Select Committee on Environmental Audit Minutes of Evidence

Memorandum submitted by BAA plc


  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.


  2.1  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.


3.1  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  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.  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.  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.  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.  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.


  4.1  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.


  5.1  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, 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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