Agreement To Limit Aviation Emissions Pretty Worthless
By Paul Homewood
Another piece of recent news from the Telegraph, that I am catching up on:
The aviation industry has crossed a threshold. After almost two decades of talks, 191 countries gathered in Montreal last week to adopt a global market-based system to tackle the rise of carbon emissions from international air travel.
The deal has been welcomed by governments as an unprecedented diplomatic success, and by green groups as a hopeful starting point for further environmental progress.
But for some embattled airlines, it could deliver a fatal blow to the gilded decades of low-cost flights.
The second half of the last century played host to a revolution in air travel, driving the globalised economy that is taken for granted today.
In 1945, it might have taken 130 weeks for a person earning the average Australian wage to earn enough for the lowest Sydney to London return air fare. Now it would take less than two.
But the boom in air travel is quickly giving way to an industry-wide bust. Airline profits have plummeted amid terror attacks and economic gloom, sparking aggressive staff cuts and strike action.
Even easyJet, one of Europe’s most successful short-haul players has admitted that it is bracing for £90 million hit in its first profit warning since 2009.
Even with fuel oil costs at historic lows, European airline bosses say the industry is facing the toughest market in 30 years. The gloom could take until the end of the decade to fade.
By then, airlines will need to face up to steadily rising environmental costs running into the billions of dollars while undertaking green investment totalling trillions as the oil market threatens a return to higher prices.
Under the new deal, airlines will be expected to offset their emissions growth after 2020 by buying "offset credits" in line with their carbon footprint.
The carbon costs are expected to incentivise the industry to develop lower-carbon fuels and technologies, while the money raised by the credits will fund environmental initiatives to help to tackle climate change.
This cost is forecast to grow to as high as $23.9bn by 2035, or 1.8pc of the airlines’ revenue. At the same time airlines will need to spend more on developing lower emissions aircraft, technologies and fuel.
Still, there are many who believe that the cost is too low. UN observers at the campaign group Transport and Environment claim the costs are "peanuts" to the airlines and will amount "to little more than adding the price of a cup of coffee to a ticket".
Yet, there seems little doubt that there will be further pressure to ratchet costs higher. The direction of travel raises the question: is the golden age of cheap European air travel losing its gleam?
Accendo Markets’ equity analyst, Mike van Dulken, agrees that the days of cheap and cheerful European air travel could be numbered. Holidaymakers may face a more "budget" experience for higher prices, as airlines are forced to invest in new aircraft to escape escalating carbon costs. Already British Airways has announced plans to scrap free food and drink on its short-haul flights in favour of selling snacks and sandwiches from Marks & Spencer.
He says: "Unless lower flying costs through fuel efficiency can offset higher aircraft prices, the difference will almost certainly have to be passed on to flyers. Should the oil price rise again due to undersupply in the next five years, this would add an additional unwelcome headwind for airlines already struggling badly."
Like a lot of these things, the agreement does not do what it says on the box. It won’t lead to lower emissions, it simply asks airlines to buy carbon offsets if they exceed emissions in the baseline years of 2019/20.
If the figures quoted are true, the scheme will likely have little effect on aviation emissions. Instead of imposing caps, airlines will simply get around increasing emissions by buying carbon offsets. We know how broken and corrupt the whole system of carbon credits is.
Airlines already have huge incentives to improve fuel efficiency, as fuel costs already make up a third of their budget. Unsurprisingly, such improvements have helped to offset increased traffic in recent years.
Adding an extra 1.8% is chicken feed, especially compared to the volatility that oil prices bring. Both will end up being priced into the cost of a ticket, and as the UN observers point out, a couple of quid here and there is little more than the price of a cup of coffee. All the scheme will achieve is an increase in bureaucracy.
The only people who will end up gaining are those who benefit from the carbon offset market.
More detail on the agreement from ICAO here.