“Blue skies smilin’ at me, nothing but blue skies do I see” – sang Ella Fitzgerald in 1958.
Through responsible capital allocation decisions, investors can help ensure that our finite CO₂ budget is spent to maximise investor return and benefits for all stakeholders – and perhaps even turn the skies blue again.
The Covid-19 crisis has created a once-in-a-generation window of political opportunity to tackle other global issues with bold and farreaching measures.
The predicament of the airline industry is a case in point. As airline companies line up to receive state aid, governments are in a strong position to ensure that financial support is conditional on reducing greenhouse gas emissions (GHG). Governments around the world are providing aid or even (re)-nationalising airlines, such as in Italy. In late April, France’s government linked financial support for Air France-KLM to climate goals. The Dutch and Austrian governments are also expected to make reducing emissions a condition of airlines receiving state aid. At the same time, the US government did not impose any conditions.
Analysts estimate that the Covid-19 crisis will result in a 5% drop in global CO₂ emissions in 2020. Sadly, this decrease is not structural; it is entirely the result of political decisions around the world to suspend economic activity to slow the spread of the virus. Air transportation contributed at least 2.5% of global CO₂ emissions in 2019. This figure is merely emissions from aircraft engines measured at ground level; recent studies warn that aircraft contrails at cruising altitude could double the impact. Under even the rosiest scenario of energy efficiency and progress in other areas, annual global air transport’s CO₂ emissions will be 50% higher in 2050.
Air passenger growth is forecast at 3.5% annually over the next two decades, per IATA. Experts think this could be partially offset by about 1% in annual energy efficiency. Such continued rapid growth in passengers would likely result in continued growth in airline industry CO₂ emissions. A simple model of net CO₂, that is emissions expected from air passenger growth compared to reductions arising from future improvements in aircraft efficiency, demonstrates that much bolder measures are required for the sector to decarbonise.
A European citizen flying from London to New York roundtrip causes as much CO₂ emissions over his 12 hours of flying (2.4 tons) as a family car will over an entire year. This one roundtrip flight is roughly the total GHG budget for each European for the year 2030, to meet the 2-degree global warming goal.
Bluntly stated, flying is too cheap. Air travellers do not yet pay for the cost of their emissions.
Airplane journeys should be discouraged where an alternative exists.
Logic demands that we analyse whether investments in rail networks and other alternatives should partially replace air traffic. More fundamentally, the underlying societal purpose of airlines needs to be re-examined. The environmental cost must be correctly priced into airlines.
We – governments, travellers and investors – must give aviation a re-think. Investors have a responsibility to ensure that through their capital allocation decisions, this finite CO₂ budget is spent to maximise investor return and the return for all stakeholders. Governments and citizens must play their part. Governments must create incentives and channel public funds towards low-carbon transportation infrastructure. They can make it easier for citizens to understand the impact of their travel decisions and help citizens adapt their consumption decisions accordingly. Low-carbon leisure and travel solutions are already available and will benefit from this shift in behaviour.
