Examination of Witness (Questions 180-199)
DR ANDREW
SENTANCE
8 DECEMBER 2004
Q180 Joan Walley: Presumably you would
be in that latter category.
Dr Sentance: Not necessarily.
If you go to our social and environmental report—and I have
brought a copy with me and can supply copies to the Committee—you
will see that we have been reducing our aircraft carbon dioxide
emissions in British Airways. It is not an unknown thing. We as
a company have probably taken a much more cautious approach to
growth than some other participants in our industry, such as no-frills
airlines or some other network airlines. We believe it is not
necessarily the right thing to grow at the maximum possible rate;
the important thing is to have a financially sustainable business
which can meet its commitments into the longer term and perhaps
a more broadly sustainable business. I do not think you should
assume that all airlines will be increasing their emissions. If
you put in the right market incentives it will make airlines,
along with other businesses, think much more carefully about their
emissions.
Q181 Joan Walley: That is a link not
just to emissions but also to the growth in aviation and to extra
runways and to extra services. It is not just about the single
aircraft; it is about the whole business plan.
Dr Sentance: We should be basing
our plans for aviation on sensible forecasts of growth.
Q182 Joan Walley: Do you mean business
growth or—
Dr Sentance: Traffic growth, the
number of passengers flying. If you go to the aircraft manufacturers'
forecasts, Airbus and Boeing, and get out their glossy brochures,
you will find that they are projecting growth of about 5% per
annum or so across the industry for the next 20 years. I think
that is too high, and I think the Government came to the conclusion
that was too high. They have produced their White Paper on the
basis that growth will be somewhere round about 3% or just above.
I think that is a much more sensible assessment.
Q183 Joan Walley: Finally, where would
you say the interface is between the projections which you have
as a business in respect to growth within the industry, your own
company's growth, and transport policy, in so far as the Government
is looking at increased runways, extra growth and so on? What
is the interface between that and making sure that we try to get
this cap on carbon emissions within which your industry sits?
Dr Sentance: When we think about
the future growth of our business we do take into account the
fact that there may be policy instruments coming along in the
future. We think those policy instruments should be based on an
emissions trading approach that will, in a sense, add to the cost
of increasing your emissions. We do take that into account in
our planning. I think the other point to make is that British
Airways, historically, because of the constraints under which
we operate within the structure, has not been a fast-growing airline,
and even if you look at the projections and infrastructure in
our main base, Heathrow, it is not going to allow us the same
growth prospects as some other airlines. So it is quite likely
that we will grow less rapidly than the industry as a whole.
Q184 Mrs Clark: I think it is fair to
say, is it not, that targets that have been set for the initial
phase of the EU ETS scheme have really come in for a bit of slamming?
They have been regarded as being extremely undemanding. First,
why have they been so undemanding, do you think? Would you agree
with me that a far more rigorous and stringent EU-wide cap and,
indeed, corresponding national targets, are absolutely vital for
phase 2?
Dr Sentance: I have heard comments
on both sides of the fence in terms of the stringency of the targets.
I have heard comments perhaps more from some of the environmental
campaigning groups along the lines you have highlighted.
Q185 Mrs Clark: Which ones in particular?
Dr Sentance: Green Peace, Friends
of the Earth, for example. I have also heard comments from the
CBI and business organisations that they see the targets as being
very stretching and demanding. I do not want to give an opinion
on that but I observe that there are views on both sides of the
fence. We are only a small player in terms of the initial phase
of the EU missions trading scheme—we have one maintenance
installation that is captured under the scheme—and it is
not a big issue for us but I would just observe that about the
debate. I would say in terms of this whole question that we have
to recognise that we are trying to make some quite major reductions
in overall carbon dioxide and other greenhouse emissions over
a long period of time. The UK Government has suggested a 60%.
Q186 Mrs Clark: For how long?
Dr Sentance: In the period to
2050. I would expect as a process of trying to get to what is
a stretching target in the longer term, the stringency, as you
describe it, is that you tighten up as you go forward. There are
a number of reasons for that approach. One is that there is a
limit to what you can change in the short term, and therefore
the costs of change in the short term are going to be much greater.
Secondly, technology has a chance of catching up and helping you
much more in the longer term than it can in the shorter term.
Q187 Mrs Clark: Is that not rather doing
it behind the back door rather than being in your face and making
a message?
Dr Sentance: I would say it is
just being pragmatic about the challenge that business faces.
I think we have to be honest about the challenge for businesses
such as aviation or any other business sector. They are being
asked to make potentially major changes in the way in which they
conduct their business operations. Society at the same time I
do not think is saying we want these business to stop delivering
economic value-added, stop delivering the high standard of living
that we enjoy, and in order to get that balance about right I
think it makes sense, as you go forward, to set larger targets
for the longer term reduction than you do for the shorter term.
Q188 Mrs Clark: You would agree with
me that targets do need to be quite a lot more radical than they
are at the moment.
Dr Sentance: I would expect as
we go through the development, not just of emissions trading schemes
but of climate change policy generally, that, if you take 1990
or 2000 or any particular year as a base, business and the economy
as a whole will be expected to deliver greater reductions against
that baseline.
Q189 Mrs Clark: In that case, how is
it going to be possible at all to incorporate aviation in the
second phase? Do you honestly believe that other sectors are really
capable of generating sufficient emission reduction not only to
meet their own more stringent targets but also to enable and generate
the credits required to fund what we are continually told is going
to be an enormous forecast growth in aviation?
Dr Sentance: It depends on what
target or cap is set and the way we approach the limiting of aviation
emissions. Perhaps I could develop this because it is quite an
important point. The EU emissions trading scheme takes its lead
from the Kyoto protocol and the allowances that are created within
the Kyoto protocol. Within the Kyoto protocol there are no specific
caps or targets for international aviation. Article 2.2 of the
Kyoto protocol says for international aviation: This is down to
ICAO to find limits. ICAO has gone as far as saying: We think
emissions trading is broadly the right approach. But ICAO has
found it hard to make progress over the last few years because
of the United States' stance and also because of the economic
difficulties of the industry. I think I have said that to you
as a committee in the past and I think we have to be frank about
that.
Q190 Mrs Clark: So no cap.
Dr Sentance: No.
Q191 Mrs Clark: Aviation gets excepted.
Dr Sentance: We have to find within
Europe a sensible way of starting with aviation. It makes no sense
to set up a very draconian regime that saddles the aviation industry
with very large costs that (i) is going to cause a lot of upset
and antagonism within the industry, but (ii) is going to competitively
damage the industry, so you will get the impression being created
that where most environmental progress is being made is where
most economic damage is being done. It does not, as a matter of
practical policy, seem sensible to take that approach. We have
to think, in terms of the EU emissions trading scheme, that this
is the first chance we have to bring aviation into an international
emissions trading scheme and to show to the doubters in the United
States and the international community more generally that it
can work. That means setting targets or caps that are stretching
but achievable and sensible and pragmatic, which do not saddle
the European aviation industry with a competitive problem or unreasonable
costs. That is a matter of practical policy-making to advance
the broader cause of actually getting a bigger prize, which is
a more comprehensive system of international emissions trading.
Q192 Mrs Clark: My colleague mentioned
auctioning before. Would you regard that a more extensive use
of auctioning would be a means of allocating emissions entitlements?
If you do not agree with that, how do you think emissions should
be allocated to aviation?
Dr Sentance: If I believed the
proceeds of auctions would be used for very sound environmental
purposes, I would perhaps be more supportive of them. At an extreme,
an auction just becomes a tax in a different guise.
Q193 Mrs Clark: In a different name.
Dr Sentance: In a different name—sorry,
yes. It imposes a large deadweight cost and financial penalty
on the industry. I would rather we went along the approach that
has already been established in the EU emissions trading scheme,
that by and large it is mainly based on allocations that are granted
to participants based on their past operations and on some sort
of benchmark.
Q194 Chairman: The problem with that
approach is that you get the political horse trading that we have
seen in recent months and there is nothing to say at the end of
that rather squalid process that you have something which is equitable
or going to work.
Dr Sentance: As far as international
emissions are concerned in any emissions trading schemes, we would
like to see, if possible, an international approach to allocations
and a European approach to allocations. I think that gets you
away from some of what you have described as horse trading, which
I think reflects national pressures. If we could get a European
system of allocation, we would favour that and I think other industries
probably would be moving in that direction based on what they
have seen over the initial phase.
Q195 Mrs Clark: My final question is
a two-pronged question really. Do you have a personal view of
a likely emissions cap for UK transport, given that all sectors
of the economy are supposed to be playing a part in doing their
bit to reduce greenhouse gas emissions? What supply or demand
side drivers would you envisage reducing the sector's greenhouse
gas output?
Dr Sentance: If aviation is brought
into emissions trading there will be two components to it. There
will be domestic aviation, which falls within the UK's domestic
cap, and I would expect us to follow similar rules to other domestic
participants. Then there is the question of the international
emissions which are between other European countries. There I
cannot give you a definitive approach but I have highlighted the
principle that would apply: that we should set something that
is not just business as usual; it has clearly had some environmental
stretch built into it but we have to take account of the feasibility
and deliverability of that for the industry and its international
competitive position. We do not want to get ourselves into a position
where emissions trading in aviation has turned out to be a "disaster"
and the whole cause of trying to use this as a mechanism for addressing
climate change in aviation internationally is set back.
Q196 Mr Challen: Could I ask if British
Airways is doing anything at all to prepare its passengers for
this bright new sustainable future for aviation; for example by
promoting the take-up amongst passengers of carbon neutral schemes
which have recently come into vogue?
Dr Sentance: We have not taken
any major initiatives in this area but we are following it very
closely.
Q197 Mr Challen: Do you plan to?
Dr Sentance: We do not have any
definitive plans but we are following it closely. It is something
that we think may have some potential. We do observe that the
customer is very driven by price and so if we are going to approach
the customer and say "Would you like to pay something extra?"
we have to do it in the right way. We also want to be able to
work with partners who are really delivering genuine offsets and
some of the players in this area are quite small and quite how
they are achieving the offsets is not always exactly clear.
Q198 Mr Challen: If one of the largest
airlines in the world entered into this with a bit of enthusiasm,
perhaps you would be in a position to help them develop very sustainable
offsets, and that would be of great assistance to them.
Dr Sentance: We are certainly
interested in it but we are also conscious that we should be doing
as much as we can to get perhaps the bigger prize, which is some
industry-wide approach to climate change, and, in particular,
carbon dioxide, established at the international policy level.
While carbon offsets are perhaps a useful addition to what we
might do, we have to remember that perhaps the take-up may be
still fairly modest and we really should be looking towards bringing
aviation more closely in line with other industries which are
addressing climate change issues.
Q199 Mr Challen: International negotiations
and so on might take a very long time—years, if not decades.
We have seen how long it takes to negotiate an international aviation
treaty. Is this not just rather putting everything on to the back-burner
and paying lip service to environmental concerns?
Dr Sentance: I do not think so,
because we have the possibility within this decade that we could
bring in an important region of the world economy within the European
Union, aviation, into an emissions trade scheme. We have to remember
that the authoritative IPCC report on aviation global atmosphere
came out in the late 1990s and to be making significant steps
of this sort within a decade of that I think would be real progress.
So I do not feel that we are putting it on the back-burner, and,
indeed, as a company British Airways has been vocal in its support
for the Government's desire to get this moved up the agenda within
Europe.
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