Examination of Witnesses (Questions 100
- 119)
WEDNESDAY 12 JANUARY 2005
MR MIKE
CLASPER CBE, MR
STEPHEN HARDWICK
AND MR
MATTHEW GORMAN
Q100 David Taylor: The White Paper
to which I just referred, paragraph 8 annex B, came up with the
figure which you will all recognise that the impact of aviation
emissions is 2.7 times the impact of CO2 alone. You
seem to accept that. Do you want to comment on that?
Mr Clasper: What I definitely
accept, I think the whole aviation industry accepts, is that there
is an additional effect beyond the CO2 itself. It is
of the order of what you have just described, but I think one
of the things that one must do is, having accepted that, recognise
that the impacts are very different sorts of impact. For example,
a large part of that additional impact is water vapour.
Q101 David Taylor: Are we talking
about contrails?
Mr Clasper: Yes, contrails, cloud
formations that can actually be avoided by the way the plane flies
depending on climate condition and topography. So there are potential
solutions which could actually eliminate or dramatically reduce
it, but it would require a much more sophisticated air traffic
control system. Another one of the impacts is NOx. There are certain
engine technologies which are available today and will be available
in the future which would have a dramatically lower NOx effect
at high altitude compared with certain existing technologies whereas,
as I said earlier, a tonne of CO2 is a tonne of CO2
and therefore what you need is targeted policy instruments to
tackle those different effects. Using a crude multiplier will
produce distortion, some of which may actually be counter-productive.
Q102 David Taylor: I fully accept
that. I am not at all sure that contrails can be effectively tackled
in that way by altered altitude of flight. Yes, technically, but
the organisational consequences of that are quite difficult, because
at East Midlands airport in the northern part of North West Leicestershire,
which, as you well know is the largest night freight airport in
the country in terms of dedicated aircraft, has had all sort of
problems trying to renegotiate and consult on altered flight paths
to cater for the enormous increases, particularly in freight flights,
but also in passenger flights, which are anticipated by the White
Paper. So talking about reducing contrails in that way is perhaps
a little bit academic. That is just an observation.
Mr Clasper: May I come back on
that because I do have something reasonably valuable to add to
that?
Q103 Chairman: Very briefly, because
there are a couple of tax questions we want to ask you.
Mr Clasper: The core of this is
the altitude that the plane flies at and the core of this is not
in climb, but in cruise. There is a project which I think we all
should be supporting which is a big review and new technology
for 2020, the European programme on a single sky; it is called
the SESAME Programme and one of our directors involved in that.
I would encourage everybody who can to encourage that work to
build in the concept of the environmental performance in flight
which would then allow, not the path, but the height of the path
to be handled that way. Maybe I am a born optimist, but I think
that is capable of technological solution and would be a significant
part of aviation's climate change.
Chairman: It may be helpful if you could
drop the Committee a little line just to expand on that point.
Mr Mitchell is going to ask you a question about tax and Candy
will follow that up. Just before you launch, may I park a question
with you? Aircraft are effectively long-life assets. Do we need
to change the tax regime to encourage a quicker turnover, so that
new technology can be introduced more quickly? If you could park
that one, Mr Mitchell will add another fiscal point.
Q104 Mr Mitchell: Your point about
being the least subsidised form of transport is pure sophistry
surely. It is worthwhile subsidising railways and public transport
because use of them has a less damaging effect on the environment
than using cars.
Mr Clasper: Yes, so does a public
aviation flight.
Q105 Mr Mitchell: So does a bicycle,
but when it comes to aviation, you are uniquely privileged in
the sense that the privilege is the fuel tax regime.
Mr Clasper: I should like to come
back with the data, but if you accept, which maybe you do not,
that aviation, as I understand it, is public transport, then if
you look at the net contribution to the exchequer versus subsidy
from the exchequer in the UK, there is not even a doubt that aviation
is not subsidised whilst, for reasons other than environment,
buses and rail are subsidised. I do not think you can argue that;
the land take of rail is higher, the noise of rail is similar.
I think there are public policy reasons why you might want to
subsidise rail and I am not saying it should not be subsidised,
but at least I think we should be on a clear understanding of
what we mean by the word "subsidy" relative to other
forms of public transport.
Q106 Mr Mitchell: Let us take it
just on subsidy, because we are talking about carbon emissions
and their effect on the environment and the problem therefore
is whether the market has to be changed, you do not want interference
in the market, because of the effects of aviation on carbon emissions
and on the environment generally. We have just been dealing with
the contrails, or as I used to call it, the tail scraping the
sky, but you have a more substantial and damaging effect on carbon
emissions than most other industries and certainly other forms
of transport. Aviation represents 11% of the UK's total climate
impact and it is calculated that it will represent 33% by 2050.
Therefore, you are going to have to be penalised in some way if
we are going to deal with this trend of carbon emissions and their
effect on the environment.
Mr Clasper: All I am saying is
that I do agree that that external cost should be internalised
and I think it should be done in the same way as with the rest
of the economy and I am a personal advocate of doing it through
the EU emissions scheme because I think market forces and self-interest
are more likely to drive innovation than pure taxation that is
not hypothecated. You may not agree with that, but I stand here
as a representative of a company which, along with British Airways,
has been campaigning for the aviation industry to accept this
for three years and that campaign is now working. We are volunteering
to be part of Kyoto having been legally excluded from it.
Q107 Ms Atherton: You ended very
appropriately on the scheme. Can you expand a bit more about how
as a company you are participating?
Mr Clasper: Because we have three
sites where we are a generator, by this definition of sites of
20 megawatts, we have three sites where we will register them
like any other generator. It is helpful to us in a way in that
we are participating in this in three sorts of ways: one in a
general energy efficiency way with the commitment; secondly as
a live generator, although I know behind me are some people who
generate a lot more than 20 megawatts; thirdly, in this context
of aviation where we do not fly the planes, but we do believe
our industry needs to produce a responsible policy response.
Q108 Ms Atherton: Now I am not a
scientist, so if I get this wrong, you will have to help me. In
your evidence, you suggest that some of the policies to reduce
carbons will actually create more problems with nitrogen. Can
you explain that to me as a non-scientist?
Mr Clasper: I can only assert
as a non-scientist to a non-scientist that in the main the new
technologies can both deliver CO2 and NOx reductions.
However, there is a triangle of three objectives against any individual
technology: carbon, NOx and noise, to go back to a point made
earlier. In that triangle, you are always optimising two to the
detriment of a third. You can then use technology to move the
bar, so that it is not as bad, but you are always playing a game
of optimising between them. It is to do with the efficiency of
burn, the speed with which the plane gets up in the air, because
the faster it gets up in the air the sooner they reduce noise
in the flight path and therefore that is why you get into this
situation of having to choose two at the expense of the third.
I am not sure that helped a lot.
Ms Atherton: No, it helped a lot actually.
Q109 Chairman: And my point about
tax and depreciation of assets?
Mr Clasper: The more that the
carbon emissions market is real and liquid, the more it is an
extra encouragement to move to the new technology. It is very
interesting, going back to the point on the low cost airlines.
One of the reasons that they are such a success operationally
is they are starting with a new fleet which is much more fuel
efficient than the old fleet. Were you able to do more to encourage
the sun-setting of the older planes, there is no doubt it would
have a benefit, because the fleet life is a problem in addressing
these issues. It takes 20 years for a new technology really to
have a big impact across the whole fleet. It is an interesting
thought, but I must admit I do not have any obvious answers to
it.
Q110 Joan Ruddock: You have talked
a lot about new technology with regard to the actual hardware
and how you are going to try to reduce and everything, but what
about the actual effects of aviation on climate change itself.
I understand that you propose that the aviation industry should
be funding this internationally. Is there encouraged co-operation
between people internationally? How do you raise that money, how
is it done and if you do it, how do you share the fruits of that
research?
Mr Clasper: In the areas that
are clear like carbon, then I do not think it applies, I think
you just mainstream it. Clearly, an area like the water vapour
area that I have just talked about is only aviation and we would
recommend, although some of my business partners would disagree
with this; some form of fiscal measure that stopped the free-rider
principle and got the whole power of the aviation industry alongside
government working on establishing this science that we talked
about because there is still uncertainty in it and then working
towards potential solutions. The solutions on the water vapour
for example are almost certainly going to be air traffic control
driven and all airlines would benefit from it, rather than actually
driven by the airlines themselves.
Q111 Joan Ruddock: Are you saying
you know enough about the science, you know enough about what
aviation is doing in respect of climate change? I thought there
were areas where further research was required.
Mr Clasper: We do not know enough
about the details of it. We know enough to say that there are
effects beyond carbon. It is by getting a greater understanding
of the science of that, that some of these solutions . . . At
the moment we are not certain about the extent to which taking
a particular track through the sky would reduce it. What we do
know is that certain tracks create it and certain do not. The
people who really know what they are talking about also know that
it is a combination of daily climate and topography. Therefore
there is a way of solving this, but it is only at that sort of
conceptual level. Turning that into a real solution that can be
built into a European air traffic control system in 2020 is going
to take money and research effort and any policy instruments that
would encourage that, we, wanting to have a responsible industry,
would say that is the right thing to do and we want to avoid the
free rider. For example, British Airways, who are in the vanguard
of this in terms of airlines, are measuring, or trying to measure,
their individual flight emissions. They are a lone company at
the moment, and that in a sense hardly seems fair given the scope
and scale of the global aviation industry.
Q112 Joan Ruddock: Are you really
saying there is not enough cooperation to make this happen?
Mr Clasper: There is not enough
co-operation in a joined-up policy between government and airlines
and so on around, we are talking one particular issue, a very
important issue, this water vapour issue. More policy instruments
from government could force joined-upness.
Q113 Joan Ruddock: Would it not have
to be an EU initiative to make sense of that?
Mr Clasper: We have talked about
getting America to look at Kyoto seriously being well beyond any
individual industry as far as I can see, so I think the start
point for this should be at EU level. We have a great opportunity
in the EU, in that the EU is already funding a big study of a
better air traffic control system in 2020. Pushing for the environmental
aspects of that project to be given a higher priority than if
we did not push would be a smart thing against this whole issue
that we are talking here today.
Q114 Mr Lazarowicz: Can I just be
clear about your position on the use of fiscal instruments? As
I understand it, you are against measures which result in increases
in taxes and charges because you say they will distort the market;
I think that was one of the reasons you were indicating you were
against that. But surely, if aviation is brought into the emissions
trading scheme, that is going to have an effect on prices and
demand as well.
Mr Clasper: Yes, it will.
Q115 Mr Lazarowicz: If it is going
to make a difference, surely, there is going to be a substantial
impact if such a scheme is going to work for aviation.
Mr Hardwick: We are perfectly
prepared to pay the cost of the environmental impact of the industry.
Our view is that taxation is the wrong place to start, because
you are monetising the cost and then giving the money to the exchequer
and the impact remains the same. A charge is slightly better if
the revenue from the charge is hypothecated into mitigating the
impact and a market mechanism which targets the impact directly
through trading or some other measure delivers both the internalisation
of the cost and the output of the reduced environmental impact.
We accept the demand consequences of the additional costs involved
in meeting our environmental obligations. What we do not accept
is using taxation to price behaviour as a proxy for dealing with
the impact itself which is why, across a range of different measures,
we would rather target the specific impacts with a measure which
is most appropriate instead of counting the cost of all those
impacts, writing a cheque and giving it to the exchequer.
Mr Gorman: An impact on demand
may be a consequence but it should not be a tool essentially.
Mr Clasper: There is another important
driver in here which is that the price sensitivity of the total
aviation market is relatively low because of its tremendous value
to its users, but the price sensitivity between individual airlines
is very high. I know that I am going to fly to New York, I have
to, I get a whole load of benefits from that, I will pay, I am
not saying what it takes, but almost what it takes. However, when
I choose which airlines to travel with, I will make a choice which
might be because of a £10 difference. If you do it the way
that we are talking about, that is not a blunt taxation, but is
a policy instrument against the effect, then what it means is
that if you adopt a lower cost carbon technology you get a structural
price advantage in the marketplace, which drives people to your
business and causes the other guy to buy new technology. If you
take the example of the low-cost airlines, they have bought fuel
efficient new aircraft, they have a structural advantage, they
are gaining market share, they cause the other guy to look around
and make a change. So you have a thing here whereby if you do
it this way, you will get behaviour change in the industry and
you will start helping to reduce, mitigate and even solve the
problem. If it is just writing a cheque, as Steve says, everybody
gets on with their business and writes the cheque. Nobody bothers
to put the energy in, like we are here today, talking about innovation
and technological solution.
Q116 Mr Lazarowicz: I accept that
the Emissions Trading Scheme is probably theoretically the most
comprehensive way of addressing these issues, but surely it is
not beyond the wit of man or the wit of the Treasury to devise
schemes of charging which are designed to have the most beneficial
environmental consequences. You can do things with tax which will
have at least some tendency to push ministers in an environmentally
more sustainable direction.
Mr Clasper: Let me give you example
from history. APD was introduced, Air Passenger Duty, which probably
roughly is about one billion pounds to the Treasury and we can
give you the exact numbers. At the time—the Treasury sometimes
changes over time the purpose of the taxes—it was originally
introduced as an environmental measure to affect demand. It had
demand effect for, we guess, six to 12 months, and then it had
disappeared, yet it probably reflects roughly today the early
payments that the UK aviation industry would need to do, if the
cost of carbon was in the range of seven to 10. So what you have
here is that the level of taxation to make the problem go away
would not be anywhere near the scale of the external cost. It
would have to be dramatically above the external cost to make
the demand go away. Then you are distorting the economy, because
the taxation levels would have to be enormous.
Q117 Chairman: May I just ask you
a question which follows on from what you were saying and I apologise
for interrupting? I am trying to understand how you structure
an emissions tax for the airlines, because you have just said
that in the biggest growth sector many of the low cost airlines
are already at the best technological solution because they bought
the most modern aircraft. Then you look at other airlines which
will have a range of aircraft from the most efficient to less
efficient. I am not certain how you structure the emissions trading
arrangements, when you might have quite a slug at the industry
which cannot actually get any better. How do you structure it
to encourage things, when for the major growth area, you cannot
actually get them to emit any less other than by simply making
fewer journeys?
Mr Clasper: With the technology
that exists today you cannot get the most efficient aircraft to
emit less unless you have fewer journeys. You are absolutely right.
I think what we are talking about here is that you have aviation
as part of the whole of the economy that is trying to tackle this
problem and whether the allowances go from a low cost airline
to encourage one of the other airlines to sunset some of their
equipment, the very point you were making earlier, or whether
they go to encourage, at the margin, a lower emission energy generation
project is up to the market. The economy solves the problem in
a way that does not distort the development of the economy.
Q118 Chairman: But you do have distortions,
because, in the nicest sense, airlines would probably have shorter
journeys if they could fly in straight lines. But they cannot,
because the air traffic control arrangements get them flying from
here to there to wherever.
Mr Clasper: You make another very
good point. If the cost of carbon is high, then it is an encouragement
to find operational ways of solving that. I am not going to say
it is going to make a huge difference, but one of the things about
the whole air traffic control system currently is when people
are in a stack and that is pretty energy inefficient. Is there
enough momentum to solve that? There is some. Would there be more
if the cost of carbon were in the equation? Yes there would. There
is another way which, by using a market mechanism like this, would
work. However, if you are going to pay £10, which is the
current situation, to get on the plane and it does not matter
how far it flies, how it flies, what technology it uses, are you
going to get any serious activity to reduce, mitigate and solve
impacts? No. I guess that is fundamentally the point that I am
making.
Q119 Mr Lazarowicz: Without being
too theoretical, presumably, you could easily conceive a system
where the taxation was varied to take into account the aircraft
type, the type or length of the journey or the number of passengers.
That is probably something we cannot pursue here. In practice,
what you are effectively saying is that because it is some time
off perhaps before we can get an ETS scheme working for the aviation,
in the meantime you are not prepared to accept alternative measures
such as ones which come from our taxes or charges. Effectively
what your position is doing is arguing for things to be left as
they are for some time in the future and you will be escaping
the consequences of your activity for some years.
Mr Hardwick: We are talking about
three years away: 2008, which is the government's objective for
bringing EU aviation into the EU Emissions Trading Scheme is three
years. That is not a very long timescale in a 50-year Kyoto-type
scenario where we are looking at where we are going to be in 2050.
We already have a taxation arrangement through air passenger duty
which is covering maybe 60% of the UK aviation industry's environmental
costs. The problem with interim arrangements is that they tend
to become permanent and we are trying to bring a coalition of
aviation industry, airlines, airports, within the UK and across
Europe for this bigger win than short-term gain through a domestic
fiscal measure. One of the big problems that we have encountered
and that British Airways has encountered in other countries is
the fear of this alternative fiscal measure. For instance, in
Germany the German Government has traditionally been in favour
of taxation, so the German airlines and airports have been nervous
about volunteering for emissions trading because they think they
will get hit twice. I think three years is not too long to wait
to bring in a better economic instrument that will capture the
costs and start to deal with the impacts. There is one other thing
I wanted to add on to what Mike said earlier about charges. We
are not against charging, if it is smart charging. We ourselves
vary our airport charges for noise: noisier aircraft pay a premium,
quieter aircraft get a discount and for NOx, the dirtier aircraft
have to pay more than the cleaner aircraft. So if you use charging
in a clever way, and we do it in a way which is revenue neutral
so it spreads the load among the airlines, then that is a perfectly
valid way of using a fiscal instrument.
Chairman: Gentlemen, you have given us
some very interesting food for thought. You are very kindly going
to supply us with one or two additional pieces of information
and thank you very much for coming to give evidence to us this
afternoon.
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