Aviation Associations Raise Concerns About Punitive Climate Change Proposal

Memo:

The Lieberman-Warner Climate Security Act –

Severe Impact on Commercial Aviation and Passengers/Shippers/the Economy

U.S. commercial airlines have a decidedly strong track record that is often overlooked or misstated. For example, U.S. commercial airlines improved their fuel efficiency – and therefore their greenhouse gas emissions (GHG) efficiency – by 110 percent since 1978. Between 2000 and 2006, we reduced fuel burn and GHG emissions by 4 percent on an absolute basis, while moving 12 percent more passengers and 22 percent more cargo. In fact, U.S. airlines account for only 2 percent of this nation’s GHG emissions while, at the same time, driving three times more economic activity. To accomplish this tremendous record, the airlines have undertaken an exhaustive array of fuel and emissions savings measures, including the purchase of new aircraft, the addition of winglets to improve aerodynamics and the implementation of new take-off and approach procedures, among other things.[1] Moreover, the airlines are vigorously pursuing the development and deployment of commercially viable, environmentally friendly alternative jet fuels. Continuing such initiatives requires that airlines have the funds to expend on them. Indeed, the Federal Aviation Administration estimates that 90 percent of the fuel efficiency and emissions improvements that the airlines have achieved to date have come from their own investments.

The Lieberman-Warner bill is styled as a cap-and-trade emissions initiative and, indeed, some industries would engage in emissions trading under it. However, its application to the transportation sector would come in the form of a highly punitive fuel tax. Specifically, the bill would require transportation fuel producers and importers to acquire sufficient GHG emissions allowances to cover the GHG content of the fuel they sell or import.[2] The cost of these emissions allowances will be incorporated into the cost of the fuels, which then will be borne by fuel consumers, including airlines. Thus, in a particularly perverse result, the airlines (and other transportation industries) will pay the Lieberman-Warner bill’s required fuel tax to the oil companies. Furthermore, while the bill would provide for reinvestment of funds collected into many industries – none of which have done as much as aviation to improve greenhouse gas efficiency – none of the funds collected would be reinvested into aviation environmental projects or much needed aviation infrastructure improvements.

Such a fuel tax is ill-conceived and does not make sense at any time, but it is especially harmful at a time when the industry is facing surging fuel prices. Fuel costs now are the U.S. airlines’ largest cost center, accounting for between 30 percent and 50 percent of airline costs. The U.S. airlines are projected to spend $61.2 billion on fuel this year, $20 billion more than in 2007 – an increase equivalent to the compensation and benefits of 267,000 airline workers or the acquisition of 286 new, more fuel-efficient jets. The fuel price spikes are wreaking significant havoc in our industry and across the economy. For example, nearly 30 cities across the country have completely lost scheduled air service in the past year, with more service cuts inevitable as airlines attempt to cope with soaring fuel prices. Eight U.S. airlines have gone out of business since the end of 2007 and another is operating in bankruptcy. More than 9,000 airline employees have lost their jobs this year, with more expected as the year continues.

The proposed bill adds a significant additional increment to the cost of transportation fuel. Assuming that emissions allowances are modestly priced at $25/metric ton of carbon dioxide equivalent (CO₂e) in 2012 when the bill would go into effect, this legislation would add another $5 billion to the U.S. airlines’ fuel costs, escalating each year thereafter. Assuming a lower end estimate for allowance prices in 2020 at $40/metric ton CO₂e, the bill would impose a $10 billion additional fuel tax on the U.S. airlines, again escalating annually thereafter. Such costs will result in further job losses, loss in air services to small communities and negative economic ripple effects.

In the face of current jet fuel prices and the myriad measures already employed by the airlines to reduce fuel consumption and emissions, there is no need for any further “price signal” for the commercial airlines. Moreover, we doubt that having the airlines pay additional exorbitant fees to the oil companies will bring environmental benefit. Rather than imposing additional taxes and fees on the airline industry, the federal government should focus on measures that complement the airlines’ initiatives and enhance our nation’s transportation infrastructure. For example, modernization of the nation’s outdated air traffic control system, which would enable more efficient flying routes, and decrease emissions by an additional 10 to 15 percent.

In sum, the airline industry – if not the nation – is undergoing a fuel price crisis that greatly threatens our stability. We urge Congress to keep this in mind as it debates the Lieberman-Warner bill and the significant additional fuel tax it proposes to levy on aviation.