Written evidence submitted by Gatwick
1. Gatwick Airport Limited ("Gatwick")
welcomes the opportunity to respond to the Environmental Audit
Committee's inquiry, Budget 2011 & Environmental Taxes.
Gatwick is UK's second largest airport and the busiest single-runway
airport in the world. We serve more than 200 destinations (more
than any other UK airport) in 90 countries for around 33 million
passengers a year on short- and long-haul point-to-point services.
We are also a major economic driver for the South-East region,
generating around 23,000 on-airport jobs and a further 13,000
jobs through related activities. The airport is 28 miles south
of London with excellent public transport links, including the
award winning Gatwick Express. Gatwick is owned by a group of
international investment funds, of which Global Infrastructure
Partners is the controlling shareholder.
2. Gatwick is committed to reducing our impact
on the local environment and, in particular, to reducing our carbon
emissions. The airport has a target of achieving 25% of all on
site energy consumption from low or zero carbon sources by 2020.
We have also publicly committed to a 50% reduction to our carbon
emissions by 2020.
On site energy generation is considered essential to our achieving
this objective, and is likely to take the form of a combined heat
and power plant (CHP).
3. Our approach extends to encouraging low carbon
surface transport to and from the airport. Already, 37% of all
passengers arrive at Gatwick by public transport (the highest
of any UK airport) and we are installing a network of electric
vehicle charging points to encourage the use of zero carbon vehicles.
We are also the only UK airport to jointly hold the Carbon Trust
Standard, the Level 2 ACI Carbon Accreditation Standard and the
ISO 14001 Environmental Management Standard.
4. Gatwick is directly subject to environmental
taxation in the form of the Climate Change Levy (CCL), which amounts
to a bill in excess of £1 million per annum. We will also
be a mandatory participant in the Carbon Reduction Commitment
(CRC) energy efficiency scheme. We expect to be required to purchase
allowances to the value of £1.2 million in 2012, and possibly
more than that amount in future years, depending on the price
of carbon and our own efforts to reduce our emissions. Following
the reforms introduced in 2010 Comprehensive Spending Review (CSR),
we consider the CRC scheme, in effect, to be an environmental
tax that actively reduces potential for our investing in low-carbon,
onsite energy generation.
5. The airlines that operate from the airport
either are, or will be, subject to two further taxes which have
been interpreted by many, and appear to be interpreted by the
Committee, as environmental in nature. These are Air Passenger
Duty (APD) and the European Union Emissions Trading Scheme (EU
ETS). Gatwick itself has also been a participant in the EU ETS
scheme since its inception as a result of our on-site combustion
processes in our heat generation facilities. The Government
must acknowledge that EU ETS is, effectively, a new "green
tax" on aviation and recognise this in future environmental
6. Unlike other sectors, particularly the energy
sector, aviation does not receive any fiscal incentive to move
towards the use of more sustainable fuels and technologies. If
there is to be a wide-ranging transition to such technologies,
such incentives are necessary. Simply increasing taxes on flying,
and maintaining a situation where the sector is effectively taxed
four times over for its environmental impacts, will not achieve
the behaviour change the Government wants in terms of a more sustainable
aviation sector, and will in the process irrepably damage
the UK economy and the aviation sector's capacity to promote growth
7. APD is economically counter-productive
and, as currently structured, does very little to promote the
Governments "Green" Objectives'. Fiscal incentives
for further development of more sustainable technologies in aviation,
and encouraging their use by the sector as a whole would be far
more effective. A significant number of EU Member States see high
levels of aviation tax as an active inhibitor of economic growth,
rather than as part of a strategy to achieve their own, or the
EU's environmental objectives.
8. The 2011 Budget does not acknowledge the range
of fiscal and other measures that Government is implementing,
either on UK basis or in compliance with binding European Directives,
that in themselves have the same effect as acknowledged "green
taxes" do on the aviation industry.
9. The EU ETS is one such measure. The Government
has recently introduced a statutory instrument to Parliament that
would require UK airlines to participate in this scheme.
In 2012-13 alone-the first year of trading for airlines under
the EU ETSthe aviation industry will bear an additional
cost of approximately 1.125 billion across the EU as a result
of compliance with it.
In the long term, this cost will be borne by passengers, as profit
margins for airlines are particularly low and compliance costs
are very likely be passed to them. By 2020, airline tickets for
a return journey could increase by between 4-39 per
passenger depending on the length of the journey
across the EU. The EU ETS will add to the cost of flying in
the same way APD does. This should be acknowledged by Government
in determining levels of APD in future budgets.
10. The 2010 Comprehensive Spending Review (CSR)
stated that "the CRC Energy Efficiency Scheme ('CRC') will
be simplified to reduce the burden on businesses, with the first
allowance sales for 2011-12 emissions now taking place in 2012
rather than 2011" and that "Revenue from the sale of
CRC allowances, totalling £1 billion a year by 2014-15, will
be used to support the public finances, including spending on
the environment, rather than recycled to participants". The
2011 Budget confirmed that allowances would be priced at £12
11. Previously, participants in the CRC scheme
had expected to have the initial proceeds from purchasing carbon
allowances returned to them. Those participants that performed
particularly well in terms of the CRC "league table"
of carbon footprints could expect to receive a bonus of the order
10% of the original amount paid into the scheme through purchase
of carbon allowances.
12. As a result of the changes introduced in
the CSR, none of the proceeds of allowances sales will be returned
to participants by Government and no bonuses will be paid. As
CSR effectively created a new tax on carbon emissions, and one
that will result in, 2012 alone, Gatwick being subject to, at
the very least, an additional £1.2 million in effective taxation
in 2012. The Government have stated that
the reform of the CRC is intended to "reduce the burden on
business" from participation. This impact of the reform would
appear to suggest that it is in fact simply a revenue raising
measure. The Government should acknowledge in forming future environmental
13. We believe the reforms to the CRC must also
be considered in the context of determining the best way to incentivise
investment in low carbon energy generation. As a mandatory CRC
scheme participant, Gatwick stands to incur costs as a result
of reforms to the scheme. In the short term, this could threaten
our capacity for future investment in low carbon energy generation
that we wish to undertake in the course of reducing our emissions
by 50% by 2020.
14. The 2011 budget could have done a great deal
more to promote local energy generation as an effective mechanism
to reduce carbon emissions. The Governments "Plan for Growth"
focuses on initiatives to reduce carbon emissions from macro generation
which are complicated and financially prohibitive. By contrast,
more wide-ranging fiscal incentives to support to small scale
local energy generation projects would reduce the reliance on
the already capacity constrained grid and offer a more efficient
power generation solution.
15. We note
and welcome the commitment made in the 2011 budget to increase
the CCL only in line with inflation in the current financial year.
There is clear potential for the streamlining of carbon taxing
mechanisms for UK businesses in order to reduce the administrative
burden inherent in complying with them. One fundamental change
would be the administration of the CRC as a tax. The way the scheme
now operates is akin to being a tax. We see no reason why it should
not be referred to, and operated in such a way. Consideration
should be given to its amalgamation with other instruments such
as the Climate Change Levy as a way of reducing the Green Tax
16. The effective removal of the "cap
and trade" element of CRC would considerably simplify the
process and cost of compliance on the part of participants.
Gatwick, for one, and soon all airlines that operate from Gatwick
are participants in the EU Emissions Trading Scheme. We are already
incentivised to reduce emissions through these means.
17. The Government should focus on simple
mandatory reporting of emission levels, to which a tax with a
transparent rate would be attached, rather than another "cap
and trade" scheme in which a large element of the incentive
to participate has been removed, and which incorporates a "league
table" that has no effective purpose.
18. This could brought about relatively simply
through the use of the mechanism currently used to collect the
Climate Change Levy (CCL) and has had the clear effect of reducing
energy consumption and hence carbon emissions, a recent independent
review by Cambridge Econometrics, published in the Government's
Climate Change Levy Report, highlighted its impact.
19. The review stated that since the climate
change levy's introduction in 1999, a carbon emissions saving
of 3.5 million tonnes had been achieved, and there had a reduction
in energy demand of 14.6%. The Government has the objective of
reducing carbon emissions further by an additional 11.2 million
tonnes by 2022. The approach of simple, transparent taxation of
carbon emissions would undoubtedly assist them in achieving this
that have the appearance of being fiscal incentives, but are in
fact taxes, are bound to be less effective and more administratively
burdensome than transparent and simply administered ones.
20. Amalgamation of CCL with CRC would mean that
there would be no need for CRC participants to register and submit
details of their emissions every year. This could instead be delivered
through the energy billing process. All obligated businesses would
be captured, reducing the audit burden on the regulator and resolving
the fact that until recently, of the projected 4,000 mandatory
participants in CRC, 2,779 had actually registered. There could
be an additional line entered on to utility bill to cover consumption
and carbon emissions, with the resulting data being automatically
entered into the proposed league table. In this way,
the administrative burden of compliance
between both CRC could be substantially removed and the overlap
between the two schemes reduced.
21. We note and welcome the Governments move
to "freeze" Air Passenger Duty (APD) for the next financial
year as long overdue, and particularly appropriate in the context
of the UK already maintaining the highest levels of aviation tax
of any European Union Member State. The view that the aviation
sector is in some way "under-taxed" in proportion to
its environmental impacts or compared to other carbon emitting
industries has no basis in fact. As we outline above, airports
and airlines are currently subject to four separate taxes that
are in some way linked to their environmental impacts. Furthermore,
the current VAT exemption applied to aviation fuel is required
under international law.
The Government would be in contravention of an international treaty
obligation if it removed this exemption unilaterally.
22. The taxation of aviation per se
is counterproductive in numerous ways, and APD does nothing to
promote the sustainability of the sector. On a fundamental
level, increasing the cost of flying through the tax system actively
disincentivises the economic activity, tourism and cultural exchange
that air travel generates. For example, Gatwick is one of the
main air travel routes into the Caribbean, and therefore one of
the main catalysts of this activity. Since November 2010, the
total amount of air passenger duty (APD) that passengers must
pay in order to travel to the Caribbean from Gatwick has risen
by 30%, from £40 million to £60 million every year.
Gatwick has a key role to play in helping developing countries,
including those in the Caribbean to grow, and in building relationships
between the UK and citizens of those countries. Current levels
of APD harm our potential to fulfil this role.
23. The aviation sector directly accounts for
£53 billion (3.8%) of UK GDP. Of this, £24 billion is
generated directly through the activity of airlines, airports
and ground services and the aerospace sector. £16.6 billion
is accounted for through the aviation supply chain, £12.8
billion through the spending of employees of the sector and its
supply chain, and an additional £25.5 billion is provided
through "catalytic" benefits through tourism
only possible through the air links that aviation provides. Gatwick
alone accounts for £2.4 billion of added value for the economy
every year. The 2011 Budget, which purports to focus on economic
growth, does very little to enhance the contribution that aviation
makes to the economy or to promote the sustainability of the sector.
24. The Eddington Transport Study (2006) correctly
identified that the most important catalysts for economic growth
are ease of access to markets, customers and clients. As an island,
the UK's ports and airports facilitate the vast majority this
access, and through that access the majority of international
trade. Evolving economic conditions have made the need for the
international connectivity that aviation provides particularly
acute. The UK economy needs better access to markets, customers
and clients. Effective and well supported international gateways
are central to facilitating the export led growth, and the inward
investment, that the 2011 budget outlines is necessary for our
future economic success. Encouraging a modal shift away from
aviation would reduce the substantial contribution the sector
already makes to the UK economy, as well as its potential to foster
the inward investment that is a precursor for future growth.
25. EU Member States are reducing the cumulative
levels of the various taxes they levy on their respective Aviation
Sectors or abolishing them altogether. Ireland recently cut its
aviation tax as a way of stimulating economic growth. The Netherlands
trialled an aviation tax for a year between 2008-09. They estimated
that it resulted in net 1.3 billion loss to the Dutch economy,
and abolished it as a result.
Likewise, Sweden, Malta and Denmark have also seen fit to abolish
their own respective aviation taxes in recent years. A significant
number of EU Member States see high levels of aviation tax as
an active inhibitor of economic growth, rather than as part of
a strategy to achieve their own, or the EU's environmental objectives.
AVIATION & THE
26. In the first instance, the 2011 Budget does
not acknowledge a range of measures that Government is implementing,
either on UK basis or in compliance with binding European Directives,
that in themselves constitute "Green Taxes".
27. The view that APD is an appropriate and effective
measure for achieving the Government's environmental objectives
deserves serious scrutiny. APD, as currently structured, delivers
no positive externalities beyond providing additional revenue
to the Treasury. The Government have stated that rises in
APD are "partly intended to help achieve environmental goals".
The Treasury also classify APD as an environmental tax. However,
APD is only calculated according to one element of a given flightthe
distance travelled. The 2011 Budget does not propose to change
this. There are a whole range of other factors relevant to a given
flights impact on the environment, including the type and age
of the aircraft, the time that the aircraft is physically in the
air as well as how heavy it is. The Government choose not to take
these factors into account. In its current form, the effectiveness
of APD as an environmental tax is severely limited.
28. We appreciate that the introduction of a
"Per Plane Duty" (PPD) is not possible under international
law. We had reserved our position on the relevant commitment in
the Coalition Agreement pending the publication of firm proposals
by Government. We await the results of ministerial discussions
with fellow signatories to the Chicago Convention (1944) with
interest. In the mean time, we would encourage the Government
to seriously consider how APD could be reformed in order to effectively
incentivise greater use of aircraft that have less impact on the
environment. This could be through the integration of other
variables relevant to the environmental performance of a given
aircraft into the way the tax is calculated.
29. More broadly, there is a real scope to explore
whether the current environmental tax regime applied to the aviation
sector as a whole is overly punitive, and incentivises less actual
transition to technologies that are more environmentally sustainable
than might otherwise be the case. The Government implicitly acknowledges
incentives, as well as punitive taxation, can be effective through
the fiscal approach it adopts to promoting the reduction of emissions
in other sectors. For example, the energy generation sector currently
receives £1.4 billion of effective fiscal incentives every
year to transition towards greater use of renewable energy sources.
This approach has been remarkably successful. Since its introduction
in 2002, these incentives have led directly to the tripling the
level of renewable electricity in the UK from 1.8% to 6.64%.
30. The Aviation Sector is likely to significantly
increase its overall capacity for reducing emissions in the next
eight years. It is entirely possible that engine and airframe
improvements could increase the fuel efficiency of new aircraft
by up to 40% in the 2020s relative to new aircraft in 2005. Moreover,
the introduction of more speculative radical technologies could
make new aircraft up to 60% more efficient by 2050, compared to
2006 levels. In addition, its apparent that more efficient air
traffic control measures (many of which are already being deployed),
and airfield operational procedures could contribute between an
additional 613% per flight by 2020.
This progress is being achieved with no direct fiscal incentive
on the part of Government.
31. If the environmental tax regime as applied
to aviation were geared towards actively incentivising development
of technology that reduced or eliminated carbon emissions by the
aviation sector, and timely adoption of that technology by airlines,
there is every prospect that the sectors progress towards reducing
its environmental impact would be accelerated.
32. In the long term, we believe the only viable
option available to the aviation sector to drive real carbon savings
is through the further development of and deployment of biofuels
amongst major airlines. This is a concept that has been proven
many times already. But there are a range of constraints that
currently prevent this happening.
33. Measures to promote a transition to biofuels
must be considered in a global context. The industry is after
all, global in scope. Worldwide, existing airlines fleets are
thought total around 23,000 aircraft. Total investment in this
fleet is thought to in the region of billions or even trillions
of dollars. Aircraft have a typical life of 25 to 30 years, meaning
that a significant fraction of the current fleet will be operational
to 2020 or even 2030 and beyond. This long life cycle and high
cost, coupled with stringent certification requirements for fuels,
mean that airlines are generally not willing to consider any
fuel that is not a immediate, or drop-in, replacement for current,
petroleum-derived jet fuel.
34. A significant amount of research and development
activity on whether biofuels could be a "drop in" replacement
for conventional jet fuel has been undertaken. It is apparent
that, in principle, it is possible they could be. However, widespread
installation of the infrastructure required to bring the fuel
to the aircraft is necessary before biofuels could be considered
as the "drop in" replacement for conventional jet
fuel that is necessary before a mass conversion could take place.
Gatwick is working closely with onsite fuel providers to put that
infrastructure in place at our own airport. We already have some
capacity to deliver it on site. But there is currently no real
financial incentive for our airlines to move towards using it
on a significant scale. There is a role for Government, in
the tax system for incentivising this transition. The 2011 Budget
does little to recognise this role.
20 April 2011
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