Memorandum submitted by the Aviation Environment
Federation
The Aviation Environment Federation welcomes
the Environmental Audit Committee's Inquiry into the Government's
Pre-budget Report 2006 and submits its views on the three key
areas of interest to us as follows:
1. How the recommendations
and implications of the Stern Review have beenor should
betranslated into Treasury policy
"The scientific evidence is now overwhelming:
climate change presents very serious global risks, and it demands
an urgent global response."
"Stabilising at or below 550ppm CO2e would
require global emissions to peak in the next 1020 years,
and then fall at a rate of at least 1 to 3% per year. The range
of paths is illustrated in Figure 3. By 2050, global emissions
would need to be around 25% below current levels. These cuts will
have to be made in the context of a world economy in 2050 that
may be three to four times larger than todayso emissions
per unit of GDP would need to be just one quarter of current levels
by 2050.
To stabilise at 450ppm CO2e, without overshooting,
global emissions would need to peak in the next 10 years and then
fall at more than 5% per year, reaching 70% below current levels
by 2050."
"The second approach adopted by the Review
was based comparisons of a broad range of macro-economic model
estimates (such as that presented in Figure 4 below). This comparison
found that the costs for stabilisation at 500-550ppm CO2e were
centred on 1% of GDP by 2050, with a range of -2% to +5% of GDP.
The range reflects a number of factors, including the pace of
technological innovation and the efficiency with which policy
is applied across the globe: the faster the innovation and the
greater the efficiency, the lower the cost. These factors can
be influenced by policy."
We endorse the strategic overview outlined in
the Stern Review, in particular the urgent necessity to include
realistic costs of carbon in the price of fossil fuels and Stern's
estimates of the costs of tackling climate change but would point
out in our view, almost mirrored by Stern (see below) that a stabilisation
target of 450 ppm CO2e is frankly unobtainable, however desirable.
"The current level or stock of greenhouse
gases in the atmosphere is equivalent to around 430 parts per
million (ppm) CO2 1, compared with only 280ppm before the Industrial
Revolution. These concentrations have already caused the world
to warm by more than half a degree Celsius and will lead to at
least a further half degree warming over the next few decades,
because of the inertia in the climate system.
Even if the annual flow of emissions did not
increase beyond today's rate, the stock of greenhouse gases in
the atmosphere would reach double pre-industrial levels by 2050that
is 550ppm CO2eand would continue growing thereafter.
But the annual flow of emissions is accelerating,
as fast-growing economies invest in high carbon infrastructure
and as demand for energy and transport increases around the world.
The level of 550ppm CO2e could be reached as early as 2035. At
this level there is at least a 77% chanceand perhaps up
to a 99% chance, depending on the climate model usedof
a global average temperature rise exceeding 2°C.
Stabilisation at 450ppm CO2e is already almost
out of reach, given that we are likely to reach this level within
10 years and that there are real difficulties of making the sharp
reductions required with current and foreseeable technologies.
Costs rise significantly as mitigation efforts become more ambitious
or sudden. Efforts to reduce emissions rapidly are likely to be
very costly."
Quotes from Stern Review: The Economics of Climate
Change Executive Summary long version:
http://www.hm-treasury.gov.uk/media/8AC/F7/ExecutiveSummary.pdf
There is a slight paradox at the heart of Stern's
commentaryurgent action is necessary but will be costly
and one target is already out of reach in our view. Our analysis
of Stern and other reports and commentaries leads us to say that
a stabilisation target of 450ppm CO2e is unfortunately not now
going to be reached.
We should aim for a clear pathway to a 550ppm
CO2e stabilisation target, or less if at all possible, between
now and 2035 as an unequivocal 28 year time frame for putting
all the carbon reduction policies in place to ensure this target
is hit. We feel strongly that this is an acceptable cost benefit
versus time framework.
All Government policies should be measured solely
by what they achieve in absolute CO2e reductions. Benchmark policies
for an overall UKand by extension EU-wideenergy
policy would be to combine the Stern Review with the June 2000
Royal Commission on Environmental Pollution's 22nd Report "EnergyThe
Changing Climate" analysis and suggestions. The carbon reduction
programmes outlined in the RCEP Report backed up by Stern's econometric
analysis should form the backbone of the UK's future energy policy
which would achieve the 550ppm CO2e stabilisation target in both
a timely, economically viable and politically acceptable manner.
Our assumption here is that the current Chancellor,
and potential future Prime Minister, is capable of ensuring that
these decisions are taken as we would wish them to be. The Treasury
should take the lead in driving these policies forward across
the UK Government and Europe urgently.
Note: Our analysis of the Stern Review shows
that the cost of carbon calculation used is higher than current
DEFRA/Treasury estimates. This is what the present analysis is:
"The most sophisticated of the published
studies reviewed here produces an estimate of marginal damage
figure of approximately £70/tC (2000 prices) for carbon emissions
in 2000. This increases by approximately £1/tC per year in
real terms for each subsequent year to account for the increasing
damage costs over time. The parameter values used in deriving
this estimate seem to be among those enjoying the greatest support
in the literature. This figure is subject to significant levels
of uncertainty. Furthermore, this figure excludes any consideration
of the probability of .climate catastrophes. (ie melting of the
West Antarctic ice sheet) and socially contingent impacts of climate
change that could, potentially increase the size of damages considerably.
Existing studies that have attempted to integrate uncertainty
into their analysis have produced a distribution for marginal
damages which is positively skewed (ie there is a higher probability
of an extremely disastrous outcome than of a much more minor one).
As such, a pragmatic approach could be to employ the £70/tC
as an illustrative point estimate of marginal damages, but to
also employ an upper value of £140/tC (ie 2 £70/tC)
and a lower value of £35/tC (ie 0.5 £70/tC) (all
2000 prices) to perform sensitivity analyses. This approach does
not take into account the full uncertainty associated with estimating
the social cost of carbon emissions, but it does provide a useful
sensitivity analysis to reflect the disproportionate upside risk
associated with climate change damages."
Source: "Estimating the Social Cost
of Climate Change" DEFRA/Treasury 2002.
Stern however has a BAU figure of $85 per tonne
of carbon dioxide at year 2000 prices with the figure of £238
per tonne of carbon at year 2000 prices emerging from the conversion
factors on page 288 of the Stern Review. This is confusing because
the year 2000 exchange rate conversion doesn't enable these two
numbers to be reconciled.
The apparent inconsistency in the conversion
factors stemmed from the need to take account of the 1995 exchange
rate as well as the 2000 exchange rate and to adjust 2000 to 1995
using an appropriate US deflator. So if we start off with £238
per tonne of carbon at year 2000 prices and add an appropriate
RPI escalator, we get to £281 per tonne of carbon for 2006
or £76.70 per tonne of CO2.
In view of the fact that Stern says that aviation
causes between two and four times the climate change damage of
its CO2 emissions alone, we can deduce that the Stern estimate
of the climate change impact of aviation is currently between
£5.9 billion and £11.8 billion in 2006in round
terms, £6 billion£12 billion. It should be noted
that this range of for UK air transport's CO2 equivalent costs
alone is significantly higher than the total external costs we
discuss in the following section!!
2. Taxation of aviation, including its VAT
status
We would like to start this section of our submission
by giving our thoughts on the VAT status of aviation. In terms
of applying VAT to air tickets we reproduce below an extract from
the recent "Predict and Decide: Aviation, Climate Change
and UK Policy" report from the Environmental Change Institute
at Oxford University, the conclusion of which we endorse except
we would say VAT "should" rather than "could"
be added to all domestic air tickets urgently:
"9.5 Imposing VAT on air tickets
Summary: VAT could be added to domestic
tickets without international agreement. Adding VAT to international
tickets is logistically complex.
Value Added Tax (VAT) is a tax on consumer spending
and is generally applied to all types of expenditure in Europe
with exemptions reserved for more essential goods and services.
Introduced to the UK in 1973, on joining the European Community,
it is governed by the 6th VAT Directive. It has been argued that
charging VAT on domestic air tickets offers a relatively straightforward
mechanism to start implementing the polluter pays principle for
air travel (Sewill, 2005). Since air travel can hardly be seen
as a necessity, charging VAT on air tickets would also be consistent
with wider VAT policy. Many of the existing exemptions to VAT
are designed to help in achieving social and environmental objectives.
For example, there is a reduced rate of VAT on the installation
of energy saving materials such as loft insulation. In contrast,
there is not a good rationale for the lack of VAT on air tickets
since air travel is primarily a luxury purchase. (Since a chocolate
biscuit attracts VAT on this basis, it is hard to see why a flight
to the Algarve should not!) The UK is currently out of step with
much of Europe in not applying VAT to tickets for its domestic
passenger flights, which are subject to VAT in all but four Member
States (the others not charging being Ireland, Denmark and Malta)
(CEC, 2005c). By contrast, EU states do not, at present, charge
VAT on international air passenger transport nor, with the exception
of Slovakia, on non-domestic flights within the EU (CEC, 2005d).
However, under the 6th Directive, the exemption of international
air passenger transport from VAT is an optional one: member states
can, if they wish, renounce the exemption (though having done
so, they would not be free to reverse the decision).
Without the exemption, under an Article in the Directive,
it appears that VAT could be charged on an international air ticket
in respect of the portion of the flight that takes place in the
airspace of the Member State. In 2004, the German government came
close to such action, with a decision to put VAT on air tickets
to and from all other EU countries (for the portion of flights
over German airspace), though the plan was subsequently defeated
by the opposition (Sewill,2005).
For international tickets, then, the need to
allocate the tax in proportion to the part of the journey that
takes place in UK airspace presents a serious difficulty in that
it adds a good deal of administrative complexity, while substantially
reducing the resulting price increase and any consequent demand
reduction. Another criticism of VAT is that it does not include
any mechanism to directly encourage the aviation industry to reduce
emissions through technological improvement or greater efficiency.
Hence, it would need to be part of a package
of measures. However, as an instrument to influence demand, VAT
is entirely appropriate. It is, after all, a direct tax on consumption,
influencing purchases at point of sale. In short, adding VAT to
international tickets appears logistically complex. In contrast,
the addition of VAT to domestic tickets is likely to be more straightforward
and would bring the UK into line with other EU countries. Although
using VAT to reduce demand for domestic flights would only go
a small way towards tackling the wider problem of aviation emissions,
it would help to discourage the growth of a domestic culture of
air dependence, and help to increase the relative attractiveness
of other modes such as rail."
Quoted from "Predict and Decide: Aviation,
Climate Change and UK Policy" report from the Environmental
Change Institute at Oxford University:
http://www.eci.ox.ac.uk/research/energy/downloads/predictanddecide.pdf
We would point out that tax and VAT exemptions
apply to these areas of air transport's commercial operations
as well:
Airport airside fuel is tax and VAT
free for vehicles, plant and equipment
Aircraft sales are VAT exempt or
zero rated
Aircraft servicing is VAT exempt
or zero rated
Aircraft fuel is largely tax and
VAT exempt worldwide
These exemptions should all be ended as a matter
of urgency.
Our current view of how best to include air
transport's external costs in ticket prices, taking into account
the legal complexities, an environmental target for the sector
in terms of greenhouse gas reductions, and the industry's likely
supply-side performance, ie fuel efficiency gains from aircraft,
aero-engines and improved operations is to use the UK Air Passenger
Duty tax regime as the appropriate vehicle and make it a simple,
straightforward per passenger kilometre charge that reflects all
external costs.
Charging passenger and freight full external
costs is both UK and EU policy but implementation, let alone agreement
on the true cost of externalities for any sector is a difficult
policy area. It is we believe the best way to begin to control
and reduce air transport's growing environmental impacts in an
equitable fashion that captures worthwhile economic benefits whilst
controlling and reducing, not merely "mitigating" the
sectors negative environmental impacts but in a way entirely consistent
with the Stern Review's direction.
As a comparison, congestion zone charging for
road users in city centres and the recent more general UK discussion
over more widespread road charging policies are welcomed. What
we want to see is a "congestion charge" of the skies
applied to air passengers and air freight.
The best study of transport externalities to
date is the INFRAS/IWW "External Costs of Transport Update
Study, October 2004, as publicised and endorsed by the European
Environment Agency. This puts UK air transport externalities at
for the year 2000:
52.5/£35.32 per 1000 passenger
kilometres
271.3/£182.50 per 1000
freight tonne kilometres
The cost of carbon in these figures is based
on 140/£94.17 per tonne of CO2 from a range of between
70-200 per tonne CO2. The figure for aviation is multiplied
by 2.5 to take the non-CO2 climate change impacts of aviation
into account, consistent with UN IPCC 1999. The short version
of the INFRAS/IWW study is attached to this submission.
We estimate that adding this level of external
costs to ticket prices would result in a 50% reduction in future
passenger growth from 3-4% pa. to 1-2% p.a.this would bring
growth in line with the 1-2% p.a. airframe/engine/operational
efficiency gains the aviation industry claims to be able to make
each year through to 2030. We have covered the whole question
of air transport's tax treatment and demand management in the
AEF publication "Fly now, grieve later"go to:
http://www.aef.org.uk/publications/detail.php?artid=152
CAA statistics tell us that UK air passengers
flew 287 billion kilometres in 2005. At 3.6 pence per kilometre
to cover external costs that amounts to £10.3 billion. APD
is expected to raise just £2 billion
We would therefore respectfully ask the Committee
to consider endorsing our view that:
APD should become a distance-related
charge per passenger kilometre
Air freight should have a similar
per tonne kilometre levy applied
Rates should reflect those detailed
in the authoritative INFRAS/IWW study, updated for inflation since
2000
Future rates should reflect the need
for both an inbuilt inflation escalator and regular external cost
reviews that take inot account any future studies that might increase/decrease
the amount and scale of air transport's externalities
These rates should be introduced
over a 5 year period starting 2007
Demand management should be allied
to a specific greenhouse gas emissions reduction target for the
UK/European air transport sector
Aviation's eventual inclusion in
the European ETS and the subsequent price paid for permits should
be recognised within a distance-related APD regime so as to avoid
double charging
We recognise the small contribution
that aviation's inclusion in an ETS may bring about to covering
an element of its carbon costs but feel it is only a partial solution
However, we strongly feel that all
airlines should be charged for all CO2 equivalent climate change
emissions to the atmosphere, plus all other externalities, via
the distance-related APD as we have describedwe simply
don't believe that grandfathering free allowances fits the "polluter
pays" principle
During the late summer 2006, we commissioned
an opinion poll from IPSOS Mori to gauge public views, the headline
results are as follows
When told about climate change dangers,
the public favour slowing down the growth in air travel, with
support outweighing opposition by three to one.
A policy aimed at slowing down the
growth in air travel attracts more support than opposition among
men, women, all age groups, all socio-economic groups, among supporters
of all political Parties and across the North, Midlands and South
of Britainand that is true whether or not people are told
facts about climate change.
In a ratio of six to one the public
think that protecting the environment should be given priority
over economic growth in the air travel industrythe exact
opposite of the emphasis in the Air Transport White Paper.
The government's reluctance to raise
air passenger duty is widely thought to be based on a belief that
to do so would be unpopular. That belief is shown to be false.
On balance the public support doubling the air passenger duty
and, when told about climate change, the ratio is over two to
one. Doubling the tax has greater support than opposition among
men and women, among all age groups, all socio-economic groups
and across the North, Midlands and South of Britain. Even among
those who fly frequently more support doubling the tax than oppose
it.
The idea of a big tax increase, putting
£20 on a flight to Paris and £200 on a flight to Australia,
would be considered by most politicians to be a guaranteed vote
loser. This survey shows thatif a government could demonstrate
that all the money raised were to be spent on the environment,
or on better health and educationa clear majority of the
public (at least three to one) would accept these large tax rises.
The results from this poll can be found here:
http://www.aef.org.uk/downloads/moriq.doc
We recognise, however, that there can be a gap
between opinion poll results and future real life acceptance of
the imposition of tax increases for any purpose. The issue of
the Government ensuring that taxes for environmental reasons are
subsequently clearly linked in the public's mind to spending on
environmental protection in what ever appropriate form, is vital
to gain initial and continuing support for green taxation. We
hope this is a point the Committee will feel able to stress on
our behalf.
3. The Committee asked for views on Companies'
environmental reporting requirements, following the abolition
of the proposed Operating and Financial Reviews last year
Environmental reporting should be both comprehensive
and mandatory, covering key output performance indicators, that
cover all environmental and occupational health impacts as well
as all control and reduction strategies a company may have in
place, whether voluntary or as required by legislation. Voluntary
CSR reporting is often unhelpful and in some cases wilfully and
deliberately opaque. Mandatory reporting requirements should also
be independently verified and audited by external contracts with
appropriate professional qualifications. Industry sectors should
aim to have agreed consistent reporting values that aid understanding
and comparison both between companies and sectors.
We give below 2 examples of voluntary CSR/Environmental
reporting from the sector we work in.
Virgin Atlantic publish a CSR report on the
web here:
http://www.virgin-atlantic.com/tridion/images/csr2004to2005tcm5-13537.pdf
The report uses several different metrics on
the pages where it purports to discuss emissions performance in
terms of efficiencythe reader could be forgiven for not
clearly understanding what Virgin are saying. We believe they
are trying to say that their environmental efficiency in respect
of emissions per passenger is improving. However, there is no
context as Virgin Atlantic do not report the airline's fuel consumption,
kerosene volumes or total CO2 emissions to the atmosphere
The report does say that current estimated CO2
per Revenue Passenger Kilometres is 0.130kg.
The CAA's airline statistics for the latest
available year show that Virgin had 32,078,697,000 used seat kilometres.
We think used seat kilometres and RPK's must be similar if not
identical, therefore Virgin emits around 4.17 million tonnes of
CO2 per annum currently.
We are unable to work backwards without more
information but this is a significant amount of CO2 which should
be reported clearly and with an historical time line for comparisonefficiency
gains are often used to mask rising overall emissions. We believe
this is what Virgin Atlantic are attempting to do here.
Easyjet also produce a less than clear voluntary
CSR report, published on the web here:
http://www.easyjet.com/EN/News/easyjetenvironmentalstrategy.html
Their CSR charter claims to report easyJet's environmental
impacts. The measure EasyJet choose to "report" their
greenhouse gas emissions, in particular CO2, is emissions per
passenger kilometre:
" ... for easyJet, the most appropriate
measures of environmental efficiency with regard to CO2 emissions
are: grammes per passenger kilometre and kilogrammes per passenger
flight. In 2006, easyJet flights produced an average CO2 emission
of 95.7g per passenger kilometre and 91.8 kg per passenger flight."
We have trawled through EasyJet's CSR report
and have managed to convert their efficiency figures into real
annual tonnes of CO2, figures they've tried their best to disguise
and hide. This is how we did itbear with us please:
We know EasyJet produced 95.7 grammes
of CO2 per passenger kilometre flown in 2006they've told
us this!
Their report also contains a chart
(yes, it's in shades of orange!) with a ratio of 1 for the year
2000 through to 0.824 for 2006 outlining how emissions per passenger
kilometre have fallen
Some maths nowif 2006 was
.824 expressed as a ratio and also 95.7 grammes in reality, then
the starting ratio of 1 in the year 2000 is 116.14 grammes
Easyjet flew 4,730 million passenger
seat kilometres in 2000 emitting 116.14 g CO2 per p/km which is
.55 Million tonnes of CO2
Easyjet flew 31,621 million passenger
seat kilometres in 2006 emitting 95.7g per p/km which is 3.03
Million tonnes of CO2
Easyjet's damaging climate change
emissions of CO2 have risen by a staggering 551% between
2000-06!
Easyjet's CSR report is big on efficiency claimsno-one
doubts that new aircraft use less fuel per passenger, just like
swapping an old car for a newer more efficient model. But nowhere
are they honest enough to tell us what their total emissions are
and that they have risen significantly.
CSR reporting is supposedly all about transparency
The atmosphere cannot tell the difference between an "efficient"
molecule of CO2 and an ordinary oneunless of course EasyJet's
carbon dioxide is orange! All airlines should do what proper companies
dohire an independent company to undertake a serious, open
and honest environmental audit, not make it up themselves.
Although we might not always agree with all
the written opinions and conclusions they reach, legacy carriers
such as British Airways and Lufthansa do manage to produce informative
CSR/Environment reports that report emissions to the atmosphere
accurately and they also subject their CSR/Environment reporting
process to independent audit.
Jeffrey Gazzard
Board Member
Aviation Environment Federation, Knutsford &
London, 2007
March 2007
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