The Impact Of Aviation Industry On The Environment, And The Regulations Needed To Be Made
Aviation travel is one of the most rapidly expanding sectors of the global economy. The business of air travel has shown to be buoyant, and the booming and consistent growth experienced by the market is expected to continue into the future. Since the commercialisation of jets in the 1940s, the number of air passengers grew to 100 million in 1961 and to just over 1 billion in 1988. It took another 18 years to double to 2 billion passengers in 2006 and only 7 more years to reach 3 billion. The aviation industry contributes a substantial amount to global GDP, as well as generating substantial employment in all countries of the world. According to a 2014 report by the Air Transport Action Group (ATAG), the total economic impact of the global aviation industry was USD 2. 7 trillion, around 3. 5% of global gross domestic product (GDP) in 2014.
IATA estimates total employment by airlines reached 2. 5 million in 2015, a gain of almost 3% compared to 2014. Productivity, measured in ATK/employee, was also higher in 2015, increasing by 3% compared to 2014, and is forecast to increase further in 2016. The average employee generated close to 480,000 ATKs in 2015. Wages and jobs also rose as employees shared the benefits of improved performance. Aviation has continued to expand over the past few years. It has exhibited long-term resilience, to become a crucial method of travel for many people. Historically, air transport has expanded faster than other industries. In 2016, airlines worldwide carried around 3. 8 billion passengers annually with 7. 1 trillion revenue passenger kilometres (RPKs). Fifty-three million tonnes of freight were transported by air, reaching 205 billion freight tonne kilometres (FTKs). Every day, around 100,000 flights transport over 10 million 4 passengers and around USD 18 billion worth of goods.
Structure
At the beginning of the liberalization in the European airline industry, deregulation was only possible through bilateral agreements between pairs of countries and was only possible on a community-wide basis as a result of the Single European Act, which the E. U. member states agreed to in 1986. Before deregulation, the community-wide aviation industry consisted of only a few European routes. There were long-standing, state-owned airlines with airfares regulated by state bilateral agreements.
The process of deregulation and the subsequent process of privatization created at least three new business models: full-service carriers (FSCs), low-cost carriers (LCCs), and charter carriers (CCs). The FSC model is closest to the prior state-owned carrier model, but with multi-hub-and-spokes systems. The LCC business model has experienced fast growth in Europe since deregulation. LCCs have provided a low-cost, no-frills operating model. They did not suffer as much as the FSCs from the crisis in the air transport industry after September 11, due to the low cost flights that thanks to the low prices which draw in many customers and the focus on intra-European flights rather than more risky destinations such as the USA and Asia (Cento, 2009). Environmental Impact The aviation industry produces about 3% of the EU’s total greenhouse gas emissions and more than 2% of global emissions. These emissions are expected to be 70% higher by 2020, than they were in 2005. The International Civil Aviation Organization (ICAO) predicted that they will increase by an additional 300-700% by the year 2050. UNFCCC decided that emissions from international aviation should not be included in national inventories. Instead, the Kyoto Protocol requested Parties to work through ICAO to reduce emissions from the sector. ICAO and its parties have since delayed and presided over almost two decades of inaction. Meantime emissions from international aviation grew by over 75% between 1990 and 2011. This is almost double the average emissions growth rate from all other sectors of the economy.
Sustainability
“Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. The “Paris Agreement” was the deal reached at the 21st meeting of the Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC) between nearly 200 countries. The aim is to ensure a global reduction of greenhouse gas emissions in order to limit global warming to below 2 degrees Celsius above pre-industrial levels (but to strive for a 1. 5 degrees Celsius increase) and improve adaptation and resilience of nations against the impacts of climate change. The Agreement also calls for improvements in transparency through a more robust reporting framework. All countries are required to submit their plans for emissions reductions, called “nationally determined contributions” (NDCs) which get developed over time. Every five years the progress of each nation is assessed.
There are several factors to consider when assessing the sustainability of the aviation industry. Environmental Since over 60% of greenhouse gas (GHG) emissions occur in in international air space, they do not count towards the GHG count for any particular country. Therefore, international aviation is not included in the Paris Agreement. Considering the significant contribution of the industry to global warming, as outlined above, a global aviation mitigation course of action is crucial to keeping warming below 2 degrees celcius. One of the major pillars in the aviation industry's strategy for reducing emissions is voluntary carbon off-setting, allowing passengers to choose to pay extra for off-setting their emissions. The money goes to offsetting organisations that sponsor projects that aim to reduce carbon emissions. These projects could include reforestation or renewable energy projects.
Technological
There have been significant advances in aircraft technology that have improved efficiency. A study of 26,331 aircraft was conducted to investigate the improvement rate in fuel burn, and was found to be 51% between 1960 and 2008 due to developments of more efficient technology. According to a report from the United Nations High-Level Advisory Group on Sustainable Transport, makers of aircraft and engines invest $15 billion USD per anum on researching these improvements, and each new aeroplane design saves around 15-20% of fuel. Improvements in the design and material of the aircraft, such as using carbonfibre reinforced plastic, cut down the weight of the aircraft and make it more aerodynamic.
Another technological development that will help to curb emissions is the satellite-based Performance Based Navigation (PBN) which is an aircraft navigation system that is controlled by satellite rather that from the ground. It will allow airlines to safely increase capacity but also reduce emissions due to the flight paths being more direct, therefore reducing flight time and GHG emissions.
Social and Economic
Transport is an important part of most people's lives. It allows us to access things they need for a productive and fulfilling way of life, such as access to work, study, visiting friends and family, shopping and healthcare.
Aviation provides us the luxury of travelling long distances in a short space of time. It also allows access to remote communities that are otherwise very difficult to get to, allowing healthcare and humanitarian aid during emergencies. It allows people from developing countries access to a higher level of education and increases people's awareness of other cultures. Furthermore, increased leisure and cultural experiences through travel and tourism can improve people's health and wellbeing.
With all these benefits to society and the economy, it is clear why there is such a high demand for aviation travel. However this ever-increasing demand is having a detrimental impact on the environment, which is a huge burden on society as a whole. Therefore, the future growth of the European aviation sector is inseparable from its environmental sustainability and the price must be paid. The aviation industry, due to public and political pressure, internalises these environmental costs, in line with the “polluter pays” princple. This means the cost is not passed on to passengers and passengers can contine to enjoy cheap air travel.
The cheap price of aviation travel is largely due an EU law that came out of the Chicago Convention on International Civil Aviation, exempting international flights from taxation on jet fuel. After the end of WWII most countries in the EU preserved this rule in dozens of bilateral agreements. This gives aviation an unfair advantage over other modes of transport, creating a huge boom that is ultimately unsustainable. If airlines paid taxes on the fuel they used, the EU would earn between €20 and €32 billion a year in fuel duty. An additional value added tax (VAT) on airline tickets would create €7 billion in revenue. Furthermore, the aviation industry receives around €3 billion in subsidies to build infrastructure such as new airports and runways, unlike ground transport infrastructure which the consumer must pay for through car tax. Established in 1990, Transport & Environment is the leading NGO voice on smarter and greener transport policies at the EU level in Brussels.
These tax exemptions for aviation create a distorted market, artificially inflating demand but with little incentive to purchase more efficient aircraft, rendering it economically and environmentally unsustainable.
The Regulation
The EU Emissions Trading Scheme as established by Directive 2008/101/EC of the European Parliament and of the Council of 19 November 2008 amending Directive 2003/87/EC so as to include aviation activities in the scheme for greenhouse gas emission allowance trading within the Community is a market-based-measure to help mitigate climate change. This regulation was implemented on 1 January 2012. Under the EU ETS, all airlines operating in Europe, European and non-European alike, are required to monitor, report and verify their emissions, and to surrender allowances against those emissions. They receive tradeable allowances covering a certain level of emissions from their flights per year. From 01 January 2012, both commercial and non-commercial aircraft operators (AO) flying from or to an airport within the European Economic Area (EEA) were required to surrender an emission allowance for every tonne of CO2 emitted. Market-based measures (MBMs), also known as market instruments, provide financial incentives and disincentives to influence the actions of regulated entities towards reducing emissions. It is a more flexible approach to emissions reduction than a tradition command-and-control mechanism as it allows the industry to decide where and how they make these reductions. ICAO started looking at MBMs as a potential option for international aviation in the late 1990s through ICAO’s Committee on Aviation and Environmental Protection (CAEP). CAEP projected that there would need to be a range of measures to achieve carbon neutral growth by 2020, as outlined in the 'basket of measures'. As well as improved efficiency of aircraft and operations, sustainable jet fuel is needed, however this is still in its infancy and its likely contribution is unknown. Therefore allowing the aviation industry to reduce emissions through the European ETS is seen as vital for bridging the gap. It allows airlines to choose between reducing emissions in their own sector, or by offsetting their CO2 emissions by trading allowances with other sectors.
The addition of aviation to the EU ETS was to address the predicted rapid growth of emissions from the sector. ICAO was criticised for failing to reduce emissions through other methods as it was asigned to do so by the 1997 Kyoto Protocol and therefore further legislation was needed. The EU ETS was split into phases; The first phase was 2005 – 2007, the second phase was 2008 – 2012 and we are now in the third phase, 2013-2020. The subsequent phase 4, from 2021-2030 are still being agreed between the Council of the EU and the European Parliament. In 2008, aviation emissions were capped at 5% below their annual emissions average level between 2004 and 2006, which is 210,349,264 aviation allowances per year.
The cap on aviation allowances (EUAAs) were primarily kept independent from the general EU ETS cap (EUAs). The aviation industry was able to purchase emissions allowances from other sectors in order to allow growth in the sector and emissions above the cap. They can then surrender both types of allowance, but other sectors may only purchase and submit general EUAs. Furthermore, the general EU ETS emissions cap gets reduced by 1. 74% every year, the aviation sector's emissions cap does not. Instead, it was reduced from 97% of historical emissions (using the period 2004-2006 as a baseline) in 2012 to 95% during the third phase (2013-2020) and is not set to be reduced further until 2020. This was a concession made to industry pressure in 2008 and is without any basis in sound climate policy. In the third phase, 82% of EUAAs were given to airlines for free and 15% were auctioned. 3% of allowances were put into a Special Reserve (SR) for new airlines or for airlines whose emissions are growing quickly.
The original legislation was intended to include all flights to, from and between countries in the European Economic Area (EEA), which the European Court of Justice deemed compatible with international law. However, there ensued a highly charged and politicized campaign against the regulation by the aviation industry, which resulted in ICAO and governments implementing an emergency “stop-the-clock” legislation in November 2012 whereby the aviation ETS was limited to intra-European flights and excluded international (in or out of Europe) flights to allow ICAO more time to develop a more global measure to the aviation EU ETS. In October 2016 the EU chose to extend these limitations until 2021. In the absence of a new amendment, the EU ETS will revert back to its original form from 2024. The name given to the scheme is the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). CORSIA aims to keep CO2 emissions at 2020 levels by ensuring that airlines offset the increase in CO2 after 2020 by investing in projects that lower CO2 emissions in other areas, e. g. renewable energy projects.
The regulation to include aviation in Europe’s Emissions Trading Scheme (EU ETS) has strengths and weaknesses, which I will outline below:
Strengths: The scheme has been the first of its kind, acting as a model for as served as a model for other areas and in other aviation markets. According to the European Commission (2018), the regulation has so far decreased the carbon footprint of the sector by around 17 million tonnes per anum. The level of compliance is very high, including airlines that were originally opposed to the regulation. Airlines responsible for more than 99% of aviation emissions complied with the EU ETS regulation in 2015, including over 100 airlines that are based outside the EU but run intra-European flights.
Weaknesses: The price of EUAAs is currently very low, due to oversupply of allowances granted to operators. This price of between €0. 26 and €0. 76 on a short or medium haul flight ticket respectively has been kept from crashing completely by the scope to carry carbon credits forward. A Sandbag report (2016) found that in 2011, 77% of EU ETS participants from all sectors held surplus allowances. It was thought that the inclusion of aviation in the ETS may create the demand for these excess allowances yet because average aviation emissions in 2004-2006 stood at 219Mt, and the distribution of handouts from 2013 onwards is 208Mt, it was not expected that this would be enough to soak up the excess. Also, a 2013 report showed that airlines have been able to make windfall profits from the scheme by passing on the price of the carbon credits to the consumer. Because of this distortion in the carbon market there is little incentive for airlines to cut emissions and the addition of aviation to the EU ETS has had little impact on greenhouse gas emissions.
Since the EU gives away 85% of allowances to the aviation for free, it is estimated that between 2014 and 2017, the EU could have earned $600 million. If they had not given this money away to the industry in EEUAs, they could have invested it in environmental research and development of green technologies. The fact that the aviation ETS has not included flights in or out of the EEA due to industry pressure has been damaging the overall success of the regulation. It is estimated that this “Stop the Clock” measure has reduced the environmental impact by three times. ICAO’s scheme for international aviation, CORSIA, as discussed above, will take effect in 2021. It has been criticised for not being stringent enough to fulfil the aims of the Paris Agreement. Redd Monitor say it is even worse than a cap and trade scheme. “It’s carbon trade without a cap”. It is predicted that greenhouse gas emissions from the sector will remain too high for obligations to be realised. Participation in CORSIA will be voluntary until 2027, which many experts believe is too little too late. An open letter from CAN Europe, Transport & Environment, WWF Europe, Seas at Risk, Carbon Market Watch and the Aviation Environment Federation (2017) states that CORSIA does not align with the Paris Agreement's aim to keep warming below 2 degrees celcius and will only offset 21% of all international aviation emissions between 2021 and 2035. The letter also expresses concern that relying completely on offsetting is troubling, as there are issues regarding the effectiveness. Even if these issues were addressed, CORSIA would be less effective at reducing emissions than including all flights to and from Europe in the full scope EU ETS.
Furthermore, the goal of the CORSIA scheme is carbon-neutral growth from 2020 levels, and thus will not actually reduce aviation emissions nor will it address emissions below the 2020 level. It should therefore not replace the EU ETS for flights entering and leaving Europe, unless its ambition is raised. As outlined previously, there have been improvements made in aircraft efficiency and technology such as the satelite-based PBN. However, the continued growth in demand for flights undermines all of these measures. The capacity of flights has increased by 25% over the last 20 years, which can be determined by looking at available seat-kilometres, and it is predicted that demand will continue increase by 5% every year. By 2032 there will be a global fleet of 40,000, which is an increase of 20,930 airplanes. The use of aviation fuel, factoring in improvements in efficiency, is predicted to rise by 1. 9% and 2. 6% a year until 2025. As all other sectors of the industry are making reductions in GHG emissions, which could mean that by 2050 the aviation industry, in the absence of strong mitigation policy, could be responsible for 22% of global CO2 emissions. Reducing demand for aviation travel would be the best course of action to take to reduce emissions and ensure the sustainability of the aviation sector. However, the ICAO does not include this in their ‘basket of measures’ to reduce emissions in the industry. It is also recognised that passengers would be very reluctant to reduce the amount they fly. The scheme does not include non-CO2 emissions.
Reforms or Additions to the Regulation
The first issue to address is the surpluss of allowances in the market that are driving down the price of carbon credits. In 2016, the supply of EUAAs remained static because the emission cap remains the same throughout the third phase of the scheme. The price of carbon stays at around €5, which is not enough to have any effect on the market. According to Sandbag, the surplus is now over 3 billion tonnes of spare allowances, and growing. Since the ETS cap is higher than the actual emissions that are occurring, this excess of allowances will increase even further. In November 2017 the EU agreed to double the rate at which the scheme’s Market Stability Reserve (MSR) absorbs surpluss EEUAs, in order to strengthen prices in the short term.
Carbon Market Watch is critical of the move, saying it is too slow to affect the market and fulfil climate obligations. Femke de Jong, EU policy director at Carbon Market Watch, said; “Today’s deal ignores the urgency to reduce emissions quickly and hands out billions in pollution subsidies, meaning that the EU carbon market will continue to fail at its task to spur green investments and phase out coal”. I suggest that the reform be stricter in order to eliminate all excess carbon permits within the system by 2020, in order to keep the price of carbon high. This would push up the price of carbon in the short term as well as address long-term uncertainty in the market and boost investment incentives. Although this would require intervention in the market, which will be controversial, this market-based mechanism is softer than a more aggressive intervention, such as setting the carbon price or a sudden elimination of all permits, which would change the balance of supply and demand.
Secondly, I would include international flights in the EU ETS as was first intended by the EU in order to meet climate targets. As discussed previously, CORSIA will not be sufficient to reduce carbon emissions in line with the Paris Agreement. This is a market based measure, but it is not strict enough. While the Paris Agreement made no direct reference to international aviation emissions, it did express the ambitious aim to restrict global warming to 1. 5 °C above pre-industrial levels, which means emissions will have to peak now and then decline quickly. This decline must involved every sector of the economy, therefore the aviation industry must also contribute. If the scheme had gone to full scope in January 2017, it would have resulted in 427 million tonnes of emissions reductions from 2017-2020, equivalent to the first 7 years of voluntary action under the CORSIA (Carbon Market Watch). I would make the cap on carbon trade much stricter for the aviation industry and subject it to an annual decrease, as the other ETS sectors. Make all carbon allowances only available through auctions and stop any free allowances by 2020. Prohibit airlines from passing on the cost of carbon allowances to the public. The fact that airlines have been creating windfall profits from the scheme reduces the incentive to reduce emissions and invest in green technology. The revenue created from auctioning allowances should be used for research and development to reduce the industry's environmental impact, for example, go towards the Green Climate Fund.
One of the most important measures would be to reduce the demand for aviation travel. Innovative user charges and other market-based instruments can reduce demand as well as generate revenue. I would implement user charges for the industry to make them responsible for their own infrastructure costs, such as air traffic control, runways and airports. Another market-based measure I would implement is fuel tax for all flights into, out of, and within the EU in order to reduce the market distortion caused by low-cost, high-carbon air travel. I would also add VAT to all tickets, to be paid by the consumer in order to further reduce demand. This would generate an extra €39. 1bn a year in tax revenues, equivalent of around €80 for every man, woman and child across the EU. In 1994 the UK implemented such a tax on airline tickets, called Air Passenger Duty (APD), which generates £3-4 billion a year in revenue. Several other countries in the EU have a similar tax, but the charge is very low, due to aggressive lobbying from the aviation industry opposing the tax.
I am in favour of extending the APD to all EU countries, as it forces passengers to internalise the environmental impact of flying and pay the full social cost of their journey. The tax due will be equal to the consumer's external costs, causing the price of their airline ticket to increase. Such an action may result in less flights being bought, which will have a positive effect of emissions reductions from the aviation sector; the method of transport with the biggest carbon footprint. Again, the revenue can feed into the Green Climate Fund to improve research and development of innovative and environmentally sustainable aviation solutions. This will also provide a boost to the European economy as it will improve competitiveness across the industry in technology and efficiency.
