Airlines could require $1.4 billion of carbon offsets annually to help achieve emissions reduction goals

Airlines could require $1.4 billion of carbon offsets annually to help achieve emissions reduction goals | PwC

Mon 17 Dec 2012 – The aviation sector has made good progress on reducing its average emissions intensity by 1.7% each year since 2000, finds a new analysis by PwC. However, the global economy needs to cut carbon intensity by 5.1% every year to 2050 in order to have a good chance of limiting global warming to 2 degrees C, with every sector having to play a role in meeting this goal, including aviation. The sector’s ambitious target of halving net emissions by 2050 on 2005 levels is though broadly consistent with the goal but with annual traffic growth of 5%, this will be tough. Continued technological, operational and infrastructure improvements, the purchase of carbon offsets costing around 1.1 billion euros ($1.4bn) yearly until 2031 and rapidly increasing usage of low-carbon fuels will be required, says PwC. A global solution is needed and a failure to adopt a convincing global framework at ICAO later next year would risk re-igniting wider trade tensions, undermine meaningful efforts to reduce aviation carbon emissions and leave regulation in turmoil.


The aviation sector is a small but significant 2.1% contributor to global GHG emissions with most business-as-usual projections predicting the share will continue to rise. Due to increased efficiency from new technologies and operational improvements, driven by high and volatile oil prices, emissions have not risen as fast as distances flown. PwC estimates the average carbon intensity of global aviation traffic fell from above 1.1kgCO2 per Revenue Tonne Kilometre to less than 0.95 between 2001 and 2011, the equivalent of the 1.7% annual improvement.


Further improvements in aircraft and engine technologies will be required to decouple emissions growth from traffic and revenue growth, along with air traffic management (ATM) efficiency gains. The widespread use of biofuels would allow fuel consumption to continue to rise even as carbon emissions fall if the barriers can be overcome. PwC foresees the share of low-carbon biofuels in the fuel mix could reach 30% by 2030, with a suggested 40% share as early as 2035.


As a combination of these measures will not be enough to meet the decarbonisation target, carbon offsets represent a cost-effective way to reduce net emissions still further. An average long-term offset price of €10/tCO2 would amount to less than 5% of a tonne of aviation fuel, says Jonathan Grant, Director of Sustainability and Climate Change at PwC.


“It is likely that carbon offsets will feature at least as an interim solution,” he said. “We could see offset demand from the aviation sector growing to more than 100 megatonnes of CO2 a year by 2020, which would provide a significant boost to the carbon markets. This is more than one-quarter of the CERs issued in 2012.


“The Clean Development Mechanism (CDM) has been in the doldrums throughout 2012 since the economic downturn in Europe. Progress in Doha on the idea of a CDM reserve bank or fund was limited but this could rescue the CDM.”


PwC says it broadly favours market-based measures (MBMs) ahead of emissions regulation as they are generally more cost-effective than command and control measures such as enforcing technology standards. It therefore supports the current MBM proposals being studied at ICAO. One of those measures, global mandatory offsetting, is more simple to administer compared to an emissions trading scheme, another measure, but acknowledges the fundamental concerns over the CDM and environmental integrity of come offset types. Further, adds the PwC report, implementing any of these schemes is likely to be a complex undertaking at a global level and emphasises that the institutional design and administrative efficiency are likely to be just as important to success as the economic parameters.


Putting a price on carbon emissions is unlikely to sufficiently drive the required emissions reductions while maintaining profitability and growth at the same time, and government help will be required. Two key win-win solutions are the support of alternative fuels and investment in ATM. Governments should look to support the scale-up of the relatively immature aviation biofuels sector to reduce costs, which will require the addressing of fundamental issues such as international agreements on food versus fuel production, financing and administrative issues such as clarifying carbon accounting treatment of biofuels. ATM improvements, which are highly cost-effective, can provide long-term positive returns if participants can be brought together or the investment funded or financed by government. As an example, the US NextGen programme could save 14 MtCO2 and save the industry $23 billion in costs.


“Efficiency improvements of 1.7% won’t be enough. Governments will need to get behind this or airlines will miss their own targets. Ultimately, they will need to accelerate advances in fuel efficiency beyond business-as-usual and scale-up biofuel production,” said Roger de Peyrecave, a partner at PwC.


“Coordination on cross-border issues such as international ATM, carbon pricing and incentives for the production of biofuel will be critical. The sector also faces big financial stresses, and reinvesting at least some of the revenue raised from new regulation in the industry will help.”




PwC report – ‘Fasten seat belts: The future of aviation emissions regulation’



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