The role of carbon markets in preventing dangerous climate change - Environmental Audit Committee Contents


Memorandum submitted by the Airport Operators Association

  1.  The Airport Operators Association (AOA) is the trade association that represents the interests of British airports. Our membership comprises of 71 airport companies, representing all of the nation's international hub and major regional airports in addition to many serving community, business and general aviation.

2.  In 2008 AOA member airports handled more than 228 million passengers, nearly 2.5 million tonnes of freight and over 2.3 million air transport movements.

  3.  Aviation adds value to the UK economy and society. Oxford Economic Forecasting (2006) demonstrated that the industry contributed £11.4 billion to the UK's GDP in 2004, which alone represented 1.1% of the overall economy. The aviation industry directly and indirectly supports more than 500,000 jobs.

  4.  The AOA accepts that aviation needs to cover its environmental external costs if the industry is to achieve permission to grow. Aviation provides vital international connectivity. It permits business and private travel. It underpins other economic sectors. The key, then, is balancing the social and economic need for aviation with a means of mitigating its climate impact.

  5.  In summary:

    (a) Climate change is a significant challenge to modern societies and economies. The AOA and its members strongly believe that a post Kyoto framework, being discussed at Copenhagen later this year, should include aviation.

    (b) Aviation generates 2% of global greenhouse gas (GHG) emissions. In the UK the aviation share is approximately 5% of all CO2 emissions.

    (c) AOA supports aviation's inclusion within EU ETS: it is an international cap and trade solution which allows the industry to grow whilst ensuring that net emissions across the economy continue to fall.

    (d) Aviation is a growing industry with a strong track record in fuel efficiency improvements. For example, the fuel efficiency of jet aircraft has improved by over 70% since the introduction of civil jet airliners.

    (e) In September 2008 DfT published its Emissions Cost Assessment (ECA). The total external cost of aviation was calculated as £1.8 billion. This compares with a tax take from Air Passenger Duty of £2 billion in 2007.

    (f) AOA supports the view expressed in the Stern Review, that market solutions based upon a price for carbon represents the most effective means of ensuring that climate change external costs are internalised. By "pricing-in" carbon, the market will naturally incentivise lower-carbon activities and technologies.

OVERVIEW

What is the potential contribution of international emissions trading to delivering a global greenhouse gas stabilisation target?

  6.  Aviation generates 2% of global greenhouse gas (GHG) emissions. In the UK the aviation share is 5% of all CO2emissions. (Source: Institute and International Energy Agency)

7.  Whilst the Kyoto Protocol (1997) set out commitments to reduce global emissions, international aviation was left outside the framework. Recent developments in climate science, political awareness and public interest have made aviation a focus for action on climate change.

8.  Carbon dioxide (CO2) is the emission from aircraft that is considered to have the greatest long-term effect on climate change. The quantity of CO2 emitted is directly related to fuel burn and the understanding of its environmental effect is good. There is a clear need for further research to advance our scientific understanding of other aviation climate effects.

  9.  Aviation is a growing industry with a strong track record in fuel efficiency improvements. For example, the fuel efficiency of jet aircraft has improved by over 70% since the introduction of civil jet airliners. Nonetheless, the success of civil aviation has resulted in growth in overall fuel consumption and in emissions of CO2 outpacing improvements in technology.

  10.  The figure below illustrates the Sustainable Aviation Programme view of future emissions from the UK aviation industry. Sustainable Aviation is a cross industry initiative aimed at tackling aviation's environmental impacts, whilst maximising the economic and social benefits from aviation.

  11.  The uppermost, red, line indicates predictions of growth (without any changes in fleet composition or technology level) and has been derived from projections in passenger numbers published by the UK DfT in November 2007. The yellow area indicates the impact of engine and airframe technology developments, meeting ACARE targets by 2020 with further advances thereafter. It takes 20 years for technology changes to penetrate the entire fleet. The light blue area indicates the contribution from ATM and operations towards meeting the ACARE targets by 2020. The dark blue area indicates the contribution of fuels from renewable and sustainable sources. Overall SA's judgement is that cumulative improvements from these technologies will reduce CO2 emissions from the UK aviation industry to below present levels by 2050.[4]


Source: Sustainable Aviation Programme

  12.  In the near term, emissions trading, principally EU ETS, forms the most effective basis for minimising aviation's net climate impact, whilst accommodating the growth required to meet the needs of the economy and society. All carbon-intensive activities, including aviation, have an environmental impact. Global, cross-sectoral schemes are needed in order to cap, control and curb the costs that these activities have on the environment. The AOA and its members strongly believe that a post-Kyoto framework, being discussed at Copenhagen later this year, should include aviation.

Whether, and under what circumstances, should emissions trading be supplemented or replaced by tax or regulation?

  13.  AOA supports the view expressed in the Stern Review, that market solutions based upon a price for carbon represents the most effective means of ensuring that climate change external costs are internalised. By "pricing-in" carbon, the market will naturally incentivise lower-carbon activities and technologies.

14.  The AOA accepts that aviation needs to cover its environmental external costs if the industry is to achieve permission to grow. This is particularly evident in the UK's context, where the debate on climate change is heavily aviation-focussed. The Emissions Cost Assessment, published by DfT in 2008, demonstrates that aviation in the UK is already covering its environmental costs through existing taxes (see below).

  15.  Environmental taxes without any form of hypothecation, whilst they play a role in allowing a sector to internalise its external costs, are ineffective as they divert money away from investment in abatement. Given the overall logic of a trading scheme, it is wrong for auction revenue to accrue to the member states as a form of tax, as this prevents the use of the revenue to fund abatement.

16. AOA believes that taken together, the cost to aviation of Air Passenger Duty and Emissions Trading should be equal to the environmental external cost of aviation. As the "take" from ETS increases, then the level at which APD is set should be reduced. Passengers should not fly once, but be taxed twice.[5]

THE EU EMISSIONS TRADING SCHEME

What are the effects of the expansion of the EU ETS to encompass aviation?

  17.  In September 2008 DfT published its Emissions Cost Assessment (ECA). Based on a carbon cost per tonne of £25.50 (Government Shadow Price of Carbon: equates to £93.33 per tonne of CO2) and aviation emissions of 10.2 million tonnes of carbon in 2005 (including a multiplier of 1.9 to cover non-CO2 externalities such as noise and NOx emissions), the total external cost of aviation can be calculated as £1.8 billion. This compares with a tax take from Air Passenger Duty of £2 billion in 2007.

18.  From 2012 aviation will be included within the EU Emissions trading Scheme- a market mechanism which allows sectors of the industry to trade for permits to emit carbon, and in so doing, fund carbon abatement projects elsewhere in the economy. Redistribution through an emissions "cap and trade" scheme offers the opportunity for net carbon emission reductions across an economy, whilst allowing industries where abatement opportunities are expensive or technologically challenging to continue to grow, by funding abatement elsewhere in the economy.

19.  The EU have recently completed legislation to incorporate aviation in the EU ETS from 2012. This sets the following conditions:

    — All departing and arriving flights are included.

    — The cap in 2012 is set at 97% of average emission in 2004-06, falling to 95% from 2013.

    — 15% of allowances will be auctioned from 2012.

    — Auction level and the cap will be reviewed again in 2014.

  20.  In UK terms, auction revenues from EU ETS from aviation will raise £98.7 million in 2012. The total UK ETS cost will be £352.6 million per year. Auction revenues would rise to £495.6 million by 2020 (assuming a carbon cost of £20.83 per tonne of CO2 and 100% auctioning), and the total cost of ETS to UK carriers will be £1.1 billion. This represents a real incentive to minimise emissions, whilst keeping the cost of mitigation to a level where aviation will continue to be able to deliver economic and social benefits (AOA 2008).

What are your views on the allocation or auctioning of EU ETS credits, and the use of auctioning revenues?

  21.  The UK Government announced changes to Air Passenger Duty in its Pre Budget Report of November 2008. HM Treasury argues that the tax will allow aviation to cover its fair share of the public finances, as well as helping aviation to meet its environmental costs.

22.  In September 2008 DfT published its Emissions Cost Assessment (ECA). Based on a carbon cost per tonne of £25.50 (based on DfT's estimates) and aviation emissions of 10.2 million tonnes in 2005 (including a multiplier of 1.9 to cover non-CO2 externalities such as noise and NOx emissions), the total external cost of aviation can be calculated as £1.8 billion. This compares with a tax take from Air Passenger Duty of £2 billion in 2007.

  23.  In 2009 APD will raise around £2.5 billion. There will be a further increase in 2010, raising the "environmental tax" take to £2.9 billion.

  24.  Diverting EU ETS auction revenues into the Exchequer without any form of hypothecation, whilst playing a role in allowing a sector to internalise its external costs, is ineffective as an environmental measure as it diverts money away from investment in abatement opportunities.

  25.  Given the overall logic of a trading scheme, it is wrong for auction revenue to accrue to the member states as a form of tax, as this prevents the use of the revenue to fund abatement. Only the UK and Germany plan to use EU ETS revenues in this way.

DEVELOPMENT OF A GLOBAL CARBON MARKET

How do you view the progress of cap and trade schemes in other countries (notably, the United States), and the prospects for, and practicalities of, linking between them?

  26.  Aviation is an international sector, and whilst it represents only 2% of GHG emissions globally, it is a growing sector. As argued above, the logic behind a cap and trade solution to limiting the climate change impacts of human activity is especially strong for aviation, given the technological barriers to abatement in the near term.

27.  Given the international nature of aviation, international solutions are key. AOA strongly believes that the Copenhagen negotiations this year should include agreement on an international approach to mitigating emissions from aviation.

What are your views on the robustness and effectiveness of "offset" schemes (ie those without a cap), such as the Clean Development Mechanism (CDM), and the issues around linking them to cap and trade schemes?

28.  Under the ETS, emitters are able to use the Clean Development Mechanism (CDM) to achieve abatement. CDM is an arrangement under the Kyoto Protocol allowing industrialised countries with a greenhouse gas reduction commitment (called Annex 1 countries) to invest in projects that reduce emissions in developing countries as an alternative to more expensive emission reductions in their own countries. A crucial feature of an approved CDM carbon project is that it has established that the planned reductions would not occur without the additional incentive provided by emission reductions credits, a concept known as "additionality".

29.  The CDM allows net global greenhouse gas emissions to be reduced at a much lower global cost by financing emissions reduction projects in developing countries where costs are lower than in industrialized countries. The CDM mechanism is potentially open to abuse in some circumstances, where it is used to fund projects of "virtual" rather than "real" climate benefit.

  30.  AOA believes that the Post Kyoto discussions, culminating in the Copenhagen conference (December 2009) should review the Kyoto CDM mechanism in order to ensure that money used for abatement under ETS funds real carbon reductions, rather than "virtual" projects with little real benefit. Indeed an effective global solution would eliminate the need for CDM.

UK CARBON BUDGETS

  31.  AOA welcomes the Climate Change Act 2008 for the emphasis it places on climate change, and the leadership the UK Government is showing. Aviation is, however, ultimately an international industry. Multilateral solutions such as EU ETS are the most appropriate way to deal with aviation's climate change impact. We strongly support aviation's inclusion in a post Kyoto deal at Copenhagen in December 2009.

3 March 2009







4   Sustainable Aviation, CO2 Roadmap (December 2008) http://www.sustainableaviation.co.uk/images/stories/key%20documents/sa%20road%20map%20final%20dec%2008.pdf Back

5   Appendix 3: AOA Position on Environmental Taxation. Back


 
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Prepared 8 February 2010