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Date: 27 September 2011

Remarks of Tony Tyler at the Greener Skies Conference, Hong Kong

Good morning. It is great to be back in Hong Kong for this important conference. Congratulations to Orient Aviation for creating it. I attended the first three of these Greener Skies as the CEO of Cathay Pacific. And it is an honor to be attending the fourth as the Director General and CEO of IATA. It is a valuable platform for the aviation industry to communicate on the critical issue of the environment.

Targets

And we have a very good story to tell. We are the only global industry that has set targets to reduce its carbon footprint. Airlines, airports, air navigation service providers and manufacturers are committed to:

  • Improving fuel efficiency by 1.5% annually to 2020
  • Capping net carbon emissions from 2020 with carbon-neutral growth
  • And cutting net emissions in half by 2050, compared to 2005.

Let’s put some numbers to that so we can understand the magnitude of the challenge we have set for ourselves. Aviation represents 2% of global manmade carbon emissions. This year airlines will emit about 650 million tonnes of CO2. We will do that while carrying 2.8 billion passengers and 46 million tonnes of freight. And this activity supports 33 million jobs and facilitates $3.5 trillion of global business.

In 2050, we expect to be carrying 16 billion passengers and 400 million tonnes of cargo. The global economy will require us to accommodate this growth in order to function. And we aspire to do that while cutting our carbon footprint in half to some 320 million tonnes.

This is an enormous challenge. But I am confident because the industry is united and committed. Reducing carbon emissions means saving fuel. Next year we foresee industry fuel expense rising to more than $200 billion which will be 32% of our costs. Fuel savings, which go hand in hand with emissions savings, are business critical.

A simple calculation illustrates a strong economic motivation that is perfectly aligned with our commitment to environmental responsibility. If we can reduce our 2012 fuel cost by 1%, that’s $2 billion. For an industry that is only expecting to make a $4.9 billion profit, with a 0.8% margin, that constitutes a very significant saving. So, green business is good business.

But to be successful, we need to tap resources outside the industry. There are some things that only governments can do. So governments must be committed partners in achieving our aspirations. Let me give you a specific example.

ICAO has taken great leadership on the environment. At their last Assembly, governments agreed that aviation should improve fuel efficiency by 2% annually. At the intergovernmental level, this is a major achievement. In fact, as far as I am aware, it is the only agreement among governments on managing the emissions of an industrial sector.

But you will note that there is a difference between the industry commitment of a 1.5% fuel efficiency improvement, and the ICAO goal of 2%. The 0.5% difference is dependant on governments coming to the table.

Strategy

The industry has agreed—and ICAO has endorsed--a four-pillar strategy to manage our emissions. The pillars are:

  • Improved technology
  • Efficient infrastructure
  • Better operations
  • And positive economic measures.

Economic Measures

Governments have shown the greatest enthusiasm for the fourth pillar. But instead of focusing on positive economic measures, they are taking a punitive taxation approach.  A fair and global emissions trading or compensation scheme under the leadership of ICAO is the answer. Unfortunately, Europe’s misguided determination to include international aviation in its regional emissions trading scheme from 2012 is distracting governments from this effort.

Let me emphasize that we support the concept of emissions trading as a possible mechanism for the fourth pillar of our strategy. Credit goes to Europe for promoting environmental awareness in aviation. But its approach to ETS could not be more misguided.

First, a regional scheme cannot solve global environmental problems. But a global scheme through ICAO will. At its last Assembly, ICAO member states agreed to the principles for a global framework on economic measures, which we fully support. These include minimizing market distortions, safeguarding the fair treatment of aviation relative to other sectors, ensuring that aviation’s emissions are accounted for only once and recognizing both past and future efforts of airlines. And there is a work program in place for the 2013 Assembly to agree to a global framework. Unfortunately, Europe’s ETS plans are distracting attention from this important work.

That leads me to a second point. Europe’s plans have generated discord in the international community when we need countries to work together. Why? Because collecting taxes from airlines overflying other countries on their way to its borders is extra-territorial and contravenes international laws including the Chicago Convention.

IATA is supporting a formal legal challenge led by the ATA at the European Court of Justice. A hearing took place in July. And we will get our first indication of the result when the Advocate General delivers an initial opinion next week.

But more important than industry opposition to ETS is the growing opposition among states. While the EU sees the ETS as environmental policy, the rest of the world sees it as an attack on sovereignty. The colonial era, when Europe imposed taxes on the world ended some time ago. China, India, Russia and the US are among states taking action.  In fact the US is processing a bill that would make it illegal for its carriers to make the required payments. This has passed through the House of Representatives Transportation Committee already—unanimously.

The third point of contention is the layers of uncoordinated taxation that are developing. The UK APD—originally conceived of as an environment tax now collects GBP 2.5 billion. That is enough to offset all of the UK’s aviation emissions four times over. Germany and Austria have introduced copycat taxes. But I don’t see any commitment to withdraw these when the EU ETS starts.  We should compensate for our emissions once, not many times over.  Last week I met QANTAS CEO Alan Joyce who noted that when the EU ETS takes effect QANTAS will be participating in three uncoordinated ETS schemes – in Europe, Australia and New Zealand.  On top of payments due under these schemes, there are big complexity and compliance costs.

And finally, there is no requirement for monies collected through the European ETS to be spent on environment projects. They just go to the general treasuries of governments. This is not acceptable.

I could go on to describe further deficiencies in Europe’s plans, but there is a debate planned for later this morning to do just that. I hope that this will be food for thought to start the discussion.

There is still time for Europe to refocus its efforts on supporting a global framework for economic measures. And with mounting opposition I would certainly hope that someone in the European Commission is working on a Plan B that is centered on where this debate really belongs—ICAO. We at IATA stand ready to engage in and support such a discussion.

As we approach 2012, the ETS will continue to get significant attention and rightly so, given its $1.2 billion cost in the first year. But economic measures are only one part of our environmental strategy. And, I would like to make two points here.

  • First, our long-term vision is to reduce emissions, not pay for emissions trading permits. Economic measures are a medium term measure until technology, operations and infrastructure solutions are fully developed.
  • Second, any market based measure must go hand-in-hand with governments doing their part. Airlines should not have to pay for emissions that could have been avoided with responsible government investment in more efficient infrastructure and low-carbon technology.

Let me briefly address each of those—looking at what the industry is doing and how governments could be more proactive including with some positive economic measures.

Operations and Infrastructure

I will tackle operations and infrastructure together. Each has its own work program, but they are like two sides of the same coin.

Our most recent initiative is iFlex. IATA worked with ICAO, CANSO, ASECNA, at least four civil aviation authorities and two airlines—Delta and Emirates—to deliver shorter flights, improved fuel efficiency and reduced CO2 emissions—of course without compromising safety. To ensure quick implementation we did not change standards or procedures. It was simply doing what was possible in a coordinated way.  Tests conducted from end-June to end-August on flights from Johannesburg to Atlanta achieved an average 8 minute savings per flight. That equates to savings of 900kg of fuel and 2.9 tonnes of carbon.

This is just one project but there are numerous others:

  • The Pacific Project aims to cut trans-Pacific flight times by 10 minutes for annual saving of 750,000 tonnes of CO2 with user preferred routings.
  • In Australia we are working with the military to allow civilian aircraft to nominate military air fields as alternative airports. The reduced fuel that we will need to carry on each flight should add up to savings of nearly 400,000 tonnes of CO2 annually.
  • The ASPIRE and INSPIRE partnerships are showing that flying in perfect conditions over oceanic airspace can deliver savings of 10 tonnes of CO2 per flight.  The challenge is now to find ways to operationalize these savings in the daily business of flying.

This is only a partial list of the initiatives in this region. But it gives you a sense of the significant activity that is ongoing. And you will have noted that I said working together or in partnership several times. That is the critical element that will lead to long-term success. We must now take this cooperation to the next level with a much more ambitious program of improvements.

Of course you are all familiar with the two mega projects for air navigation: US NextGen and the Single European Sky. NextGen funding continues to be subject to political battles in Washington. The Single European Sky needs stronger leadership to bridge technology and politics to deliver the promised 16 million tonnes of annual CO2 savings.

And then there is the local mega-project—sorting out the congested traffic in the Pearl River Delta. Here we need the various governments involved to accelerate this major work program.

Another potential mega-project is gaining traction—the Seamless Asian Sky. Asia is changing the dynamics of the global air transport industry. In 2009 it replaced North America as the world’s largest market. Both were about 26% of global passengers. But by 2014 we expect Asia to account for 30% of the global total, while North America will fall to 23%. The promise of India and China is well known and we can expect exponential growth in their industries to continue. And I have just been in Indonesia – a country with similar growth potential and a mission to connect 240 million people on 18,000 islands across over 5,000km of sea.

Aviation growth in this region is predicated on flying being safe, efficient and environmentally responsible.  The Seamless Asian Sky meets all of these criteria. Various projects in the region show that governments and industry can successfully cooperate. And the mess of air traffic management in Europe that SES is struggling to fix should be a loud rallying call to Asia-Pacific to plan to accommodate growth by taking a regional approach to air traffic management—one of course that is harmonized with global standards.

ICAO will play a big role ensuring harmonization between the world’s large infrastructure programs by developing a step approach to improvements which can be implemented globally – the Aviation System Block upgrades. IATA is ready to facilitate progress with full support from the users of the system.

Having lived and worked in this region for many years, I fully appreciate the can-do approach to getting things done quickly. Seamless Asian Sky is a great opportunity for this region to capitalize on that spirit and get ahead of the curve—maybe even leapfrog ahead of Europe and the US. Our vital mission is to ensure that aviation can continue to grow and do its important work—raising millions from poverty and creating wealth both physical and of the human spirit.

Technology

Technology will be an even bigger driver of reduced emissions. Today’s aircraft and engines are over 70% more fuel efficient than the first jet aircraft. Each new generation of aircraft brings about improvements in the order of 15-25%. And airlines are investing $1.3 trillion in new aircraft that will join our fleet over the next decade.

Airlines will continue to demand improvements in safety and fuel efficiency. And the competitive nature of the business ensures a ready market if a new product can provide significant cost savings. Our friends at Airbus and Boeing have been doing this for years. And I believe that the introduction of new competition from Bombardier, COMAC, Embraer, Superjet and others with a wider range of single aisle aircraft will accelerate innovation—which is always a good thing.

But technology is not just about the aircraft and engines. It is also about how we fuel the fleet. I believe that the most significant leap forward in the industry’s environmental performance in the coming years will be the commercial use of sustainable biofuels.

A few years ago I remember sitting at a Greener Skies conference and listening to presentations on biofuels. It was all very impressive, but it also seemed very pie in the sky and futuristic—not to mention the concerns over potential detrimental impacts to the food value chain.

I for one have been amazed at how quickly we moved forward. Biofuels are not theory, they are reality. We are past the testing stage. ASTM International's committee on petroleum products and lubricants has approved a new specification for hydroprocessed renewable jet fuel. At least six airlines — KLM, Lufthansa, Thomson, Finnair, Interjet and AeroMexico — have used them on passenger services.

Over their life-cycle, sustainable biofuels could reduce our carbon footprint by up to 80%. That is a game changer. But despite the quick progress to date, some major hurdles still remain. One of the highest is to get the big oil companies to come on board with serious investments. Oil companies make good money on aviation’s $200 billion fuel spend. Now we need them to invest to make commercialization possible at prices that make sense for an industry with margins in the range of 1%.

I am encouraged that rather than waiting, some airlines are themselves getting into the fuel supply business. British Airways, QANTAS, Alitalia, KLM and ten American carriers are at various stages of development in this area.

Paul Steele will elaborate on the next steps in the development of biofuels later today. But there are two final thoughts on the topic that I would like to leave with you.

The first is the tremendous potential for sustainable biofuels in Asia. Jatropha and camelina grow almost anywhere. Projects that turn municipal waste into jet fuel are possible and could take place in cities across this region. And Asia has a lot of places which could accommodate algae production. For countries dependant on oil imports this could be an enormous economic opportunity to supply fuel needs locally.

I am particularly pleased to see that Air China, Boeing and Petro China are working together on a biofuels program, starting with test flights over the Pacific. With the resources of the companies involved, this is a significant step forward.

The second thought is that we need to do a much better job of convincing governments to encourage the development of sustainable biofuels for aviation with appropriate fiscal and legal incentives—the positive economic measures that are part of our four-pillar strategy.  And let me be clear, this is not a plea for handouts, but for strategic decisions to support investments that foster the growth of green economies that include aviation.

The Future

So we have our work cut out for us. But as I said at the beginning of my presentation we have a good story to tell and one that is supported by impressive results.

Our success will be critical to ensuring the industry’s future, which must be built on a foundation of environmental responsibility and sustainable development.

And part of the secret to success is our ability to communicate our good work. There is no doubt that the inability to expand Heathrow is related to the mistaken belief that aviation is a dirty industry. But it is taking time to correct that perception. And in the meantime, development is stunted and connectivity suffers.

I am impressed that the debate in Hong Kong on the third runway, while taking into consideration its environmental impact, has been rational and factual. I fully believe that the third runway is vital to protect Hong Kong’s hub status and support economic prosperity. And with all the measures that the industry is taking, I am convinced that it can operate under environmentally responsible principles.  We need to keep this momentum in Asia—so that we don’t lose the high ground that has kept most governments in the region focused on using aviation as an engine for sustainable growth.

Conclusion

IATA has an important part to play in driving aviation’s approach to environment. It is one of our top priorities and I am certainly proud of IATA’s role as a catalyst for some of the good work that is being done. Of course, the long-term sustainability of all of these efforts is dependant on strong partnerships held together by a common vision.

The industry’s value chain is united around targets and a strategy. But to deliver positive economic measures, technology improvements, more efficient infrastructure and better operations we need governments to be much more proactive stakeholders and real partners.

At the COP-17 meeting in Durban this December we will be reporting our outstanding efforts on the environment. Alongside this we will send a clear signal to governments to work even more closely together. First and foremost, this must be through ICAO at the global level to set a strategic framework, including one for economic measures. But also individually at a local level to implement programs and provide incentives that safeguard aviation’s vital function as an engine and catalyst of sustainable development.

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