what should the airline industry do to offset its carbon emissions?

01.06.07 John Moore Liverpool University STM

What should the Airline Industry do to offset its

Carbon Emissions? Is the Airline Industry condemned to be

the scapegoat for Climate Change?

Thesis Presentation-Oscar Gonzalez MSc Management Consultancy Programme

What should the Airline Industry do to offset its Carbon Emissions?

01.06.07 John Moore Liverpool University Slide 2

Contents of the presentation

Introduction

Literature Review

Investigation Methodology

Findings

Analysis/Discussion

Conclusions and Reflections



On February 2nd 2007, the IPCC issued a report stating "unequivocal" proof of global warming caused by man-made emissions of greenhouse gases. This was the point of no-return for many policies and hard decision that were waiting to be taken by leaders around the world.

This has forced the Airline Industry to change its strategies to ensure the environmental sustainability of the industry; from considering profit maximisation as the fundamental objective of business, into a more environmentally friendly, sustainable and corporate socially responsible.

Everybody within the aviation industry recognise that

aviation pollutes and that decisive actions to minimize carbon emissions need to be taken as soon as posible.

Introduction



Airline Industry needs to engage in a dialogue with governments and regulators on how the industry can achieve its targets in the most efficent way, priotizing sustainability but keeping the viability of the business.

There is not an exact concensus about figures considering the total contribution of Aviation to CO2 global emissions, but all the authors conicide that is not more than 3% and that if the industry keeps growing at the actual rate and not substantial improvements are achieved, it will grow up to 6 % by 2050. Aviation contributes to carbon emissions less than other indstries like energy, road transport and even agriculture. However, this is not an excuse for inaction.

Introduction - (Continue)



Climate Change has been the centre of debates

concerning the Airline Industry responsibility to operate in harmony with the environment at a profitable economical cost. The key points is whether the environmental regulations cause a conflict with the profitability of airlines.

Some authors see the environmental influence on industries as a threat for business interests, while others just see the situation as a business opportunity.

Environmental Influence as a threat for Business

Positions in the middle

Environmental Influence seen as an Opportunity

Literature Review



Environmental Influence as a threat for Business

…a green approach will always result in extra-costs for companies... (Walley and Whitehead, 1994)

…companies' competitiveness can be reduced by the rising in prices, which are the consequence of the costs associated with pollution, prevention

and cleanups… (Wubben, 1999)

Literature Review



Literature Review

Positions in the middle

“…Not convinced by either side in this debate, a large group of scientists and some supranational organisations take a position somewhere in the middle. They assert that the link between environmental standards and trade flows is obscure, weak or non-

existent…" (Wubben, 1999).



Literature Review

Environmental influence seen as an opportunity

“ …Managers must start to recognise environmental improvements as an economic competitive opportunity, not as an annoying cost or an inevitable threat ...the early movers - the companies that can see the opportunity first and embrace innovation-based solutions -will reap major competitive

benefits… “ (Porter & Vand Der Linde, 1995)




I based my research methodology on the research

process “Onion” proposed by Saunders et al, in their book Research Methods for Business Students (2002).

The research philosophies I chose are Interpretivism and Realism.

Interpreting the Airline Industry challenges to offset their carbon emissions and Realism to analyse the behaviour of people running the airline industry.

Research Approach, Inductive.

The research approach chosen is, Inductive because there was not a theory to validate yet.




Research Strategies

most of the information obtained was secondary data extracted from reading Case Studies.

Grounded theory will be doubtless another indispensable tool to analyse objectively the information collected without pre conceptions or bias.

The time horizon considered was a Longitudinal one.




Data Collection Methods I had considered to collect my primary data through interviews or questionnaires sent to the environmental policy makers of several airlines and Civil Aviation Authorities, but due to time constrains I could not proceed this way. However, I did contact some of them by telephone and the information they gave me as unstructured interviews gave me a good panorama.

Secondary Data, like; statistics, forecasts, regulations and opinions from experts came from specialized information sources like Airline Business Magazines, Academic Journals, electronic databases and Aviation Regulatory Agencies websites.



Findings

There are three approaches to promote environmental commitments in the Airline Industry:

Government Regulations (Cap Emissions)

Market-based (economic incentives) (e.g. taxes and charges). “Carrots and Sticks”

Value-based incentives (voluntary participation)



Findings

Motivations to meet environmental commitments :

Financial benefits

Competitive advantages

Enhancing image and being a good corporate citizen

Stakeholder pressure

Desire to avoid or delay regulatory action

Deterrents to embrace an environmental friendly strategy :

lack of regulatory or market pressure

short-term profits are preferred over long-term environmental investment because of the requirements of shareholder dividends, pressure from banks, markets and investors



Analysis/Discussion

The Stern Review, a report about Climate Change

commissioned by the UK Government, says that, if we don’t act now, the overall costs of tackling climate change in the future will be much more expensive.

This study mentions three elements of policy that are required for an effective response:

Technology policy

Operational Efficiency

Carbon pricing



Analysis/Discussion

Technology policy

An aircraft's fuel consumption (and therefore its amount of CO2 emitted) can be reduced by minimizing its weight and aerodynamic drag. Boeing and Airbus the two biggest manufacturers of aircrafts, claim that their last generation products the B-787 and A-380 will be 20 % more fuel efficient per passenger that the current generation of aircrafts.

Some manufacturers are offering aerodynamics enhancement modifications (Winglets) to improve approximately 3 % the fuel efficiency of current airplanes.

Jet engine manufacturers are experimenting with new fuels that pollute less (bio fuels).



Operational Efficiency

Aircrafts are supposed to fly in a straight line, because that is the shortest distance between two point. Unfortunately, due to Air Space restrictions imposed by States, most of the times they are not allowed to do this. According to the IATA, there is aprox a 12 % inefficiency in air traffic management globally. That represents up to 73 million tonnes of unnecessary CO2 emissions a year.

Implementing schemes like the Single European Sky and shortening routes would eliminate this situation, this is a problem that only needs political will to be solved.

Analysis/Discussion



Analysis/Discussion

Carbon pricing

There are different mechanisms designed to quantify economically the cost of Carbon emissions, the aim is to calculate the cost of offsetting carbon emissions and through different mechanisms such as, carbon pricing, green taxes or emissions trading, pass the costs to the people responsible.



Analysis/Discussion

Financial Mechanisms to offset Carbon emissions

Passengers offsetting their carbon emissions voluntarily.

Green Taxes (example; Air Passenger Duty in UK)

Emissions Trading Schemes



Limitations of the carbon offset industry

There are some ETS that despite being usually well-intentioned are unreliable or inefficient, because they have these flaws.

Schemes are loosely regulated and wide open to fraud (example; running schemes which do not exist; claiming exaggerated carbon cuts; selling offsets that have already been sold).

they require an accurate measure of the emissions to be offset

require an accurate measure of the carbon saved elsewhere and additional evidence that a carbon reduction would not have occurred anyway

Analysis/Discussion



Conclusions

Governments are using a “Stick and Carrot” policy with other industries to reduce their carbon emissions, but only Sticks with the Airline Industry. Airlines profits are squeezed with “Green taxes”, that are not invested in the environment and not reward their efforts to pollute less. They already have enough incentives trying to save as much expensive fuel as they can. If Governments are really willing to tackle carbon emissions in the Airline Industry, they should include airlines in ETS, unify Air Space controls and incentivate R & D in environmentally friendly technologies.



List of Abbreviations

CO2 Carbon Dioxide

ETS Emission Trade Schemes

IATA International Air transport Association

IPCC - Intergovernmental Panel on Climate Change

what should the airline industry do to offset its carbon emissions?

Technology

aviation industry

co2global emissions

itscarbon emissions

threatfor business

business positions

business interests

business opportunity

middle environmental