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Policy Pulse

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Failure at UN climate talks increases risk of grounding CORSIA

Policy Pulse - 16 December 2019 - George Anjaparidze


Veteran negotiators say that more time is rarely a recipe for better outcomes. That is certainly true for this year’s annual UN climate talks, which concluded in Madrid on 15 December 2019. The negotiations ran 2 days into overtime, setting a new record for the longest session since the start of the UN climate convention 25 years ago. Despite the extra time, the talks delivered very little in terms of tangible outcomes.


Most disappointing was failure to agree on the rules for international cooperation on mitigating climate change – known as Article 6 negotiations. These rules are a prerequisite for properly functioning international carbon trading. Not having these rules will impact the climate agreement on international aviation – known as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which addresses CO2 emissions above 2020 levels. The absence of clear rules will likely delay implementation of the aviation climate agreement or worse partly “nationalize” CORSIA. Both developments would have negative consequences for the airline industry.


A delay in implementation of CORSIA will erode confidence in the scheme’s ability to stabilize net CO2 emissions from international aviation. This may prompt some ambitious states to impose measures not envisioned under CORSIA. Another danger is that in the absence of international offsetting rules, states may require airlines to purchase national carbon offsets. Requirements for sourcing offsets nationally will hinder the development of a global carbon market and lead to competitive distortions in the airline industry.


In response to these risks, the aviation industry should:

  1. Deepen collaboration with leading institutions that have policy expertise in designing carbon markets. The aim should be to pilot approaches that will demonstrate how CORSIA compliant offsets could be generated under prevailing policy uncertainty. Existing carbon market catalyst programs, such as the one managed by the Asian Development Bank, can be used to support such initiatives with technical assistance.

  2. Scale-up climate action within the sector. About 20% of CO2 reductions, needed to achieve net carbon neutral growth from 2020, can be generated cost-effectively from within the aviation sector. However, these opportunities are not being realized because of “non-price barriers” or non-financial factors. Industry needs to support interventions that target the barriers that are preventing the implementation of these measures (See op-ed: Change of CORSIA).

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About Veritas Global: Our vision is to have a positive impact on the world through truthful advice informed by robust analysis. We are a premier provider of tailored solutions on climate change, international conflict economics and infrastructure. 


 
 
 

Change of CORSIA

Policy Pulse - 16 December 2019 - George Anjaparidze

The latest policy brief from the Harvard Project on Climate Agreements provides rare insight into the inner workings of the airline industry. The extraordinary agreement on international aviation explains the key role played by the airline industry in the design of the Carbon Offset and Reduction Scheme for International Aviation (CORSIA). The scheme addresses the growth in total CO2 emissions from international aviation above 2020 levels. CORSIA will save the aviation industry tens of billions of US dollars each year by avoiding a costly patchwork of overlapping and distortive measures.


In the short-to-medium term, carbon offsets sourced from other sectors and sustainable aviation fuels will make the largest contributions to achieve carbon neutral growth from 2020 (CNG 2020). However, it is wrong to think that the climate issue has somehow been outsourced through the use of offsets or sustainable aviation fuels.


Measures within the sector can also make an important contribution. Beyond fleet renewal and load factor performance, improvements in infrastructure and airline operations can deliver about 20 per cent of the cost-effective CO2 emission reductions needed to achieve the CNG2020 target over the next decade. About 60 per cent of the within sector abatement opportunities can be realised from undertaking infrastructure improvements (mostly at air navigation system providers). Airline operations, in the air and on the ground, make up the remaining share (see chart).


Chart: Cost-effective CO2 reductions within aviation in 2030

Source: Veritas Global using data from IATA March 2016 presentation (McKinsey & Company, IATA); Note: Jet fuel price assumption $90 per barrel, the size of each rectangle is in proportion to the share of CO2 abatement potential of the labeled measure.


Cost-effective CO2 emission reduction opportunities within aviation are not being realised because of “non-price barriers.” Meaning there are non-financial factors that prevent the realisation of these opportunities. One example is a restriction on the use of airspace leading to longer flights. Another example is a corporate culture that ignores unneeded extra weight to be carried on flights leading to more fuel burn. These issues can be overcome only through additional interventions that target the specific barriers.


If the within sector abatement measures (see chart) are fully implemented, annual cost saving of US$37 billion in 2030 will be achieved by the aviation industry. For comparison, IATA forecasts global airline profits in 2019 at $28 billion. In contrast to generating cost savings, purchasing offsets will impose additional costs to industry. To meet CNG2020, industry will spend over $7 billion in 2030 on offsets (assuming a global carbon price of $20). Given the options, the priority needs to be to target the cost-effective abatement opportunities within the sector.


To deliver on the opportunities within the sector, the industry needs to introduce interventions that target the barriers that are preventing the implementation of these measures. For infrastructure, a new advocacy initiative needs to be launched that mobilises industry stakeholders and the climate community to get governments to prioritize reforms at air navigation system providers. For airline operations, a targeted capacity building initiative is needed that will first diagnose problematic practices and subsequently offer trainings on how to implement solutions. A broader focus on addressing barriers is also warranted, for example helping remove political barriers in markets where access to the latest environmentally friendly aviation technologies is hindered.


Crucially, these initiatives would need to complement and go well beyond existing efforts.

In addition, the industry needs to become more proactive on the climate issue. Just as consumers have placed new demands on airlines, airlines as consumers need to also be more vigilant of their supply chain performance. In many cases, the on the ground supply chain CO2 emissions will fall outside the scope of CORSIA. Nevertheless, as stakeholders in addressing the climate crisis, airlines need to demand better performance of their supply chain. By developing a globally harmonized set of performance metrics for its supply chain, in a way that incorporates climate issues, can help benchmark performance and drive better business outcomes in the aviation industry.


It is shareholders, not Greta Thunberg, that should be most demanding of the aviation industry on performance against climate metrics. Realising cost-effective opportunities within the sector and taking a proactive stance on the climate issue is good for business. Collective industry leadership is needed to propel this change and address the climate crisis.


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About Veritas Global: Our vision is to have a positive impact on the world through truthful advice informed by robust analysis. We are a premier provider of tailored solutions on climate change, international conflict economics and infrastructure. 



 
 
 

Air cargo leaders call for action across supply chain

Policy Pulse - 27 November 2019 - Veritas Global Announcement

Air cargo industry leaders and shippers call for closer collaboration in the face of an uncertain global economy. The call to action was made during The International Air Cargo Association (TIACA) Executive Summit in Budapest on 21 November 2019. Summit participants emphasized that volatility in the global economy would persist even as expectations improve – over 7 in 10 executives anticipate an improvement in global trade in 2020. However, the operating environment remains challenging while at the same time shippers continue to stress the need for better service quality from the air cargo supply chain.


Demand continues to grow for high quality, rapid and reliable logistics services. However, gaps in information sharing, lack of transparency and legacy processes have translated to lost opportunities and more volatility for the air freight business. “Air cargo is an attractive product. But it is only as strong as its weakest link.” said Vladimir Zubkov, Secretary General of TIACA. Airports, airlines, ground handlers and freight forwarders need to do more to ensure smooth and tailored handling of air cargo. “There is an immediate need to step up collaboration across the air cargo supply chain,” said Zubkov.


Leaders emphasized that governments play a critical role in reducing volatility through creating an enabling environment for the sector, which empowers economic development. “Better air cargo connectivity lifts more than just payload, it lifts people out of poverty and helps countries move up the value chain,” said Glyn Hughes, Global Head of Cargo of the International Air Transport Association. The opportunity to propel progress is highest in Africa. It is encouraging that African airlines have the highest air cargo growth rates and medium-and-long term prospects look promising. The recently agreed African Continental Free Trade Agreement will further accelerate trade growth. “Africa has moved from talk to action, the continent-wide free trade agreement, the protocol on free movement of people, and a shift of focus to implementing intra-African air transport liberalization will be transformative,” said Abderahmane Berthé, Secretary General of the African Airlines Association.


Leaders highlighted that technology can help manage volatility through supporting greater agility. While specific technology solutions may differ, having a common reference across supply chain operations was identified as critical. “Having a common reference point is like being able to speak the same language. It makes it possible to have a conversation about what is good and what is bad,” said Lars Magnusson, Business Architect of Ericsson. The leaders also stressed that if negative perceptions about the sustainability of air cargo were left unaddressed, it could lead to costly policies being imposed and customers turning away. This could also contribute to volatility. The leaders recognized that the extraordinary climate agreement on international aviation could serve as a valuable example for the broader air cargo supply chain. However, leaders emphasized the need for a comprehensive approach that encompasses social, environmental and financial sustainability.


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The discussion among leaders was facilitated by Veritas Global. For inquiries, please contact us:

Tel: +41 788 606 894


About Veritas Global: Our vision is to have a positive impact on the world through truthful advice informed by robust analysis. We are a premier provider of tailored solutions on climate change, international conflict economics and infrastructure. 




 
 
 
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