House of Commons - Environmental Audit

Select Committee on Environmental Audit Ninth Report

INTEGRATED/ENVIRONMENTAL APPRAISAL

29. The Department for Transport developed its New Approach to Appraisal (NATA) methodology in the late 1990s in order to provide a more comprehensive framework for evaluating economic, social, and environmental impacts of transport projects. Further guidance on NATA has also been issued during the development of the multi-modal studies.[29]

30. One of the most important aspects of the NATA methodology is the requirement for an appraisal summary table (AST). Supplementary guidance states:

31. The airports consultation is unusual because the South-East has been considered separately to the rest of the country; and because—for each airport site—a number of different options were considered. For these reasons the Department has suggested that it was not possible to provide a single table setting out all the impacts at every airport.[31] The appraisal tables which have been published in supporting documentation are extremely detailed and lengthy, and in this respect do not fulfil the guidance referred to above.[32] Furthermore, it would have been possible for the Department to have put together single-page appraisal tables for each of the 21 "packages" (or combinations of proposals) which are listed in Annex D of the South-East consultation. They have not done so. Nor has the Department included in its airports consultation a formal Environmental Impact Assessment.

32. The opaqueness of the appraisal process means that it is not possible to evaluate—for different degrees of expansion in overall airport capacity—the cumulative impacts at both regional and national levels, and the relative balance of economic, social and environmental benefits and disbenefits, particularly between the regions and the South-East. It has therefore seriously undermined an informed public debate. Moreover, while the consultation addresses the question of the extent to which we should satisfy further demand, the focus on specific options at individual sites has undermined this issue.

33. We regard the absence of concise, transparent, and strategic integrated appraisals as a major weakness in the consultation documents. The Department's failure in this respect conflicts with its own guidance. As a result, it is impossible to assess the overall benefits of different degrees of expansion—or the relative benefits and disbenefits of regional expansion vis-à-vis expansion in the South-East.

Wider economic benefits?

34. In 1998, Oxford Economic Forecasting (OEF) was commissioned to carry out a study examining the wider economic benefits which aviation brought to the UK economy.[33] Some of the key findings from the OEF report were that aviation contributed some £10.2 billion to the UK economy and supported 550,000 jobs. Such figures have been widely quoted by the aviation industry and indeed the Government in support of arguments for further expansion.

35. However, environmental organisations are critical of the OEF report, as too was Brian Pearce, a noted economist from whom we took evidence.[34] We are concerned that little further work has been done in this area and that the OEF study appears to have achieved a certain definitive status in some quarters. While there is little doubt that aviation does bring wider economic benefits, it is by no means certain that further growth in aviation brings additional net benefits. Indeed, we note that Forum for the Future initiated a seminar to investigate this issue, at which substantial concerns were raised about, for example, the use of the job multiplier to calculate wider economic benefits and the failure of the Department to take on board key findings from the SACTRA study.[35]

36. The DfT airports consultation acknowledges that it is difficult to measure the indirect costs to the economy of failing to develop airport capacity.[36] Indeed, in carrying out its economic appraisals of options, the DfT made no attempt to evaluate these wider economic benefits. However, there is a widespread perception that the airports consultation emphasises the economic benefits of aviation without adequately discussing disbenefits and in this respect is unbalanced.

37. A specific example of the bias in DfT's consultation is afforded by tourism. Paragraph 3.33 of the DfT South East consultation mentions that inward tourism is worth about £13 billion to the UK each year, and that some 13 million foreign tourists spent £7 billion in the UK in 2000. The paragraph entirely fails to mention that UK tourists spend more abroad and that there is a net negative balance of £15 billion in tourism.[37] In this context, it is therefore unclear whether any further expansion in aviation will be economically beneficial or not. It could simply lead to an increase in the tourism deficit.

38. It is disappointing that neither the Treasury nor the DfT have conducted any recent analyses of the overall economic impact on the UK of the aviation sector, and in particular an analysis of the growth in aviation which is proposed.

39. In the absence of a robust evaluation, we are astonished at the overt bias the DfT has displayed by emphasising so consistently the economic benefits of aviation. It is disturbing, for example, that the consultation document quotes figures for the positive economic benefits of tourism but entirely fails to mention that there is an overall substantial negative balance of £15 billion.

Economic appraisals of options

40. In calculating the economic benefits of an expansion in aviation, the DfT has not attempted to include the wider economic benefits which this might bring—even though the text of the consultation constantly emphasises these. Instead, it has concentrated on evaluating the "consumer surplus" and the "producer surplus". The consumer surplus is essentially the utility which consumers derive from consuming something minus the price they have to pay for it. The producer surplus is effectively profit to the airport operators.

41. For the largest "package" of options (package 18:1 runway at Heathrow, and 2 at Gatwick),[38] the DfT have calculated a Net Present Value (NPV) of £18.3 billion compared to the present situation.[39] But £4.7 billion of this relates to foreign users,[40] and the Treasury's "Green Book" on investment appraisal explicitly states that benefits should be restricted to UK residents only.[41] Excluding foreign users would reduce the NPV to £13.6 billion, and only £8.7 billion if compared to "maximum use of present runways".[42] This represents a marginal amount given the fact that the appraisal has been carried out over a period of 60 years. For a more realistic scenario of only one new runway, a comparison on the same basis would result in substantial economic deficits.

42. The Department for Transport has failed to follow guidance issued by the Treasury by including in its economic appraisal the benefits accruing to foreign travellers. In doing so, it has significantly distorted and overstated the economic benefits of different expansion options.

43. We are also doubtful whether the private sector will invest the huge sums of money required on the basis of the relatively low discount rates which the Department of Transport has used; and concerned that the Government may ultimately be asked to provide further financial sweeteners.

44. In addition, the costs which the DfT has included in its investment appraisals relate only to construction costs. It has not included the environmental costs of £1.4 billion (rising to £4.8 billion by 2030) which are identified in the Treasury/DfT document, Aviation and the Environment: Using economic instruments. The Treasury Green Book guidance suggests that where feasible monetarised values such as these should be used in appraisals.[43]

45. We have calculated the impact of the increase from £1.4 billion to £4.8 billion as a Net Present Value of minus £18 billion (at a 6% discount rate).[44] This is equal to the total net economic benefits for the largest expansion option (package 18). Including this figure in the appraisal would entirely wipe out the economic case for an expansion in runway capacity.

46. Support for our conclusions is provided by British Airways' consultation submission response.[45] British Airways (BA) includes an appraisal table for a number of options, and in the table has included a specific line for discounted climate change costs. While BA has used a slightly different methodology, it shows that the inclusion of these costs can have a radical effect on NPVs—though BA go on to include a very large positive figure for wider economic benefits in order to justify an expansion.

47. Environmental costs are admittedly part of a wider set of costs and benefits, and it is possible to argue that wider economic benefits should also be included. However, the DfT may have already partially taken into account some of these wider benefits in calculating the "direct" benefits (ie the consumer and producer surpluses) and the inclusion of benefits to foreign travellers. Indeed, the Department itself suggests that it has included the benefits to foreign travellers precisely to reflect some of the wider economic benefits which expansion might bring.[46]

48. The Department cannot have it both ways. If it intended to exclude the wider economic benefits, then it should have excluded the benefits to foreign travellers. On the other hand, if it was including the latter as a proxy for these wider benefits, it should have included in the appraisal the discounted value of the increase in environmental costs.

49. The net present value associated with the increase in the cost of aviation emissions amounts to minus £18 billion. Including this amount would entirely wipe out the economic case for an expansion in runways and result in substantial net deficits for almost all options the DfT has put forward. Expansion could therefore only be justified if the Department could demonstrate substantial wider economic benefits—which it has not attempted to do.

EU Strategic Environmental Assessment Directive

50. The EU Directive on Strategic Environmental Assessment (SEA) comes into force in July 2004. It requires Governments to assess the effect of plans and programmes—though not policies—on the environment. The Department for Transport has argued in its supplementary memorandum that the SEA directive does not apply to the airports strategy as it allows exemptions in the case of work already underway at that time. It also suggests that the key principles of SEA (environmental assessments and consultations) are already being adhered to.[47]

51. In view of our concerns expressed elsewhere in this report on the failure to adhere to the Department's own guidance on appraisal, we are sceptical about the extent to which the Department is indeed complying with the SEA directive. Moreover, the directive will be in force by the time any proposals for airport expansion are actually put forward. It is also interesting that the DTI has taken a policy decision to comply with the directive in the development of their offshore windfarm strategy and in the wide-scale leasing of the UK continental shelf for oil and gas exploration and production.

52. It is disappointing that the Department for Transport is not planning to subject any planned expansion in airport capacity to a Strategic Environmental Assessment on the grounds that the EU directive does not come into force until next year. The Department should voluntarily comply with the EU Strategic Environmental Assessment directive immediately, following the example of the DTI which is already doing so.

29 Guidance on the Methodology for Multi-Modal Studies, GOMMMS, DfT. Back

30 GOMMMS Supplement: Transport Appraisal and the New Green Book, DfT, paragraph 35. Back

31 Ev73 paragraph 17. Back

32 See Appraisal Summary Tables, South East and East of England Regional Air Services Study (SERAS), Stage 2, DfT February 2002. The appraisal table for Heathrow, for example, is 15 pages long. We note, by contrast, that the RASCO study attempted to adopt a rather more strategic approach to appraisals. Back

33 The contribution of the aviation industry to the UK economy, Oxford Economic Forecasting, November 1999. Back

34 Ev46 Q130. Back

35 The Economic Benefits of Aviation, Forum for the Future, 23 June 2003. Back

36 DfT South-East consultation, paragraph 3.31. Back

37 See National Statistics Data, Office of National Statistics. See also, The Sky's the Limit, IPPR 2003, page 23. Back

38 In this context, 'largest' is interpreted in an economic sense to mean the option offering the highest NPV. Back

39 DfT South East consultation, page 128 (table 14.6). Back

40 SERAS Stage 2: Appraisal Findings Report, Halcrow, page 474. Back