Domestic and Regional Regulation in the Airlines Sector - Essay Example

 Domestic and Regional Regulation in the Airlines Sector Summary It is extremely likely that the dominant cause of global warming observed in the last fifty years has been the result of human influence, with overwhelming evidence pointing towards the increased greenhouse gases emissions. The increase in emissions of these greenhouse gases due to human activities has especially resulted from the combustion of fossil fuels, leading to the greenhouse effect that has raised global temperatures at a faster rate in the past 30 years than the previous 1400 years1. Civil aviation, as a growing, essential component of the UK and EU economies, is an increasingly significant sectoral source of emissions. However, the civil aviation sector has only contributed to ~3% of anthropogenic warming in the last 20 years, and therefore, it is a relatively small contributor to the phenomenon of climate change2. While using this argument, it is arguable that any climate policy involving the airline industry must strike a balance between the abatement costs and emissions reductions. The airline sector makes several arguments about aviation’s impact on climate change, including the fact that the industry has improved efficiency of aircraft fuel by more than 70%, which has brought together their environmental and economic goals3. Moreover, aggressive pursuit of increased fuel efficiency means that emissions of greenhouse gases from the sector account for less than 3% of total EU greenhouse gas emissions. However, the sector’s contribution to climate change has continued to elicit heated debate with EU-based environmental groups argue that the figure is closer to 10%4. The examination of these arguments and counterarguments must take metrics and language used into consideration in determining the actual impact of the aviation sector on climate change. Whatever the case, the airline sector in the EU faces a serious barrier to continued growth. Commercial aircraft are almost entirely reliant on jet fuel like kerosene, which means that their combustion by-products are unavoidable and, therefore, their regulation would risk increased production costs5. The lack of commercially viable, alternative sources of energy means that any regulations and policies seeking to mitigate climate change must take on a sectoral or industry-specific dimension to protect the airline sector’s economic viability6. Therefore, climate change deliberations at the Paris 2015 Conference on Climate Change should find policy prescriptions that mitigate climate change, while also considering dominant cost drivers. This report will provide the airline sector’s perspectives on the evolving regulatory response to climate change, taking into consideration that the airline sector continues to contribute towards climate change and that the commercial interests of the airline sector require protection. To do this, Zoom Zachonis on behalf of the airline sector will report on the best framework for regional and domestic climate change regulation, specifically by indentifying whether the bottom-up approach proposed by the Lima Conference in 2014 is a better model than the top-down approach proposed by the Kyoto protocol. In addition, the report will also put forward a proposal regarding whether to use the traditional command and control structure or new governance mechanisms in regulating the airline sector’s emissions. Model proposals for the Paris 2015 Conference The top-down approach proposed at the Kyoto Conference in 1997 was the preferred policy prescription for environmental advocates for the next 17 years. This approach proposes internationally binding and specified national timetables and targets. However, the bottom-up approach proposed during the 2014 Lima Conference has also gained traction in climate change debate, including its policy prescriptions for regulations on a nation-by-nation and sector-by-sector basis7. In Zoom Zachonis’ opinion, inclusion of the airline sector in the Paris Conference should take on a bottom-up approach to negotiations on climate change, specifically by using multilateral trade agreements and their evolution as a model for arriving at a climate change treaty for the airline sector. Considering the difficulties faced in achieving an agreement on climate change regulations, a presumably fairer and more effective policy direction would be to bring together major emitters of GHGs in the EU. The prescriptions made by the Kyoto Protocol proposed that Annex 1 countries, which are the world’s developed economies, should be the only ones to reduce their emissions, which would act as a lead for other countries8. However, this approach fails to reflect climate change reality, especially in relation to the transnational nature of the airline sector. In this case, the Lima Conference’s bottom-up approach would require that developing countries with high green house gas emission levels, especially those with major airlines operating from their territory, should also be required to curb their emissions. Given that developing countries in Central and Eastern Europe, as well as the Middle East, already have major airlines that ply Western European routes with probably higher emission levels than Western European airlines, it is essential to ensure that climate change regulations do not provide them with an economic advantage over other airlines covered in Annex 19. As a transnational industry, the airline sector in the UK, therefore, should push for a bottom-up approach, which would involve the collection of information about the airline sector’s GHG emissions status across the entire EU for performance benchmarking. Thus, such an approach will place national measures and policies, as well as international negotiations at the Paris Conference, on a firmer footing through the identification of win-win options for climate change mitigation. Moreover, a bottom-up approach will help in the discovery of previously unknown potentials for abatement in emerging and developed economies, while also realising solutions that are cost-effective and based on knowledgeable understanding different sectors10. Most importantly, however, a bottom-up approach provides a mechanism top to make industry or national efforts at climate change mitigation comparable, specifically by enabling collection of data on a sectoral basis, which will provide critical information to negotiators and governments when discussing national goals, policies, and commitments11. Ideally, the Paris 2015 Conference should conclude with a comprehensive and effective agreement on climate change regulations. However, the division between Annex 1 and non-Annex 1 countries in the Kyoto Protocol’s top-down approach has resisted evolution in climate change thinking. Any attempts to continue using this approach for EU regulations, especially where the airline sector and its transnational nature are concerned, will require removal of the Annex 1 provision. This annexation makes the aim of emissions reduction to regionally safe levels sclerotic nature, while its revocation would provide a burden-sharing element for the domestic UK and EU sector to produce a fair burden distribution across regional countries12. The bottom-down approach should also enable the airline sector to present economic growth in the sector as part of solutions to climate change, rather than being a problem. So long as the airline carriers can reduce their green house gas emissions locally, there is no need for a top-down approach that would lead to a universal agreement/global solution to climate change. Thus, local solutions at domestic level could have a global effect, especially where major emitters in Western Europe were to enhance measures to reduce GHG emissions. The international community should seek to preserve the successes accrued from the top-down approach, while also moving on to regional agreements in a bottom-up approach to help in expediting the GHG emissions reduction goal13. Thus, the airline sector at the Paris 2015 Conference should adopt a multilateral climate action framework to take place at regional and domestic level. Indeed, efficient and equitable international cooperation have proven difficult at a multilateral level with the top-down approach proposed by the Kyoto Protocol proving inflexible with the emergence of rising powers like India and China. The Kyoto protocol has consistently underestimated institutional complexities involved in the making of markets, such as in the airlines sector14. Simultaneously, it has also overestimated politicians and their ability to prioritize climate change requirements to citizens who have more concerns about immediate issues related to their welfare, such as competitiveness and employment. The top-down approach portends several fundamental flaws where the airline sector is concerned, especially in relation to its lack of flexibility as new issues like fuel costs and competitiveness become more important15. The more adaptable contours of the bottom-up approach, therefore, are the best option for the airline sector, especially since adaptation, which should be a priority for the Paris 2015 Conference, must be local and regional in character. While top-down targets are essential in pushing forward policy action to limit concentrations of atmospheric carbon, it is important to note that the bottom-down approach proposed at the Lima Conference does not oppose involvement of UK and EU authorities in setting policy targets with more global ambitions. This, in turn, will push for universal policy action for airlines operating domestically and regionally. However, the top-down approach, while setting grandiose targets for GHG emissions, fails to provide sector-specific pathways for the achievement of these targets. Indeed, it is more likely that national and regional targets for the airline sector’s installed technology, for example, would provide a more verifiable and realistic mechanisms for tackling climate change, as compared to the global targets mechanism16. A bottom-down approach would allow airlines to take a lead role in tackling climate change, while also considering the impact of policy on competitiveness and economic costs. Climate Change Regulation in the Airline Sector As noted before, while the airline sector’s contributions to climate change may seem minimal with a share of ~3% of total GHG emissions, the increasing growth of air traffic in the UK and EU, especially with the entry of budget airlines, means that contribution to climate change is highly significant. Therefore, the sector needs to be involved in the exploration of legal regulations that seek to reduce or limit the environmental impact of aircraft emissions17. The contribution of airlines to the phenomenon of climate change is multi-scalar in nature, which supports the initial contention that conventional top-down legal regimes cannot adequately solve the problem of climate change. Moreover, climate change does not have any single regulatory instrument that can solve it sufficiently, thus throwing into doubt the adequacy of traditional command and control regulations18. A question arises, therefore, as to how to resolve the deadlock involving traditional legal approaches, as well as how to overcome barriers to international airline GHG emissions mitigation and abatement at the Paris 2015 Conference. Drawing on the recommendations proposed by academic and scholarly literature covering new governance mechanisms, the airline sector should propose the setting up of a multi-scalar architecture of regulation that engages a multi-instrument, multi-party, and multi-level governance approach to the issue19. The multi-level governance mechanism involves transnational sectoral targets for the reduction of airline GHG emissions, national efforts in the allocation and implementation of GHG emissions reduction targets for airlines, and regional cooperation as a mediating level. In addition, a multi-party governance approach would involve efforts from the airline industry, nation-states, and other private and public actors. Finally, the conference should also consider using market-based instruments as a critical governance mechanism for the airline industry, specifically because of the competitive nature of the industry and its highly sensitive cost mechanisms. By recognizing climate change as a problem on multiple scales, thus requiring multi-scalar approaches to regulatory mechanisms, the airline sector’s emission issues would shift beyond the current impasse of traditional global approaches20. Drawbacks of Continuing with a Command and Control Regulatory Mechanism As technologies used in the airline and aviation sector continue to evolve, regulatory agencies using the command and control mechanism will find it difficult to stay up-to-date with the most useful and effective methods of climate change abatement. Majority of the input, performance, and design standards provide just one aspect of the solution in trying to abate climate change21. This, however, does not mean that government agencies in the UK and the EU should integrate disparate standards to form a uniform regulatory mechanism, since this would drastically reduce the airline sector’s flexibility. In fact, command and control regulation would limit the airline sector’s ability to identify cost-effective strategies and operate competitively and profitably, while simultaneously reducing GHG emissions and playing its role in helping to tackle climate change. For example, since individual airlines have distinct cost structures, regulatory standards set by centralized government authorities would hinder the flexibility needed by airlines to address their unique externality issues22. In light of the airline sector’s for-profit orientation, such an eventuality would lead to economic inefficiency. The above eventuality would have a significant impact on the airline sector, especially because it is difficult for the national governments in the EU to factor in the different cost structures in the highly differentiated industry23. The national authorities would require knowledge on the cost-structures of all polluting airlines to enhance the efficiency of its regulations. However, even if this was successful, such regulations may lead to accusations of bias towards the airline sector as one of the most fossil fuel energy-dependent growth sectors in the UK and the EU. Finally, the fact that these national regulations are just rules that need to be implemented and enforced in a strict and speedy manner to make non-compliance economically unattractive may give incentive for some airlines to find loopholes if either the regulation or the involved agency is weak24. This would harm the competitiveness of airline firms operating in countries with strictly enforced regulations like UK, while favouring countries where enforcement is not as strict. Recent evidence shows that low compliance, weak enforcement, high compliance costs, and lack of ‘attractive enough’ incentives, coupled with high information and administration costs for governments, has negatively impacted economic efficiency in sectors targeted by government regulations25. Thus, due to these failures, the airline sector would prefer to push for the use of other regulatory instruments proposed by the new governance theory. Indeed, Zoom Zachonis believes that it speaks for majority of the airline sector in contending that the command and control regulatory mechanism with its hierarchical nature has limited utility in countering the climate change challenge. The Kyoto protocol, as discussed above, is a good example of the failures that face negotiated, universally comprehensive, and legally binding multilateral treaties, especially where they prescribe generally applicable, top-down policies. New governance mechanisms, which prescribe bottom-up sector-specific policy-making, rest on the premise that the nation-state cannot, by itself, conduct all the ‘heavy-lifting’ related to climate change policy in the airlines sector26. Climate Governance The airline sector’s impact on climate change requires a multi-actor, multi-scale regulatory mechanism, deeply embedded in the sector’s physical and social infrastructure. On the multiple scale level, climate governance would occur across diverse spaces at each governance level, including at sectoral, national, and regional level27. Critics of this approach question where the authority and power to govern climate change would rest. However, the complex landscape of the airline sector’s impact on climate change means that the traditional interpretations of a command and control, top-down approach does not apply necessarily to climate governance. For instance, there is increased tendency for horizontally networked strategies and initiatives in the airline sector, while it is also possible to offer feedback on the interests of the national states into multilateral treaties and agreements. On the multi-actor level, the blurred and fragmented roles of non-state actors, the airlines industry, and state actors leads to ambiguities in relation to their specific roles in climate governance28. The role of non-state actors has become especially critical in the EU when it comes to shaping positions that national governments take, which means that they will be significantly involved in any agreement at the Paris 2015 Conference. These non-state actors, including community, scientific, lobbyist, and business actors, have become central to the push for a treaty on climate change. The traditional top-down, command and control structure, such as the Kyoto protocol’s proposals, consider the influence of non-state actors as latent29. Obviously, there is need to re-evaluate and re-asses this role as the airline sector contributes new mechanisms that aid in tackling climate change. Finally, the involvement of the airline sector in climate governance reflects, in part, the heavily embedded economic nature of the process through which airlines emit GHGs. Previous climate change conferences have faced difficulties in tackling climate change because of the processes of GHG emissions30. More importantly, deliberations and decisions reached at the Paris 2015 Conference will also involve other domains like energy security, trade, and employment will influence the success of any climate change agreement reached. These domains can only be sufficiently included within a governance mechanism. Proposal for Emissions Trading as the Governance Mechanism Market-based climate governance, specifically focusing on the Emissions Trading cap and trade system, provides a more promising means to regulate the airlines industry than command and control regulation,. This climate governance mechanism is similar to the command and control regulation mechanism in that they both seek to limit, or reduce, emissions in the economy’s foremost polluting sectors31. However, using a cap and trade system as part of the market based climate governance mechanism will provide the incentives required for the airline sector to engage in operations that seek to mitigate climate change. This provides a more efficient policy instrument for national and regional authorities to achieve emission targets. The principal advantage of this climate governance mechanism is that it achieves its set objectives. Since the Paris conference seems to be moving towards increasing the urgency for nation-states to achieve specific emission reduction levels over a set time-period, setting a cap that carries sufficient sanctions for breach is an effective and direct method. Moreover, given the sensitivity to cost drivers in the airline sector, this policy mechanism allows trading within that deadline and cap, effectively minimizing additional costs32. A command and control mechanism that determines actions that airlines must take, allowing for no flexibility, would not be as guaranteed to achieve the set targets. This climate governance mechanism will also aid in the discovery of prices, especially as society wakes up to the importance of achieving set reductions in GHG emissions in the UK, as well as the EU33. New advanced technologies in the airlines sector should help in achieving these technologies, which the Paris 2015 Co0nference should be emphasise. While indicative cost comparisons and curves are widespread, there is convincing evidence that remarkable reductions are achievable if the market’s power focuses on an area with little previous incentive to reduce prices and costs, as improvements are required because of competition. The airlines sector is a good example of such an industry. Using command and control regulations would be potentially expensive and unsafe, particularly because this would assume that there is sufficient knowledge of the costs affecting these technologies. In addition, national government regulations would require that the EU governments make the choice or price of particular technologies. This is evidently not feasible in the airline sector, where sensitive cost-structures and the expensive nature of new technologies mean that climate governance is the only way to discover the prices of these technologies; through the market34. A market-based climate governance mechanism, which prioritizes cap and trade systems, would also incentivize added investment by the airlines sector in low cost GHG emission mitigation and abatement35. Allocation of allowance permits for GHG emissions, coupled with inter-airline and inter-sectoral trading would enable abatement to proceed at the lowest marginal cost possible. This is driven by the fact that airlines in the UK and the EU will actively seek to reduce GHG emissions in as cost-effective a way as they can, which will motivate them to invest in new technologies that are economically efficient. Moreover, airlines will also seek to outsource emission reduction technology to companies who can reduce GHG emissions at a lower cost. Therefore, potential efficiency drives investment decisions in this climate governance mechanism, especially since most airlines will feel motivated to reduce emissions at the most minimal impact on cost as possible36. This would be impossible under a command and control regulatory structure, since the only way to limit GHG emissions in the airline sector would be purely through regulation. In addition, a market-based climate governance mechanism will avoid the pitfalls of attempting to impose solutions, instead encouraging airlines to take investment decisions, which are economically efficient37. The airline sector will require innovations and technologies to reduce their GHG emissions and aid EU governments in achieving targets set at the Paris 2015 Conference. Technologies aimed at reducing emissions available to the airline sector today will have to undergo further improvement if the Paris 2015 Conference reaches a new agreement, while there may also be a need to devise new technological concepts to increase effectiveness and efficiencies. A market-based climate governance mechanism will provide a marketplace for reduction of GHG emissions, providing airlines with much-needed incentives to uncover and improve on such technologies. It also enhances the prospect of immediate rewards for airlines that best use technological advances to reduce GHG emissions. In a sector where competition is based on the individual firms’ cost differentiation, this mechanism will align stakeholder and investor incentives to reduce GHG emissions with the intention of outperforming competitors38. The airline sector will steer away from any agreement that seeks to adopt command and control regulatory mechanisms, rather than a market-based climate governance mechanism, because it uses inflexible tools that do not provide any incentives for airlines, in turn hampering progress of technological progress39. Indeed, attempting to enforce compliance with the agreements reached in the Paris 2015 Conference without the use of mechanisms that can encourage competition amongst different airlines in the UK and the EU could potentially lead to stale and stagnant strategies. Regulators and governments would not be able to foresee innovations and technologies that enhance a trend towards future reductions of GHG emissions. Instead, the regulatory approach would seek to impose restrictions on technology for airlines through definitions of what the government or regulator requires of them to comply. This is potentially problematic in the airlines sector given the close tie-up between the airlines operations and GHG emissions, coupled with the costs of the new technologies40. Instead, the Paris 2015 Conference agreement should let the airline sector choose how these compliance targets are best achievable. The airlines sector should also push for market-based climate governance mechanisms to regulate their emissions because this mechanism will optimize investments, as well as improvements, in capital stock41. By allowing the trading of emissions on the market, it is possible to attract necessary investments in GHG reductions at a time that is most cost-effective within the UK and EU economies’ overall set targets. This is because airlines will make decisions based on their own unique price signals and cost curves, directly from the market. Airlines can also avoid tying up their assets because of the regulator’s decisions, which will accelerate investment if it is feasible that earlier reductions of GHG emissions could be profitable or beneficial. A market-based mechanism also avoids the unintended effect caused by the command and control regulatory mechanism, where capital investments in new equipment and technologies are prolonged42. For instance, airlines facing new technology restrictions may have to extend the life of its present, more polluting technologies to delay the cost of compliance with the Paris 2015 Conference targets. The market-based climate governance mechanism should provide more motivation to replace existing technologies, since new investments will be attractive to airlines43. Finally, the UK and other countries in the EU can implement market-based climate change mechanisms in an agreed-upon manner. This would create an emissions price to drive reduction in GHG emissions. For instance, the US’ acid rain program effectively and quickly reduced levels of pollution at significantly lower costs than initially thought, showing that market-based mechanisms will lead to costs agreeable to the entire sector44. Thus, emission reductions, which some airlines fear could be too costly, are achievable at a fraction of expected costs. Conclusion Although the airline sector only accounts for ~3% of total green house gas emission, the rapid growth in the sector means that it will be a significant player in future climate change mitigation. Therefore, there is a need for the climate policy proposed at the Paris 2015 Conference strike a balance between abatement costs and emissions reductions. The best way to achieve this is to use a bottom-up approach, which allows for adaptation as new technologies in the airline sector become available. 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