3 Dec, 2007
Travel Sectors Mulls Cost and Impact of Climate Change
Although the travel & tourism industry is slowly waking up to the impact of climate change, it is a long way from understanding how it will be affected by the slew of added taxes, costs, policies and mitigation measures set to unfold over time.
A declaration of principles formulated by the UN World Tourism Organisation to be presented at the IPCCC conference in Bali starting today [Davos Declaration: http://www.unwto.org/pdf/pr071046.pdf] outlines the industry’s responsibilities and calls for action to mitigate its carbon footprint, but is presaged on the desire to “grow in a sustainable manner.”
However, it confronts two major reality-checks: higher costs and curbs creeping into the system are designed to limit the capacity that has grown exponentially in recent years; and efforts by other sectors such as telecommunications to bolster their growth by diverting business from the transportation sector.
A recent report by Lehman Brothers, called the Business of Climate Change, clearly identifies the looming threat in one of the highest yield segments – business travel and meetings.
It says, “Climate change policies imply higher energy prices, and therefore more expensive travel. Internet-based solutions may be part of the response. And at least as far as business travel is involved, telecom operators could be part of the solution.
“Telecoms have an important role to play in dematerialization and transport substitution. For example, they enable: flexible working solutions, such as work from home; audio and video conferences to avoid travel — BT (British Telecom) estimates that every conference call saves a minimum of 32kg of travel-related CO2 emissions.
“As people and businesses still take advantage of only a tiny fraction of the services available via the internet, we (Lehman Brothers) see a significant opportunity for telecom companies in the development and marketing of innovative products and services that reduce reliance on carbon-intensive journeys.”
Indeed, the appeal of the telecommunications route is growing by the day, especially as companies seek to cut travel costs and business travellers report both a desire to spend more time with their families as well as increasing frustration with growing security hassles and intrusive, time-wasting airport checks.
The Lehman report indicated that the entire transportation sector is set to come under increasing scrutiny, with aviation a key focus of interest, especially in the wake of its inclusion under Phase II (2008-12) the European Union Emissions Trading Scheme (EU ETS).
It noted: “The potential impact of climate change policies on aviation companies is gaining progressively more attention in the sector.”
Although new technologies to improve fuel efficiency are being developed, and airlines are looking for design innovations as well as factoring environmental performance into the purchases of new aircraft, the pace of change could be slow. “The full aircraft replacement cycle takes 10-15 years,” the report said.
The report notes that the EU ETS covers emissions from flights within the EU from 2011, and all flights from and to EU airports from 2012, regardless of the nationality of the carrier. Allowances will be capped at their average 2004-06 level.
The European Commission estimates that, once airlines are included in the EU ETS, and assuming that they fully pass on any extra cost to passengers, the price of a typical return flight within the EU could rise by between €1.8 and €9 by 2020, the report says.
Also coming up are carbon taxes, usually implemented on passenger tickets (e.g., the UK’s Air Passenger Duty).
Says the Lehman report, “Recently, new proposals have been made to raise the tax on plane tickets by around £27 for every return flight. This follows UK Prime Minister Gordon Brown’s doubling of Air Passenger Duty in his final budget as Chancellor of the Exchequer.
“However, the scope for limiting travel by a carbon tax is limited at present by a longstanding agreement with the International Civil Aviation Organisation (ICAO) forbidding the levying of tax on international flights.”
The report says that a carbon-trading scheme implies direct and indirect impacts on the aviation sector, thus:
<> Direct impacts: If aviation is included in a carbon-trading scheme, all carbon emissions represent a cost, obliging airlines either to invest in low-carbon-emitting technologies or to buy emission rights;
<> Indirect impacts: The emission trading scheme implies an increase in the price of carbon and thereby an increase in the price of fuel. In the aviation sector, fuel costs represent a large part of the total cost structure.
It adds, “The net increase in airlines’ costs will likely necessitate capacity reductions relative to what would have been obtained otherwise.
“For established full-service airlines, this could mean lower utilization of the existing fleet in the near term, and slower capacity growth over the long-term. For the low-cost segment, a segment of the industry that prices aggressively to drive volume, higher costs will likely lead to reductions in growth.”
At the same time, the report says, “Higher energy-related costs will also likely drive continued interest in fuel-saving technologies, such as winglets, and in more fuel-efficient operating procedures, such as single-engine taxiing.”
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