If a carbon tax or emissions trading scheme is necessary to reduce the world wide reliance on fossil fuels, only a global scheme will do for the aviation industry.  In a recent press release, the Australian Minister for Climate Change and energy, Hon Mr Greg Combe announced that an agreement has been reached with the European Commission to link the Australian and European schemes in a shared market place.

The two schemes where, in many ways, disparate and if a linked scheme was going to work, changes would be required.  As a consequence the Australian Government has had to make some amendments to the scheme which had a fiery gestation and was finally passed in July.  A major change was the abandonment of the $15 AUD carbon price floor.  The European carbon price is currently below $10 whereas the Australian price was going to be set at $23 for a couple of years until a true ETS was established.

I suspect that Qantas will welcome this initiative because, like most other international airlines the prospect of being straddled across a number of schemes was likely to be costly and probably place our national carrier at some commercial disadvantage.

Although aviation has made great steps forward in terms of energy efficiency, the industry is likely to be reliant on some forms of fossil fuel, blended or eco-fuels for the rest of my lifetime.  I think it is generally acknowledged that eco – fuels are an interim measure until the next big and commercially viable energy initiative becomes an aviation industry commercial reality.  Other transport modes, road, rail and even marine transport have other energy sources available, but aviation is not so easy.  Electricity, nuclear energy or wind powers are probably not options. 

This brings me to the ultimate questions; what other energy forms are available to the big commercial end of the aviation sector and, as the world in all respects is so reliant on aviation, should governments pool some resources to fund aviation energy research?

The Australian Federal Government appears to be committed to an Emissions Trading Scheme (ETS).  In spite of the politics surrounding this issue, it is inevitable that Australia will develop something consistent with global and national expectations to cut carbon emissions.

All industries including aviation will be subjected to a scheme which in the final analysis is designed to modify our individual and collective behaviours so as to reduce our ‘carbon foot print’. 

Much work has being going on behind the scenes in ICAO, and the Group on International Aviation and Climate Change (GIACC), in which Australia was represented, has recommended a global aspirational goal of 2% annual improvement in fuel efficiency of the international civil aviation in-service fleet.  This would represent a cumulative improvement of 13 % in the short-term (2010 to 2012), 26% in the medium-term (2013 to 2020) and about 60% in the long-term (2021 to 2050), from a 2005 base level. 

These targets may appear optimistic, but regardless of your view on them, be rest assured that the aviation industry is seen to be an easy target in spite of the fact that it only contributes about 2% of the world carbon dioxide and only 3% of the man made contribution to climate change.  By way of contrast, the road transport industry contributes 74% of the global CO2 emissions.

Accepting that some Government initiated scheme will occur, the questions must be asked; who, what and when? 

Little information has been made available about the ETS and how it may affect the aviation sectors.  Of most concern is that regional and general aviation may not be able to pass on associated costs due to consumer intolerability.  Before any detail of the ETS or any other scheme is decided upon, industry must be consulted and studies undertaken to determine what impact an ETS will have on the industry and the consumers it serves.  Having obtained the information, policy should be developed to ensure that any scheme acknowledges and compensates for the scheme; consistent with promises made to the energy and mining industries.  Industry should also be involved in a working group or groups to ensure a sensible, effective and efficient implementation of the scheme.

There is a real danger that sectors of the aviation industry serving regional and remote communities (particularly) may wither on the vine in the new climate of the ETS.

A few people have asked me about the differences between a greenhouse carbon tax and a carbon permit trading scheme, and how these may impact the aviation industry.  I have done some research but this is a complex subject and I do not confess to be an expert.

Essentially, there are three possible options as I understand it;
• A carbon tax
• A carbon trading scheme and
• A combination of both

All three alternatives are designed to have the following broad outcomes;
• Reduce the production of carbon and other greenhouse gases
• Promote improvements in technology and processes to reduce greenhouse gas emissions
• Compensate society for the ill-effects of greenhouse gas emissions

A carbon tax could take a variety of forms, but for administrative simplicity it is likely to impact on the aviation transport sector through either a fuel tax at the point of refining/importing or a tax at the fuel bowser.  In any event, a carbon tax on aviation, regardless of where it was collected, would probably appear as a tax on fuel.

Taxes have the advantage of being administratively simple, easy to sell to the general public and already a familiar part of most financial systems.  Carbon taxes have the added attraction that, in the course of ensuring a more acceptable level of greenhouse gas emissions, revenue is generated as a side product.

Aviation operators would naturally pass this cost on to the consumers of their services.

As I see it the disadvantages of the tax are;
• The tax has a compounding effect on the end product.  For example, if an airline was paying a carbon tax on fuel, and required a part to make a repair, that part is also probably subjected to the compounding effects of a carbon tax, whether it be here or in an overseas country.  This raises the cost of providing the air service exponentially.
• On the other side of the coin, provided the consumer is willing and able to pay, there is theoretically no upper limit on the amount of carbon produced.

The impact of a carbon tax on the demand for fuel would also depend in part on whether there was offsetting tax reductions, in particular, reductions in fuel excise.  Offsets are a common mechanism of Government to introduce a new and contraversial tax.  The incidences of the two taxes would differ, however, as the carbon tax would be calibrated to reflect different levels of carbon in different fuels, unlike the current fuel excise which is related to volume.

An emissions trading scheme is somewhat different.  A tradable emissions permit is the legal right to emit a specified quantity of greenhouse gas.  This right can be bought or sold on the open permit market, with the price determined by the demand and supply of permits. 

Industries which produce low quantities of, or make changes to reduce greenhouse gas production may sell their permits to those who either, cannot or will not make changes to reduce emissions.  Some industries lend themselves to changing processes, making technological advances or reducing gas output through other means, where as others such as the aviation industry are highly regulated and cannot make significant changes quickly.  The certification processes alone to produce more fuel efficient engines, airframes and biofuels and even direct routing may put this industry at an innate disadvantage compared to other industries.  As a consequence, aviation is always probably going to need to buy permits from those industries which are less complex and more flexible.

Tradable permits may impact on the aviation industry through higher prices, however, just as carbon taxes set the price of emissions allowing the quantity to adjust, tradable permits set quantities, leaving prices to adjust.  I think that both systems more or less produce the same outcome, but in my view one appears to be disadvantageous to aviation.

I think an Emissions Trading Scheme presents more risk for aviation because it has the potential to be less reliable in terms of carbon price predictability, and because the industry would be required to bid head on with other significant carbon producers.  The Aviation industry needs to form a working group to develop a reasonable system which will suit its unique nature, and one which will be acceptable to Government.