Memorandum submitted by BAA plc
1. INTRODUCTION
1.1 BAA is the world's leading airports
operator. In the UK, BAA owns, develops and operates seven airports:
Heathrow, Gatwick, Stansted, Southampton, Edinburgh, Glasgow and
Aberdeen. Overseas we either manage contracts at, or have interests
in, airports in Australia, Hungary, Italy and the USA.
1.2 BAA has two main interests in climate
change policy. Firstly, we are a major player in the aviation
industry and have taken a proactive role in the debate over addressing
aviation's impacts on climate.
1.3 Secondly, we are one of the UK's top
20 industrial consumers of energy. We have set a target to reduce
our CO2 emissions from energy use by 15% over 1990
levels by 2010.
1.4 Given the focus of the Committee's inquiry,
this evidence focuses on the first of these. We submitted evidence
to the Committee on aviation and climate change in October 2004;
this evidence aims to update that based on developments in the
intervening period.
2. BAA'S APPROACH
TO SUSTAINABLE
DEVELOPMENT
2.1 BAA is committed to continuing to understand
and improve our performance with respect to sustainable development.
Like many companies we work within the UK Government's framework.
The Government aims to pursue sustainable development in an integrated
way through a sustainable, innovative and productive economy that
delivers high levels of employment; through a just society that
promotes social inclusion, sustainable communities and personal
wellbeing; and in ways that protect and enhance the physical and
natural environment, and use resources and energy as efficiently
as possible.
2.2 BAA believes that responsible air transport
and airport growth should take place only where it is in accordance
with the integrated approach outlined above. BAA also accepts
that there are certain agreed environmental limits, such as the
earth's capacity to handle greenhouse gases.
2.3 However, in keeping with the emphasis
placed by a sustainable development framework on policy integration,
BAA believes the debate on aviation needs to recognise both the
realities of environmental limits and aviation's socio-economic
benefits. Economically, aviation plays a crucial role in promoting
the high-knowledge and high-value-added industries and it also
underpins the world's largest industry—tourism. Socially,
air travel is a facilitator—for people to visit friends
and family scattered around the world, to learn, and to visit
parts of the world inaccessible to their parents or grandparents.
Sustainable development rightly places emphasis on improving quality
of life for all. In this context, the fact that aviation is now
accessible to most people, at least in the more prosperous countries,
is both significant and welcome.
3. AVIATION'S
IMPACT ON
CLIMATE CHANGE
3.1 The nature of aviation's impact
3.1.1 Aviation has a small, but significant
and growing, impact on climate change and BAA believes that this
impact needs to be addressed.
3.1.2 The Intergovernmental Panel on Climate
Change estimated that in 1992 aviation was responsible for approximately
3.5% of total human climate change impact globally. The IPCC's
central estimate for 2050 was that this figure would grow to 5%,
although their scenarios ranged from 3.5% to 15%.
3.1.3 In the UK in 2000, aviation (including
international departures) was responsible for around 5.5% of CO2
emissions (the higher percentage reflecting the UK's important
role as an aviation hub). However, while aviation's current climate
impact is significant, it is nevertheless still smaller than the
climate impact arising from other sectors of the economy (27%
of the UK's CO2 emissions in 2000 were from domestic
energy use and a further 24% from road transport). However, BAA
recognises that aviation's climate impact is set to grow significantly
while a UK economy-wide total reduces.
3.2.1 The role of emissions trading
3.2.1.1 Governments at the Johannesburg
Sustainable Development Summit recognised that the priority of
meeting key human development needs (such as clean water, food,
and sanitation) will rightly use up a significant proportion of
the earth's environmental capacity. The remaining capacity is
available within developed and developing nations for use by other
activities, including industry.
3.2.1.2 Governments will determine what
amount of the available environmental capacity is allocated to
industrial activities, including aviation, but we believe that
the market best determines how to reallocate these allowances
between industries. In the EU, Governments have chosen emissions
trading as the most effective market allocation mechanism.
3.2.1.3 We believe that an open emissions
trading scheme represents the most economically efficient and
environmentally effective way of industry addressing the impacts
of its emissions. Industrial climate change impacts are most effectively
dealt with by harnessing market mechanisms and corporate self-interest,
where possible, since these are powerful drivers and are likely
to produce faster, better results than blunt regulation. Unlike
a tax, for example, where the level needed to achieve the environmental
objective is unclear, trading ensures that the environmental objective
is delivered through its overall cap on emissions, with the market
determining the cost of carbon necessary to meet the agreed target.
3.2.1.4 We believe that there is a powerful
case for aviation to take up some of the environmental capacity
available to industrial activities, because of the significant
economic and social benefits that it generates. We recognise that
aviation will need to take up more than its allocated share of
this capacity, given society's growing demands for air transport,
and given the absence of short-term technological solutions which
will allow a breakthrough in reducing to CO2 emissions.
3.2.1.5 Participation in an emissions trading
regime will allow aviation to purchase the necessary additional
allowances from other sectors to enable the industry both to continue
to grow and meet its emissions obligations. So while aviation
may not be able to cut its own emissions immediately, emissions
trading will enable it to fund emissions reductions elsewhere.
3.3 Economic impact of including aviation
in the ETS
3.3.1 Emissions trading will impose additional
costs on aviation. However, we believe that these costs will be
lower than the costs imposed by alternative policy measures, thereby
benefiting leisure and business consumers of air transport services.
The exact cost to the industry of joining the ETS will depend
on a range of factors including:
— The extent to which the costs
can be or are passed on to the passenger;
— Whether the design of the scheme
includes only CO2 or also addresses aviation's "total
climate change impact";
— Whether the scheme applies to
intra-EU or international aviation;
— The level of the cap; and
— How emissions permits are allocated
to the aviation industry.
3.3.2 During 2003, BAA convened a major
project on emissions trading. Under the guidance of a steering
group representing business, government and non-governmental organisations,
expert consultants Oxera researched the impact of a range of policy
scenarios. Their analysis demonstrates that emissions trading
can be a "win-win", delivering more for the environment
at greatly reduced costs to industry.[1]
3.3.3 One scenario was based on 5% emissions
growth by 2010 compared to 1990 (ie a 25% reduction against 40%
emissions growth). The cost to the EU aviation industry was estimated
at around €400 million a year. Another scenario was based
on 8% emissions reductions by 2010 compared to 1990. The cost
to the industry then increased to around €900 million a year.
However, both of these scenarios cost substantially less than
the tax-based alternatives.[2]
3.3.4 The recent study for the European
Commission by expert consultants CE Delft reinforces the conclusion
that emissions trading is the most economical and effective measure.
CE Delft's assessment of a scheme that includes only flights within
the EU (the most practically-deliverable option in the short term)
estimated the impact on ticket prices to be between €1.3
and €2.6 per return flight.[3]
3.3.5 Two recent reports have assessed the
impact of integration into the ETS on the aviation and other industries.
They represent a further contribution to the ongoing debate over
the ETS, and we will be examining their findings in further detail.
3.3.6 The House of Lords European Union
Committee report supported the UK Government's goal of integrating
aviation in the ETS but also expressed doubts that the impact
upon carbon prices, airfares and air travel will be modest, except
in the short term.
3.3.7 Defra/DfT also commissioned consultants
ICF to assess the impact of aviation's inclusion on allowance
prices. That report concluded that there would no major impact
on allowance prices in the second phase of the emissions trading
scheme once the aviation sector is included.
3.3.8 We remain confident in the robustness
of our own analysis of the impacts of including aviation in the
ETS. BAA believes that the suggested alternatives to emissions
trading for aviation would impose higher costs for lower environmental
return. Policy approaches for aviation which aim to cut emissions
by reducing demand, through the mechanism of taxes and charges,
are not well targeted, as the revenues which are raised from such
charges flow to Government rather than directly to addressing
the impacts. Moreover, when it becomes clear that such taxes are
not having the desired environmental effect, pressure is brought
to bear on politicians to impose ever higher costs through escalating
taxation.
3.4 Environmental benefits of including aviation
in the EU ETS
3.4.1 The environmental benefit of aviation's
participation in the EU ETS is that real emissions reductions
will be achieved. Aviation will be set a limit of allowable emissions
and required to purchase permits for any excess emissions it wishes
to make. These permits are only available to the market if other
companies make deeper emissions cuts than required and can sell
on their surplus allowances.
3.4.2 The amount by which CO2
emissions can be reduced will be determined primarily by the level
at which the emissions cap is set, both for aviation and for the
scheme as a whole. The Oxera analysis shows that a range of different
emissions reductions can be achieved through emissions trading,
and that the cost of achieving those reductions is substantially
less than the tax-based alternatives. CE Delft's recent assessment
of a scheme that includes only flights within the EU (the most
practically-deliverable option) would deliver reductions in CO2
emissions of just under 30% compared to business as usual emissions
in 2012.[4]
3.5 Support for emissions trading in Europe
3.5.1 We welcome the leadership that the
EU has shown on climate change by establishing the world's first
international scheme for trading emissions, which has been active
since January 2005. A full assessment of the effectiveness of
the EU ETS has not yet been undertaken. Nevertheless, our assessment
is that the scheme has worked well to date: functioning as a market
mechanism and sending a clear signal on the value of emissions
reductions.
3.5.2 Our views are informed in part by
our own experience, as three BAA sites are already participating
in the scheme. During a recent review of our carbon management
strategy in 2003, the prospect of the introduction of the ETS
was an important driver to establishing our own long-term carbon
reduction target. In operation, the scheme has created an important
financial incentive for us to reduce our emissions and we anticipate
that it will continue to do so in future.
3.5.3 We believe that the current system
provides a solid foundation for expansion to other sectors and
we have been strong supporters of the UK Government's objective
to expand the scheme to include aviation by 2008 or as soon as
possible thereafter. We are pleased that the European Commission
is engaging seriously and constructively on delivering this objective.
3.5.4 Expert consultants CE Delft produced
their detailed report on including aviation in the ETS in July
2005. Its overall conclusion was that:
"The introduction of emissions trading
for the aviation sector, most immediately in respect of its CO2
emissions . . . does not appear to pose many challenges that have
not already arisen in the context of the existing EU Emissions
Trading Scheme. This suggests that emissions trading is a policy
option that can be considered alongside other policy instrument
to tackle the climate impact of aviation".
3.5.5 The Commission published an official
communication in September 2005, which supports the inclusion
of aviation in the ETS as the best way forward. The Commission
concludes that trading has advantages over emissions charges in
terms of economic efficiency and potential for wider application
(since charges are contentious internationally). The Environment
Council strongly supported this conclusion in December 2005.
3.5.6 BAA has taken a leadership role within
EU aviation in pressing for this progress, including working through
ACI-Europe, our trade association, representing over 450 airports
in 40 countries. ACI-Europe issued two policy positions in 2005
in support of aviation's integration into the ETS.
3.5.7 We have also worked with airlines,
aircraft manufacturers and other airports in the UK to develop
the Sustainable Aviation strategy. This includes a number of voluntary
commitments by the aviation industry, including the provision
of support and assistance to policymakers in developing practical
solutions for inclusion of aircraft CO2 emissions in
the EU Emissions Trading Scheme by 2008, or as soon as possible
thereafter, as a first step towards a global approach.
3.5.8 A number of issues still require further
study and an Aviation Working Group has been set up by the European
Commission to examine these. It is due to report in April 2006
and the Commission is then planning to bring forward a formal
legislative proposal by the end of 2006. The legislation will
then need to be approved through co-decision by the European Parliament
and the European Council.
3.5.9 There are several practical issues
to resolve before aviation can be incorporated. However, we believe
that these issues can be overcome. There is no legal obstacle
to including aviation from 2008 and the integration of intra-EU
flights within the EU ETS should still be deliverable by 2008
or soon thereafter.
3.5.10 The long-term goal is for aviation's
emissions to be mainstreamed within the global policy framework
to address climate change. The International Civil Aviation Organisation
(ICAO) has been asked to identify how best to achieve that. We
are actively discussing this issue with our airport industry partners
at a global level, through our trade association ACI World. You
may wish to note that we also represent ACI World on the Emissions
Trading Taskforce set up by ICAO.
4. IMPACT OF
NON-CO2 EMISSIONS
4.1 BAA recognises that aviation's impacts
on the climate are complex, and that emissions trading is not
necessarily the appropriate solution for all impacts. There are
four key climate effects resulting from aviation: emissions of
CO2 and oxides of nitrogen (NOx), the creation of condensation
trails (contrails) and the potential impact of contrails on cirrus
cloud. The IPCC has estimated that aviation's total climate impact
resulting from these effects is some 2.7 times that due to CO2
alone. There is a range of uncertainty around this estimate, and
the latest research has revised the estimate of radiative forcing
down to 1.9 times the impact of CO2 emissions, plus
the impact of contrails on cirrus clouds, which continues to very
uncertain.
4.2 There is wide agreement that further
research is fundamental in order fully to understand the scale
and nature of these non-CO2 impacts, especially in
relation to contrails and the impact of contrails on cirrus clouds.
Technological development will have a critical role to play in
addressing these impacts. Manufacturers have already delivered
significant improvements and will continue to do so with each
new generation of aircraft. For example, the European manufacturing
industry has set itself the goal of producing aircraft by 2020
that emit 80% less NOx than those which came into service in 2000.
4.3 In relation both to NOx and contrails,
it might be possible in the long-term to reduce impacts through
advanced air traffic management, ie routing aircraft to avoid
climate-sensitive parts of the sky, where contrails would otherwise
be produced. Eurocontrol is currently conducting a joint project
with the European Space Agency to assess the feasibility of this.
However, we acknowledge that this remains a complex area with
many uncertainties.
4.4 We have stated that it may be possible
to integrate non-CO2 impacts into the EU ETS in the
future, but we believe that this could only be done if each impact
is separately and directly integrated. It would be counter-productive
simply to apply a CO2 multiplier to account for aviation's
non-CO2 impacts (whereby aviation would have to acquire,
say, two permits for every unit of CO2 emitted) as
this risks encouraging an undue focus on reducing CO2
emissions, at the expense of increasing NOx emissions, where there
are known technological trade-offs. There is also the issue that
the metric used to measure NOx and contrail/cirrus cloud impacts
(radiative forcing) is not compatible with the metric used in
the EU ETS (Global Warming Potential).
4.5 The use of other economic instruments
to address aviation's non-CO2 impacts has been debated.
Some stakeholders suggest a substantial revenue-raising charge.
BAA opposes this policy approach, both because of the punitive
costs that it would impose on EU aviation, and because much of
the environmental benefit would only arise as a result of taxing
away demand, with negative economic and social consequences. However,
BAA would support a moderate en-route emissions charge if the
revenues were hypothecated entirely and specifically to fund research
into the non-CO2 impacts of aviation.
4.6 Revenue-neutral charges have also been
discussed. We have already introduced revenue-neutral NOx charges
at some of our airports, to incentivise the use of cleaner aircraft
and help address local air quality issues. We believe this option
should be kept under review for aviation's non-CO2
impacts.
5. CONCLUSION
5.1 The long-term goal of policy-makers
is to stabilise greenhouse gas emissions at a level that will
prevent dangerous climate change. BAA supports that goal and the
delivery of targets adopted by governments within the framework
of the Kyoto Protocol.
5.2 BAA believes that emissions trading
is the right policy measure to deal with CO2 emissions,
since there is currently no prospect of a breakthrough technological
alternative to burning fossil fuel. We recognise that reaching
agreement at an international level will take time so we support
regional action at a European level as an interim step. This will
help to bring aviation within the club of climate-responsible
industries and ensures that our sector is being held to account
for its growing environmental impact.
February 2006
1 Assessment of the Financial Impact on Airlines
of Integration into the EU Greenhouse Gas Emissions Trading Scheme,
Oxford Economic Research Associates, October 2003, is available
to download from the BAA website. Visit www.baa.com/corporateresponsibility,
selecting "Our Environment", "Climate", "Strategy"
and "Emissions Trading Stakeholder Dialogue" from the
left-hand menu. Back
2
BAA has not advocated any of Oxera's scenarios but has used
the analysis to indicate how the costs could vary and to stimulate
debate and thinking. Back
3
BAA is not advocating any of the three policy scenarios assessed
in the CE Delft study. We believe that the optimum selection of
design elements will require further consultation. Back
4
The CE Delft analysis takes 2004 as its baseline for emissions,
so the reductions achieved are not fully comparable with the Oxera
results. Back
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