Aviation and UK Climate Change Policy

Aviation and UK climate change policy

Briefing paper on CCC advice to Government regarding inclusion of aviation emissions in the UK’s carbon budget

31st May 2012

The UK’s Climate Act 2008, like the Kyoto Protocol and successor global climate agreements, omitted emissions from aviation and shipping on the basis of difficulty in attributing them appropriately to nation states. Nevertheless, the Act included a clause requiring the Government to review the situation in 2012 and either to include these emissions or to explain to Parliament why they should continue to be left out.

In the same year – 2008 – theEU agreed that from 2012 emissions from all flights entering or departing from the EU would be included in its Emissions Trading System. Though this has prompted opposition from many states outside Europe, it has also stimulated renewed discussion at the UN’s ICAO (nominated under the Kyoto Protocol to tackle emissions from international aviation) about possible global measures. The equivalent body for shipping, IMO, has also made some progress in that it has now agreed minimum efficiency standards for ships.

In April 2012, the Committee on Climate Change, created under the 2008 Climate Act and charged with advising Government on whether aviation and shipping should be included in the UK’s carbon budgets from 2012, recommended that there were no longer good reasons to exclude either sector, arguing that data generated as a result of aviation’s inclusion in EU ETS, together with the IMO shipping efficiency targets and projections, now make inclusion possible.

This briefing paper – which addresses only the aviation component of this advice – falls into four sections. The first analyses the CCC’s advice for aviation, the second considers the possible implications of this advice for policy in relation to demand and capacity, the third describes AEF’s view of how the sector should be treated in the context of UK climate policy, and the fourth provides a brief conclusion.

Section 1: CCC advice

The CCC’s advice has two components. The first deals directly with aviation’s inclusion in the carbon budgets, while the second concerns how the Government should plan for the future in the context of, for example, long term infrastructure decisions. Both are considered below.

1. CCC advises that aviation should from 2013 be included in the UK’s carbon budgets at an annual level of 31 MtCO2e.

31 Mt (million tonnes) is CCC’s calculation of the UK’s share of the cap imposed on airlines by the EU ETS, namely (from 2013 onwards) 95% of the average level of aviation emissions between 2004 and 2006. Such an approach to the sector’s inclusion in the budgets would mirror the treatment of other sectors that are covered by the EU ETS.

The figure, based on net emissions, says nothing about what actual aviation emissions will be, or should be. CCC (and others, including DfT) have elsewhere predicted that without additional measures, UK aviation emissions will grow significantly beyond this level between now and 2050. Inclusion of aviation on the basis proposed would not therefore require any additional ‘effort’ for airlines beyond their participation in the EU ETS.

1. CCC also advises, however, that the Government should assume for planning purposes that international aviation emissions in the UK are no higher in 2050 than they were in 2005, in other words no higher than 35 MtCO2e.

CCC provides several reasons why the UK should not simply rely on EU ETS to deliver its CO2 reductions but rather should aim for the bulk of these to be delivered domestically, in other words, why it should consider gross as well as net emissions.

(a)Planning for domestic reductions will save money. At present, EU emissions permits are very cheap. But in the longer term, all countries will, CCC believes, need to adopt some form of emissions plan in order to ensure no more than 2 degrees warming, thus the availability of ‘offset’ credits will diminish. At the same time, easy wins in terms of emissions reduction will soon become exhausted. The result, says CCC, is that credits are likely to become very expensive. While the current trading price for CO2 is around £6/ tCO2, the Government’s carbon values reach £200/tCO2e in 2050 in a central case. Modelling for CCC by UCL, meanwhile, suggests that carbon prices in 2050 could reach around US$750 (£500) per tonne with an active global carbon market, or above £1000/tCO2e if weak early action requires even deeper 2050 emissions reductions. Looking at the UK as a whole, therefore, CCC is confident that the 2050 target can be met at a cost of only 1-2% of GDP, even with aviation and shipping included; but if all reductions were to be made through credit purchase, the cost would be significantly higher.

(b)Appropriate planning assumptions can inform negotiating positions in international agreements and underpin technology policy. CCC believes that ultimately, aviation emissions should be tackled at EU and international levels. The appropriate approach for the UK, CCC implies, is to push in appropriate forums for the adoption of emissions targets in line with its recommended planning assumptions for the UK. In 2009 CCC recommended[1] that all developed countries should commit to gross aviation emissions being no higher in 2050 than they were in 2005, mirroring the policy scenario for the UK. Given the global nature of aircraft manufacture, for example, technology improvement goals focussed on reducing emissions should be agreed at international level, argues CCC. The Committee does not argue that the UK should wait for international agreement on mechanisms to achieve emissions reductions before taking any action domestically but rather that we should assume that these negotiations will in future be successful (for example, that all developed countries will be taking measures to control emissions that are comparable to the measures required for the UK) and should adjust these assumptions in future only if this outcome fails to materialise.

(c)The recommended planning assumption of long-term gross emissions stabilisation at 2005 levels “should be considered in the context of infrastructure investment (e.g. airport capacity development and possible expansion)”. While CCC does not elaborate on this point, it is clear that it would be bad for businesses (and therefore for consumers) if investments in airport infrastructure were suddenly rendered worthless by a rocketing carbon price. A Government wishing to avoid this outcome would presumably, therefore, wish to adopt policy that indicates its long term view of future aviation markets and their likely profitability. Sections 2 and 3 provide more detailed consideration of this issue.

CCC is keen to draw a distinction between the adoption of its recommended planning assumption and the setting of ‘unilateral emissions targets’ for which, it says, the Climate Change Act does not provide. Nevertheless, CCC notes that:

… sectoral planning assumptions are required under the Act:

• Specifically, the Act requires that the Government is able to show how its policies and proposals are compatible with meeting the 2050 target (Climate Change Act 13, 14).

• It is under this requirement that we and the Government have set out sectoral contributions to meeting carbon budgets and the 2050 target.

• For example, we have highlighted the need for early decarbonisation of the power sector, and suggested that the planning assumption should be to reduce carbon intensity of power generation from current levels of around 500g CO2/kWh to 50g CO2/kWh in 2030.[2]

For AEF’s own view on the advantages of adopting a policy that assumes limits to UK aviation emissions beyond those arising from the EU ETS, see Section 3.

In addition to arguments in favour of the principle of a ‘planning assumption’ for UK aviation emissions alongside the abatement implied by EU ETS, CCC also gives a number of reasons for its recommendation that this assumption should be that emissions from UK international aviation in 2050 will be no higher than 35 MtCO2e. (The 2009 CCC report Meeting the UK Aviation Target referred to a figure of 37.5 Mt, which included emissions from domestic flying, which are already included in the Climate Act and not therefore addressed in this recommendation.)

a)CCC’s previous work, which assumes aviation emissions at this level and adjusts other sectors accordingly, indicates that an overall cut of 80% of emissions in 1990 from the UK as a whole by 2050 is achievable at reasonable cost (1-2% of GDP) if aviation emissions stabilise at 2005 levels.

b)In response to CCC’s 2009 report Meeting the UK Aviation Target, DfT produced a series of MAC curves indicating possible costs and benefits of various policy options to reduce aviation emissions. CCC’s analysis of this work is that it suggests that “there is scope, at reasonable cost, to reduce emissions in 2050 to around 2005 levels, through a combination of improvements in aircraft fuel efficiency, operational measures, biofuels penetration and some demand growth constraint”. Figure 3.2 on page 39 of CCC’s report indicates that under the DfT’s MACC analysis, this level of emissions constraint is achievable even under a ‘low abatement’ policy path.

c)The recently revised ‘road-map’ (March 2012) from the industry organisation Sustainable Aviation provides, CCC notes, “a trajectory under which emissions return to 2005 levels in 2050”.

The original Sustainable Aviation road-map, published just 4 years earlier, had concluded that this would be possible without recourse to offsetting or trading. The revised 2012 roadmap introduces the need for carbon markets because it adopts a new target, namely a commitment to a 50% reduction in CO2 emissions (based on 2005 levels). But this revised target masks the fact that the underlying analysis still supports a return to 2005 levels by 2050 without the need for market-based measures. The 2012 roadmap uses 2010 as a reference year when emissions were nearly 11.5% lower than in 2005 (a total for domestic and international flights of 33.3mtCO2 in 2010 compared to 37.6mtCO2 in 2005, using DECC figures). Extending the reference year for the 2012 roadmap back to 2005 levels is consistent with the reduction expected in 2050 through alternative fuels, and technological and operational improvements alone. In other words, Sustainable Aviation provides evidence of an ongoing industry view that the gross level of UK aviation emissions can be brought down to 2005 levels by 2050 even without the use of trading, lending extra weight to the CCC’s recommendation.

Source: Sustainable Aviation CO2 Road-Map 2012; 2005 emissions level added by AEF

In its latest road-map, Sustainable Aviation expresses the view that “Any unilateral targets and measures that attempt to limit UK aviation’s emissions through capacity constraints or price-related demand reduction will lead to carbon leakage, market distortion and the loss of economic benefit to our international competitors”. It is surprising, however, that this statement assumes that unilateral measures to constrain emissions growth are required while the previous Government’s target to ensure that UK aviation emissions in 2050 are no higher than in 2005 was based on Sustainable Aviation’s own evidence that this could be achieved without carbon pricing, relying instead on their own forecasts of improvements in technology, operational efficiency and alternative fuels. In effect, the previous Government had challenged the industry to deliver on its own promise.

Section 2: Implications for demand and capacity

It is very important to note that the DfT’s MACC work and Sustainable Aviation’s latest road- map (which assumed demand growth at the level of the 2011 DfT passenger forecasts) both provide evidence for the affordability of emissions in 2050 of no higher than 35 MtCO2e, but on the assumption that no new runways are built anywhere in the UK.

CCC’s 2009 analysis Meeting the UK Aviation Target concluded that in order to reach the target then in place for gross UK aviation emissions to be no higher in 2050 than they were in 2005, taking into account likely technological improvements, more efficient air traffic management, carbon pricing up to £200/tCO2 and the introduction of some aviation biofuels, passenger numbers could grow by only 60% of 2005 levels by 2050. In the absence of further measures to control demand, emissions were forecast to grow from 37.5 MtCO2e in 2005 (international plus domestic) to 48.5 MtCO2e by 2050.

At the time, CCC were basing their airport capacity assumptions on the 2003 White Paper and therefore assumed new runways at Edinburgh, Heathrow and Stansted. The DfT’s 2011 forecasts for passenger demand and CO2 emissions, being published after the Coalition Government announced effective suspension of the 2003 White Paper for national policy purposes, assumed no new runways. Nevertheless, as a result of alternative assumptions about how readily demand transfers from one airport to another (as well as slightly different assumptions in relation to fuel efficiency and biofuels), the DfT forecasts for both passenger numbers and CO2 emissions were remarkably similar to CCC’s. Even assuming no new runways anywhere in the UK, and with passenger numbers predicted to grow by just 2% per year, DfT forecast an increase in passenger numbers of 123% over 2005 levels (as against CCC’s target-compatible 60%), with emissions increasing to 49 MtCO2.

As noted above, CCC recommends against the setting of a unilateral emissions cap for aviation, preferring the concept of a planning assumption. The difference between the two, however, seems to lie only in what is implied about the political approach to emissions reduction. A unilateral cap could be imposed and pursued with no reference to comparable action required elsewhere in the world in order to tackle global aviation emissions growth. The recommended planning assumption, by contrast, makes explicit reference to the importance of the UK working with EU and international partners to secure comparable commitments from other developed countries, and a global emissions cap for aviation that applies to all. This does nothing, however, to change the CCC’s analysis presented in its 2009 report which made clear that technology improvements, biofuels, and more efficient air traffic management would be insufficient to bring aviation emissions down to 2005 levels by 2050, leading to their conclusion in that report that further measures, such as constraints on slot use or runways, or the introduction of a carbon tax, would be necessary.

DfT’s subsequent MACC work indicates that even without the provision of new runways, the UK is set to substantially overshoot CCC’s recommended assumption of 35 MtCO2e unless additional measures are taken to control emissions.

Section 3: AEF’s view

Even in the highly contested field of aviation, CCC has been remarkably successful in producing figures and analysis that are widely quoted by both industry and NGOs. It has always been very focussed on how to make emissions reductions in the most economically efficient way thus addressing head-on many economic concerns about environmental protection.

1. Inclusion in the carbon budgets

AEF believes that the Government should accept the CCC’s advice to include aviation emissions in the carbon budgets and notwithstanding parliamentary process, would like the Government to state its intention to do so in the draft aviation strategy. This would:

• Ensure that the Climate Change Act covers all sectors of the UK economy, and that all sectors play their part in delivering the 80% emissions reduction by 2050 that the Act requires
• Resolve the ambiguity in the Climate Change Act whereby the CCC is required to take account of these emissions but not to formally include them
• Provide certainty for the future which is necessary to guide appropriate investment decisions, ensuring that it does not fall to changing governments or to the CCC to need continually to make their own interpretations of the Climate Act in relation to aviation
• Reflect the treatment of other sectors of UK industry that are included in the EU ETS

Given the wording of the Climate Act, as well as the precedent set in relation to other sectors, AEF believes that 31 MtCO2e is the right figure to be entered in the carbon budgets. In future there may be scope for tightening the terms of the EU ETS for aviation – a move we would support – at which point the 31 MtCO2e figure would need to be revised downwards.

1. Planning assumptions and targets for UK aviation

AEF is a vocal supporter of aviation’s inclusion in the EU ETS, and formally intervened in support of the scheme when it was challenged in the European Court of Justice. We are also very actively engaged in discussion at the UN’s ICAO about how emissions from aviation can be controlled at the global level. We fully support the argument that the most effective way to control aviation emissions will be through international action. Nevertheless we consider that there is a need for countries with high per capita emissions such as the UK to show initiative and leadership in terms of real emissions reductions, and believe that the UK is far more likely to succeed in its stated aims of securing international agreement on climate change targets if it is able to point to effective domestic action. The Climate Act itself – which we strongly support – represents a unilateral action by the UK and, with respect to aviation in particular, British people have a higher ‘propensity to fly’ than anyone else in the developed world, so it is right for us to take the lead on this issue.

In addition to CCC’s arguments about the value of a specific planning assumption for 2050 in relation to UK aviation emissions, (in terms of economic efficiency, guiding international negotiating positions, and informing infrastructure considerations), AEF considers that UK action on emissions – be it expressed as a cap or as a planning assumption – is essential for the success of the EU ETS.

It is important to understand the significance of the fact that the current EU allowance price is too low to provide the signals that are needed in relation to planning and investment to deliver the green economy. We welcome recognition of this problem by the UK Government, which recently consulted on the introduction of a carbon floor price (“Carbon floor price: support and certainty for low carbon investment”), and which has recently referred to its ambition to push for the EU ETS cap to be tightened to deliver 30% rather than 20% emissions cuts by 2020. In relation to aviation specifically, CCC has recommended in the past that 100% of emissions permits be auctioned (which would have the effect of increasing their cost) though we recognise that this would require agreement at EU level and that now may not be the best time to try to secure this.