The market price of cutting airline emissions

23.9.2009 (BBC – Robert Peston’s picks blog)

Whenever I talk or write about how the outlook for growth in the UK, US and some
other parts of the world is much worse than it was before the Crunch, there are
some who always respond that they’re delighted.

These tend to be individuals concerned about climate change, and fearful that
the world’s governments and big businesses will never reach agreement on stemming
emissions sufficiently – because the benefits are always slightly further away
than the immediate financial pain of producing less or investing in expensive
green technology.

But if we could only muddle through in a world of low or zero growth, they say,
we’d all be so much better off in the long term – because we would not be incurring
tomorrow’s climate-change costs for today’s nebulous and transient (in their view)
prosperity.

So will the voluntary agreement announced today by the airline industry to reduce net CO2 emissions by 50% by 2050 compared with 2005 levels reassure
these doubters?

Unless they’re peculiarly uncharitable, they’ll say it’s a useful journey in
the right direction.

But they won’t be uncorking any kind of carbon-neutral, celebratory beverage
– because the industry does not expect to stabilise emissions until 2020. Which
most psychologists would say is too far away to serve as much of a deadline.

And the associated commitment to improve so-called CO2 efficiency by 1.5% a year
on average is vitiated (or so critics would say) by the inclusion of the words
“on average” – it allows plenty of wriggle room for semi-worthless promises to
do better if CO2 efficiency were not to improve.

So there’ll be concerns about the enforceability of the commitments. And also
worries that the promised cuts – large as they may seem – are not enough.

Aviation emissions currently account for just under 2% of global emissions, but
have been growing fast, so the offer of cuts by the industry may be seen as too
little in the context of gains in energy-efficiency made in other parts of the
economy.

Far more effective in reducing carbon emissions, for the airline industry and
more widely, has been the global recession. When all those factories shut down
in China and other parts of East Asia, when airline travel slumped, the impact
on emissions was significant.

According to the International Energy Agency, global CO2 emissions will fall
more than 2% this year – with most of the decline the result of the weakness of
the economy, rather than the fruits of deliberate government policies.

But to state the obvious, no government will be re-elected on a platform that
recession is good for us and should be prolonged indefinitely, so world leaders
are still on the hook to make difficult sacrifices at the climate-change summit
in Copenhagen later this year.

And here’s the striking thing. British Airways’ share price is a bit higher this
morning in a rising stock market.

Which doesn’t imply that investors see BA as enduring serious pain for long term
gain.

An emissions pact that is share-price neutral is probably not carbon neutral.

http://www.bbc.co.uk/blogs/thereporters/robertpeston/