Hoping for Innovation, Airlines Embrace Environmental Regulation

by Stuart Burns on OCTOBER 13, 2016

It may be strong political lobbying or maybe a perception that the industry is crucial for economic development, but the aerospace and shipping industries have certainly avoided the worst of environmental regulation over the last decade or so.

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The energy and heavy industry sectors have borne the brunt of what some would call over-regulation. But that’s all about to change. 191 Countries gathered in Montréal last week to adopt a global market-based system to tackle the rise of carbon emissions from international air travel an article in the Telegraph explains.

Offset Market

Under the new deal, airlines will be expected to offset their emissions growth after 2020 by buying “offset credits” in line with their carbon footprint, the terms of the agreement layout. The carbon costs are expected to incentivize the industry to develop lower carbon fuels and more efficient technologies, according to the newspaper.

When you look at the environmental impact of the airline industry, you have to say they’ve done well avoiding any significant regulation so far. Almost 1,400 airlines operate a fleet of 25,000 aircraft burning 1.5 billion barrels of jet fuel every year the, Telegraph explains. Last year alone 3.6 billion passengers were carried by the world’s airlines producing 781 million tons of CO2.  The shipping industry is even worse, but we’ll talk about that in a separate article.

Not that today’s aircraft are not much more environmentally friendly compared to those operating at the end of the last century. Aircraft technology has come a long way. Planes fly farther on less fuel and carry more passengers than ever before but, as a result, airline fares have dropped consistently decade after decade. That has contributed to the relentless rise in the world’s commercial jet fleet as more and more people can afford to fly.

Based on current trends, the fleet is expected to more than double by 2025 and by 2050 could be responsible for almost a quarter of the world’s carbon emissions if no action is taken. Currently airlines contribute about 5% of global emissions but with the industry projecting growth of around 4 to 5% a year, environmentalists have been keen to reach some kind of an agreement to incentivize further improvements.

Although the agreement has been criticized as not punitive enough, it has been widely accepted by the airline industry as the most cost-effective way to create an incentive scheme going forward.  Having created a structure to monitor and penalize carrier’s carbon footprints, there’s only one direction these costs will go in the future.

Too Much, Too Fast?

Aircraft sales and construction both faltered this year and some are beginning to question if the industry has already grown too fast, adding capacity at the wrong time. Airline profits have been good in recent years, aided by a collapse in fuel prices and a recovering global economy.

But as global growth slows, and with the potential for higher oil prices in the years ahead as a lack of investment ultimately leads to restricted supply, questions are being asked as to how airlines will cope with additional environmental costs. Some think it will spur the purchase of new, more fuel-efficient aircraft. The Air Transport Action group estimates that by the end of the decade the world airlines will have had to purchase 12,000 new aircraft at a cost of $1.3 billion to meet its 2020 targets. Others question if many airlines will survive.

For now, the industry is pleased it has gotten off with a deal its members feel they can live with. They may not be so sanguine in a few years’ time when legislators start jacking up the carbon offset penalties.