As I am about to head off on a long-haul flight with the family to see friends in Abu Dhabi, I’ve been reflecting on one of the toughest challenges, that of air transport. I remember talking to a colleague several years ago about the challenges of climate change. He was deeply concerned about the issue but I remember him saying that one thing that people shouldn’t give up is flying because the broader benefits of travel outweigh the cost of the climate impact of the flight. At the time I probably jumped on my moral high horse and told him this was an unacceptable attitude but actually I think he had a point.
Flying accounts for around 2-3% of global emissions although recent research on the warming effects of contrails (or vapour trails) puts the overall contribution to warming at more like 5%. Whichever number is correct, nobody is disputing the fact that the problem will continue to grow significantly for the next few decades. And for good reasons. As developing nations get richer their citizens want to explore the world beyond their borders for both business and leisure purposes. The last thing the world needs right now is for everybody to stay on their own islands.
For long-haul travel, there really is no substitute on the horizon for kerosene-fueled jets. There has been slow development of biofuels partly because the energy to weight ratio for fuel is that much higher when you are battling gravity. The IEA forecasts a paltry 10% by 2030 (20% by 2040) of fuel coming from SAF (Sustainable Aviation Fuel). This forecast scenario is predicated on relatively small subsidy of SAF.
The simple solution here, as in many other sectors, is to tax the bad option (Kerosene) and use the money to subsidise the better option (SAF). However there are two pretty big problems with that:
- By its very nature air transport is international, of course, so planes can just fill up in the lowest tax jurisdiction. It requires global cooperation to uniformly apply taxes, something that the EU has started discussing but it is still far from clear how this can actually happen.
- SAF in the form of biofuels aren’t exactly the ideal solution. As with all biofuels there is a trade-off to be made with land-use. Any land used to grow biofuels is likely to be also good for growing crops to feed people. So there is more pressure on land and a greater incentive to cut down forest. Second-generation biofuels do aim to take this into consideration but the scale of growth required to replace fossil fuels will inevitably lead to a competition for land at some point.
So we have a market failure of epic proportions here. The thing (air travel) that is causing significant negative externalities (i.e. costs borne by 3rd parties who are not consuming the thing) is being sold at a price that in no way reflects its cost. It is difficult for governments to use taxes to reduce demand and the substitutes carry their own negative externalities.
The next best answer then is offsetting the emissions from aviation and / or investing in Carbon Capture and Storage (CCS). Effectively funding other actions not related to aviation that will remove Carbon from the atmosphere. This needs money and I have an idea where it might come from.
Large corporates are responsible for a significant proportion of the warming effects of flying, especially as they are more likely to fly business class. If I was CEO of a global people-centred business, with a large number of flights taken by employees, this is what I would do:
- Identify any high volume short-haul routes where there is a decent alternative (i.e. short-haul domestic flights such as London-Manchester in UK) and ban those flights.
- Place an internal tax on all other flights. Each business unit will have an operating budget, some of which is spent on travel. The leaders of these business units will now have an additional cost to pay into a central pot every time one of their employees books a flight. The tax can be easily calculated based on the calculated CO2 emission of the flight. There would be a multiple that might start at 1x in the first 6 months to get everyone used to the new system but would quickly scale up over 2-3 years so that the cost would be significant to the business unit and there would be real pressure to reduce flying.
The central pot would then be run as an investment fund. This would fund a combination of offsetting and investment in R&D to find alternative fuels and develop CCS. These investments are likely to be high risk but as it is a ring-fenced fund it should not impact the credit-rating of the mothership. If the fund is well run it should provide a long-term return to the business accepting some failures along the way.
If governments are not able to use taxes to reduce demand then global corporates have a responsibility as well as an opportunity to step up and show real leadership here. The positive impact on brand reputation would be significant with consequent benefits for attracting and retaining employees as well as customers. They would also be positioning themselves well for a scenario in which governments did actually manage to agree a taxation regime.
Who should lead on this? Well, really anyone who operates globally with large numbers of knowledge workers who rack up the air miles. Maybe you work for such a firm. Maybe you are already considering something like this. Leave a comment below and let us know if you think it could work.