MEETING THE UK AVIATION TARGET

A general comment on the Committee on Climate Change 2009 Report relating to emissions targets in aviation

January 2010.

First, identification of aviation as a high-growth premium use, which is potentially constrained but for which consumers would by definition pay a significant premium (albeit with some reduction in demand), creates a welfare economics case for earlier and broader use of the price mechanism to curb demand in both aviation and other sectors. This is a nettle which governments, for very obvious reasons, have so far been very reluctant to grasp. Second a “cumulative target” approach, which of course is not what we have, but which I and others have argued for quite strongly, further reinforces the case for urgency and hence earlier use of all available policy instruments, including possibly much more reflection of externalities into prices. Third, this issue is linked to the apparent paradox of divergence between the profile assumption of a rising carbon price and a profile of falling social cost (in the sense that one tonne of CO2 emitted today does more damage than one tonne in ten years time).

These points are developed in more detail below. My comments, like the report, can be viewed either in a “UK alone” or a wider context.

Implications of aviation as the premium use of the “CO2 emissions resource”

The TOR of the report were to consider the impact of a specific target for aviation – not to exceed 2005 levels by 2050. The interactions with CO2 reduction opportunities in other sectors, and policy successes or failures, are largely implicit in the terms of reference or in earlier CCC papers, and are not part of this report.

Nevertheless an immediate corollary of the findings is that the aviation sector has and will probably continue to have the highest “premium” value of any sector in use of scarce CO2 emissions. This is associated with low price elasticities, reflecting the very high value placed on travel, together with the fact that substitution by low carbon alternatives is not, with present knowledge, feasible.

Normally economists would argue that a logical consequence of this is that, if, as the report indicates, there is a prospect of needing to ration or constrain demand for aviation, then the pricing of emissions in all sectors should reflect that premium value. Otherwise we are collectively “wasting” CO2 emissions on lower value applications, for example additional or excess comfort in heating of buildings, which people collectively may not really value as highly as the travel from which they will at some stage be constrained (by prices or other means) in order to comply with overall CO2 targets.

Consumers should at least be given that choice by facing costs in other sectors that reflect the value foregone in future “rationing” of their air travel. The counter argument, that this will adversely affect the less well-off, is to a large extent neutralised by the report’s observation (also made by the aviation industry) that frequent air travel is now widely enjoyed by most or all sectors of society. The really poor can be protected from excessive heating costs by lifeline tariffs.

The cumulative target approach

I have previously argued strongly, both in evidence to the Environmental Audit Committee and via the BIEE group, that a cumulative target is significantly superior to a focus on a 2050 or any given year annual emissions target, because:

• it has a far better correspondence with the science, which emphasises cumulative emissions – this is a view shared by some climate scientists.
• the pathway matters; globally a backend loading of reductions adds hugely to concentrations compared to straight line reduction or more decisive early action; the arithmetic is quite dramatic.
• a rational approach to international negotiations over national entitlements would have to emphasise cumulative consumption, for a whole variety of reasons – fairness, monitoring etc - so we should start thinking in these terms now.

Falling social cost

Once we accept that it is really cumulative emissions that matter, then the relevance of immediate action is emphasised, and is part of the general case for urgency. This is further reinforced by the valuation of emissions costs. Contrary to the impression sometimes created even in official publications, the value of saving a tonne of CO2 emission now exceeds that of saving a tonne in 10 years time – actually by quite a margin. I checked this with the Stern modellers and it is indeed the case for their models of economic costs – it is of course intuitively obvious if the incremental re-absorption rate is indeed very low.

The paradox is that we tend to talk about and anticipate a carbon price that rises over time (as the report does) whereas the social cost (of a given emission) is actually falling year on year. This is more than just a statistical oddity, since it gives the wrong message on urgency.

A few peripheral questions

1. There is a lot of discussion of improvements in technical efficiency. I wondered if there is any examination, anywhere, of the possibility of a serious re-optimisation for speed/fuel trade-offs in a low carbon world – possibly taking into account how new generation aircraft would be designed in such a world. Speed is such a big factor in road fuel consumption that it might make sense to consider it in an aviation context as well.

2. I noted the assessments on price elasticity of demand for travel, and I wondered whether the price elasticity might actually be very different at different points on the demand curve. [What would the effect be for example of an aviation fuel tax at similar levels to road fuel tax? It would at least double the price of short haul flights!] In other words would a rational pricing approach for aviation fuel change both the nature of the debate and the parameters of demand for air travel?

3. There are also some interesting issues for an international framework, which militate against national targets. For example should particular economies have more or less than their pro rata share of flights ? How should responsibility for flights properly be apportioned between origins and destinations ? If Florida markets long-haul holidays in the UK, should the US be partly responsible for the carbon consequences of dragging British holiday makers away from European destinations? [This is akin to arguments over whether consumer nations of the West have responsibility for carbon content of Chinese manufactures.]