Features, December 1999/January 2000 CO2 permits prepare for take-off Aviation is a significant and growing source of greenhouse gases. Several approaches are now being considered to limit the industry's contribution to global warming. Perhaps the most radical suggestion involves assigning emissions permits to individual aircraft. Graham Cooper reports Designing and building modern airliners is a complex and expensive task. Few industries demand such reliability from products which have an operational life of around 30 years and few other products have a unit price which can exceed $200 million. Given the lengthy design process and substantial production runs of popular aircraft, it can be 50 years between a new model being designed and production ceasing. At the same time, civil aviation is one of the fastest growing industries in the world and manufacturers have to anticipate changes not just in absolute traffic volume but in patterns of demand. Other key issues to be considered include noise regulations; traffic restrictions at airports; engine choice; seat configurations; and the growing importance of airlines in developing countries. Soon, another factor will further complicate manufacturers' lives - pressure to limit emissions of greenhouse gases. Among several suggestions as to how the aviation sector do this is the idea that emissions permits could be assigned to individual aircraft. Modern, cleaner aircraft would have more permits than old dirtier planes of the same capacity and an overall limit on the number of these permits would mean that manufacturers could build and sell new aircraft only by acquiring old ones, scrapping them and reusing their emission permits. This radical suggestion comes from Rod Muddle, general manager, fleet planning at British Airways, and is one of several market-based mechanisms under consideration by the civil aviation industry. These include a range of emissions trading schemes, taxes and voluntary agreements. "It is not a polished proposal," Muddle admits. Rather, it is intended to stimulate further thinking about a growing challenge to the industry. The key merits of his scheme, Muddle says, are that it would rely on only one regulatory decision - the maximum allowed amount of total aviation emissions - and it would be relatively simple to administer. Like most emissions trading schemes, it would also directly control the industry's emissions of greenhouse gases - something which taxes do not necessarily achieve. And there are encouraging precedents for such trading schemes, he notes, in particular the sulphur dioxide allowance market which is the cornerstone of the US Acid Rain Program. Other arguments against taxes, he notes, are that they are likely to become 'political footballs'; they could distort the market if levied at different rates in different countries; and, unless the proceeds are recycled within the aviation industry, would result in a net economic cost to the industry. The permit at the heart of the system could simply be tonne of carbon dioxide (the main greenhouse gas produced by jet engines). As CO2 emissions are directly proportional to fuel consumption, and data on consumption is readily available for major aircraft types, the allocation of emissions permits should be relatively simple. A Boeing 777, for example, is approximately twice as fuel efficient as a 737-200 (see Figure 1). If it was agreed to impose an absolute cap on the industry's total emissions of greenhouse gases, the system would be straightforward - manufacturers would be granted one CO2 permit for a new aircraft in exchange for every permit retired as a result of scrapping an old aircraft. This would, in principle, make it easy for the aviation sector to trade permits with other industries engaged in emissions trading such as the power utilities. Initially, however, Muddle says it is more likely that the exchange would be on the basis of one new permit for the retirement of a fraction of an old permit. This would allow the industry's total emissions to continue growing but at a slower rate than at present. A more aggressive possibility, to achieve a net decrease in the industry's total emissions, would be to give less than one new permit in exchange for each old permit. A second major benefit of such a trading scheme, Muddle says, is that it would curb excess capacity in the civil aviation sector. "It would be a win-win situation," he says, with gains for both the environment and industry profits. Muddle estimates that around half of the industry's capacity growth in recent years has been unprofitable. Under his proposal, the only way to increase passenger capacity would be to improve fuel efficiency. Scrapping an old 200-seat aircraft would allow a manufacturer to build a new plane with more seats only if the new plane was more fuel efficient. And although the technology developments which yield improvements in fuel efficiency come largely from the engine makers, it is the airframe which determines capacity and therefore it should be the aircraft builders rather than the engine makers who hold the emissions permits, he suggests. Administration of the scheme should be simplified by the fact that the industry is dominated by a handful of manufacturers. But reaction from the airframe builders has been mixed, he concedes. "Airbus and Boeing consider it a constraint on their growth," he says. But he adds that some of the smaller aircraft builders have been more positive and notes that there is growing awareness in the industry that capacity growth does not necessarily mean growth in shareholder value. The scheme also appeals to engine builders, he says, as there would be much more research and development money available for new engine designs if future market growth was limited by fuel efficiency. "We are aware of Muddle's proposal, but it is too early to say more," says a spokesman for Airbus Industrie in Toulouse, France. The company is currently evaluating it, along with several other proposals. "We are serious about meeting emissions targets," he adds. Rival US manufacturer Boeing acknowledges that emissions trading can produce optimal benefits for the environment at minimum economic cost, says a spokesman, but only if it is implemented across various industry sectors. "We believe it is premature to focus on any particular solution with regard to aviation emissions," he adds, other than continuing to reduce fuel use through better design and operational practices. FOR THE FULL STORY EVERY MONTH, SUBSCRIBE TO ENVIRONMENTAL FINANCE, OR CONTACT info@environmental-finance.com FOR OUR BACK ISSUES SERVICE