The latest policy brief from the Harvard Project on Climate Agreements provides rare insight into the inner workings of the airline industry. The extraordinary agreement on international aviation explains the key role played by the airline industry in the design of the Carbon Offset and Reduction Scheme for International Aviation (CORSIA).
The scheme addresses the growth in total CO2 emissions from international aviation above 2020 levels. CORSIA will save the aviation industry tens of billions of US dollars each year by avoiding a costly patchwork of overlapping and distortive measures.
In the short-to-medium term, carbon offsets sourced from other sectors and sustainable aviation fuels will make the largest contributions to achieve carbon neutral growth from 2020 (CNG 2020).
However, it is wrong to think that the climate issue has somehow been outsourced through the use of offsets or sustainable aviation fuels. Measures within the sector can also make an important contribution. Beyond fleet renewal and load factor performance, improvements in infrastructure and airline operations can deliver about 20% of the cost-effective CO2 emission reductions needed to achieve the CNG2020 target over the next decade.
About 60% of the within sector abatement opportunities can be realised from undertaking infrastructure improvements (mostly at air navigation system providers). Airline operations, in the air and on the ground, make up the remaining share (see chart).
Chart: Cost-effective CO2 reductions within aviation in 2030
Source: Veritas Global using data from IATA March 2016 presentation (McKinsey & Company/IATA) Note: Jet fuel price assumption $90 per barrel
Cost-effective CO2 emission reduction opportunities within aviation are not being realised because of “non-price barriers.” Meaning there are non-financial factors that prevent the realisation of these opportunities.
One example is a restriction on the use of airspace leading to longer flights. Another example is a corporate culture that ignores unneeded extra weight to be carried on flights leading to more fuel burn. These issues can be overcome only through additional interventions that target the specific barriers. If the within sector abatement measures (see chart) are fully implemented, annual cost saving of US$37 billion in 2030 will be achieved by the aviation industry.
For comparison, IATA forecasts global airline profits in 2019 at $28 billion. In contrast to generating cost savings, purchasing offsets will impose additional costs to industry. To meet CNG2020 industry will spend over $7 billion in 2030 on offsets (assuming a global carbon price of $20). Given the options, the priority needs to be to target the cost-effective abatement opportunities within the sector.
To deliver on the opportunities within the sector, the industry needs to introduce interventions that target the barriers that are preventing the implementation of these measures. For infrastructure, a new advocacy initiative needs to be launched that mobilises industry stakeholders and the climate community to get governments to prioritize reforms at air navigation system providers.
For airline operations, a targeted capacity building initiative is needed that will first diagnose problematic practices and subsequently offer trainings on how to implement solutions. A broader focus on addressing barriers is also warranted, for example helping remove political barriers in markets where access to the latest environmentally friendly aviation technologies is hindered. Crucially, these initiatives would need to complement and go well beyond existing efforts.
In addition, the industry needs to become more proactive on the climate issue. Just as consumers have placed new demands on airlines, airlines as consumers need to also be more vigilant of their supply chain performance. In many cases, the on the ground supply chain CO2 emissions will fall outside the scope of CORSIA.
Nevertheless, as stakeholders in addressing the climate crisis, airlines need to demand better performance of their supply chain. By developing a globally harmonized set of performance metrics for its supply chain, in way that incorporates climate issues, can help benchmark performance and drive better business outcomes in the aviation industry.
It is shareholders, not Greta Thunberg, that should be most demanding of the aviation industry on performance against climate metrics. Realising cost-effective opportunities within the sector and taking a proactive stance on the climate issue is good for business. Collective industry leadership is needed to propel this change and address the climate crisis.
About the author: As senior economist at the IATA chief economist office, George Anjaparidze led the design of CORSIA and was the lead economist on air cargo and aviation infrastructure. He is currently CEO of Veritas Global, a Swiss economics and strategy think tank and advisory service: www.veritasglobal.ch