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Date: 16 July 2008

Farnborough Air Show

Climate change is the biggest issue facing the planet. It’s at the top of the world’s political agenda and rightly so. Aviation contributes 2% of global carbon emissions according to the Nobel Prize-winning IPCC. That’s 673 million tonnes of carbon in 2007.

We are a growing industry at 5-6% per year. Our responsible approach to the environment has limited the growth in our carbon footprint to half of that. So, even by 2050, according to the IPCC, our contribution could be limited to 3%. Aviation is and will remain a small part of the big problem of climate change. But, we are determined to be a part of the solution.

The Challenge

The challenge is to keep the enormous and growing economic benefits of aviation - 32 million jobs supporting US$3.5 trillion in economic activity - and eliminate the environmental impacts. You heard from the speakers today that we share a commitment to reduce our carbon emissions. This commitment crosses geographies and unites competitors. More importantly it’s delivering results.

The Commitment

IATA’s four pillar strategy addresses climate change by investing in technology, flying planes effectively, building efficient infrastructure and using positive economic measures. All 179 states attending the 2007 ICAO Assembly endorsed it and it was the basis for a declaration signed in April by the CEOs of Airbus, Boeing, Bombardier, Embraer, CFM, GE, Pratt & Whitney and Rolls-Royce as well as IATA, ATAG, ACI, CANSO and other associations and companies. Our strategy is now a common commitment with aggressive targets. By 2020 we will achieve a 25% improvement in fuel efficiency compared to 2005. IATA, representing 230 airlines and 93% of scheduled international traffic, is even more ambitious. We are mapping the way to carbon-neutral growth with a vision for a carbon-emission-free future. No other industry’s approach is as united, responsible or ambitious.

The Crisis

Today, airlines are in crisis. Oil is above US$140. Jet fuel is over US$180 (1). In five years fuel went from 14% of operating costs (2)  to over 34%. If oil averages US$135 for the rest of the year, the industry bill will be US$190 billion. And next year it could be over US$250 billion. There is no alternative to kerosene. Saving fuel not only reduces CO2 emissions it is a matter of survival.

Results

IATA’s environment leadership is delivering results. We worked with our members to implement best practice in fuel management. In 2007 this saved 6.7 million tonnes of CO2 (3)  and US$1.3 billion in cost. We also worked with governments and air navigation service providers. Optimising 395 routes and procedures in 81 airports saved 3.8 million tonnes of CO2 (4) and US$831 million in costs. We could save up to 73 million tonnes of CO2 with better air traffic management but while painting themselves green to win votes governments are slow to deliver results.

Single European Sky

Look at Europe. After decades of discussion, instead of a Single European Sky, we have a mess of 35 air navigation services providers. Last year there were 21 million minutes of delays in Europe and12 million of those were in the air. Each of those minutes cost the environment 159 kg of carbon (5) and, at today’s fuel prices, wasted US$55. The European Commission estimates the total cost of fragmentation at 16 million tonnes of CO2 a year. This must change.

We had some good news recently. Vice President Tajani achieved Commission approval for the Single European Sky Second Package. Now Europe’s governments must look beyond national self-interest to do what is best for Europe and the environment. Political leadership and vision are needed. I challenge the French Presidency of Europe to turn Europe’s biggest environmental embarrassment into a success story.

Other Operations

A Single European Sky is only the beginning. There are at least 2 other big messes to clean up. The crumbling US air traffic management system needs to be replaced with NextGen technology to save nearly 17 million tonnes of CO2 (6). Inefficient procedures in China’s Pearl River Delta add 20 minutes to flights arriving or departing north from Hong Kong. Redesigning the air space could save up to 340,000 tonnes of CO2 (7) in Hong Kong alone. Working together we can deliver impressive results. Look at RVSM. Flying aircraft safely and closer together avoids congestion and costly delays. Implementing RVSM in China last year saved 1.1 million tonnes of CO2 and US$250 million. Soon Africa and Russia will implement RVSM saving a further 800,000 tonnes of CO2 and US$350 million. The technology we have invested in can do much more if we use it. Every Continuous Descent Approach (CDA) we make saves between 150 to 600kg of CO2. Each Clean Airspeed Departure (CAD) saves between 600 to 5000 kg of CO2. But progress is too slow. The dual challenges of climate change and high fuel prices demand faster action.

Governments

Unfortunately the only time that we see governments acting fast is when they are lining their own pockets with taxes. Governments think green and see cash. But taxes don’t reduce emissions, better operations and technology do. Europe led the way in raising awareness on environment. But today it’s fixated on one small part of the solution - economic measures. And even then they picked the wrong agenda by focusing on punitive measures. We don’t want handouts. But let’s see more investment in research on alternative energy and radical aircraft designs. And why not tax credits for buying fuel-efficient aircraft? Instead, all I see is a rush to implement economic penalties on the industry with taxes, taxes and more taxes. They all have an environment label but do nothing to reduce emissions. Let me focus on two of these.

Air Passenger Duty

First, the UK’s Air Passenger Duty. If the government has its way, by 2010 it will be a GBP3.5 billion pot of honey for the UK treasury. That GBP3.5 billion is enough to offset 4 years of the UK’s civil aviation emissions (8). Who’s benefiting?

Just the treasury. It is incredible to see that without planting a single tree the UK’s politicians are completely lost in the woods on aviation and the environment. The UK proposal will lead to market distortions. And governments - including the UK - are double counting. On top of APD we have Europe’s emissions trading scheme (ETS) and more taxes in the Netherlands and elsewhere. It’s time to use an Italian word to describe the mess - BASTA. We have had enough of governments that cannot see the wood for the trees! It’s time for some political honesty about where the billions are going and what they are achieving.

ETS

And if the UK’s excessive and punitive tax is not enough, last week Europe concluded unilateral plans to bring aviation into its emissions trading scheme. In its first year, this will cost the airlines EUR3.5 billion. By 2020 the cost could reach EUR13 billion. Let me be clear, IATA supports emissions trading but it must be global, fair and effective. Europe’s approach could not be more wrong.

First, it’s not an effective incentive. Developed when oil was US$55 per barrel, it was meant to be an economic stick to force airlines to become more fuel-efficient. Europe’s politicians have not seen the giant club of US$140 oil. It has beaten the life out of 25 airlines already this year and we expect many more to follow into bankruptcy protection if they can afford it, or straight into liquidation if they cannot. To survive, airlines are doing everything possible to reduce fuel burn. The ETS will add cost but will not improve the results. And, like the APD, there is no guarantee that any of the EUR3.5 billion collected will be spent on the environment. The legislation says that this “should’ happen. Without a firm requirement the only sure thing is that national treasuries have found a new revenue source.

Second, the timing is wrong. Why make long-ranging policy decisions in the moment of a crisis when the future is completely uncertain - even five years out. And why make fuel more expensive when it is at its highest level ever - an 87% increase in the last year? Clearly green politics has got in the way of good policy.

Third, it is illegal. Europe has failed to understand that it cannot decide global policy alone. It has already forgotten the bitter lessons of its unilateral approach to hushkits only 7 years ago. It lost and ICAO global standards won. Already over 130 states have stated their opposition to Europe’s action. It contravenes Article 1 of the Chicago Convention. How can Europe expect to charge an Australian airline for emissions over the Middle East on a flight from Asia to Europe? This will be challenged at ICAO and in the International Court of Justice. And a responsible industry could easily be caught in a trade war of a layering of punitive economic measures. Instead of cleaning up the environment Europe is creating an international legal mess.

BASTA again on unilateral emissions trading. Going global is the only way to success. The drafters of Kyoto understood this. In Article 2 of the Protocol they identified ICAO to lead aviation’s progress on the environment. Even as the European Parliament voted for a unilateral regional approach the leaders of France, Germany, Italy, the UK and Europe confirmed ICAO’s responsibility to deliver a global solution in last week’s G8 declaration. It’s an uncoordinated mess.

But I want to be polite, so I will call this schizophrenia instead of hypocrisy. States will make or break the ICAO process. ICAO strengthened its approach with political leadership through GIACC - the High Level Group on International Aviation and Climate Change. Europe can take the credit for raising awareness on the environment. Now Europe’s responsibility is to ensure that ICAO is successful.

Time to Focus

It’s time to re-focus. Our common objective with governments should be to reduce emissions not charge for them. Industry’s four-pillar strategy is delivering results. Now governments must play their role responsibly by taking the reality of US$140 oil into account, stopping their green grand-standing and joining the industry’s global and comprehensive approach. Positive economic measures, including a global approach to ETS under ICAO’s leadership, are part of the strategy. Punitive taxes disguised as environmental measures are not. Technology, operations and infrastructure will be the real drivers of innovation. No matter what the incentive, governments need to act to fix air traffic management, invest in research and work towards an effective global solution on emissions trading. It’s our responsibility to work together so airlines can continue to deliver massive economic benefits while limiting - and eventually reducing -  their carbon footprint.

Notes:

  • (1) IATA-PLATTS Jet Fuel Monitor quoted average composite jet fuel price of US$180.80/barrel for the week of 4 July 2008
  • (2) In 2003 it was 14%, in 2008 it is forecast to be 34% on consensus oil price ($106.5/b)
  • (3) 2.6 billion litres of jet fuel
  • (4) 1.5 billion litres of jet fuel
  • (5) Based on aircraft burning 63 litres of fuel each minute.
  • (6) Estimate by McKinsey & Co. for year 2020
  • (7) Estimate by McKinsey & Co. for year 2020
  • (8) At GBP 22.2 per tonne for carbon permits, GBP 3.5 billion would buy offsets for 156 million tonnes of CO2. Currently 40 million tonnes of CO2 are attributed to the UK’s aviation sector. Hence GBP 3.5 billion would offset approximately 4 years of emissions.
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