Memorandum submitted by Virgin Atlantic
INTRODUCTION
1. Virgin Atlantic welcomes the opportunity
to submit evidence to the Environmental Audit Committee's inquiry
into lessons to be learnt from Phase 1 of the EU Emissions Trading
Scheme (EU ETS). As the UK's second largest airline, we are highly
conscious of the impact of aviation on climate change and are
committed to making every effort to address our own carbon footprint.
2. Virgin Atlantic operates long-haul services
to destinations including the United States, the Caribbean, India,
China and South Africa. Currently, the UK's Emissions Trading
Scheme is limited to airlines operating domestic flights and we
have, therefore, had no direct experience of emissions trading.
However, we do have views on the substantive policy issues and
practical matters which need to be addressed if aviation is to
be included in the EU ETS and have provided our thoughts in this
memorandum.
THE CHALLENGE
OF CLIMATE
CHANGE
3. Climate change is one of the most significant
challenges facing the European Union at present and emissions
trading has a significant role to play as part of a balanced package
of measures.
4. Virgin Atlantic is well aware of the
impact of the aviation industry on climate change. If the UK is
to retain its position as a leading player in the international
aviation industry, and boost the employment and income that derives
from this, aviation capacity must expand. However, such expansion
must take place in a way that takes the impact the industry has
on carbon emissions into account, whilst being sensitive to the
need to maintain the economic competitiveness of the EU aviation
industry vis-a"-vis that of third countries.
THE EUROPEAN
EMISSIONS TRADING
SCHEME
5. The EU ETS is the world's first supranational
Emissions Trading Scheme; this is an achievement in itself and
should be applauded. The setting up of the scheme by the EU member
states is recognition of the attractions of emissions trading
as a carbon abatement measure, offering an economically efficient
and environmentally effective way of reducing the carbon impact
of industry. The EU scheme has served to incentivise emissions
reductions and has, therefore, started to serve its purpose.
6. However, Virgin Atlantic acknowledges
that the progress made so far should be seen as only the start
of what will be a long journey and the committee is right to have
concerns about the operation of the system to date. Some of the
targets set by member states in their National Allocation Plans
have been unchallenging and have failed to address the fundamental
nature of the climate change challenge and the need to make urgent
progress. Carbon is currently trading at a low price and the target
caps set by member states have in some cases resulted in an unedifying
"race to the bottom."
7. Nevertheless, evidence shows that the
existing EU ETS has had a positive impact on participating industries
and has delivered benefits. We would also note that the true impact
of emissions trading should be measured in terms of the influence
it has on medium to long-term investment decisions. This will
be particularly true of aviation's eventual inclusion in the scheme,
where the real carbon savings will result from investment in new,
more fuel-efficient aircraft. In our view, emissions trading continues
to present the best option for addressing climate change in the
long-term.
8. Virgin Atlantic has to date not participated
in the EU Emissions Trading Scheme or the UK Emissions Trading
Scheme. This is because only domestic aviation services are currently
covered by the Kyoto Protocol and by extension the UK ETS, so
as a purely long-haul airline, we have been unable to participate.
We have, however, strongly supported the UK Government's efforts
to extend the scope of the EU ETS to include air travel more generally,
although we realise this may initially have to be limited to intra-EU
routes.
9. Given our limited experience of Phase
1, we do not have specific comments on the lessons to be learnt
to date. However, we do note the European Commission's calls for
greater consistency in national approaches, fuller harmonisation
and a simplification of the allocation rules. Virgin Atlantic
agrees with all of this, and believes greater harmonisation and
simplification are particularly important if aviation is to be
integrated into the EU ETS.
AVIATION'S
INCLUSION IN
THE EU EMISSIONS
TRADING SCHEME
10. Virgin Atlantic believes that the EU
ETS will be the best way to motivate meaningful behavioural change
in the aviation industry. Emissions trading encourages companies
to invest in more fuel efficient and environmentally friendly
technologies to reduce fuel consumption (although it should be
acknowledged that given the proportion of total costs taken up
by fuel costs, the aviation industry already has a massive motivation
to reduce fuel consumption—for example, Virgin Atlantic's
own fuel bill has risen by two or three times as a result of recent
increases in the price of oil).
11. The committee has asked two specific
questions relating to the inclusion of aviation in the EU ETS:
12. How should aviation be included within
the ETS?
13. What are the latest indications of when
it will be included?
How?
14. Virgin Atlantic's position has consistently
been that aviation should be included in the EU ETS as soon as
is practically possible. This would allow airlines to meet the
environmental challenge in a way that will not damage the economic
competitiveness of the industry and will create incentives for
operators to change their behaviour.
15. The UK Government adopted this position
in the Aviation White Paper in December 2003 with the full support
of industry. Some progress has been made since then, and the Department
for Transport and DEFRA have both been undertaking considerable
work, feeding into the European Commission's own efforts. We have
urged DEFRA to push for an international scheme to be established
as soon as possible, although we realise that this may initially
have to be limited to intra-EU flights. We eagerly await the European
Commission's legislative proposal for inclusion of aviation in
the EU ETS, expected by the end of this year.
16. Airlines can undoubtedly make a contribution
to reducing carbon emissions through participation in the EU ETS.
Currently, only domestic aviation services are covered by the
Kyoto Protocol. Virgin Atlantic would argue for all aviation
to be included within the EU ETS, capturing both intra-EU flights
as well as those between EU member states and third countries.
An international ETS represents the most effective way for industry
to tackle climate change, limiting total emissions whilst encouraging
companies to invest in more fuel efficient and environmentally
friendly technologies. As the Commission stated in its September
2005 communication on reducing the climate change impact of aviation,
"narrowing the scope only to flights within the EU would
cover less than 40% of the emissions from flights departing from
the EU. It would also favour long-haul over short-haul flights,
thus contradicting the strategy's environmental objectives."
17. There are nevertheless a number of practical
and public policy problems that need to be resolved before aviation
can be included in the EU ETS:
18. Level playing field: The EU
ETS should operate a level playing field, not unfairly discriminating
between one industry and another. The aviation industry should,
therefore, be permitted to enter the Scheme on the same conditions
as other industries. Unfair discrimination would skew the market.
The cap should also continue to be shared out on the basis of
grandfathering, as with participants from other industries. This
would ensure that aviation is on an equal footing with other ETS
participants. Grandfathering has also been the dominant distribution
mechanism between 2005 and 2007. In the first instance, the
scheme should also be limited to carbon dioxide; to expand beyond
this would add to the complexity of the decision-making process,
delaying aviation's inclusion in the scheme further.
19. Scientific certainty: The scientific
evidence for climate change is overwhelming and few now doubt
that decisive action needs to be taken. Virgin Atlantic is committed
to taking action to combat climate change. However, there continues
to be considerable scientific uncertainty at the margins on a
number of matters. One such issue is the impact of radiative forcing
and the impact of emissions released at altitude. A number of
different estimates have been made of the effect of emissions
at altitude and as the Committee has previously acknowledged,
the scientific uncertainties involved mean the effect could be
substantially smaller or larger than the 2.7 multiplier used by
the IPCC. This in no way provides an excuse for inaction, but
does emphasise the need to proceed on the basis of certainty.
The European Commission is funding research into this as part
of 7th Research Framework Programme and we look forward keenly
to the outputs of this process.
20. Cross-border emissions:
We do not underestimate the scale of the challenge in reaching
agreement on an ETS, especially in light of the debates that are
already taking place on how to allocate emissions that cross borders.
Whilst the most effective ETS would be one that was international
in scope, we recognise the difficulties of reaching agreement
within ICAO given the current position of the US. ICAO has nevertheless
expressed the view that emissions trading is a sensible approach
and is working towards a solution. Virgin Atlantic continues to
engage with ICAO to this end. It may be that an intra-EU ETS is
easier to agree in the short term, although Virgin Atlantic's
preferred option would be an international scheme.
21. The earliest date at which additional
sectors can be included in the EU ETS is 2008. However, the
Commission has indicated that it may not be possible to include
aviation before 2012-13 because of problems with attributing emissions
across national boundaries. There is the additional requirement
for legislation to be subject to the EU co-decision procedure,
in which the European institutions could take two to three years
to reach agreement.
22. Virgin Atlantic remains committed to
pushing for progress to be made on this important issue at the
earliest possible opportunity and is in regular dialogue with
officials at both UK and EU levels to this end.
23. In conclusion, Virgin Atlantic remains
convinced that the inclusion of aviation in an EU ETS with international
scope continues to present the best vehicle for tackling the climate
change impact of aviation. However, we acknowledge that the need
to reach agreement with international partners on this—including
both other EU Member States and even maybe the US—render
this a very challenging objective. Inclusion of aviation in an
intra-EU basis in the interim period may present the most practicable
solution. We will continue to lobby strongly for agreement in
both the EU and ICAO.
24. In the meantime, Virgin Atlantic remains
committed to tackling climate change unilaterally through a series
of initiatives. Sir Richard Branson recently announced that, for
the next 10 years, all his earnings from Virgin Group companies
(estimated to be in the region of $3 billion USD) will be invested
in schemes to develop new renewable energy technologies. Whilst
alternative aviation fuels remain some way off, their potential
should not be overlooked.
25. Virgin Atlantic has also invested considerable
funds in its fleet, which is young and fuel efficient. We are
also in discussions with BAA about more fuel-efficient taxiing
before take-off and with NATS about air traffic management improvements
to landing approaches which could result in significant carbon
savings. The European Commission also recognises the potential
offered by Air Traffic Management improvements and is taking this
workstream forward through the Single European Sky initiative.
INTEGRATION OF
ETS AND OTHER
EU CLIMATE CHANGE
POLICIES
26. As we indicated above, climate change
is one of the major challenges facing the European Union. Climate
change policies need to generate behavioural change if they are
to reduce carbon emissions effectively. Emissions Trading is attractive
because it does motivate such behavioural change and would result
in real reductions in carbon. Taxes or charges represent blunt
instruments that penalise passengers rather than motivate change
on the part of airlines, whilst impacting on the overall economic
competitiveness of industry.
27. Research into technological change should
continue, and all interested parties should participate. Airlines
have a strong incentive to engage in such research given the proportion
of total costs taken up by expenditure on fuel. The Virgin Group
is already investing considerable moneys into research into biofuels
which offer considerable long-term potential for tackling climate
change. The European Commission has made research into ways to
reduce impact of aircraft on the environment a key theme of the
7th Research Framework Programme.
CONCLUSION
28. Key conclusions are as follows:
— Virgin Atlantic believes that challenging
targets should be set for Phase II of the EU ETS, based on a simplified
and harmonised approach across the EU.
— Securing the participation of aviation
in the EU ETS would be the best way to motivate genuine behavioural
change and carbon savings in the long term. The scheme should
cover all flights—both intra-EU flights and those to third
countries—to avoid undue market disruption and have the
optimal environmental impact.
— A level playing field should be maintained
between aviation and other sectors, with aviation entering on
the same conditions as other industries and the cap being set
on the basis of grandfathering.
— Decisions should be taken on the
basis of scientific certainties. Further research should be conducted
by both government and industry to ascertain the impact of radiative
forcing.
— The UK should push within the EU
for aviation to be included in the EU ETS as soon as is practicably
possible. In the meantime, Virgin Atlantic remains committed to
taking action through research and investment to reduce its own
carbon footprint as much as possible.
October 2006
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