The IoD's View

all modes of transport should be expected to cover their full environmental costs, preferably through the application of market instruments based on a global carbon price. The IoD therefore endorses aviation’s participation in the EU’s emissions trading scheme from 2012. Environmental targets should not be pursued through damaging regulations or by restricting much-needed capacity expansion, as this would have little impact on global emissions while undermining the competitiveness of the UK economy.

Key Points

• Transport is a vital element of the infrastructure that allows the economy to function efficiently and is a direct contributor to the UK’s international competitiveness. Despite this, some modes of transport – especially air but also car - have come in for heavy criticism on account of their adverse environmental effects.
  
  
• It would be immensely damaging for the UK’s status as a major global business centre – and for the prosperity of its people – if the denigration of aviation and other modes of transport were to trigger adverse changes in policy on key issues such as the addition of new capacity.
  
  
• There is a widespread public desire to strike a balance between the freedom to travel on the one hand, while mitigating the resulting damage to the environment on the other. It would be neither sensible nor realistic to stifle growth in travel by neglecting the provision of much-needed new capacity. all modes of transport should be allowed to expand as long as their environmental impact is fully reflected in the cost of using them.
  
  
• Decisions about the future of aviation in this country must strike the right balance between the huge economic benefits of air travel and its substantial environmental costs. Satisfactory solutions must be found to deal with noise and air quality issues, and aviation should pay its environmental costs in full, in the same way as any other activity. The best way of achieving this is through aviation’s inclusion in the EU emissions trading scheme from 2012.
  
  
• Participation in the ETS would encourage aviation to take the right course of action. It would stimulate the quest for new technology to reduce noise and emissions even further than now – building on the airline industry’s outstanding record of improvement in this area. and it would recognise that transport in general, and aviation in particular, finds it more difficult than most industries to reduce its dependency on fossil fuels.
  
  
• Climate change is a global problem requiring an international solution. The UK’s contribution to global warming is small. Unilateral UK action to impose environmental charges on airlines would cause passengers and flights to switch to other EU airports, with negligible environmental benefit but imposing substantial costs on the UK economy. airlines operate in highly competitive markets, and policy should seek to maintain a level playing field for the UK and EU airline sectors – especially as many non-EU airlines already receive greater government aid.
  
  
• Intervention to restrict domestic and other shorthaul flights – where the train may offer a reasonable substitute – is unnecessary and may be harmful. If the rail network can offer a competitive customer proposition in terms of price and journey time, then point-to-point passengers will readily switch from air to relatively hassle-free trains. On routes from London to Paris and Brussels, Eurostar quickly became the preferred mode of travel for the majority of direct passengers.

Q & a

Q. Investment in new transport capacity should be curtailed because it will add to climate change?

a. The optimal policy framework is one that seeks to bear down on total greenhouse gas emissions regardless of their source, and leaving society to determine how the reductions should be allocated to different activities. The market – if supported by policies to ensure that environmental externalities are fully captured in prices – is best placed to do this, making full allowance for consumer’s preferences, and the different marginal costs of abatement of different industries. Policies designed to cut investment in new transport capacity, and thereby force particular activities such as air travel to bear the brunt of emissions reductions, will only increase the costs to the economy and to society of achieving any given reduction in pollution.

Q. a new runway at Heathrow airport should not be built because of the high environmental cost?

a. The UK’s network of air transport services is a key strategic asset and a source of competitive advantage for the UK economy, and Heathrow is vital at its core as the UK’s major international hub airport. Unfortunately Heathrow’s performance has become tarnished as it has been forced to handle rising demand with inadequate capacity, including the same two runways with which it started operations more than 50 years ago. Heathrow urgently needs extra runway capacity, not only to cater for rising demand but also to reduce environmentally-damaging congestion and delays. However the strict environmental conditions set by the government must be met, and aviation should – along with other modes of transport - pay its full environmental costs, for instance through participation in the EU’s emissions trading scheme.

Q. The emissions trading scheme (ETS) is an easy option for airlines - they should pay higher taxes instead?

a. Perhaps because airlines have warmed to it so readily, the ETS has come to be regarded as an easy option for the aviation industry. This perception does not stand up to close scrutiny. If the ETS is operated in a strict manner, with none of the laxity of the first (trial) phase of its operation, airlines will have to pay heavily for their right to pollute. and the greater their share of total emissions, the more they will have to pay, thereby increasing the cost of flying substantially.

Q. Growth in air travel will make it harder to achieve cuts in greenhouse gas (GHG) emissions without damaging other industries in the ETS?

a. These fears are exaggerated. In reality, aviation’s inclusion in the ETS will push up the price of permits to pollute gradually over a period of several years, incentivising all sectors to improve their performance through new technology and fuel efficiencies. By raising permit prices for other sectors, the market is signalling that the most efficient solution is for them to invest in low carbon technologies. airlines face greater difficulty in finding alternatives to aviation fuel, and will be left to fork out higher prices to pay for their own pollution.

Q. Surely airlines already pay air Passenger Duty (aPD) and so there is no need for further environmental taxation?

a. air passenger duty (aPD) is a poor environmental tax. as a straight passenger tax, it curbs growth in the demand for air travel, but otherwise it offers no incentives for good environmental performance. The Government should be transparent about the rationale for imposing aPD (and its successor aviation duty) once aviation has joined the EU’s ETS in 2012. aviation duty should not be a vehicle for generating revenue for the government without a full justification of its structure and its level.

Q. Wouldn’t the switch to a flight-based aviation duty make it a better instrument of environmental policy?

a. although the principle of shifting from a per passenger to a per flight tax may have some merit, its credentials as an instrument of environmental policy remain extremely poor. and it is a thinly disguised attempt to raise more revenues for the Exchequer, over and above the levels required to pay in full for aviation’s external costs. It could have an especially damaging impact on the competitiveness of the air freight sector, on start-up passenger services from regional airports, and on the role of Heathrow as an international hub airport.

Q. Motorists pay too much in fuel duties and other taxes?

a. Fuel duties are an effective means of tackling carbon emissions from road transport - although motorists pay more in fuel taxes than is justified by most estimates of the cost of such pollution. However fuel duties are not an effective means of tackling road congestion, as they offer no incentive to travel in less busy periods or on uncongested roads. any introduction of road pricing to reduce congestion must be used to cut fuel duties to a level that reflects emissions costs more closely.

Q. Freight hauliers pay too much in fuel duties and other taxes?

a. The big concern for UK-registered freight hauliers is that their competitiveness is damaged by having to pay much more tax than foreign-registered hauliers using the same UK road network. This could be resolved with a lorry road charging scheme that applied to all users of the UK road network, offset by lower fuel duties for UK-based hauliers.