Supplementary memorandum from the Aviation
Environment Federation
1. The cost of carbon and how it's applied
to the cost benefit analysis of air transport growth
We said we would clarify this in the light of
the DfT's use of DEFRA's Shadow Price of Carbon guidance (http://www.defra.gov.uk/environment/climatechange/research/carboncost/pdf/HowtouseSPC.pdf)
throughout the recent "Adding capacity at Heathrow Airport"
consultation document. DEFRA say:
"The SPC is different from the previously
used social cost of carbon (SCC) in that it takes more account
of uncertainty and is based on a stabilisation trajectory".
We acknowledge that dramatic price increases,
in this case via the theoretical overnight imposition of a high
carbon cost to the industry, can cause shocks to the economics
of air travel. We do think that a low carbon value over time,
even when adjusted as the DEFRA document puts it:
"In the year 2000, in year 2000 prices,
the SPC is £19 per tonne CO2e. This rises over
time for two reasons:
— to account for observed (and assumed)
inflation; and
— increasing by 2% per year to account
for rising damage costs from higher greenhouse gas concentrations".
is, however, so different from the Stern analysis
as to be just plain wrong.
Table 2
SPC FROM 2007 TO 2050 (IN 2007 PRICES)
Source: http://www.defra.gov.uk/environment/climatechange/research/carboncost/pdf/HowtouseSPC.pdf
There is surely everything to be said for setting
a specific carbon allowance for the air transport sector within
say an overarching strategic climate change policy such as the
EU20C policy or the UK's own climate change targets, rather than
simply permitting unrestrained aviation growth, the Government's
policy right now. The only control system on offer is aviation's
EU ETS entry which we believe will not deliver any worthwhile
reductions in emissions from the sector. Using a realistic Stern-based
carbon price via an annual escalator as part of an emissions control
and reduction strategy for the sector is the best option. The
Government's use of a strangely and deliberately low carbon price
is very worrying. The bar needs to be set much higher. The EAC
has commented in previous reports that the growth of internal
UK and UK-allocated international aviation emissions will have
a grave, overwhelming impact on future UK climate change strategies.
We agree. The way the cost of carbon is calculated and used right
now needs to be urgently reconsidered. And it should be noted
that there are other external costs, noise and air quality impacts,
habitat loss and so on, which need to be reflected in ticket prices.
The EAC knows our views that growth for the
air transport sector should be limited by appropriate carbon/external
costs tax levels to 1-2% per annum, the rate of forecast technological
and operational improvements, in order to stabilise emissions
from aviation—this is half current growth rates.
There is another, in our view, highly questionable
element of the DfT's monetised benefit analysis—this concerns
the Transport User Benefits of additional capacity at Heathrow,
section 2.36, page 143 of the consultation document. Expanding
Heathrow from today's 480,000 movement limit to 702,000 by 2030
(with a 3rd runway opening in 2020) apparently results in £17.1
billion of Transport User Benefits between the years 2020-80.
This paragraph commentary may not fit within the scope of the
EAC's current Inquiry but reading how these somewhat illusory
"benefits" are described may help the Committee understand
just how partial the DfT CBA processes can be.
2. We were asked to clarify our estimate
of the "worth" of the aviation industry's VAT-free status
In the joint DfT/industry sponsored study, "The
Economic Contribution of the Aviation Industry in the UK",
Oxford Economic Forecasting, October 2006, the report stated that
"The aviation industry generated £11.4 billion value-added
in 2004".
The term "Value added" is an economic
concept which refers to the value of the output of the industry
concerned less any input from other industries. Value added tax
is based on the same concept in that the tax is levied on the
final sales, in this case air tickets (for flights departing from
UK airports), less any VAT that has already been paid by other
industries which sell goods to the aviation industry. We calculate
therefore that:
— £11.4 billion subject to VAT
@ 17.5% = £2 billion
— Add 10% for growth, and rise in prices,
since 2004 = £2.2 billion
December 2007
| 
