Contributed by Robert Lyman © 2020. Lyman’s bio can be read here.
In December, 2019, I posted an article on the Friends of Science Society blog entitled The Global Assault on Aviation Emissions. In it, I described the efforts of the European Union and of the International Civil Aviation Organization (ICAO) to establish a global regulatory regime that would sharply reduce greenhouse gas (GHG) emissions from aviation. The previous article can be read here:
In brief, the efforts to reduce aviation emissions include three broad approaches:
• The public “shaming” and intimidation of individuals and companies that are deemed by climate activists to be unduly using aircraft to transport people and goods;
• The imposition of regulatory requirements (now only in Europe) on airlines annually to report and verify their emissions and to purchase emissions “offsets”, or credits, for emissions above a certain level; and
• The introduction in phases of similar regulatory requirements at the international level under the auspices of ICAO; this regime is called the Carbon Offsetting and Reduction Scheme for International Aviation, or CORSIA.
CORSIA’s objectives are to “facilitate carbon neutral growth” for international aviation from 2020 on. The 192 country Parties to ICAO reached an agreement in 2016 that will eventually oblige all airlines to offset their increases in emissions after 2020. They must do this either by improving the emissions intensity of their operations or by purchasing “credits” from emissions mitigation projects outside of the aviation sector. Between 2020 and 2027, the system is voluntary, but after that it will become mandatory for all countries, with some important exemptions (i.e. for least developing countries, like Cuba); for landlocked developing countries, like Afghanistan; and for small-island developing states, like Mauritius). The European Commission estimates that 80% of the increase in aviation emissions projected by 2050 will be covered by CORSIA, which indicates that CORSIA alone will not achieve carbon-neutral growth in the aviation sector, even if it works perfectly. It will not even achieve emissions reductions from current levels.
CORSIA is due to come into force in January 2021 but will be voluntary for the first six years. That means that only flights between countries that have volunteered to participate in the scheme will have to “compensate” for the growth in their emissions. From 2027 on, offsetting obligations will become mandatory for all international flights. “Offsetting” means either reducing emissions through technology change or changes in operations, or by purchasing “offsets” most of which will be subsidies to renewable energy projects.
The introduction of CORSIA internationally could not come at a worse time. In practice, meeting the CORSIA requirements will mean that airlines will incur increased costs, which they will either have to absorb as reduced profits or pass through to passengers and air freight customers in the form of higher fares. There are no credible estimates yet available as to how much fares will have to increase, only the virtual certainty that, as air traffic increases and the number of offsets to be purchased rises, the costs for airlines and/or their customers inevitably will rise as well.
The Coronavirus pandemic is already placing unprecedented financial pressures on airlines. According to analysis released by IATA on April 2, 2020, airlines will burn through U.S. $61 billion of their cash reserves during the first quarter of 2020 ending June 30, while posting a quarterly net loss of U.S. $39 billion. Under a scenario in which severe travel restrictions last for three months, full-year 2020 demand for passenger aviation services will fall by 38%, and full-year passenger revenues will drop by U.S. $252 billion compared to 2019. Passenger revenues in North America alone are projected to fall by U.S. $50 billion in 2020. No one has yet dared to estimate what the losses will be if severe travel restrictions last longer than three months.
While fixed and variable costs will also fall, the financial position of many firms in the industry will be so seriously affected that they are making urgent appeals to governments to provide bailout packages. In March, the United States Administration approved a U.S. $50 billion bailout package. Estimates of the amount of assistance needed by Canadian airlines ranges from CDN $5 billion to CDN $10 billion, but the Trudeau government has not yet indicated how much, if any, assistance will be provided.
One might think that this is hardly the time to be adding the costs of emissions reductions to airlines’ bills. In fact, the airlines through IATA have sought some modest relief in the form of a change in the formula that determines their offset obligations, so that the base year would be 2019 or an average of 2019 and 2020, thus reducing the magnitude of the emissions offsets they would need to purchase in 2021. Within the European Union, these appeals are being resisted by Green Party members who argue that the price of emissions permits are also falling due to lower energy demand overall.
In fact, environmentalists are using a recent study conducted by researchers from two Swedish Universities to make the case that additional measures beyond CORSIA will be required. The studypaper evaluated three additional national aviation climate policy options, as summarized in what follows:
A Tax on Jet Fuel
Many countries, like Canada, already have taxes on carbon dioxide emissions which theoretically will impose a technology-neutral penalty on emissions regardless of source. Imposing an additional tax on jet fuel would be a way of targeting a specific sector (for punishment?). Today, only Norway and Japan have taxes on jet fuel.
In fact, whatever its merits or demerits, a tax on jet fuel for international aviation is not permitted under current international agreements (ICAO, 1993). They are also prohibited by the European Union Energy Tax Directive. Despite this, it might be possible to introduce a tax on jet fuel for international flights between two or more countries. If governments in Canada, the United States and Mexico, for example, wanted to impose special taxes on jet fuel for flights within North America, they could do so. A tax on jet fuel could also be imposed on domestic aviation, although there could be problems administering it. According to the IPCC, domestic aviation accounts for about 40% of global aviation emissions.
The tax on jet fuel would be intended to provide an incentive to airlines to reduce emissions or to raise the fares charged for passengers and freight. The Swedish study could find not clear evidence based on taxes in place today whether such taxes are effective.
Distance-based Passenger Tax
An alternative is to tax tickets. The United Kingdom implemented an Air Passenger Duty in 1994, and similar taxes have since been implemented by Germany, Sweden, France, Norway, Austria and South Africa. It seems likely that the taxes were imposed more to increase government revenues than to discourage airline emissions. There are no current restrictions on introducing such a tax on international aviation.
Distance-based passenger taxes, in fact, do not give airlines any incentive to reduce emissions. They operate by altering the price relationship between air travel and other transport modes, along with other categories of consumption.
The UK passenger tax is the equivalent of 15 euros (CDN $23) for flights under 2,000 miles and 88 euros (CDN $134) for flights over 2,000 miles. While passengers would be irritated at the higher charge, these rates probably would have only a modest impact on the use of flights or the distance travelled. The conclusionmessage drawn by the proponents is that tax rates would have to be much higher than the UK ones.
Quota Obligations for Biofuels
Governments that now seek to increase the use of biofuels do so by placing restrictions not on buyers but on the companies selling fuels. In Norway, for example, from 2020 on, 0.5% of all liquid fuel sold must be advanced biofuels, with the aim of reaching 30% of the market in 2030. There are no legal restrictions on other countries imposing the same type of requirements.
Many airlines have made occasional flights with biofuels. The aviation industry in Sweden, remarkably, has committed to achieving 100% biofuels for domestic aviation by 2030.
Today, very small volumes of biofuels are produced and prices are high. The long-term future path of biofuel prices is difficult to foresee. More important, the emissions benefits of using biofuels are questionable. A recent study found that the climate impact was higher from biofuels produced from cane, maize, wheat, rapeseed, palm-oil and soybean than from regular motor gasoline and diesel fuel.
Other options for reducing aircraft emissions, involving the use of different technologies, continue to be debated. Electric-powered aircraft are simply impractical (the weight of the batteries required to fuel an aircraft is roughly 30 times higher than the weight of the jet fuel). Hydrogen-fueled aircraft are similarly beyond the pale of possibility for cost and safety reasons. Nuclear-powered aircraft are a complete non-starter, for a long list of reasons, starting with problems of public acceptability.
Consequently, the advocates of radical reductions in aviation emissions are constantly thrown back onto two options: using offset requirements or taxes to so raise the cost of flight that passengers and freight will be forced to seek alternatives, with the consequent effects in terms of delay, or imposing regulatory restrictions on the use of aircraft. The latter would seem to be a non-starter politically, but in a public environment immersed in the ideology of “climate emergency”, who can tell what will be politically acceptable or not in future?
Canadians remain largely unaware of the ongoing development within Canada and internationally of policies that, in the name of reducing GHG emissions, will severely raise people’s cost of energy services or reduce the availability and security of supply of those services. The principal adverse effects of those policies to date in Canada have fallen mainly on hydrocarbons producers in western Canada and electricity consumers in Ontario, Alberta, Saskatchewan and Nova Scotia. However, as illustrated here for the aviation sector, policies are being developed that within the next seven to ten years will have major adverse effects on all sectors of the Canadian economy and all regions. It is remarkable that the broadcast and print media in Canada take so little notice of these developments in their news reporting.
With respect to aviation, we today are witnessing an extraordinary conflict in how governments and international organizations define the public interest. On the one hand, the federal and provincial governments seem willing to spend hundreds of billions of borrowed dollars to partially reduce the cost to business and workers in most industries as a result of a health emergency. On the other, to address a potential climate problem seventy years hence, a major international organization supported by Canada, ICAO, is turning a blind eye to airlines’ requests for partial and urgently-needed financial relief. Indeed, environmentalists are seeking ways to increase airlines’ costs. As has often been commented, you can’t make this stuff up.