Green issues move up the balance sheet

By Fiona Harvey, Environment Correspondent
Published: October 6 2008 03:00

Ryanair shareholders attending the company's general meeting in Dublin in September were bemused by a sight not often associated with such gatherings, when a bare-chested young man wearing an oxygen mask approached the podium where Michael O'Leary, the chief executive, was speaking.
The protestor, with "Exposing O'Leary's Lies" written across his chest, accused the airline chief of denying the damage his fleet was causing to the climate. His protest underlined the pressure aviation companies are under from the green movement.
All air travel accounts for only a few per cent of total greenhouse gas emissions, but its projected expansion means it will become a much bigger source of emissions within 20 years.
Flying also produces much more carbon dioxide than some other forms of transport.
The rising number of short-haul flights to destinations that could be served by railways, which produce less carbon per passenger, has been a complaint of environmentalists.
Campaigners say airlines have had unfair tax breaks on fuel that have skewed the economics of travel. Will corporate aviation be the next target for protests?
Joshua Blackburn, head of the ethical communications agency Provokateur, says it is unlikely that protestors will home in on corporate jets and business travel soon, as they are targeting the industry as a whole rather than niches.
But he warns that corporate travellers must become more aware of their impact, especially those using company or business hire jets.
"Using corporate jets puts you at the front of the queue as far as your carbon footprint is concerned. There isn't much else that would make your footprint bigger."
He predicts that such trips will become "socially unacceptable" and that environmental groups will target companies that claim to be "green" but continue using "this form of corporate indulgence".
The corporate aviation sector is becoming increasingly aware of the threat to its reputation of failing to deal with climate change.
Mr O'Leary called his lone protestor an "eco-looney", but other parts of the industry have taken a more conciliatory approach, seeking to reduce the impact of their flights.
For instance, Boeing has worked with seven airlines in the past year - including British Airways, Air France KLM, Continental Airlines, Delta Air Lines and El Al - on a "performance improvement package" of fuelefficiency technologies that save 1,300 tonnes of carbon dioxide per aircraft per year.
There is an economic advantage, too. Per Noren, vicepresident of environmental strategy at Boeing's commercial aviation services division, says: "Operational efficiencies become environmental efficiencies and the aviation community can contribute to a cleaner future."
But voluntary measures are only part of the picture. Regulation is also increasing, in Europe at least.
Airlines will be covered by the European Union's emissions trading scheme from 2012. They will be allocated a fixed quota of carbon emissions, and must buy carbon permits from other groups if they need to emit more.
This will impose large costs. Robert Casamento, a director in the power and utilities team at Ernst & Young, says: "Airlines incur very high carbon abatement costs compared with other industrial sectors.
"In addition, many expected technological improvements, such as fuel- efficient engine designs and lighter-weight components, will not be in place in time to achieve significant emission reductions before 2022."
A report last year by Ernst & Young predicted that the cost to the European aviation industry of purchasing the emissions allowances needed for traffic growth could exceed €45bn in the period from 2012 to 2022.
Mr Casamento says this could have the effect of "jeopardising the long-term viability of many airlines and increasing the need for further consolidation. Some European airlines are already beginning to develop carbon-hedging programs."
The costs will translate directly into higher ticket prices for all travellers.
One aspect of the regulations that is still unclear is the treatment of private and corporate jets. One proposal would exempt such flights from the scheme, provided "carbon offsets" are bought to cover the emissions.
Offset schemes allow travellers to cancel out the effect of their emissions by buying carbon credits, which fund carboncutting schemes, such as wind turbines or solar panels, usually in developing countries. They are already used by many corporate travellers and several charter and fractional schemes.
A separate proposal would exempt companies making fewer than 245 flights in four months.
But if corporate and private jets are included, it would "impose a serious administrative burden", says Mark Bissett, partner at Stephenson Harwood, a law firm.
Companies would pay a financial penalty in having to buy emissions permits, but more costly would be ensuring compliance with the scheme through monitoring emissions and having them independently verified.
At least, however, companies could deflect the wrath of environmentalists by pointing to their compliance with the emissions trading scheme.
Copyright The Financial Times Limited 2008