ATA tells Congress that Lieberman-Warner Bill would have significant economic repercussions for US airlines
James C. May, President & CEO of the Air Transport Association of America
Thu 8 May 2008 – In a submission to the Aviation Subcommittee of the House Committee on Transportation and Infrastructure, Air Transport Association of America (ATA) President and CEO, James C. May, said the proposed Lieberman-Warner legislation would impose a punitive emissions tax on aviation which would counterproductively hit investment in new technology that could further improve fuel efficiency and reduce emissions.
As drafted, the bill would indirectly cover aviation through an ‘upstream’ cap-and-trade system that would require fuel producers to acquire allowances sufficient to cover the GHG content of the fuel they sell to the sector. The fuel producers would then incorporate the costs of the allowances into fuel prices and so passing them on to their airline customers.
Based on existing data and FAA forecasts, ATA estimates the annual extra cost to US commercial airlines of the system would be around $5 billion in 2012, assuming a $25 emissions allowance price. Using analysts’ estimates that the price would likely rise to around $40 by 2020, the annual cost would amount to nearly $10 billion in that year, and continue to grow thereafter. This would have significant economic repercussions, says the ATA, on the airline industry and the economy, as every penny increase in the price of a gallon of jet fuel drives an additional $190-200 million in annual fuel costs for US airlines.
“These increased costs would diminish the airlines’ ability to continue to realize the tremendous fuel efficiency improvements and emissions reductions we have achieved within the industry and, therefore, would be counterproductive,” May told the Committee. “Indeed, it is difficult to imagine how we could handle a GHG-based surcharge on top of the exorbitant fuel prices we are experiencing.”
May said the application of the bill to commercial aviation was “unnecessary” as airlines were already incentivized by the market to minimize GHG emissions, without further market-based measures. However, he asked that should Lieberman-Warner be applied to aviation, it should be “carefully calibrated” to take key considerations into account.
One such mechanism, he suggested, would be to provide the airlines with allowances up front, either directly or as a required pass-through from fuel providers, “in recognition of the fuel efficiency achievements we have made to date and the importance of preserving the airlines’ ability to continue to invest in new aircraft technology.”
Another mechanism would be to take some of the proceeds generated from the auctioning of allowances and reinvest those proceeds into aviation. This would allow, said May, for additional funding of programmes and technologies that promise to further reduce aviation GHG emissions, such as NextGen, alternative aviation fuels and other environmental technology breakthroughs.
May also believed any climate change legislation should take into account the international nature of aviation and that US carriers had to compete with airlines of other nations on many routes. He reminded the Committee that the US had signed up to the Chicago Convention and should, arguably, defer to the International Civil Aviation Organization (ICAO) for additional measures that addressed aviation GHGs. “At a minimum, however, we should ensure that any measures taken in the US are compatible with our international aviation agreements,” he said.
“Against this backdrop, we are compelled to share our concerns about the bill in the hope that the House of Representatives will craft its legislation to avoid or minimize those concerns.”