the estimation of the direct impacts of increased airport capacity, as being the most tangible, most certain and most measurable indicators of the economic benefits of increased airport capacity and the enhanced air services thereby made possible. In addressing the wider economic impacts, the intention has been to explore the issues and to present an order of magnitude estimate of their potential. It is important to avoid double counting benefits: the value of improved services to business travellers themselves, for example, is already recognised in the direct user benefits. Basically, the approach adopted for wider economic benefits is to recognise the larger contribution of an airport package which enabled more foreign business travellers to fly to and from the UK, without attempting to quantify the contribution of those passengers to Foreign Direct Investment.

Capital costs

  Capital costs include both costs of providing additional capacity and major repair expenditure to keep the extra infrastructure in good order.

  Estimates of capital costs are required both for the assessment of net economic benefits of providing infrastructure and for financial analysis on the part of airport companies regarding the financial viability of projects.

  Capital costs of options have been estimated under a number of headings and summarised under the following main cost categories: terminals and satellites; aircraft pavements; enabling works and infrastructure; navigation aids; cargo and maintenance; support facilities; and associated surface access schemes if their provision is "tied" to the provision of additional airport infrastructure.

  To ensure consistency, a common set of unit rates was used for all major cost items, with any difference between airports carefully documented.

  Measures of capital cost per amount of capacity provided (£ million per mppa) were calculated to compare one option with another.

Financial appraisal

  The financial model estimates the rate of return generated by the additional investment and capacity provided in each package. This requires, among other things, estimates of capital costs, the capacity of additional infrastructure, and the build-up of its use.

  The calculated rate of return can be compared with a target pre-tax rate of return (set at a deliberately demanding 12.5% in pre-tax money of the day terms) to establish the financial viability of a package. The funding assumptions incorporated in a model run enable standard ratios, particularly interest cover and asset cover to be calculated. If a package fails to achieve an acceptable rate of return, the model establishes what might be required in terms of a levy per passenger, at an individual airport or more widely across the South East airport system, in order to achieve the target rate of return.

Internalising environmental costs

  Estimates of external costs arising from aircraft emissions and noise were published by the then DETR in Valuing the External Costs of Aviation, published in parallel to the Future of Aviation consultation document in December 2000. In SERAS, noise and air quality were modelled at the airport-specific level. Climate change impacts, however, arise at the global level and are appropriately modelled by assessing the degree to which national aviation demand would be reduced by measures to internalise the costs in terms of global warming that aircraft emissions impose.

Climate change

  CO2 has been taken as the principal indicator of SERAS options on climate change. Estimates were made of CO2 emissions in 2030 for three combinations of development options, representing different levels of capacity provision. These estimates, together with an allowance for other relevant aircraft emissions, principally NOx, suggested equivalent taxes could add up to around a 10% increase in air fares.

  Two environmental sensitivity tests have been run using the DfT air passenger forecasting model for selected SERAS packages. It was assumed that the phased introduction of an environmental tax would cause the demand for air travel to be reduced by 0.5 and 1% in 2006, increasing annually to 5 and 10% by 2016 and then remaining at those levels for every subsequent year to 2030.

  In both tests, forecast usage of Heathrow and Gatwick is not affected, given the extent of excess demand at these airports, but there are reductions in passengers at other South East airports.

  The lower SERAS environmental sensitivity tests used assumptions which were somewhat more adverse than in Valuing the External Costs of Aviation. The higher SERAS environmental sensitivity test is more realistic.

  Further information on the scientific understanding of aviation's contribution to global warming together with some revised estimates of the damage costs of carbon emissions is now available. Recent evidence indicates that aircraft have approximately three the times the radiative forcing effect than would be expected form their CO2 emissions alone. In addition, DEFRA has revised its guidance on the social cost of carbon with a central estimate of £70 per tonne of carbon, increasing by £1 per tonne of carbon per annum to reflect increasing damage costs over time. The combined effect of these two revisions indicates that the demand for air travel could reduce by about 12%.

  However, a higher price of aviation fuel is likely to have supply side effects through encouraging the use of more fuel-efficient aircraft and, in the longer term, acting as a spur to the development of more fuel-efficient technologies.

  The long term effect of a tax designed to reflect external costs will be smaller than the initial effects based on demand impacts alone. The induced cost reductions will have some effect in stimulating demand.

Noise

  Monetary values for the effects of noise were estimated by assessing the impact of increased air traffic noise on house prices in the region of the option airports. The tentative finding of past research, that a 1dB change in noise level results in an approximate 0.5 to 1% change in house prices, was used to estimate the order of magnitude of the noise value of different options. Values at Heathrow ranged between 36 and 40 pence per additional passenger; at all other airports in the South East, values never exceeded 5 pence per passenger.

Local air quality

  Robust values of the effects of local air quality changes, primarily NO2, on health are not available. But information supplied by DEFRA suggests that respiratory hospital admissions might increase by 0.5% for each 10ug/m3 of NO2. This implies an increased admission rate of approximately 5 per 100,000 people at an NHS cost of £1,500-2,700 per respiratory hospital admission. These values give a total cost of around £10,000 for every 100,000 people subject to an increase of 10ug/m3 of NO2 arising from respiratory illnesses (this does not include any deaths brought forward for which there is no evidence at present).

  The analysis indicates that within the South East, only an additional runway at Heathrow could (without preventative measures) lead to a significant number of people being subject to changes in NO2 of this magnitude, and this on conservative assumptions. These estimates of the costs of respiratory illnesses indicate that the total amount would be too low to be expressly represented in any environmental levy.





1   One of a set of six consultation documents issued on 23 July 2002, between them covering all the English regions, Scotland and Wales. An equivalent consultation document for Northern Ireland was published in August. Back

2   This is distinct from prevention costs, which relate to sector abatement costs required to meet a given CO2 cap. Back

3   See page 174 of the South East consultation document (footnote 1 above). Back

4   Department of the Environment, Transport and the Regions, November 2000. Back

5   Since publication of the SERAS Stage 3 Report, some further technical work has been done. This is set out in an addendum to the Stage 3 Report published at the same time as this second edition of the consultation document. See Annex C for further information. Back

6   In Stage 3 and in subsequent work to underpin this second edition of the consultation document, SERAS also appraised new runway options on the basis that the 2019 agreement was maintained. SERAS assumed that new runways would be operational by 2004. therefore, in combinations of development involving runways at Gatwick and at other airports, SERAS assumed that these other runways would be built first. For example, in the package with one new runway at each of Heathrow, Gatwick and Stanstead, the order (and Years of opening) became Heathrow (2011), Statnstead (2018) and Gatwick (2024); in the package with a new runway at Stanstead and Gatwick the revised assumptions were Stanstead (2011) and Gatwick (2024). Back

7   Transport 2010: The 10 Year Plan, DTLR, July 2000. Back

8   Orbit MMS reported in November 2002. See www.orbitproject.com Back

9   SWARMMS was published May 2002. See www.swarmms.org.uk Back

10   Thames Valley MMS was published in January 2003. See www.thamesvalleytransport.org.uk Back

11   London to South Midlands MMS reported in February 2003. See www.ismmultimodal.com Back

12   LOIS MMS was published in December 2002. See www.lois-mms.co.uk Back

13   The hearing did not take place until 13 November 2002. A decision is not expected for several months. Back

14   Council Directive 1999/30/EC. Back

15   See footnote to paragraph 14.25. Back


 
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