Select Committee on Environmental Audit Written Evidence


WRITTEN EVIDENCE

APPENDIX 1

Memorandum from the Airport Operators Association (AOA)

1.  INTRODUCTION

  This submission is made by the Airport Operators Association (AOA). AOA is the trade body that speaks for and represents the interests of British airports. AOA members include all of the nation's hub, international, and major regional airports as well as a significant number that serve local communities, general and business aviation as well as flying training and recreational flying. A listing of our airport members is attached.

  In making this submission, we have taken account of the Committee's "Pre-Budget Report 2002: Tax and the Environment", the specific references to Aviation in that report and the Committee's wish to examine the progress being made to take account of the environmental costs of aviation in the light of the recent Treasury/DfT discussion document, "Aviation and the Environment: Using Economic Instruments".

  We have also taken account of the fact that one of the Committee's primary objectives is to "review the progress made by the Treasury in placing environmental objectives at the heart of its fiscal strategy".

  Before addressing the specific questions that the Committee has indicated that it would welcome memoranda from interested parties, AOA would wish to address the following:

    —  Environmental tax strategy;

    —  The need for a "level playing field";

    —  Maintaining competitiveness.

2.  ENVIRONMENTAL TAX STRATEGY

  Aviation in the UK is a highly successful business sector and in common with all other industrial sectors makes its contribution to general taxation revenues through normal business taxation—VAT, income tax, national insurance, corporation tax, etc.

  In addition to these "normal" taxation sources, aviation in the UK also contributes around another £1billion per annum to the Treasury in Air Passenger Duty (APD).

  APD was introduced in 1995 specifically because there was no taxation or duty on aviation fuel—a position that exists in every country in the world as a result of international agreement. APD is a de facto "environmental tax". However, there is no apparent strategy behind the levying of this tax other than a means of adding a further revenue strand to the Treasury's annual tax take. Insofar as AOA is concerned we do not believe this is a sustainable position particularly if the Treasury specifically and the government more generally is serious about placing environmental objectives "at the heart of its fiscal strategy".

  APD was introduced, increased and continued with a veneer of "environmental objectivity" when in reality it is nothing more than a mechanism to raise revenue for government.

  Our experience therefore is entirely in line with that expressed by the Committee in its Pre-Budget Report 2002 when it stated in paragraph one "we see little evidence of an environmental tax strategy".

  AOA has argued consistently for the hypothecation of APD with revenues directed towards identifiable measures designed to assist in the mitigation of the negative environmental impacts associated with aviation activity. We do not consider that it is acceptable for government to raise revenues by way of environmental taxation and then do nothing to address the environmental impacts that have been assessed as the reason for introducing the taxation. AOA believes that a coherent long term strategy for APD (or other aviation environmental taxation) is required.

  AOA has great concern that the recent Treasury/DFT discussion paper on "Aviation and the Environment: Using Economic Instruments" is a precursor to a further increase in APD by using the monetary impact assessment of aviation's external costs as the justification for the increase.

3.  THE NEED FOR A "LEVEL PLAYING FIELD"

  Opponents of aviation consistently argue that the industry is under taxed. They also consistently produce inconsistent estimates of this level of under taxation and many even compound the situation by claiming that aviation receives billions of Pounds in public subsidy. These are entirely false claims.

  Aviation in the UK receives little or no public subsidy (the exception being lifeline routes operated in the Scottish highlands and islands). Aviation meets its operating and capital costs through operating charges. This compares with bus and rail services that receive significant public subsidies.

  There is no tax on aviation fuel as previously noted. However, fuel duty in the bus industry is largely rebated and for the rail sector has been described by the Rt Hon John Spellar, MP, Minister for Transport, at a recent Royal Aeronautical Society conference as being "very modest."

  However, aviation activity in the UK contributes around £1 billion in APD, a tax which no other public transport mode has to impose on its activities.

  Taking all of these facts into account there is a very strong case for arguing that, compared with other transport modes, aviation makes a greater tax contribution. Furthermore, there is little evidence of these other modes being called to account for their negative environmental impacts and even less indication that economic instruments are being considered as means whereby these external impacts may be addressed.

  These are important points as the government's objectives for aviation as stated in the discussion paper on "Aviation and the Environment; Using Economic Instruments" include that "... aviation, like other industries, should meet its external costs, including environmental costs." We do not argue with this overall principle but we would like to see evidence of a "level playing field" with the same principle applied to other public transport modes.

  The concept of "level playing field" is also important in the international context as there are significant potential dangers in treating UK aviation in isolation and as a result damaging its international competitiveness.

4.  MAINTAINING COMPETITIVENESS

  British aviation is a striking example of a successful and dynamic business sector that makes a massive contribution to the economic development and prosperity of UK plc. Aviation is essential to modern business supporting the efficient delivery of goods and services. This is demonstrated by the fact that aviation contributes over £10 billion per annum to the UK economy and contributes substantially to making the UK the number one choice for inward investment in Europe. Aviation is also essential to key growth industries such as pharmaceuticals, financial services, manufacturing and tourism that need access to efficient air transport services in order to sustain their economic development and success.

  In addition, aviation is a major source of employment supporting more than 180,000 direct jobs and more than twice as many additional jobs through indirect employment in the supply chain, and induced employment through employee spending.

  Air travel has allowed many millions of UK residents to fly to other countries either on holiday, visiting friends and relatives or to experience other cultures. The ability to take a flight on holiday is now a firmly established feature of modern life and is increasingly more available than ever before. Air travel is no longer the preserve of the rich and privileged and is firmly within the grasp of the "ordinary working man and woman". This development brings tremendous social benefit.

  Air travel has also made the British culture and heritage available to foreign travellers with inward travel now contributing some £13 billion to the UK economy. Inbound tourism must be encouraged through the maintenance and development of good and efficient air services, particularly to tap the potential of all of the regions of the UK and to promote the wide diversity of their regional history, culture and individuality.

  These positive economic and social benefits must be preserved and built upon for the future. Of course, aviation must account for its environmental impacts and we fully support the government in its wish to develop a sustainable future for aviation that takes account of economic, social and environmental considerations. However, environmental considerations must not assume a higher priority than the other strands of sustainability equation and thereby damage or constrain the very positive benefits that these deliver for our nation.

  AOA believes that it is important to articulate the very positive benefits that aviation delivers to the UK and its constituent regions and to reinforce that this sector delivers considerable benefits to the nation as a whole.

  AOA believes that aviation should meet its verifiable external costs.

5.  COMMITTEE'S QUESTIONS

5.1  "Can the full environmental costs of aviation be identified? What are the main issues of principle and methodology difficulties in attempting to do so? Can remote but potentially catastrophic risks be properly reflected in such an approach?"

  AOA believes that the issue is not one of environmental cost but rather one of identification and quantification of environmental impact. As such AOA believes that science will probably be able to identify and quantify these impacts, particularly at the local level. Quantification of global impacts, primarily climate change impact, would appear to be more problematic not necessarily in terms of sizing of the overall impact but in attributing it to specific causes eg the impact caused by aviation compared to that caused by the private motor car or the overall impact of the UK compared with the US. There is little substantive evidence that this is anything other than an inexact process.

  Translating impact into cost is an economic exercise and as the discussion paper on "Using Economic Instruments" so clearly illustrates this process is based around "illustrative" costs eg "the illustrative cost of carbon is £70 per tonne, rising at £1 per tonne per annum" and the noted "uncertainty involved in the estimation of the social cost of carbon". The only objective of translating impact into cost in this manner is to convert it to a financial value that humans can understand and that can be used as a means of trading or developing economic measures. AOA accepts that even given the inherent inexactitudes in these costing techniques they are presented in the discussion paper based upon the "most sophisticated study" of existing knowledge and understanding of these issues.

  AOA is not qualified to offer a definitive view on whether or not remote or potentially catastrophic risks can be properly reflected in such an approach, however we believe that this is no more difficult in the aviation sector than in any other impacting industry.

5.2  "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 on the Future Development of Air Transport in the United Kingdom?"

  They are not comprehensive as the discussion paper only addresses aviation's environmental impact and external costs relating to climate change, noise and local air quality. Other environmental impacts such as biodiversity, land take, and waste disposal, are not addressed. Our views on the accuracy of the costs identified are covered at 5.1 above.

  AOA notes the Committee's view expressed in the Pre-Budget Report 2002 that the DfT's national consultations on the Future Development of Air Transport in the United Kingdom did not "... give adequate weight.... to the environmental impacts of aviation". This view may be accurate but by the same token it could be argued that the national consultations did not give adequate weight to the economic benefits that aviation delivers. The national consultations enabled a wide and diverse range of respondents to submit views to government and AOA has no doubt that those factions that place environmental issues at the top of their agenda will have made a robust case for detailed consideration of the environmental impacts.

5.3  "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 maximise the significant social and economic benefits, whilst seeking to minimise the environmental impacts?"

  AOA believes that as part of an overall sustainability strategy, aviation should cover its verifiable external costs. We also believe that this approach should be repeated in every industrial sector where there are significant external environmental impacts.

  If government determines that economic instruments are to be a primary element in this strategy it is essential that these are not just mechanisms that raise revenue for the Treasury whilst ignoring the "polluter pays" impacts upon which they are predicated and leave the industry alone to initiate mitigation strategies. We believe that the development of a coherent long term strategy addressing these issues with both industry and government playing a central and active role is essential to delivering successful mitigation and compensation for negative environmental impacts while at the same time ensuring that the positive social and economic benefits of aviation are preserved and developed further.

5.4  "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 growth? To what extent is there a tension between the policy of incorporating environmental costs (especially carbon) and the government's long term objective of a 60% reduction in CO2 by 2050?"

  AOA believes that the key to continued sustainability for aviation is for a policy framework to be developed that allows social, economic and environmental factors to be taken into account. Therefore the incorporation of environmental costs in isolation would not be sufficient to delver sustainability. It would however represent a significant factor in the process as would the delivery of capacity to enable the demand for aviation to be met in the future.

  AOA does not believe that the demand for aviation should be artificially limited or constrained. We cannot accept that air travel should become socially exclusive with access restricted to the wealthier sectors of our society. If the all of the stakeholders in the debate on the future of aviation work towards the development of a truly sustainable framework for the industry it can deliver the environmental improvements that society legitimately demands, enable the capacity required to meet the forecast demand to be delivered, and continue to contribute to the economic benefits for regions and the nation as a whole.

  Clearly there are significant challenges that will have to be met if the air transport industry is to continue to deliver the environmental improvements that it has done over the last thirty or so years. Aviation must deliver and be seen to deliver these improvements and initiatives such as that being progressed by the Advisory Council for Aeronautics in Europe (ACARE) must be supported. This has set objectives for achieving a 50% reduction in fuel burn and CO2 emissions and an 80% reduction in NOx emissions by 2020. It is essential that governments as well as industry support such initiatives.

  With specific reference to the issue of the UK government's target for a 60% reduction in CO2 emissions by 2050, it has to be noted that this is a target based on all sources. Of course, aviation has to play its part and AOA is confident that it will. However, we would also reiterate our view that it is incumbent on the government to ensure that every industrial sector plays its full part in this process.

5.5  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?"

  The following options are those favoured by the AOA for addressing the environmental costs of aviation:

    —  Emissions Trading (global and open) is the most obvious and efficient way of most perfectly enforcing internalisation of impacts.

    —  Revenue neutral emissions/noise charging by airports (of airlines) could also effectively motivate airlines towards more emissions friendly aircraft.

    —  Non-revenue neutral charging would also act as a motivator and an appropriately biased source of funding to be channelled towards mitigating the impacts through joint airport/community expenditure on appropriate local (and possibly global) mitigation and/or compensatory measures.

    —  Road/Airport access charging ("congestion charging") could be used by the airport/community to fund appropriate local/public transport initiatives.

April 2003


 
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