Examination of Witness (Questions 240-250)
MR MIKE
TOMS, MR
STEPHEN HARDWICK
AND MR
MATTHEW GORMAN
8 DECEMBER 2004
Q240 Sue Doughty: You discussed about
getting the balance right in the transport sector by reducing
emissions and taking some of the hit but not all of it because
you want to manage the growth in a cleaner environment and keep
your passengers hopefully; but would you put a ceiling price on
CO2 if you felt the price was getting too high? Would you try
and intervene at that level?
Mr Toms: If the price gets too
high, the truth is that people will not want to pay to travel
and the market will clear, so in that sense less credits will
take place, and the environmental objective will have been achieved
but it will have been achieved through less air travel. If aviation
can adapt or if generators can adapt, then the scope exists for
people to travel and control emissions at the same time.
Q241 Sue Doughty: So you will stay within
the emissions trading scheme and let the market forces follow
through.
Mr Toms: Yes. I do not think there
is a choice in the sense that if we join the club, we are in it,
and will be in it by European law.
Q242 Sue Doughty: Even if it is costly?
Mr Toms: Yes.
Q243 Sue Doughty: We still have to get
these huge reductions in carbon, and we have talked about it quite
a bit. We have this public conflict between cheap energy and getting
these huge reductions in carbon by 2050. Where do you really see
the price of energy going if we are going to get carbon reduction,
given some of the other things you have mentioned?
Mr Toms: The price of energy will
have two components. It will be the input cost, the cost of buying
gas and the cost of buying coal and fuel, which in itself is likely
to rise in the long term anyway. Added on to that is the cost
of buying credits. It is likely that as the ratchet has turned
and the EU or responsible governments reduce the amount of credits
available that the price of credits will rise. It is the combination
of the input price of fuel and the price of credits that is likely
to lead over time to higher energy costs to air travel, if you
like, unless there are technological or behavioural change that
solves that.
Q244 Mr Challen: Mr Hardwick, you mentioned
3% being the contribution to emissions from aviation. Is that
the European level or—
Mr Hardwick: That is the global
figure for aviation climate change impact.
Q245 Mr Challen: For all aviation in
the globe.
Mr Hardwick: It is 3%.
Mr Gorman: It was 3.5% in 1992.
It was a 1999 report for the year 1992.
Q246 Mr Challen: I am trying to compare
like with like. In your memorandum to the Committee it says 4.6.
The UK's total climate impact from aviation is 11%, so we seem
to be somewhat above the average in that case. That has cleared
up that point. There are a couple of other assumptions out of
your memo. Have you calculated the different scenarios with ETS
and what the reduction in demand might be?
Mr Toms: It is very difficult
to do that because you do not know how people are going to respond
to the price. There will be tremendous incentive to more efficient
performance, and as the ratchet is tightened then you would expect
to start seeing demand effects for—
Q247 Mr Challen: Surely this is a crucial
area for your business to figure out the impacts on passenger
demand for your product? Why have these calculations not been
done?
Mr Toms: They have not been done
because they cannot be done. They demonstrate that we are subject
to commercial risk.
Q248 Mr Challen: They can be modelled.
There are so many models available on climate change that surely
this should be part of it?
Mr Toms: We can model any number
of scenarios, but the trouble is knowing what the scenario is.
Mr Hardwick: An estimate has been
done by HSBC for EU emissions trading, an average of two and a
half hours' flight within the EU borders would lead they reckon
at a price of around
8 to a tonne of CO2; to adding
2.90 to the price of a ticket. Given our experience
of the introduction and then the hike in air passenger duty, and
then the recent increase in fuel costs, there should not be in
the short to medium term at that sort of rate any great impact.
Q249 Mr Challen: If you have not modelled
it and come to calculations, where does that leave the Government's
White Paper forecasting this huge growth in passenger traffic?
Mr Toms: In producing the White
Paper the Government went through a very large-scale transport
forecasting process and conducted a series of tests on the sensitivity
of traffic volumes to rises in costs. They effectively said that
if there is an environmental add-on to the costs of operation,
what does that do to demand. Using previously calibrated demand
elasticity figures that demonstrated that even with a doubling
of the environmental components in the cost of aviation, the Government's
traffic forecasts were still robust at the expected level of growth
of around 3.5% in the south-east; so a lot of modelling work has
been done; it is just that there is still a lot of uncertainty.
Q250 Mr Challen: It is definitely not
crystal-ball gazing, then. We can be sure of that. I had one query
on your statement at 4.7 that there is a powerful economic and
social case for aviation to take some of the remaining capacity,
that is the world's environmental capacity. Do you believe there
is a spare capacity around in terms of the world's environmental
capacity?
Mr Hardwick: By "remaining
capacity" we mean the capacity left after basic human needs
have been met, and the needs of developing countries. It is not
the belief that there is some stuff slushing around there that
we can get hold of; it is that which is left to industrial society
or to society after the needs of human beings, for their existence,
and other absolute essentials are ring-fenced. It is the rest,
and it is us competing against power generation, manufacturers
or any other industry or any other use of carbon.
Mr Toms: There is a reasonable
case for saying that in the event of the number of carbon credits
being reduced, it is likely that a significant proportion of aviation
will be in the category of last month's standing, because other
sectors will be able to adapt and reduce their emissions credits
with greater flexibility.
Chairman: Thank you very much indeed.
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