Good morning. It is great to be back in Hong Kong. And it is particularly nice to be among so many good friends and former colleagues…focusing together on one of the top issues on the international agenda—the environment. That we are all gathered here today is a testament to how seriously aviation takes its environmental responsibilities. The industry has committed to:
- Improving fuel efficiency by 1.5% annually to 2020
- Achieving carbon-neutral growth from 2020, and,
- Cutting our net emissions in half by 2050 compared to 2005 levels.
As far as I am aware, no other global industry has made such ambitious commitments.
Aviation represents 2% of global manmade carbon emissions. In 2012 we estimate that amounted to 677 million tonnes of CO2. Our license to grow is contingent on our ability to do so sustainably. That means managing our emissions and other environmental impacts effectively.
The implications of this debate go well beyond the aviation industry. Three billion people will travel by air this year and nearly 50 million tonnes of cargo will reach its destination on a plane. Worldwide, this activity supports 57 million jobs and $2.2 trillion in economic activity.
That’s impressive, but it’s just the beginning of the story. Aviation-enabled connectivity impacts almost every aspect of our lives—from the food we eat and the medicines on which we rely to the global exchange of ideas and culture, the development of business opportunities, and the ability to interact with colleagues, friends and family on a global basis. Aviation has enriched our world. Ensuring that it can continue to grow sustainably is in everybody’s interest.
This part of the world in particular has a huge stake in aviation’s ability to grow. In 2016 we expect 3.6 billion people to board airplanes. That’s 600 million more than this year. And about half of that growth will be on flights to, from or within Asia. That increase in connectivity will drive economies, generate jobs and create wealth. So it is critically important to protect aviation’s license to grow and ensure that it meets its sustainability commitments.
Working Together for Global Results
We are making progress with a strategy that has been agreed across the value chain—airlines, airports, air navigation service providers and manufacturers. The strategy’s four pillars should be familiar to all of us:
- Investment in new technologies
- More efficient operations
- Better infrastructure
- And positive economic measures—now more commonly known as market-based-measures or MBMs.
And if I look around this room I see people representing the key elements needed to turn this strategy into results. The industry is gathered here. And I also see representatives of governments. To make progress on this strategy, industry and governments must be aligned and working together. And the scope of that work must be global. Aviation is a global industry and climate change is a global issue. It only makes sense that the solution also be global.
Market-Based Measures (MBMs)
This year presents a tremendous opportunity for progress on MBMs. Last November the European Union announced that it would “stop the clock” on extending the EU Emissions Trading Scheme (ETS) to international aviation. Governments and industry applauded this decision.
Why? Because it defused a potential trade war and avoided the fragmentation of our global strategy for reducing emissions. International tensions had been building in opposition to the EU’s extra-territorial approach to including international aviation in its ETS. Stopping the clock allowed governments to focus their attention on finding a global way forward through the processes of the International Civil Aviation Organization (ICAO). Work is going on in earnest to prepare such a solution for approval at the ICAO Assembly which takes place in late September this year.
This is all positive. But we should not be lulled into thinking that a global deal will be easy. We have seen how difficult and slow the United Nations Framework Convention on Climate Change (UNFCCC) process has been. The principle of “Common But Differentiated Responsibilities (CBDR)”—which essentially determines who pays and how much—has made finding a common way forward a difficult challenge. ICAO has full responsibility for aviation’s international emissions. So aviation is being discussed in a completely different forum which has been guided by a principle of universality. It would be a mistake to under-estimate the influence that parameters of the global debate on climate change have on the ICAO process. After all, it is the same countries that are negotiating in both forums.
Please don’t interpret that as a criticism of ICAO, which has an excellent track record of delivering global agreements. Last year a first step towards a CO2 standard for new aircraft was reached. And earlier this month an agreement was reached on a more stringent noise standard for new aircraft. Both will improve the industry’s environmental performance. They also provide important certainty for the significant fleet investments that airlines are making. ICAO is clearly the forum for reaching global consensus on environment issues for aviation.
ICAO is exploring three options for a global MBM: carbon offsetting, carbon offsetting with a revenue generating component and a full, global ETS.
With a straightforward carbon offsetting scheme, an airline would have to buy carbon credits to cover any excess emissions over an agreed baseline. Monitoring, reporting and verification procedures would be subject to global standards as would the environmental schemes supported. That’s the first option.
The second option would combine this with a revenue generating component. A further charge would be linked with the credits being bought and the extra revenue would then be used to support further environmental mitigation projects.
The third option is a non-discriminatory, non-distortive, global ETS. This would have to include commitments on how to spend any money raised. And having a global scheme would eliminate the sovereignty issues that plagued Europe’s unilateral plans for its ETS.
Offsetting appears to be the simplest to implement. But, for any of the options, the devil will be in the details of implementation. We will be vigorous in reminding governments that aviation is a very competitive industry. Last year, the industry generated a net profit margin of just 1%. So it is critical that governments agree to a system that preserves fair competition. With razor thin margins, the consequences of even a small skewing of the competitive playing field could be severe.
Recognizing that the process for governments to reach an agreement will be difficult, it is in the industry’s interest to provide as much support as possible.
Our Board of Governors has also recognized that we should provide governments with a unified position on how to share fairly the burden of carbon-neutral growth from 2020 (CNG2020). The implications of CNG2020 will be very different for airlines in a high growth phase than for those in more mature markets, for example.
There is no perfect solution to level the burden. But an agreed industry position would aim to spread the burden as fairly as possible. And that is likely to be more palatable to airlines than a scheme exclusively designed by governments in the absence of airline expertise and experience. The incredibly complicated and burdensome monitoring, reporting and verification (MRV) requirements of the EU ETS proposals are a clear example of how things can go terribly wrong when we leave it to governments to decide how we should run our businesses.
IATA’s role is to facilitate an agreement among airlines. We fully expect that technology, operations and infrastructure measures alone will provide the long-term solution for aviation’s sustainable growth. As such MBMs will be a temporary gap-filling measure until the full impact of new technologies and sustainable biofuels can be realized. But even at that, the costs of MBMs to enable CNG2020 will be measured in the billions of dollars. So the industry is engaged in a robust discussion of all the options. Compromises by all will be required.
I am convinced (as is our Board) that an agreed compromise among airlines—in other words a united position—will stand the best chance of getting a fair deal on MBMs. The next months will be critical in this process.
It’s Not Just About MBMs
MBMs make for interesting discussion. And the politics that they encompass will keep them in the spotlight within the industry and in the media. But our goal is not to continue to pay for emissions in perpetuity. So let me spend some time discussing the other pillars of our strategy with a focus on the role of governments. Specifically, I would like to look at sustainable biofuels and air traffic management.
I believe that sustainable biofuels offer a tremendous opportunity for aviation. I know that there is some skepticism about the future of biofuels. But the developments so far are reason for optimism. They have been tested and certified. And over 1,500 commercial flights have been powered with the help of low-carbon alternative fuels since certification was granted in 2011. So the question arises…why are they not playing a greater role in the aviation industry?
The answer is simple. The small quantities being produced have not enabled the economies of scale necessary to bring the price down to economic levels. And, with a few exceptions, government policies are not providing proactive support. A lot of attention is being paid to biofuels for land transport. It is a much bigger consumer of liquid fuel for transport, so some may see logic in that. But a look at the distribution systems makes a convincing argument for placing greater government policy attention on supporting biofuels for aviation where a quick win can be achieved with far less investment.
About 10% of the liquid fuel for transport is used by aviation. And the distribution system is relatively simple. 190 airports worldwide account for 80% of the industry’s fuel needs. Compare that to the distribution system for road traffic which relies on over 160,000 distribution points in the US alone. Getting biofuels distributed for aviation is going to be a lot easier.
So what can governments do to help the industry move towards full commercialization of biofuels for aviation? They need to understand it as a strategic priority and follow a common-sense six point list of actions that could make a big difference. And they are somewhat sequential:
- First, governments could foster more research to improve production methods and expand source crops.
- Second, we need to place a priority on developing policies that de-risk investment in biofuels and related industries.
- Then, these should have the effect of providing economic or financial incentives for those investing in the industry.
- Alongside that, we must establish global sustainability criteria so that investments can be made with confidence that the products produced meet globally agreed standards.
- Governments must also understand and take advantage of local opportunities so that the biofuel industry can have the positive impact of supporting local production and stimulate local economies.
- And lastly governments should support supply chain collaboration so that biofuels can access airport distribution points
We are not asking for any favors, let alone for direct subsidies. This is very similar to what governments have done to move forward the development of wind and solar power. Following through on this list will be a policy decision that will pay off in catalyzing major economic opportunities in many local areas. And the chances of success are high. Aviation is a relatively small user of fuel. But the concentration of distribution points for aviation biofuels makes it an investment in sustainability that governments should prioritize over other heavy users of liquid fuel for transport. If not, the investment will go elsewhere and the opportunities will be lost. And those investments elsewhere will be far more expensive and far less efficient for governments in the long run.
Air Traffic Management (ATM)
Equally important is government action to improve the air traffic management system. Almost a third of airline costs are consumed in fuel. We are eager to fly more efficiently. And that would help the environment. Airlines have invested billions in advanced avionics. And much of this goes to waste because improvements in air traffic management have not kept pace.
Technology is the answer. But in many cases politics is a blocker. The Single European Sky (SES) is a prime example. Failure to implement it wastes some 8.1 million tonnes of CO2 annually and costs the European economy some EUR 5 billion a year.
Everybody agrees that SES is needed—especially the European Commission. But national governments are stuck in an outdated mentality and a misunderstanding of what is truly in the national interest. IATA with the Association of European Airlines and the European Regions Airline Association recently published ‘A Blueprint for the Single European Sky’. In the report, we outline a roadmap towards achieving the SES targets on cost, safety, capacity and, of course, environmental performance. There is no insurmountable technical obstacle, but three key reforms that are essential:
- A binding performance system through the establishment of an independent European regulator for air navigation charges
- The rationalization of ATM structures through opening up services to competition and a reduction in the number of air traffic control centers across Europe to not more than 40
- Improving the efficiency of the network through the modernization of the ATM system
It is no exaggeration to say that sorting out the SES is the industry’s biggest ATM challenge today. And the impact on environmental performance is significant. But improving ATM efficiency is in a global challenge—including in Asia. The situation is not as critical. But traffic is growing. And the bottlenecks in the Pearl River Delta and in the Golden Triangle of China are very well known—particularly to travelers to and from Hong Kong.
I am encouraged that the Seamless Asian Sky project is gaining momentum. It is a very positive step that countries are getting together through ICAO to think regionally about air traffic management. My colleague Ken McLean will provide an update later today. I would just like to say that the airlines fully support the work that is being done. Anything that we can do to avoid the critical situation that has evolved in Europe will contribute tremendously to the financial and environmental performance of the industry.
On that positive note, I will draw my comments to a close. Since the last Greener Skies conference in 2011 a lot of progress has been made on aviation and the environment. At that time the EU ETS was a roadblock to establishing a global approach to MBMs. With that roadblock removed we are well positioned for a breakthrough. Governments are focused on ICAO to agree upon a solution at the upcoming Assembly. And the industry is united and working hard to support that solution by sharing the burden of achieving CNG2020. A lot of hard work lies ahead.
The challenges are alignment and political will. As an industry we must remain united in our commitments and in our messages to governments on the support that we need to achieve them. That will create the alignment needed to ensure a sustainable future for our very important industry and the benefits that it brings to the world.