Examination of Witnesses (Questions 171
- 179)
WEDNESDAY 11 FEBRUARY 2004
MR JEFFREY
GAZZARD
Q171 Chairman: Good afternoon, Mr
Gazzard. We apologise for the late start but it is very good to
see you again and thank you very much for coming back to the Committee.
Since we last saw you we have had the White Paper and we have
seen your memorandum. It is quite clear that you are not overly
enthusiastic, to put it mildly, about the White Paper, but I wonder
whether you think that in the absence of any international context
or cooperation on these issues it was realistic to expect much
more?
Mr Gazzard: I think we have tried
to be fair in what we have said in this most recent memorandum.
It is perfectly true that the chapter, for instance, on climate
change issues is, as I have said, a reasonable but somewhat superficial
analysis in that it identifies what the problems are but the way
it is kind of dog in the manger-ish and somewhat reticent about
the scale of the problem is what concerns us. Whilst it says in
language that fundamentally is ours anyway, the environmental
lobby's language that is in terms of if international agreement
is impossible (which frankly it is) then is there a fall-back
of unilateral action or within the EU as a bloc? There are sensible,
practical alternatives but you have to want to believe that there
is the will there for the Government to proceed with them. So
in a sense what they have set out is a template in a number of
areas, including climate change, that reflects some of the suggestions
for a policy framework that we in the Royal Commission on Environmental
Pollution, the Sustainable Development Commission and IPPR have
suggested to them, but it is a question of when you look at action
or targets or indeed a sensible timeframe that appears to be lacking.
Q172 Chairman: What would you have
liked to have seen in the White Paper? We know what you do not
like. What is not so clear is what you would have liked to have
seen there.
Mr Gazzard: We have put a fairly
detailed submission into the Department which essentially revolved
around demand management and halving the growth rate. What we
felt was that the particularly seminal report, the IPCC report,
into air transport and climate issues of a few years ago was pretty
comprehensive in the way that it spoke to policy makers, regulators,
aerospace manufacturers in the industry and environmental NGOs
and it set out in an absolutely stark but fair and collaborative
fashion the future problems caused by air transport growth, particularly
in terms of climate change. What it did was it put those impacts
in the context of what it, given the sort of amalgam of people
who contributed to it,—the aerospace industry both from
a technology, R&D, manufacturing and regulatory framework—and
how quick R&D could become technology and could then become
in-service aircraft fleet performance. What they said was that
the rate of technological improvement would always lag behind
growth. So no matter how much improved technology, improved operations,
improved CNS, ATM (Air Traffic Management) systems there were
what you would have is an average of say 3-4% growth worldwide
annually but only 1-2% improvements. So what you would get is
growth continually overtaking the rate of improvement. Just to
reiterate, whilst it was an IPCC report it was a three and a half
year process, it was exhaustive and it was in that much abused
word, seminal. So when we put a submission in which we developed
over the two and a half years of the consultation process in UK
terms what we simply said was, "Here's the problem. This
growth isn't sustainable because technology cannot keep up with
it, neither can operational improvements so it is always going
to get worse, whether it is noise, local air quality or climate
change." We said basically as far as we are concerned the
thing that we want to see is that growth rate halved to get it
in line with what the industry, technology and operational improvements
can reasonably deliver.
Q173 Chairman: I noticed, and it
was not in your official memorandum, it was in a briefing note
that you sent round to colleagues today because of a debate that
happened downstairs, you say: "Halving the forecast growth
rate would also, in our view, increase the profitability of airlines,
a key area in which they need plenty of help."[3]
That is very generous of you. We shall perhaps ask the next witness
whether he welcomes the opportunity to increase his profitability
by halving the rate of growth. Can you just explain exactly what
you mean by that?
Mr Gazzard: Yes. One of the problems
in a lot of transport fields is the combination of rush hour and
off-peak demand management and seasonal demand management. That
is the first point. So you have rush hours and you have to have
capacity for that. Then what do you do with it out of the rush
hours? In an industry like air transport, which is predominantly
leisure dominated, you have a huge capacity from May to September
and then not quite so much the rest of the year round. So what
poor airlines, be they charter, low cost or schedule, have to
do is buy the maximum amount of capacity to fill the maximum demand
they forecast at any one time. Hence the reason they find it very
difficult to make money because they are running to stand still,
to put bums on those seats. That is the history of the operations
of the airline industry since 1944. It is very difficult for them
to make money consistently because they are always putting on
capacity to reach their forecasts but operating on wafer-thin
margins. That may also be a result of the capital-intensive nature
of the industry. They have to spend a lot of money on fleet and
a lot on overheads. I think in the last three to five years, particularly
with the advent in Europe of low-cost airlines, as Dr Sentance
can say much more authoritatively than I can, you have seen the
model of a major airline change significantly. They have had to
become more cost-efficient n a variety of ways. But I do think
there is that structural imbalance and if you then add in our
real bête noir, the amount of subsidy they get that
allows them to fund this growth, then it is very difficult. I
can feel Andrew shaking his head behind me.
Q174 Chairman: He merely raised his
eyebrows!
Mr Gazzard: Okay. That is quite
mild for him! So what we try to do is to say it is ridiculous
to say we do not want to see any growth in air travel. What we
tried to do was to develop an alternative strategy that put the
growth rate along with an element of stabilising noise impacts,
an element of stabilising local air quality within limits, an
element of stabilising the climate change impacts because you
cannot, whether you wanted to or not, turn the clock back. The
kind of figure we came up with—and there are various ways
of doing this—was that instead of 500-odd million passenger
we came up with a figure of about 300—318 million passengers.
Now, that is by no means sustainable but we felt that halving
the growth rate was a realistic suggestion when allied to demand
management and rail/air substitution, a comprehensive package
that we did really think about that was an alternative to unrestrained
predict and provide.
Q175 Chairman: Which improves the
profitability of the airline?
Mr Gazzard: Yes, simply because
if there is demand management then they can charge a bit more
for their seats and make more money.
Q176 Chairman: All right. The White
Paper refers a bit vaguely, I think, to the possibility of consultation
on further economic or fiscal measures. Do you have any idea what
those might be?
Mr Gazzard: Well, we hope they
would be in line with Chapter 3. We are particularly keen, as
we said once again in our submission to the DfT, that the European
presidency in 2005 is an opportunity and officials have confirmed
to us very recently that they are speaking to the predecessor
government, which I believe is the Dutch, about coming up with
some policies for how to look at integrating air transport into
the European ETS scheme by 2008, which is a yawn-inducing subject
but may have some interest and/or plan B (as we refer to it),
which is this essential requirement to get an en route emissions
charge of some form in place right now because with the best will
in the world whatever you do, whether it is through ICAO[4]
or even at EU level, an Emissions trading scheme is very difficult
to design, very difficult to implement, requires a lot of political
will, a lot of cooperation and is some way off.
Chairman: Okay. We are coming on to that
right now.
Q177 Mr Challen: This question of
the European Emissions Trading Scheme does seem to be the only
plank that the Government has in its armoury, so what do you think
are the prospects for achieving that policy?
Mr Gazzard: Well, it is very difficult,
to get back to basics, to develop an emissions trading scheme
for a mobile industry. All of the emissions trading schemes so
far have been stationary sources, industrial plant, power plants,
that kind of thing, where you can see what you have got. You can
measure it, it exists, it is there and you have some chance of
looking at its output, seeing how it is cut and seeing how, if
you believe emissions trading works, plant A makes some savings
that plant B can then use. There are two difficulties with mobile
sources: how do you measure them accurately, whether it is cars,
light vans, road, rail or air, how do you do it, and what do you
do about encompassing the growth, particularly in the field we
are talking about? So the mechanics of a scheme and the policy
process is something that civil servants and governments are inherently
interested in because that is their job. My colleague and I went
to the IPCC conference of the parties meeting in Milan recently
to try and get a grip on this and we had a meeting with Margot
Wallström's specialist, a chap called Damien Meadows, and
it is at such an early stage that the answer is really the sentence
that you have said to me, Mr Challen. We are all looking at how
to incorporate air travel into this and nobody has gone any further
than that. So to answer the Chairman's and your point, it is not
just a question of there is still work to be done, work actually
has to start. It is an aspiration in a line in the White Paper.
So the question is, do I think the Government is keen to start
work on it? Yes, I do actually, which is the answer to your question,
but how you get DfT and DEFRA (because DEFRA is the lead specialist
on this) involved is a moot point. There is an inter-governmental
green group (for want of a better word) between ministries at
high civil servant level that meets regularly. My colleague Tim
Johnson has given a presentation to them on emissions trading
and the futility of frankly expecting any action through ICAO.
So I can see how the civil servants would say, "Oh, yes,
this is an opportunity," but if you are asking me what is
in the substantive policy and how we develop it, we do not have
a clue, nobody does.
Q178 Mr Challen: So we do not have
in this Government or any other EU government a substantive idea
about the policy? Well, we know what the policy is called. That
is a start.
Mr Gazzard: No. They know what
it is called, they know how they have allocated targets to certain
industrial sectors like power generation and industrial plant
and they know when it is going to come into force and they have
a variety of scenarios of what the price of permits could be and
whether it is going to be successful. The difficulty with mobile
sources is that when you start an emissions trading scheme, particularly
because of the economic climate and environmental pressures there
are a number of areas where you can show a dramatic improvement
like the way in which the UK has switched from coal to gas. So
you appear to have a lot of emissions savings in the bank and
that is what drives these schemes, their potential for realising
that one-off, very time-limited in our opinion, "success".
But all of this is in its infancy. You will have seen our comments
based on a press report and some analysis that we did in the last
report we submitted to this Committee about the UK scheme where
we just felt the people who were taking part in this scheme more
or less admitted that they were going to do this stuff anyway
and thanked the Government profusely for paying a million pounds
for doing what they were going to do in any event. We put in a
series of little notes from quite a well-respected American researcher,
a guy called Curtis Moore, where he tried to do an analysis of
these schemes that had happened in the States (because that is
the only real experience) and he was quite critical of them. So
where we are is a bit of a wish list, an aspiration for air travel
to somehow be included in that EU scheme. It would be only European
emissions, it would not be international emissions anyway. We
are due to have talks with Damien Meadows and the Commission and
indeed DEFRA about this but it is quite difficult because when
we look at trying to find examples of emissions trading schemes
that have worked, apart from being told they work it is very difficult
to find evidence that they actually have worked. So how you design
a scheme is quite difficult for stationary sources. How you would
actually apply that to the huge growth that the air transport
industry brings it is very difficult to get to grips with but
we are trying.
Q179 Joan Walley: If I could just
briefly come in on Mr Challen's point and just press you a bit
further because looking at the announcement we have had today
in Parliament about changes of parliamentary scrutiny and relating
to the European enlargement and linking that again to a meeting
which this Committee has on a fairly regular basis with the European
Parliament, what would you say should be one thing on our agenda
that we should be putting to the Commission in respect of finding
some way of getting this onto a proper agenda where there can
be a substantive proposal to trigger a policy? What would be the
one sentence?
Mr Gazzard: Well, you need an
A4 sheet of how you would move the thing forward. That would be
an analysis of existing emissions trading schemes, a swot analysis.
Have they worked? Did they achieve their targets? What was the
price of the emissions? Did it achieve its environmental targets?
Did it have any commercial disbenefits? Was it too costly? That
kind of stuff. Then you would need to ask, what are the mechanics
of how we could measure our impacts? Would we look at national
inventories for air travel? Are they reasonably accurate? The
answer is, probably accurate enough. How would we allocate permits
around the system? Who would participate and who would monitor
it? I may have overstated the difficulty. What I am simply saying
is none of these policy issues seem to exist for air transport
in any context whatsoever at the moment. If what I am saying is
difficult to grasp and not clear, I apologise. I can do a little
simple note about it. The difficulty we have is we are extremely
sceptical about this because when we asked for this information,
as you have just asked me, from officials and people who are developing
these schemes they look at you blankly when it comes to air transport.
3 Not printed here. Back
4
International Civil Aviation Organisation. Back
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