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UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC981-vi House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE ENVIRONMENTAL AUDIT committee
REDUCING CARBON EMISSIONS FROM TRANSPORT
Wednesday 24 May 2006 DR ANDREW SENTENCE and MR CHRIS ESSEX MR DONAL DOWDS, MR JOE IRVIN, DR TIM WALMSLEY and MR CHRIS PALING Evidence heard in Public Questions 464 - 574
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Environmental Audit Committee on Wednesday 24 May 2006 Members present Mr Tim Yeo, in the Chair Ms Celia Barlow Mr Martin Caton Colin Challen Tim Farron Mr Nick Hurd Mark Pritchard Emily Thornberry Dr Desmond Turner Joan Walley ________________ Memorandum submitted by Easyjet Airline Co Ltd
Examination of Witnesses
Witnesses: Dr Andrew Sentence, Chief Economist and Head of Environmental Affairs, British Airways, and Mr Chris Essex, Head of Business Development, Easyjet Airline Co Ltd, gave evidence. Q464 Chairman: Good afternoon and welcome. I am sorry that we are running slightly late. We had two divisions in the House a while ago but should now have an uninterrupted session. I must apologise in advance that I have to go to the dentist at about four o'clock for an emergency filling, so my colleague Joan Walley will take over the chair at that point. There are lots of things that we would like to talk to you about and we will deal with them as best we can. First, your industry has published a sustainable aviation strategy. Between 1990 and 2004 emissions from UK domestic and international aviation have more than doubled. Last year they were up by 14 per cent. Is that a sustainable process? Dr Sentence: I do not want to get into a debate about the figures. I had not appreciated that the increase was quite that significant. I think that the view put across in the sustained aviation policy deals with a number of environmental, economic and social issues. Aviation generates a lot of economic and social benefit and as an industry we recognise that we have to deal with the environmental impacts we generate. In the past we have had a record of dealing with noise. The noise impact at Heathrow Airport, for example, has reduced very significantly. What has been going up the agenda in recent years is the issue of emissions, particularly local air quality round airports and climate change. The view that is put across in this document is that the UK aviation industry supports the incorporation of aviation emissions trading as a way to limit the impacts. We support that because that has been demonstrated by a number of studies to be the most economically efficient and environmentally effective way forward. The benefit of it is that if aviation emissions continue to increase in the way they have in the past the industry will have to purchase emissions reductions from other sectors and it will also have an incentive to reduce its emissions through operating emissions trading. We recognise the issue. The view we put forward is that emissions trading is the way to address this issue in aviation. Q465 Chairman: The difficulty about that is that at best it will be several years before agreement is reached on the basis on which aviation goes into emissions trading. If that is the only suggestion from the industry about adjusting this growing and perhaps quite urgent problem of increasing emissions probably we will not see any impact from it for seven, eight or nine years. If emissions go on increasing at the present rate the problem will have become quite substantial. Dr Sentence: I have come before the Committee before on various inquiries and talked about this issue. Since those hearings in about 2003-2004 we have made a lot of progress in getting emissions trading on the agenda for aviation. It is now being actively supported by the European Commission which is developing a proposal which will be put forward later this year. While it may not be possible to hit the deadline of 2008 for the second phase of emissions trading in Europe, hopefully something will be in place in Europe not long after that. If one looks at where we were two or three years ago when people said similar types of things - that a lot of progress had been made - there is now also within ICAO, the United Nations body that looks at environmental issues in relation to aviation nationally, an emissions trading task force on which I represent the aviation industry. That sets out guidelines for the application of emissions trading within aviation more generally in the international arena. I think that both internationally and in Europe we have made a lot of progress in recent years. Mr Essex: In support of that, certainly the industry is not standing still. There are opportunities to abate the amount of emissions created by aviation. A good example would be the efforts to focus on the reform and improved efficiency of the air traffic control system, namely the European SESAR project. By our estimates, there would for example be an opportunity to save about eight or nine per cent of aviation emissions through an efficient ATC system. Q466 Chairman: If we look at it another way, the IPCC estimated that in 1992 aviation accounted for two per cent of global carbon emissions. That is the equivalent, roughly speaking, of the UK. One could say, therefore, that the industry could be treated like a G8 country. Kyoto has set a framework for countries to have targets to cut emissions. Do you accept that for your industry? Is that an approach with which you would be happy? Dr Sentence: If we operate within the emissions trading scheme effectively that is what will need to happen. There needs to be a cap and part of what has to be agreed in Europe is what that cap is to be. We are assuming that that will be a declining limit over time reflecting the requirements of the general community that CO2 emissions need to come down. When we look beyond 2012 and the next Kyoto agreement, if we have a future agreement for climate change - I hope that one will be agreed internationally - it may well make sense to have something a bit more explicit for aviation than exists in the current Kyoto treaty, which effectively leaves it open to ICAO. I believe that as an industry we would want to be fully engaged in the discussion on Kyoto II to get something that was sensible for the industry as a whole. Q467 Chairman: Despite your comment about the progress that has been made in the past three years, I think that underlines the tortuously slow process. I do not in any way underestimate the complexity of trying to get agreement on aviation, particularly if there has to be an allocation for each country. The same IPCC report I mentioned estimated that also taking account of non-CO2 effects in 1992 aviation contributed 31/2 per cent of manmade global warming. Do you have an equivalent figure for a more recent date? Dr Sentence: I have a study here conducted by scientists in Europe - Robert Sausen, Ivar Isaksen, Volker Grewe, David Lee and various people - which was called the TRADEOFF project. It came up with an estimate that while over time, reflecting some of the trends to which you have referred, CO2 emissions had increased somewhat in their impact on global warming the other effects had come down. For 2000 they came up with an estimate - this was published in 2004, so it is probably the most recent estimate that has been produced - which was roughly the same as the IPCC report in terms of total global warming impact. That suggests that it is still a reasonable benchmark to use. As you are probably aware, once one gets outside the CO2 impacts the scientific understanding of the effects becomes subject to a greater degree of uncertainty and there is greater scope for error, but its central estimate is virtually the same as set out in the IPCC report for 1992. Q468 Chairman: The IPCC projected that CO2 emissions from aviation would rise by up to as much 10 times the 1992 level by 2050. Is that a projection with which you would agree? Dr Sentence: I do not agree with that as a projection. I do not think that was its central estimate. In percentage terms I believe that its central estimate was an increase of between two to five per cent of total CO2 emissions. Obviously, it predicted some further increase in total CO2 emissions, whereas we know that to stabilise the global atmosphere we probably need to cut the total, but a figure of 10 times sounds to me to be the upper end of the estimate, not the central forecast. Q469 Chairman: What is the industry's estimate? Dr Sentence: Different players in the industry will predict different growth rates. Perhaps I can give the view of British Airways and Mr Essex will give the view of Easyjet. We believe that a long-term growth rate of air travel of about three to four per cent is a good benchmark. Historically, one finds high growth rates but, looking forward, many of the markets have generated a lot of that growth, for example the US and possibly Europe in the future. Those markets are maturing and growth rates can be expected to be much lower. If one looks at fuel efficiency trends, they are expected to increase by about one to two per cent, so that leaves one with an emissions growth of about two percent, or possibly in a range of one to three per cent, depending on whether one has low growth and high fuel efficiency or high growth and low fuel efficiency. The expectation of British Airways is that if we move into a situation where we have emissions trading applied as an economic instrument to deal with carbon emissions aviation will move into a lower growth and higher fuel efficiency world, so it will probably be towards the lower end of that range. Mr Essex: I do not disagree with that view. I think it is worth noting that historically the trend has been for growth in aviation to track very closely economic growth. In order also to make a realistic assessment of the future one must also take a view on economic growth and then add in benefits that one would receive from improved fuel efficiency. Q470 Chairman: When can we expect a fall in the absolute level of carbon emissions from aviation? Dr Sentence: Forecasting the future is a hazardous business. My background is economics where forecasting is probably even more uncertain, but insofar as we can look at the next 10 to 20 years - for example, we see the Government's projections at about the time of the White Paper - we would expect to see continued increases in emissions which reflect the sorts of trends to which I referred. If we look beyond that there is a possibility that the markets will further mature and that new technologies will come along. We certainly encourage discussions between aircraft manufacturers and fuel producers on the possible extension of biofuels. One can envisage some technologies that may come along in a 20 to 30-year timeframe that could begin to reverse that increase. I think that the most likely scenario for the next 10 to 20 years is a continued increase in emissions and the question is: what will be the rate of growth? Q471 Colin Challen: The UK industry's sustainable aviation strategy has as its second goal "Aviation incorporated into a global policy framework that achieves stabilisation of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous manmade interference with the climate system." Can you state the industry's understanding of what that stabilisation level would be in terms of parts per million CO2 in the atmosphere? Mr Essex: Given that this is a global issue, I think that it is less the aviation industry's view than the view of the scientists as to what that sustainable level is. The thrust of the sustainable aviation strategy, therefore, is to say that aviation will play its role in stabilising it. Q472 Colin Challen: Does that mean you would wait until you had an absolutely firm scientific opinion on the subject? Mr Essex: Not at all. I think scientific opinion is clearly driving such outcomes as the ETS which is established on the basis of capping or reducing the overall level. Q473 Colin Challen: The strategy document itself or perhaps a Civil Aviation Authority document that I saw last year suggests that the aviation industry is looking at a range of about 350 to 750 parts per million which I think is a little on the excessive side. If one does not settle on a particular level how can one plan to tackle the issue of carbon emissions? Dr Sentence: I think that the main thrust from the industry is to accept the scientific evidence. For example, I believe that a figure of 550 parts per million has been quoted and used for UK policy-making. We would not demur from that or seek to impose a different view. Our position is that this is a global issue. If one talks about carbon dioxide, aviation is a small but growing part of that. What we want to do is to get inside a framework which will allow sensible economic and environmental decisions to be made so that we can be playing our part in limiting emissions while respecting the fact that society also sees a lot of economic and social benefit from air travel and we can strike the right balance between the environment and social impacts. Q474 Colin Challen: You are right that the fairly standard view at the moment is 550 parts per million, but the Tyndall Centre suggests it should be 450 parts per million. The centre has made some projections to show that the impact of aviation, not even including the radiative forcing factor, can do a great deal to knock out all the gains made elsewhere in the UK domestic economy and all the other things that we are doing in the climate change programme to reduce emissions. What do you say to that argument? Dr Sentence: I do not agree with its analysis. We would use the UK's figure of a 60 per cent total reduction that we might look for by 2050 as a good benchmark. I think that that is consistent with 550 parts per million. Q475 Colin Challen: Do you agree there is a lot of evidence now emerging to show that 60 per cent is quite an old figure and needs to be increased? Dr Sentence: I am not sure that is the case. It is a big challenge for all sectors of the economy; this is not specific to aviation. To make that 60 per cent reduction will be a big challenge and that is a target to which we should work. If I may just comment on the analysis by the Tyndall Centre, together with a colleague in British Airways we have written a short article, which I would be happy to send to the Committee, that looks at the framework of future growth emissions that I have just outlined and how that relates to the figures at which Tyndall arrived. We came up with a rather different conclusion, namely that even in 2050 if there is a 60 per cent cut in emissions aviation will account for possibly 10 to 20 per cent of the total. I am happy to share that with the Committee. But the main point is that there is a lot of uncertainty about growth rates for various different activities as one goes into the future. The key challenge is to get into a framework where we can deal with our emissions in a similar way to other sectors. The framework that we look for in respect of carbon emissions is a trading framework. We hope that in the next few years within Europe we can take the first step in that direction. We believe that that would be a good achievement on behalf of the industry. Q476 Mr Hurd: Perhaps we can explore a little the existing incentive to your industry to improve fuel efficiency. Broadly, what proportion of your costs is taken up by fuel? Mr Essex: You are probably aware that in the past year the cost of fuel has doubled, so we are trailing nearer to 25 to 30 per cent of our costs base. Dr Sentence: For British Airways it is getting up towards that; it is probably 20 to 25 per cent. The norm is more like 10 to 15 per cent. I am hesitant to say "normal fuel prices"; I am talking about the price of fuel in 1990s. It has gone up to 20 to 30 per cent, depending on what airlines you are looking at and their operations. Q477 Mr Hurd: What proportion of your respective fleets would you expect to be replaced on a 10 to 15-year view, and what levels of relative fuel efficiency would you expect from the new fleet in that timeframe? Dr Sentence: The figures that I quoted before - the one to two per cent a year improvement - would give one something like 30 to 35 per cent in a 25-year period as a central estimate of fuel efficiency improvement. That is the sort of period during which we would look at replacing aircraft. We would want to replace them when they get to about 20 years of age. Q478 Mr Hurd: But from where we are today over the next 10 to 15 years what proportion of the fleet of British Airways would be replaced? Dr Sentence: I am not at liberty to give you any figures. As you may be aware, we are thinking about fleet issues at the moment, so it is a rather sensitive matter. I do not want to give you figures and create any hostages to fortune. I think you can get a flavour of it from the fact that aircraft are kept for about 20 years. In 10 to 15 years one might turn over half one's fleet, perhaps a bit more. Mr Essex: The low fare industry is in a slightly different position, it being a younger industry. Many of the low-fare airlines have acquired new aircraft from day one, so in that respect they are already operating the most environmentally efficient and cleanest aircraft. We are really looking to manufacturers to introduce new models. Our understanding - nothing is firm yet - is that Airbus is already contemplating new models in the 2012 to 2016 timeframe. Certainly, given the advent of an ETS our evaluation of those products, therefore, will include the monetised effects of emissions. Quite simply, we shall not be taking out our chequebooks to acquire those aircraft unless they show a step change performance in fuel efficiency. Q479 Mr Hurd: There is an argument that governments should not give as big a green light as has been given in this country to the expansion of your industry until there is more material evidence of technology progression. What is your view on that? Mr Essex: I just go back to a point made earlier. The growth in the industry is not out of control; it is some spurious thing that just occurs because we decide to put on extra capacity. The industry is quite well disciplined. The shareholders put in capital and expect a return, so there is a very strong correlation with economic growth. I suppose our view would be that if, for example, airport capacity is not provided in this country it will be provided in other countries. One is then in a situation where because there is a natural demand people will fly to that second country to get to their destinations. If you like, you are creating more emissions because you are not servicing the natural demand in the most efficient way. Dr Sentence: I believe that as a policy it would be the wrong to say that there should be no expansion on environmental grounds. That seems to me to be going back to a strand of thinking in the 1970s that somehow we cannot have economic growth which is the thing that drives the expanse of aviation because of environmental issues. The stance we take in relation to Heathrow, where expansion is most important, is that as part of the process by which the Government gives approval to expansion we expect to have to demonstrate as an industry that we can deal with the environmental issues that arise. At Heathrow that involves making sure that we do not add to the noise issues and create a worse air quality situation - hopefully, the noise and air quality will continue to improve in terms of the social impacts - and that we have a proper mechanism in place to deal with the climate change impacts. The conclusion which government came to in the White Paper, which we support, is that the right mechanism should be based on emissions trading and the first step should be through incorporating it into a European emissions trading scheme. I think that if those three conditions are in place and there is a process to deal with the noise, air quality and the climate change impact it is quite legitimate to say that on that basis the industry should be allowed to expand and deliver the economic benefits that that produces. Q480 Mark Pritchard: What work has British Airways as the national carrier undertaken as to the impact on its business if, for example, Heathrow was not allowed to expand and the extra runway did not come about? Dr Sentence: This is something we have looked at quite closely, because it was debated quite thoroughly at about the time of the White Paper. Based on a number of measures of the competitiveness of European airports Heathrow is already falling behind Frankfurt and Paris Charles de Gaulle, for example, in terms of the number of destinations served. We believe that that trend will continue and possibly accelerate if there is no scope for some expansion at our major aviation hub. The consequences of that are not just for the aviation industry. We would be concerned about that because it would impact not only our own competitiveness but also the competitiveness of the economy as a whole. As the White Paper pointed out, Heathrow is the sole international aviation hub of its size and scale for the UK that can offer the range of international links, particularly for long haul services, that it does. There are potential competitive impacts both for our aviation industry and the economy as a whole. Q481 Mark Pritchard: I want to ask Mr Essex a brief question on fleet purchase. Obviously, I do not want to go into numbers, but clearly Boeing is promoting its new generation aircraft as being particularly environmentally friendly; Airbus is promoting its aircraft in the same way. Given that a new generation of aircraft perhaps will be in a longer timeframe than Boeing's new aircraft, what emphasis is given in procurement policy vis‑á‑vis the environmental aspects of new aircraft, or is it purely down to the design and build of the aircraft as far as moving passengers and the cost of it is concerned? Mr Essex: I think that the environmental effect is very much to the forefront. The best example is in the sphere of noise where we had the introduction of progressively strict noise standards to ensure that new generation aircraft were quieter. There are airports around Europe which are very sensitive noise and one will simply not gain access unless one has the latest technology. Q482 Mark Pritchard: What about emissions in particular? Mr Essex: In terms of emissions, that has been coming to the forefront. Pushed by the industry and the overall environment, noise has been a focus for Boeing and Airbus for some years, but now emissions are coming to the fore. Fundamentally, we are talking about fuel burn. We would be looking for a very significant step change because we already face high oil prices. Unless we see significant improvements Boeing and Airbus will not be able to sell their new generation aircraft. Dr Sentence: It may be worth pointing out that in the sustainable aviation strategy which was subscribed to by European and UK manufacturers, including Airbus, targets were set for 2020 versus 200 levels of a 50 per cent reduction in noise, a 50 per cent improvement in fuel efficiency, and hence a reduction in CO2, and an 80 per cent improvement in NOx which is a main contributor to air quality. Therefore, manufacturers - we are very supportive of them and push them to do as much as they can - are looking at quite significant improvements in new generations of aircraft. Q483 Mr Caton: Projections of growth in the White Paper The Future of Air Transport were predicated on a reduction in air fares of one per cent a year for the next 30 years. Are air fares really going to go down by one per cent a year over that period of time? Mr Essex: They certainly have historically, and we would expect a decline in yield. The actual fare that one pays will be going up because there are inflationary effects, but in terms of netting out those effects one can expect them to continue to decline. Q484 Mr Caton: The projections for that ongoing reduction in air fares were themselves based partly on the Government's prediction of oil remaining at $25 a barrel in 2003 up to 2030. You have already mentioned that that has not been the situation. Two years ago the Department wrote to this Committee that the then recent rise in oil prices might be only a short-lived blip. Since then prices have gone even higher. From what you have already said, it sounds as if you do not know whether it is a blip or something longer term. What are the consequences for those global predictions of air fares if it is not a blip? Mr Essex: I think that that question can be answered at two levels. One is the individual airline level. Clearly, different airlines will be able to absorb the impact of higher fuel prices in different ways. For example, some airlines will place a fuel surcharge on passengers and others will not. At the macro-level, we are looking at how this feeds through to economic growth. At that level we can then correlate it to the overall demand for aviation. We have already heard that Gordon Brown fears very high oil prices will adversely affect economic growth both in the UK and at a global level. At some point that will feed through to reduced demand for air travel. Dr Sentence: The growth projections in the White Paper are the product of two things. There was some stimulus provided by the reduction in air fares, but even if that does not come through quite a significant stimulus is provided by the growth in living standards and GDP in the economy. I believe that the Government did a simulation in the White Paper. It looked at an environmental instrument which had the impact of doubling fuel costs and that knocked a certain amount off the growth but it was a fraction of a percentage point. One would still see quite considerable growth even in that scenario. While we cannot say that the growth of the industry is totally immune to what happens to fuel costs - clearly, it will have an impact - it does not detract from the basic conclusion that there will be continued growth in air travel which needs to be accommodated in some way. Q485 Joan Walley: Moving from oil prices to oil supply, I am just wondering what was in the 2003 energy White Paper in terms of the oil projections. What is your view about how long we have before we reach peak oil production? Dr Sentence: I do not think that British Airways has a view. Obviously, our business would depend on continued availability. Q486 Joan Walley: Earlier you called yourself an economist. Dr Sentence: I call myself an economist! Q487 Joan Walley: Do you agree with the Government that it is between 30 and 60 years? Dr Sentence: I look at the oil markets but I do not claim to be an expert. Over the period of time even while I have been with British Airways there have been significant changes in view about the amount of oil capacity. There is now a view that oil supplies are a lot tighter and that is what has fuelled the price increase. Q488 Joan Walley: I am asking about your company. Dr Sentence: As I say, we do not have a view on the peak oil hypothesis. Q489 Joan Walley: Does Easyjet have a view? Mr Essex: We do not have a view that far ahead. To take a 40 to 50-year timescale sounds absolutely plausible. Q490 Joan Walley: It is difficult for us because in a previous evidence session we heard from the editor of Petroleum Review. His evidence was that we would reach peak oil availability around 2010. Are you familiar with that warning and do you concur with it? What would it mean for your businesses? Dr Sentence: I think that is quite possible. Q491 Joan Walley: So, you are looking at that as a possibility? Dr Sentence: The situation in which we find ourselves in aviation is that in the immediate and short term we are dependent on oil as our main fuel, but we know that technologies are available for the development of other types of fuels. For example, in South Africa kerosene for aviation is produced from coal. We encourage fuel producers and aircraft manufacturers to look at the potential for the development of biofuels in the aviation industry. But, as with all sectors that depend on oil - I expect this is a bigger issue for ground transport as well - if oil availability becomes an issue it accelerates the need to develop alternatives and new technology. Q492 Joan Walley: But you must be making some contingency plans in respect of your company as to how to factor in the possibility of peak oil production in 2010 or in 30 or 60 years' time? Dr Sentence: If you ask for my view as an economist I see this reflected in the price. Obviously, the more that demand becomes tight in relation to supply in the oil market the more that will be reflected in the oil price. We have already seen a very big shift in fuel prices. When we look at our fleet purchase plans we evaluate them on the basis of a range of different oil prices; it makes obvious sense to do so. Through the market mechanisms those prices then drive the search for alternatives. If oil prices continue at their current levels or go even higher I would expect a renewed drive to look for alternative sources of energy to switch out of oil in areas where technologies already exist to do so, for example power generation. Obviously, it would be extremely inefficient to use oil for power generation. Those technological substitution possibilities are not currently as readily available in the aviation industry, but the higher the price the more the search for them will continue. Q493 Joan Walley: Does Easyjet concur with that? Mr Essex: Yes. Q494 Joan Walley: You are a low-priced company. What effect will that have on your prices? Mr Essex: It is a challenge every day. If we try to pass on to the consumer any increase in our cost base, whether it is from oil or anything else, we immediately see a drop in demand. The market sets the price. Beyond that, yes, we have the same views as British Airways. The horizon for the technology change in the aviation industry is in the 2040 time band. We do not anticipate - we know for a fact, and we have not been told anything different by Boeing or Airbus, or the engine manufacturers - that there will be a technology shift until the next generation of aircraft. Q495 Emily Thornberry: I want to ask you about what I understand is called tankering. I understand that you have some kind of computer system to work out how much fuel an aircraft will use if, say, it flies from London to Cyprus and back again. You would know how much it would use. I understand that if the price of fuel was higher in Cyprus than in London you would put in enough fuel to take the aircraft all the way there and back again instead of refuelling in Cyprus. I imagine that applies also to Easyjet. In addition, it gives you a faster turn-round. While that may make economic sense presumably it does not make environmental sense because you need to use more fuel to carry a heavier aircraft there and back? Mr Essex: I would consider tankering to be a practice that is pretty much at the margin when there are significant price variations in the market place. I do not think we consider that to be the norm in terms of operating the airline. Q496 Emily Thornberry: But is it not right that you will overfill an aircraft when you can save only $50? Mr Essex: Overfill? Q497 Emily Thornberry: It is as sensitive as that. We are not talking about your saving huge amounts of money, but even if it makes the difference between paying an extra $50 or not, you will overfill the aircraft so you fly there and come back again? Mr Essex: I am not sure what the tolerance is, but we would be looking at significant price variations. If the price of fuel at a specific location was perhaps, say, 50 to 100 per cent the cost that it would be at the point of origin, that would usually be when we would be sensitised to move to tankering. Q498 Emily Thornberry: At the moment is there any control over whether or not you do that? Mr Essex: It is a commercial/operational decision. Q499 Emily Thornberry: It is only commercial control that operates; there is no environmental control? Mr Essex: To go back to the original question about burning fuel, clearly if we have high fuel prices then in your equation we also have to look at the consequences of carrying the fuel and bringing it back again. Q500 Emily Thornberry: If you are to fly from London to Cyprus you will be charged depending on which countries you pass over, so, for example, it can be more expensive to fly over France than, say, Eastern Europe? Mr Essex: Whilst that may be true, it is pretty much at the margin. We would always be looking for the most direct routeings. Q501 Emily Thornberry: But you would always be looking for the cheapest route, would you not? Mr Essex: The most direct routeings, because the economics of the aircraft are geared around the amount of time in the air. We would not be taking a circuitous routeing through third countries just to get the benefit of a reduced navigational charge. Q502 Emily Thornberry: You would not make a journey which was 15 or 20 minutes longer to avoid flying over some of the more expensive countries? You would rather go over the more expensive countries than make a slightly longer journey? Mr Essex: Yes; we would be looking for the most direct routeing. Q503 Emily Thornberry: There is no example of your doing otherwise? Mr Essex: I am wracking my brains to think of one, but as a general principle, no. Chairman: Gentlemen, unfortunately I have to leave to go to the dentist, but I shall read the remainder of what you say with interest. In the absence of the Chairman, Joan Walley was called to the Chair Q504 Mark Pritchard: Is it true that you can save fuel in terms of oxygenating the cabin? I do not suggest that you do not oxygenate the cabin because if you did you might lose some passengers pretty quickly. Is it true that you can reduce fuel costs by not putting in new oxygen as readily as you could and that can, directly or indirectly, cause air sickness? I ask a question rather than make a statement. Dr Sentence: I am not aware of that. To make a more general point, in the desire to improve the fuel efficiency of aircraft manufacturers are looking at the use of auxiliary power sources - for example, the use of fuel cell technology - where one does not necessarily need to draw power from the engines. While in terms of the bulk power source of the aircraft we are dependent on existing technologies, we know that in some other applications - powering things that are taking place in the cabin - it may well be possible to look at alternative power sources. We know that in its new aircraft Boeing is looking at fuel cell technology in that context, but as airlines we would not put health issues at risk in a desire to make economic, or even environmental, improvements. Q505 Mark Pritchard: You referred to fuel cells and you used the future tense. Therefore, in the absence of fuel cells and alternative technology given the future tense in which you kindly replied that, you are using existing technology which would not bring about the alternative ways of oxygenating the aircraft to which I referred earlier. Currently, are the engines and, therefore, the main fuel supply being used to oxygenate aircraft? I presume that the answer must be "yes". Dr Sentence: I think that a number of the applications in the aircraft would draw their power from the engines. One of the things that we can look at in terms of fuel efficiency as new power sources come along is providing substitutes, but I am not sure that those substitutes are yet available in normal commercial aircraft. Mr Essex: In general terms, there is perhaps a four per cent opportunity for fuel saving just through quality operational procedures, for example by ensuring that the weight and balance of the aircraft is as accurate as possible and that pilots are not over-filling the aircraft and taking too much fuel. Q506 Ms Barlow: The latest Budget Report froze air passenger duty for the fifth year running. It said that "decisions on APD rates need to be considered in the context of wider social and economic factors, particularly the current volatile oil market". How has the rise in oil prices affected both fares and passenger demand over the past year? I realise this is quite a difficult question, but what do you anticipate will happen over the next year? Mr Essex: Different airlines can afford the increasing cost of fuel in different ways: some will place a fuel surcharge on passengers to recoup it and others will not. We are not necessarily seeing a change in demand at that level because different airlines will deal with it in a different way. What you see is pressure on airline operating margins and their profitability. If one has higher costs one needs to make cost savings elsewhere. If you fail to do that with the same amount of revenue your profit will go down. Typically, the industry will be trailing at between zero and four per cent of its operating margins. One can imagine the amount of extra effort that has to go in to recover a 15 per cent increase in one's cost base due to fuel price increases. One has to turn attention to other things to get greater efficiency and costs down. Dr Sentence: We are one of the airlines that has put in fuel surcharges particularly because on our long haul route network the fuel cost is such that it is very difficult to avoid doing so and remain economic. We have not seen much reaction yet in terms of the impact on demand. We put that down to the fact that the world economy, including business travel, has been pretty strong and therefore the drivers behind travel have in a sense offset the possible impact of fuel surcharges, but we are obviously concerned that there could be some impact on demand. Normal economic analysis suggests that demand should begin to respond in some way, but it might take some time to feed through. Our hope would be that possibly by that time the fuel price would have come down, but there is not much sign of that happening. Q507 Dr Turner: The aviation industry seems to be unanimous in its support for the inclusion of aviation within the European emissions trading scheme. This gives us pause for thought because turkeys are not normally in the habit of voting for Christmas, so it makes us suspect that the industry is regarding this as rather a soft option and it will not have much impact on the avoidance of dangerous climate change. Mr Essex: I am perhaps surprised to see that you are so suspicious. In the first instance, we have to note that there is no design for aviation to go into emissions trading scheme yet, so the position we have taken is to say we would welcome that but not at any cost. There are two aspects of that. One is that the design has to incentivise the best behaviour and in consequence punish the worst behaviour; otherwise, we will not see the achievement of environmental goals. The other aspect is that it needs to be effective. If the design that emerges is very narrow in scope it will tackle a very small percentage of the EU carbon footprint. We would therefore have concern that we would be going to a lot of trouble and effort to achieve a very small benefit. Once we have seen a design we will be able to evaluate it, and perhaps then you can take a view as to whether or not we see it as a soft option. Q508 Dr Turner: From your point of view, how do you see the system operating in a way that will lessen the global warming impact of aircraft? How would you incentivise airlines to make improvements, and what specific ones would you make that you would not otherwise make? Mr Essex: We see the inclusion of aviation in the scheme as a way of achieving the objectives of that scheme, not in terms of achieving emissions reductions per se from aviation. We said earlier that we anticipated aviation emissions to continue to increase in the short to medium term. It is a mechanism that can include aviation and provide economic benefit to those who can abate and reduce CO2 emissions at a lower cost. Q509 Dr Turner: You said that you would support inclusion in the ETS but not at any cost. One would assume from that that you would be lobbying to make sure that the future caps did not bear too heavily on the aviation industry? Mr Essex: That was not what I meant. I think that the two tests I gave were, first, that it would incentivised best behaviour - clearly, there are different behaviours in the industry - and, second, that it would actually be effective. Q510 Dr Turner: But if it does not cost the industry how will it be effective? Dr Sentence: We need to be careful with the European emissions trading scheme. Mr Essex and his business operate solely within Europe, but it would apply also to airlines that fly outside Europe and so there would be a potential competitive impact. It would be perverse if we introduced a mechanism that hit certain airlines. Q511 Joan Walley: I would be grateful if you would confine your replies to Dr Turner's original question. Dr Sentence: If we are talking about the impact it would have we are looking at two main ones. We have the experience of operating within the UK emissions trading scheme. While it is different because it is a voluntary scheme it has been very noticeable how it has a much sharper focus and created an economic reason to look at the emissions of the aircraft that are covered by that scheme and also the properties that generate emissions under that scheme. The second way it would have an impact is in investment decisions. One would know that at the margin if one expanded one's emissions beyond the allowance one would have to buy permits for all those new emissions from new aircraft. As airlines went into new investment decisions on aircraft they would look at the emissions consequences and financial implications for them. Mr Essex: My position was that at a cost, not any cost, the aviation industry could be expected to be a net buyer of allowances in entering the UETS and, therefore, there would be an economic cost. Q512 Dr Turner: Is it fair to say that you are prepared to accept some cost but clearly it must affect your operating costs and reflect on fares, so it will have the potential to dampen demand? If demand is dampened that would certainly have a downward effect on emissions because people would fly less often. The same effect could possibly be achieved by raising air passenger duty while one waited for the ETS to accommodate you. How would you react to that? Mr Essex: The reason we are supportive of the ETS is because it is about achieving the overall environmental objectives and does not focus solely on aviation. Our experience of APD or equivalent taxes is that while they are perhaps aimed at dampening demand they do not do anything for the environment because they are not hypothecated. Q513 Emily Thornberry: You have heard of the European Environment Agency which has recently endorsed research which says that the environmental impact per passenger kilometre is 3.6 lbs. If that is right do you accept that as a fair amount that you should be compensating us for flying? An additional and obviously linked question is: with the best will in the world, none of this will kick in until 2012-13, so what will you do between now and then? Dr Sentence: As to imposing just that charge, that is not related at all to the emissions. First, if one imposes it on a per passenger basis it could be on an individual who generated very different emissions profiles. Secondly, that money would then just go into a general exchequer pot, whereas in an emissions trading scheme the money flows to offset the emissions to generate emissions reductions elsewhere. Therefore, it is much more environmentally effective. The notion that while we are waiting for emissions trading we should just impose a tax is really heading off in a totally different t direction. Q514 Emily Thornberry: Let us not impose a tax; let us put it into some other kind of carbon offset. I am sure that if you were to volunteer to do that nobody would object. Dr Sentence: We have provided a facility for our customers to do that. That is something that customers are free to do. Q515 Emily Thornberry: I am sure you do not stop them from doing so, but that is not really the question. It is not that you stop your customers from offsetting their carbon emissions, but if your industry is generating that level of carbon given that the problem is now what are you doing? You are simply allowing your customers to make a decision; it is not as though it is a dominant feature of your website. If one books tickets with British Airways one does not see a pop-up; it is not even something that is available that people can opt out of. Dr Sentence: If you talk about what we are doing, as noted before the UK aviation industry has been ahead of perhaps any other country in working alongside its government to try to get emissions trading on the agenda. It is very important certainly for our business that in this area we get international action applied consistently across different countries; otherwise, we will just be penalising the UK aviation industry and damaging its competitive position. Our view is that we should continue to press it. We have made a good deal of progress in the establishment of an emissions trading scheme first in Europe and then more broadly internationally and we should make that our main focus because we know that that is the most environmental and cost-effective way to move forward. Q516 Mr Hurd: If ETS was open for business tomorrow how much difference would we see between the best and worst performing companies in relation to the carbon footprint? My perspective is that there is probably not that much difference between you and the underlying concern is whether we will see that genuine market and level of incentive for the best performers appear immediately given the long timeframes and long lives of aircraft? Mr Essex: It is a somewhat hypothetical question because it is in the hands of the regulator to design a scheme to achieve the very goal you outline. Until we have seen something that we and you can evaluate I am not sure how we can take a view as to whether or not it will be an incentive. Q517 Mr Hurd: My point is that for the market to work you have good and bad performers and you must have those incentives in place. My question is: how big is the gap between the best performing and worst performing companies in terms of age and efficiency of fleet today? Dr Sentence: If you look at it internationally you will find a very big spectrum. There are many airlines in the world that do not operate according to normal commercial disciplines. That is something of which we have complained. There are many airlines in the world that operate old aircraft with far inferior fuel efficiencies compared with the most modern aircraft. There are big differences. You put your finger on it when you talk about investment. In any emissions trading scheme - this is true for all industries, not specifically aviation - ultimately it will have its greatest effect over an investment cycle. When the emissions trading approach can be seen almost as an ongoing feature of the commercial environment in which people have to live, is an established part of business thinking and is built into their investment decisions in all sectors then we will see the maximum benefit. Q518 Mark Pritchard: One of the most obvious competitive disadvantages of having to adhere to an emissions trading scheme is that other airlines such as those from Asia and the United States clearly are not part of it. Do we need to create a level playing field for the industry and British airlines, whether they be small or large, and a global emissions trading scheme for aircraft rather than just a European one? Dr Sentence: The worst case scenario in terms of competitive distortion arises if one has two carriers flying on the same route and one is subject to the scheme and the other is not. That is a scenario that we are most keen to avoid. We can certainly avoid that for intra-European travel but we see some quite big risks if we try to apply unilaterally in Europe an emissions trading scheme for flights outside Europe, but a situation could arise either accidentally or by design whereby carriers based outside Europe will not be subject to the same regime or have a lesser standard. Q519 Mark Pritchard: Can you give an example of a route? Dr Sentence: The scenario that we are most concerned about, if we take the United States to Europe, is that the US takes a very different approach from European governments to climate change issues. The United States authorities have said that they would not see US carriers as being bound under the Chicago Convention by an emissions trading scheme in Europe. If that was allowed to persist and they asserted that position two very important consequences would emerge: first, potentially European carriers would be subject to a charge that US carriers did not have to bear; and, second, there would be an international dispute in aviation, which would probably disrupt travel between the United States and Europe. I think that that is a scenario we have to try to avoid when we introduce emissions trading in Europe. Mr Essex: That is a risk - there are a lot of risks in life - but if we had a scheme that was focused only on intra-European travel we would be focusing only on one per cent of Europe's CO2 footprint. We do not see that as necessarily as an effective solution. Clearly, there are trade-offs to be made, but I think it is in everybody's interests to have an effective scheme. Q520 Tim Farron: Obviously, BA wants to see the ETS restricted just to EU internal flights and Easyjet and the European Low Fare Airline Associations want to see it extended to all flights to and from the EU. My first question to our two witnesses - I guess I know the answer - is why they take the views that they do? Secondly, what difference do you think that each of the two approaches will make to the effectiveness of the ETS? Dr Sentence: Mr Essex will correct me on this, but I do not think that in principle we disagree that our objectives should be emissions trading extending to international aviation more broadly. Our concern is that we should apply that only outside Europe where we have the explicit and clear agreement of the government at the other end of the route. That is a competitive distortion that we have always talked about. We see quite large parts of the world where that is not going to be the case and so we will have the problems on which I touched in my earlier answer. We have a twin-track approach. One is to support emissions trading in Europe; the second is to encourage ICAO to develop guidelines for international emissions trading more generally, with the expectation that that will provide a foundation for its extension outside Europe not too long after the European scheme is established. Q521 Tim Farron: Mr Essex, do you take a different view? Mr Essex: We have a similar view but we would cut it differently. We think that as a matter of principle the most efficient scheme will have the largest footprint. The risks that my colleague has outlined are those of implementation. Perhaps lawyers will get rich over the interpretation of legislation to the detriment of all other parties. Q522 Tim Farron: Dr Sentence, if aviation is included in the emissions trading scheme on the terms that BA supports - just for internal EU flights with no multiplier for the effects of non‑CO2 emissions - what proportion of BA's total contribution to global warming will be covered by the ETS? Dr Sentence: Approximately 20 per cent of our CO2 is covered by intra-European flights. If one talks of the non-CO2 effects, that is still an area of uncertainty and I would not comment on it. But certainly in terms of CO2 it would be about 20 per cent inside Europe. The important point is that we are in favour of extending emissions trading internationally. We believe that it is better to put it on a successful footing in Europe rather against the background of disputes with other countries, and Europe's approach should be to seek the agreement of other countries if its wants to include flights to and from those countries in the emissions trading scheme. Q523 Joan Walley: I want to move on to taxes. We have just undertaken a visit to Sweden where we were very interested in some of the proposals of the Swedish Government. I should like to ask about the way in which the sustainable aviation strategy incorporates the polluter pays principle to which each of you has subscribed. I just wonder how you can justify not paying any fuel duty. Mr Essex: First, our view is that, given the APD tax is not hypothecated, it is almost a surrogate for a fuel duty. Some of the Swedish experience rather than the proposals is interesting. For example, they have reduced landing charges at airports and yet have had a charge for NOx emissions to incentivise their reduction. Q524 Joan Walley: But earlier Dr Sentence told us that he would not tell us anything about BA's plans to look at the future phasing-in of new aircraft, so how do we get a feel for what you are looking for in terms of replacements to deal with NOx emissions? Dr Sentence: To come back to your first question about how we can justify the absence of a tax on fuel, the reason is that international agreements have made that very difficult, but as the debate has unfolded we have had a chance to look at a tax on fuel and other tax-based proposals alongside alternatives such as emissions trading. All the studies of which I am aware, including one commissioned by the BAA a few years ago and those conducted under ICAO and the UK Government, have come to the same conclusion, namely that emissions trading would be a more effective and economically efficient approach. I think that here we have an opportunity to start off in that direction rather than in another direction, such as motor fuel which has imposed high costs and not necessarily produced the environmental benefits that people had hoped. Mr Essex: There are NOx emission charges at Heathrow and Gatwick today, for example. Q525 Joan Walley: Just staying for the moment with the polluter pays principle, can you give the Committee your best guess as to how much you should pay for the pollution that you are causing taking account of the way that your aircraft trigger dangerous climate change? Dr Sentence: We do not have a figure of that kind. I look at it in another way. We are prepared to put ourselves into a regime where emissions would be limited and we will accept what the market tells us we need to pay either to curb our own emissions or fund equivalent emissions reductions in other sectors. In a sense, we are handing over to the market the issue of how much we will pay because we think that will be the most efficient way of dealing with this issue. Q526 Joan Walley: How does that market mechanism take account of environmental issues? Dr Sentence: Because under an emissions trading scheme the cap that is established is set according to an environmental objective. If that environmental objective is respected - I know that some people express scepticism and say it is not, in which case we have to ensure that is the case - one will be paying to deliver it and one will then be sure of delivering the environmental objective that one sets. Q527 Mark Pritchard: If there was some sort of duty or tax instead of an ETS potentially would it have an impact on your routes where you do not necessarily make a profit - if you like, they are loss leaders or you keep certain routes open through altruism or because you keep out your competitors, whatever it might be - and it might bring you as a business to a decision to stop flying to certain centres where perhaps you are today, whether profitable or not? Dr Sentence: The aviation sector operates on very thin margins, so costs imposed will have impacts on our route network. Mr Essex: The market sets the price. We cannot expect to generate any further revenue, so the only choice we have is to absorb those costs. If we cannot do so you are quite right to suggest that those routes will become economically unviable. Q528 Mark Pritchard: To be absolutely clear, passengers, consumers, British businessmen and women going about their business and bringing income into this country and exporting and importing goods could potentially see their flight to a small city in Germany closed over night if government took a decision to impose a tax rather than a robust voluntary ETS agreement? Dr Sentence: I think that risk is particularly great if the UK does something unilaterally, because we would then find ourselves imposing a charge or tax in this country that was not imposed by other countries and there might well be a diversion of routes and traffic away from the UK. Q529 Mark Pritchard: Do you think that would have an impact on regional airports in this country? Mr Essex: Yes, we would. The low fare sector has done well to develop services out of the more under-served airports in regional centres to main centres or otherwise, and today we see a lot of cost pressure. The commercial reality is that routes are closing as we speak due to higher fuel prices, for example. Q530 Mr Hurd: Congratulations on your initiative to offer offsetting to passengers. I recently flew with British Airways. At no point in the passenger experience from booking to landing was it ever mentioned to me as an option by anyone involved in that process. What sort of take up has there been of that initiative? Dr Sentence: The initiative has been presented - we are looking at this - as an invitation to people to find out more about their emissions because we want to tell them what we are doing. We realise that this is causing the reaction that many people have had. We did not see it and perhaps it was not telegraphed clearly enough, so we are looking at that issue. Take‑up has been low. About 13,000 people have visited the page. Q531 Emily Thornberry: What is the take-up? Dr Sentence: We have offset between 1,000 and 2,000 tonnes of CO2 with Climate Care in the past year. Q532 Emily Thornberry: What does that mean in terms of figures so that we might understand it? What percentage of passengers offset their carbon emissions through British Airways? Dr Sentence: It would be of the order of that figure. Q533 Emily Thornberry: One or two per cent, or less than that? Dr Sentence: It is less than that. Q534 Joan Walley: Perhaps the answer is "not enough". Dr Sentence: There is a low take-up, but I should like to mention one other matter. We know that passengers have to face significant fuel surcharges, and clearly that is in their minds when they book. Against that, that is perhaps not a good background for looking to pay extra on the ticket, but certainly we are looking at ways in which to promote it more effectively. Joan Walley: Dr Sentence and Mr Essex, this has been a truncated session. Obviously, this is a big issue for the Committee. We have votes coming up shortly and we need to press on. I thank you both for your time before the Committee. Memoranda submitted by British Airports Authority and Manchester Airports Group Examination of Witnesses
Witnesses: Mr Donal Dowds, Divisional Managing Director, BAA Scotland and USA, Mr Joe Irvin, Director of Public Affairs, BAA plc, Dr Tim Walmsley, Head of Environment, and Mr Chris Paling, Environmental Adviser, Manchester Airports Group, gave evidence. Q535 Joan Walley: I welcome the witnesses. I have to apologise that we are expecting a vote and this session may be a little chaotic in that sense. I hope that you will bear with us. For the benefit of the Committee, perhaps each of you will briefly introduce himself so we know exactly into which bit of the picture he fits. Dr Walmsley: I am Tim Walmsley, Head of Environment at Manchester Airport. Mr Paling: I am Chris Paling, an environmental adviser at Manchester Airport. Mr Dowds: I am Donal Dowds, BAA Group Planning director. Mr Irvin: I am Joe Irvin, Director of Public Affairs at BAA. Q536 Joan Walley: We are grateful to you for coming along. We want to kick off by asking you the way in which the chairman of the Environment Agency, Sir John Harman, has recently called for the Government to set itself a specific target for reductions in carbon dioxide emissions in the transport sector. Do you agree with that? If so, should aviation be included? Mr Dowds: We do not agree with that particular approach. This is a global problem. To move forward we have to concentrate on the ultimate issue which is the global impact of CO2. We therefore believe that an emissions trading scheme is the most efficient and effective mechanism to approach this. Of course, that is the ultimate global but we believe that initially it should start as a scheme that affects all the industries within the EU. Q537 Joan Walley: Does Manchester want to add to that? Mr Paling: We concur with that. Q538 Emily Thornberry: Let us say that airlines buy their fuel from Heathrow Airport. Presumably, you know how much fuel you are selling to airlines; you do not sell it to anyone else. Is not another way to ensure that we keep some tabs on the environmental impact of the amount of fuel that is being used for you to impose some sort of tax or environmental levy? While we are waiting for a European trading scheme to be established why can BAA not voluntarily undertake that? Mr Dowds: To make one correction, it is the oil companies that sell fuel to airlines. Q539 Emily Thornberry: But you know how much is being sold on your sites? Mr Dowds: Certainly, through the fuel farms on our airports we know the total volumes that are moving around. We believe that taxation is a blunt instrument that fails to recognise the source of emissions. At the end of the day to tackle it by taxation or depression of demand does not deal with the source of the problem. We believe that an emissions trading scheme is the best way to do it because the scheme itself creates a cap which then means that the allowances available drop. The successful industries and countries that can get below their limits and allowances can then sell those. I do not think there is any dispute on this side of the table that initially aviation will grow and it will have to buy those allowances and the market mechanism will make those more expensive over time, so additional cost and downward pressure on those industries and countries which are growing will ultimately help us to achieve the only goal that matters which is an overall reduction in the impact on climate change. We believe that the taxation instrument is inappropriate because it does nothing to solve the problem at source. Q540 Emily Thornberry: While we are waiting for the European trading scheme to be established can you not introduce some sort of climate change levy on fuel on a voluntary basis which is clearly being used by aircraft on your sites? Mr Dowds: We do have levies against noisy aircraft and against NOx. We simply do not believe that compared with emissions trading that is the appropriate way to move forward. By the way, we also apply to airlines a fuel handling charge. Q541 Emily Thornberry: Members of the public who hear that you apply a handling charge but do not have any type of climate levy may think that this is a crazy world in which we live. Mr Dowds: It is about where one thinks the difference can be made. We are very clearly of the view that the difference has to be made in the overall level of emissions that are generated. All industries in all countries collectively have to reduce that burden on the planet. We believe that an emissions trading scheme is the best scheme by far to bring that commercial and financial pressure and incentive through technology and other methods to reduce the amount of emissions that all industries, including aviation, generate. That is why we are very focused on making progress with the Government and the EU in getting the scheme up and running as soon as possible. Q542 Emily Thornberry: Conveniently, therefore, you have no responsibility; you can sit back and wait for the ETS to be established? Mr Dowds: On the contrary, we have a major programme on the ground at our airports to deal with emissions and the use of carbon. We have major programmes for converting our fleets from diesel and petrol to battery-charged vehicles. We have a whole series of efficiency measures to burn less electricity. We are buying our energy from renewable sources. We have major programmes in place to change that year on year and have set ourselves the target of a 15 per cent reduction by 2010 from 1990 levels, and we are well on track to achieve that. It is wrong to suggest that we are sitting on our hands and waiting for emissions trading to solve it all for us; we are not. What we are saying is that management of local emissions is only part of the equation and we are all kidding ourselves if we believe that by doing things locally we will somehow or other guarantee downward pressure on global emissions, which is the only thing that matters. Q543 Dr Turner: In the UK sustainable aviation strategy the industry states as its goal: "Full industry commitment to sustainable development, and a broader understanding of the role of aviation in a sustainable society." What does that actually mean? Mr Dowds: It means that we are committed to working with other members of the industry and our government to understand better exactly what the climatic impacts of aviation are and to work within a network to reduce those. It means we believe that BAA as a large airport operator should take a leading role, along with our larger airline customers, in making sure that government understands that it is committed to solving the problem. We are not arguing about whether or not there is a problem or that aviation is contributing to it; we are simply arguing sometimes about the most effective mechanism to achieve the goal that we all want. Q544 Dr Turner: To you which is the most important strand of sustainable development? Is it environmental, social or economic? Mr Dowds: If only it were that simple. Of course, it means that we have to carry all three of them forward. What worries us sometimes is that we often hear suggestions that clearly put environmental impact well ahead of anything else, and indeed sometimes are prepared to ignore the social and economic impacts of certain solutions. I am afraid that the job facing all of us, including this Committee, is tougher than that. We cannot turn this country and Europe back into one large forest. We have to concentrate on how we can solve this problem while we share the economic benefits of a modern society and make sure that all citizens are able to partake of it. I am afraid that means some of the solutions sometimes put forward as environmentally beneficial completely disregard that aspect. Q545 Dr Turner: Do you agree with the preliminary findings emerging from the Government's Stern Review into the economics of climate change that if there were dangerous levels of climate change they would have massive economic and social consequences especially for the poorest communities? Mr Dowds: We certainly agree that this is an issue we cannot duck. It has long-term consequences and collectively we have to find a way to change the current trends and reduce the ultimate burden on the planet. There is no doubt about the objective but there are differences of opinion about the way to move forward. Q546 Dr Turner: The airports that you operate are significant CO2 emitters, and you referred to your plan to reduce them by 15 per cent, which is laudable, but surface transport into and out of airports is a part of this. There are vehicles buzzing around airports the whole time. Do you have any plans to reduce emissions from them, especially given that you are apparently able to run them on red diesel, which means they are very cheap so you have no great incentive to replace them with alternative fuels? Mr Dowds: Perhaps our colleagues from Manchester should have an opportunity to provide some specifics, but I will tackle some of the general points. I have already indicated that as part of our airport-by-airport scheme we have a fast-moving programme of change to get away from fossil fuel-based vehicle fleets to renewable energy fleets. That is having a significant impact. The issue of red diesel arises from the fact that the majority of our vehicles on the airport are not permitted to operate on the public road and, therefore, they can operate on red diesel. That is just a matter of law. Where we have vehicles that go onto the main road they cannot operate on red diesel, but even there we are working with our vehicle suppliers to move to other sources of energy to fuel those types of buses. We obviously see surface access as a huge issue for airports in the future, as does the Government. For example, we are working very hard with government and transport operators to get a modal shift away from the car towards the train and to have more public transport. We have a very significant programme around our airports to do that and we are making good progress. Dr Walmsley: Manchester Airport at the moment produces about 430,000 tonnes of carbon dioxide a year. Of that, 60 per cent is generated by passengers and staff who use their own vehicles to access the airport. We see this as a key area in which to seek significant reductions or to manage likely increases in the future. Joan Walley: Speaking now as a constituency MP, I have been campaigning for something like 10 years to get a direct link from Manchester Airport to Stoke-on-Trent. Having got the service laid on, for it to have been taken off so there is no longer a direct rail link strikes me as an absence of joined-up thinking to deliver what you say you are about. Whatever you may say, it does not work like that because these direct rail links do not exist. Q547 Emily Thornberry: I have a similar question. Your bus station used to be right next to the airport but now it has been moved 350 metres away. Guess what has replaced the bus depot? From what I understand, it is a short-term car park. How can you encourage people to take public transport when you do this? The people who arrive by public transport not only have to go another 350 metres; they have to change levels. When you are making your assessment of the number of journeys made by people coming to your airport on public transport you include courtesy buses. You drive to an airport and get on a courtesy bus. It is distorting the figures a bit. Dr Walmsley: Dealing first with the bus station that has been moved, that is being built next to the railway station. The reason for doing that is to have a new coach station so we have a multi-modal interchange. For the first time people who now use our facilities are not even flying. For example, people from Wythenshawe come in to use our services. As to the Stoke service, we try to work very closely with Network Rail. Q548 Joan Walley: So much so that the direct service has been taken away from us! Dr Walmsley: There is capacity at the station. We have just agreed to build a longer third rail platform which will increase capacity. There are existing bottlenecks in the system around the North West which very much dictate what services we can offer. Mr Paling: The new station and bus interchange is 350 metres further from terminal 1 but by the same amount it is closer to terminal 2, so it sits more central to the site of the two terminals than previously. Q549 Emily Thornberry: What is the difference between terminals 1 and 2 in terms of flights? Dr Walmsley: It is approximately 60:40. Mr Dowds: BAA has invested in the Heathrow Express and supports the Gatwick-Stansted Express services. We are absolutely clear that train services to our airports are not only important but fundamental to the future growth of those airports. That requires substantial investment from us. We are incentivising further transfer from other modes of transport, particularly car, to these types of services. It is a key plank of our future development strategy. Q550 Joan Walley: Perhaps I may press Manchester Airport in terms of its submissions. Do you also support high-speed rail links? Do you see that as being in competition with the services that you provide? Dr Walmsley: On any journey of between two and three hours we would expect rail to compete strongly with air transport. Q551 Joan Walley: Do you support the building of high-speed rail links in the UK? Dr Walmsley: We have seen a recent reduction of about six per cent in our Heathrow service. We see that as a natural course of events. Q552 Mr Hurd: One way to reduce the carbon imprint of your industry is to try to manage demand by putting brakes on the expansion of ground capacity, which is your business. The argument is always made that if you do that people will fly somewhere else. What do you see in terms of airport expansion around the world in terms of your European competitors and China? I come back to Mr Dowd's point that this is a global issue. Mr Dowds: There is no doubt that the provision of capacity in the UK over many years has never kept up with demand, particularly in the South East. We have a surfeit of demand over current capacity. That is one of the reasons why Heathrow in particular is growing by only between one and two per cent compared with other airports where periodically capacity has been provided. In Europe the position is that governments have supported them and provided many more runways because they are all publicly-owned airports. As Dr Sentence of British Airways has indicated, they are now benefiting by being able to accommodate more services. They now have more international destinations than Heathrow. We have five runways in Amsterdam and four in Paris. We have two, which will go up to four, in Madrid and five in Frankfurt. There is lots of alternative choice available to international airlines if the capacity is not provided in the UK. One of the key facts in the Government's White Paper published in December 2003 is recognition that while there are environmental implications associated with the growth of aviation there are also huge economic and social benefits which have to be recognised in formulating the policy for the next 30 years. We obviously welcome that. The White Paper envisages two more runways within 30 years, the first probably being provided at Stansted and the second at either Heathrow or Gatwick, depending on its timing, but in the same timeframe we will see additional capacity in Europe. Q553 Mr Hurd: Where and how much? Mr Dowds: It is quite difficult to know precisely which airport will do it ahead of the other because obviously government has a role to play in those decisions. We need to get on with providing capacity that is required to meet demand, but that is not to say we do not need to face up to the climatic impact of aviation. All we are saying is that the best way to do that is through an emissions trading scheme while growing the business and accepting the need for growth but being able to afford it globally by making savings elsewhere. Q554 Mr Hurd: Is there any evidence that the UK economy has been disadvantaged by this expansion of capacity in the European Union? Mr Dowds: The only evidence is the movement of traffic and the fact that other airports are making faster progress in growing than some of ours, in particular in London, have been able to do, but I do not have a wider economic measure of that. Q555 Mr Hurd: I see how that can disadvantage the economy of BAA, but I am not entirely convinced how it disadvantages the British economy? Mr Dowds: It has been demonstrated quite clearly by the multiplier effects of aviation throughout the economy in terms of jobs and the support required. There is a lot of evidence to suggest that aviation has a big multiplier effect for the whole of the UK economy, and I think that the Government's work before formulating the aviation policy proved that there was such a benefit. Q556 Mr Caton: The sustainable aviation strategy committed the industry to sustainable development, including the goal of enabling people "to enjoy a better quality of life without compromising the quality of life of future generations". But if aviation depends on a finite resource, which is oil, by increasing flights in the short term and using oil up more quickly are you not depriving future generations of the opportunity to fly? Mr Dowds: Obviously, we believe that one does not necessarily have to lead to the other. I noted the debate about oil and when it would run out. I have been an active listener to that debate in Aberdeen over many years. When I was first up there 20 years ago we were supposed to run out last year. The fact of the matter is that I do not think anybody knows precisely when oil will end. We know that it is a finite resource and there are different forecasts available, many of which rely on an assumption about how technology will develop and the economics will work out. What we do know is that aviation will grow, obviously if it is permitted to, and that oil in the foreseeable future will be a key element to enable that to happen. I noted what the airlines said and understand that research is going on into other types of fuel and that may or may not become a major factor at some point in future, but quite frankly none of us really knows for sure exactly what the timing of that may be. Q557 Mr Caton: As to aviation growth, the Department says that it will continue to update its projections for future demand in the light of trends. What if the Government started to project much lower demand, perhaps in response to sustained oil price rises? Would you scrap plans for new runways? Mr Dowds: Let there be no doubt that we as a commercial company will provide capacity and invest in it only if we get permission and we can see commercial sense in so doing. We will not build capacity if it will lose us lots of money, and we are not in the business of expanding our business just for its own sake; it has to make commercial sense. That test will always apply. But we are also clear that that commercial test through an emissions trading scheme will become more difficult and challenging because ultimately it will bring with it costs and our business, as with the airline business, will have to internal those external costs of aviation. One of the beauties of an emissions trading scheme is that it will bring that cost pressure to bear and we can either find ways of affording it or curtail what we do in terms of how we expand our business. The beauty of the emissions trading scheme is that it brings to bear that commercial pressure while solving the only problem which matters, which is the total impact on the planet. Q558 Mr Caton: Moving on to the non-CO2 global warming effects of aviation, the sustainable aviation strategy also says that the UK aviation industry is committed to "Propos[ing] appropriate mechanisms by 2012 for mitigating non-CO2 effects based on a consensus of scientific understanding." What do you have in mind when you say that? Mr Irvin: First, if one goes back to the IPCC report in 1999 on aviation and look at the estimates of the non-CO2 impacts, the science on each of them - one can go through the list - is poor to fair. Second, there can be trade-offs or certainly different solutions to each of those problems. For example, if one deals only with CO2 and not NOx in technology terms there may be a trade-off between them. We believe that the best way to deal with that is to have a separate regime for each effect so we are sure we are dealing with each of them and one is not bleeding into the other. The third type of impact is water vapour at very high levels where the science is the least complete. We propose that scientific research needs to be undertaken and that has now begun. Research into these effects is now centred at the University of Manchester, but to solve a lot of these questions will require the involvement of big international players. It may be that if it is true that water vapour is a problem at certain altitudes it can be solved by different air traffic movements, perhaps lower flying or the avoidance of certain areas. There will be different solutions for each of the different problems. Q559 Mr Caton: Recognising what you say about the weakness of the science in some of these areas, is it right to be expanding UK's airports with all the financial, environmental and cultural costs before you know the full impact of the non-CO2 effects? Mr Irvin: We want to try to deal with the CO2 effects through an effective emissions trading scheme which will improve fuel efficiency. That will have beneficial impacts in all those areas. It is very difficult to say that because there is very uncertain science we will take a leap to try to decide in advance what it will be. In the IPCC report we have seen factors of between two and four and Dr Sentence referred to more recent evidence showing a lower figure, but what is rarely taken into account is that the rest of the economy also has non-CO2 impacts. They must also be taken into account. When one starts to compare them it is perhaps a lesser difference than may appear. We want to try to work through to 2012, which is the next Kyoto period, to try to address these levels. From our point of view, for it to be really effective it must be an international solution; one cannot do this in one small country. Emissions trading is the most effective way to do that in terms of both the environment and cost. Mr Paling: Manchester Airports Group has over five years funded the post of chair of sustainable aviation in an organisation called CATE at Manchester Metropolitan University. Only in the past couple of days it has been awarded a significant sum of money to undertake research under a project called Omega to look at this issue among others which is concerned with the impact of aviation on climate change. We are supportive of research, and we have funded that post for a number of years. Mr Dowds: We are absolutely clear that it is part of the impact and has to be addressed, just as CO2 has to be addressed. What we need is further understanding of exactly what its impact is and the appropriate measures and targets for reduction. It is not a case of trying to avoid it in any sense; it is a matter of wanting to understand a bit more about how it is generated before we commit to a particular solution. Q560 Mr Caton: Mr Irvin, I think you began to answer this question. If further studies confirm that condensation trails and cirrus clouds contribute significantly to the climate impact of aviation what would be your preferred approach to mitigation? Mr Irvin: The real answer is that the science is so uncertain it is impossible to say firmly what it should be. First, there appear to be positive and negative effects from water vapour formation, some of which militate against global warming and some of which may increase it. That must be sorted out. From everything that I know - it is not a very scientific conclusion - it is probable that the way to deal with it is to look at the routes which aircraft take, avoiding certain climatic conditions and altitudes in particular parts of the globe. That may be the most effective way to try to deal with it. In the long term we may find there are new fuels and designs which will also help deal with the problem. Q561 Mr Caton: If you take the air traffic management approach that you have just suggested - re-routeing and altering traffic in that way - does it not create problems for living up to the growth predictions that you have made? Mr Irvin: The answer is that we do not quite know; the science is very uncertain. I doubt that rerouteing to avoid certain climatic conditions in certain areas, provided it can be done effectively by the air traffic control people, will affect the total figures in the way that perhaps you suggest we fear. We do not know the answer to that at the moment; the science is still under investigation. Q562 Mr Caton: To return to the emissions trading scheme, the Government has always given its support to the ETS with the proviso that if progress on including aviation in the ETS is too slow it is prepared to act unilaterally or bilaterally. Has the Government given you any indication of what it means by "too slow"? Mr Dowds: The short answer is no. Clearly, that is a judgment that it will make. What we have is a common understanding with the Government about what we think is possible. We are still hoping that aviation can come into the EU trading scheme by 2008 or shortly thereafter, and certainly the expectation is that we can get it up and running and becoming effective before the next Kyoto round in 2013. Mr Irvin: In the previous session a witness said that if we missed 2008 for inclusion it would be 2012 before anything could happen. We very much want to go for 2008 and we are pressing for it. Our understanding is that there is no legal or practical impediment to entering the scheme between those years, so we could go in sooner. Q563 Mr Caton: For instance, the Aviation Environment Federation suggests that the start date for including aviation emissions would be 2010 at the very earliest and, more likely, 2013, which is a date that has been mentioned before. Why do you believe it takes that view and you are much more hopeful? Mr Dowds: Truthfully, you would have to ask them. Obviously, we maintain our contacts with the Government and we have worked closely with it in the run-up to the UK presidency to try to ensure it is understood that it is the right thing to do. We continue those contacts. Our best understanding is that it is possible, but at the end of the day the Government will have to conduct those negotiations and ultimately we will have to rely on the Government to deliver it. Q564 Joan Walley: Are you not part of the Aviation Environment Federation? Do you have no links with them? Mr Dowds: The answer I believe is no. Mr Irvin: We are not members but we have links with it and we deal a good deal with the AEF. In 2003 BAA initiated a group to press for or examine the involvement of aviation in the EU ETS system and the AEF was represented in that group. Therefore, we worked jointly with AEF in that group, as did the governments of the European Union and airlines. That group commissioned research by Oxera on which we pressed for aviation to be included. We are putting a lot of effort into getting aviation involved in 2008. We have agreement across Europe through ACI Europe, which is the airports federation throughout Europe, and this year we have the agreement of ACI World in favour of the principle that aviation should be in emissions trading. Q565 Mr Caton: If you fail to get that earlier date and the AEF is proved to be right, or near right, is the UK aviation industry prepared to do anything else to reduce emissions until we get into the ETS? Mr Irvin: We are already doing things to reduce emissions. First, aircraft technology and aircraft movements are improving and from aviation we see an improvement of one to two per cent a year. In terms of consistent improvements that is not to be sniffed at. We as airport operators are doing an enormous amount to try to cut the things that we control. We have a target to reduce our CO2 emissions by 15 per cent from energy used at airports versus passengers increasing by about 70 per cent. Irrespective of that we are making quite big efforts to achieve reductions in the meantime. Emissions trading will give all the more incentive to do that and it also means we will find effective ways to reduce emissions in the long term. Mr Paling: At Manchester we are taking similar steps. We have set a target reduction of 10 per cent in absolute terms in energy use, which equates to a 60 per cent reduction in CO2 emissions per passenger. It is a huge challenge and one that we are well on the way to meeting in terms of introducing new energy efficiency measures. We have also worked with Eurocontrol and a number of airlines on something called continuous descent approach. Manchester was a trial site. That as well as a number of noise benefits can also deliver fuel savings which translate into CO2 savings. We shall be adopting those procedures at Manchester at night in the next couple of months with a view to seeing how they work and expanding it. We are very active in trying to reduce CO2 emissions. Q566 Emily Thornberry: You would not expect to come before us without our asking about the report of the Tyndall Centre and to get your comments upon it. It appears that by the middle years of this century all other sectors of the economy will need to emit zero CO2 in order to fund current increases in aviation, if the Department for Transport is right. That alarms us and other sectors. I have received something from the NFU which says that UK agriculture cannot combat climate change alone. The idea that aviation will continue to increase in this way and that other sectors have to cut back to zero to support it is alarming. What do you say? Mr Dowds: By way of opening remarks, we are aware of the Tyndall Centre report and the fact that it ran a number of scenarios. We also realise that the one you referred to, which is often quoted, is the most extreme scenario that it came up with. We just need to understand it as we begin to deal with the supposed implications of that scenario. We do not think that the level of aviation growth that it predicts, which basically says that there will be unfettered capacity provided to meet demand while other sectors are being limited and the number of runways provided will be as necessary, is a realistic scenario. Mr Irvin: Not to be taken by surprise, I have a copy of the report of the Tyndall Centre so obviously I am aware of it. It would be alarming if all of it were true. Obviously, a lot of interesting work has gone into it, but it depends on the assumptions that you make. It makes some very contentious assumptions, rather like The Da Vinci Code. Q567 Emily Thornberry: Do you say it is the same as The Da Vinci Code? Can we quote you on that? Mr Irvin: No, but, in the same way, if one makes certain assumptions one can perhaps go in the wrong direction. If one assumes that there will be virtually unlimited growth in one sector and a 60 to 80 per cent reduction everywhere else over a number of years it is true that eventually the two points will meet, but if one looks at its forecasts for passenger numbers they are nearly double what the DfT and our forecasting people expect by 2050. It is about double the number of passengers per annum through the UK. It applies variously 2.7 times and 3.5 times radiative forcing without accepting that there may be any radiative forcing from any other part of the economy, so it is just CO2 from the rest of the economy. Therefore, it is not comparing like with like. As to radiative forcing, the report itself says: "It should be noted that there is very substantial uncertainty and disagreement surrounding both the size of the factor that should be used as well as the method of simply uplifting carbon values and comparing these with carbon emission profiles. Strictly speaking, such a comparison does not compare like with like." I think that is a very good warning. That was the sort of warning that the IPCC gave but tended to overlook when it published its figures. Another interesting point I noticed in the assumptions on page 43 is that it uses a very coarse rule of thumb to calculate runway and passenger equivalents. It states: "One can say that one new standard length runway will accommodate some 35,000 to 40,000 passengers per year." At Heathrow we have probably 40 million passengers a year on two runways. That says to me that it has not been peer reviewed and has probably not been proof read properly. It is a pretty fundamental mistake to build into its calculations. Q568 Joan Walley: One of the matters that we want to get to the heart of is that there are other sectors which will have to make huge cuts in emissions, including for example ceramics to name but one. By the time one gets round to any kind of scheme there will already have been allocations and the pressure on you will not be the same. Why is it right that other sectors should take a much greater burden than the one that you are taking now? Mr Dowds: I am not sure we share the conclusion at which you have arrived in posing the question that somehow the job is done by the time aviation gets its act together and becomes involved. We believe that it will be much more difficult than that. The truth of the matter is that different industries find it easier to make savings in their carbon emissions. Q569 Joan Walley: I will tell that to my ceramics manufacturers. Mr Dowds: I said that they would find it easier than aviation; I did not say that it was easy. The beauty of the emissions trading scheme is that it recognises and rewards it and it incentivises those who find it less easy to discover ways to compensate for it. Ultimately, we see the emissions trading scheme as one which will allow other industries to sell allowances that they do not require because they have made greater progress than aviation. Aviation will have to pay for those. As time passes it is easy to imagine a scenario in which progress becomes more difficult, the scarcity of spare allowances becomes greater and the cost of buying them will rise. That will internalise for aviation the cost of climate change. We believe that all of that is appropriate and that it will have an ultimate effect on aviation both in terms of the cost of flying and almost certainly on the total level of demand. What we are arguing is that it is a much more efficient and effective mechanism than taxation or national or regional initiatives to deal with what is a global problem. Q570 Joan Walley: Do you have any idea of what level of carbon credits UK aviation should be receiving? Mr Irvin: We do not have those figures because they will be worked out by the European Commission. Q571 Joan Walley: Can you give us a feel of what you think it should be? Mr Dowds: We do not have a figure. If that makes us inadequate I am sorry, but we did not arrive here today with an absolute figure. Q572 Joan Walley: Are you not proposing any figure? Mr Dowds: We will engage with government when it is in a position to start discussing with our industry what the level should be. Clearly, we expect a challenging target vis-á-vis the current level of emissions that aviation generates. We expect, therefore, that that would decrease over time and pressure on aviation will increase as it tries to meet it. Q573 Emily Thornberry: Your evidence seems to give the impression that you are looking forward to this scheme being introduced in the next couple of years. If that is right you must be thinking in terms of figures by now. You are not sitting back to wait to see what Gordon Brown suggests? Mr Dowds: I am unaware of any particular figure. We have not calculated one. Q574 Joan Walley: If you have any information on that we may find it helpful. Finally, do you think that when we get round to determining what should be aviation's share of carbon credits they should be given away free or there should be auctions? Do you have any thoughts or propositions on that? Mr Dowds: Again, the short answer is that we do not think it matters too much as long as it is a level playing field. We do not think there is a fair case for arguing that all other forms of industry should get them for free and because aviation is special it should be charged for them. If there is any particular mechanism which with more thought seems to make better sense than giving them away free, fine, but all we ask is that it is done on an industry-wide level playing field. Mr Paling: Manchester as well as a number of BAA airports are very familiar with the scheme because we are in it in terms of energy generation on site. We have been in the scheme for over a year now, so we are familiar with how it works on that basis. Joan Walley: We have to bring this to a close. You have been very generous with your time. Thank you very much. |