My MSc Thesis Presentation about the Climate Change influence in the Aviation Industry.

1. What should the Airline
Industry do to offset its
Carbon Emissions?
Is the Airline Industry condemned to be
the scapegoat for Climate Change?
Thesis Presentation-Oscar Gonzalez
MSc Management Consultancy Programme
01.06.07 John Moore Liverpool University STM

2. What should the Airline Industry do to offset its Carbon Emissions?
Contents of the presentation
Introduction
Literature Review
Investigation Methodology
Findings
Analysis/Discussion
Conclusions and Reflections
01.06.07 John Moore Liverpool University Slide 2

3. What should the Airline Industry do to offset its Carbon Emissions?
Introduction
On February 2nd 2007, the IPCC issued a report
stating "unequivocal" proof of global warming
caused by man-made emissions of greenhouse gases.
This was the point of no-return for many policies and
hard decision that were waiting to be taken by
leaders around the world.
This has forced the Airline Industry to change its
strategies to ensure the environmental sustainability
of the industry; from considering profit maximisation
as the fundamental objective of business, into a more
environmentally friendly, sustainable and corporate
socially responsible.
Everybody within the aviation industry recognise that
aviation pollutes and that decisive actions to
minimize carbon emissions need to be taken as soon
as posible.
01.06.07 John Moore Liverpool University Slide 3

4. What should the Airline Industry do to offset its Carbon Emissions?
Introduction - (Continue)
Airline Industry needs to engage in a dialogue with
governments and regulators on how the industry can
achieve its targets in the most efficent way, priotizing
sustainability but keeping the viability of the business.
There is not an exact concensus about figures
considering the total contribution of Aviation to CO2
global emissions, but all the authors conicide that is not
more than 3% and that if the industry keeps growing at
the actual rate and not substantial improvements are
achieved, it will grow up to 6 % by 2050. Aviation
contributes to carbon emissions less than other
indstries like energy, road transport and even
agriculture. However, this is not an excuse for inaction.
01.06.07 John Moore Liverpool University Slide 4

5. What should the Airline Industry do to offset its Carbon Emissions?
Literature Review
Climate Change has been the centre of debates
concerning the Airline Industry responsibility to
operate in harmony with the environment at a
profitable economical cost. The key points is whether
the environmental regulations cause a conflict with
the profitability of airlines.
Some authors see the environmental influence on
industries as a threat for business interests, while
others just see the situation as a business
opportunity.
 Environmental Influence as a threat for Business
 Positions in the middle
 Environmental Influence seen as an Opportunity
01.06.07 John Moore Liverpool University Slide 5

6. What should the Airline Industry do to offset its Carbon Emissions?
Literature Review
Environmental Influence as a threat
for Business
…a green approach will always result in extra-
costs for companies... (Walley and Whitehead,
1994)
…companies' competitiveness can be reduced by
the rising in prices, which are the consequence of
the costs associated with pollution, prevention
and cleanups… (Wubben, 1999)
01.06.07 John Moore Liverpool University Slide 6

7. What should the Airline Industry do to offset its Carbon Emissions?
Literature Review
Positions in the middle
“…Not convinced by either side in this debate, a large
group of scientists and some supranational
organisations take a position somewhere in the middle.
They assert that the link between environmental
standards and trade flows is obscure, weak or non-
existent…" (Wubben, 1999).
01.06.07 John Moore Liverpool University Slide 7

8. What should the Airline Industry do to offset its Carbon Emissions?
Literature Review
Environmental influence seen as an
opportunity
“ …Managers must start to recognise environmental
improvements as an economic competitive opportunity, not as
an annoying cost or an inevitable threat ...the early movers -
the companies that can see the opportunity first and embrace
innovation-based solutions -will reap major competitive
benefits… “ (Porter & Vand Der Linde, 1995)
01.06.07 John Moore Liverpool University Slide 8

9. What should the Airline Industry do to offset its Carbon Emissions?
Investigation Methodology
I based my research methodology on the research
process “Onion” proposed by Saunders et al, in their
book Research Methods for Business Students
(2002).
The research philosophies I chose are Interpretivism
and Realism.
Interpreting the Airline Industry challenges to
offset their carbon emissions and Realism to
analyse the behaviour of people running the
airline industry.
Research Approach, Inductive.
The research approach chosen is, Inductive
because there was not a theory to validate yet.
01.06.07 John Moore Liverpool University Slide 9

10. What should the Airline Industry do to offset its Carbon Emissions?
Investigation Methodology
Research Strategies
most of the information obtained was secondary
data extracted from reading Case Studies.
Grounded theory will be doubtless another
indispensable tool to analyse objectively the
information collected without pre conceptions or
bias.
The time horizon considered was a Longitudinal
one.
01.06.07 John Moore Liverpool University Slide 10

11. What should the Airline Industry do to offset its Carbon Emissions?
Investigation Methodology
Data Collection Methods
I had considered to collect my primary data through
interviews or questionnaires sent to the
environmental policy makers of several airlines and
Civil Aviation Authorities, but due to time constrains
I could not proceed this way. However, I did contact
some of them by telephone and the information they
gave me as unstructured interviews gave me a good
panorama.
Secondary Data, like; statistics, forecasts,
regulations and opinions from experts came from
specialized information sources like Airline Business
Magazines, Academic Journals, electronic databases
and Aviation Regulatory Agencies websites.
01.06.07 John Moore Liverpool University Slide 11

12. What should the Airline Industry do to offset its Carbon Emissions?
Findings
There are three approaches to promote
environmental commitments in the Airline Industry:
Government Regulations (Cap Emissions)
Market-based (economic incentives) (e.g. taxes
and charges). “Carrots and Sticks”
Value-based incentives (voluntary participation)
01.06.07 John Moore Liverpool University Slide 12

13. What should the Airline Industry do to offset its Carbon Emissions?
Findings
Motivations to meet environmental commitments :
Financial benefits
Competitive advantages
Enhancing image and being a good corporate
citizen
Stakeholder pressure
Desire to avoid or delay regulatory action
Deterrents to embrace an environmental friendly
strategy :
lack of regulatory or market pressure
short-term profits are preferred over long-term
environmental investment because of the
requirements of shareholder dividends, pressure
from banks, markets and investors
01.06.07 John Moore Liverpool University Slide 13

14. What should the Airline Industry do to offset its Carbon Emissions?
Analysis/Discussion
The Stern Review, a report about Climate Change
commissioned by the UK Government, says that, if
we don’t act now, the overall costs of tackling
climate change in the future will be much more
expensive.
This study mentions three elements of policy that are
required for an effective response:
Technology policy
Operational Efficiency
Carbon pricing
01.06.07 John Moore Liverpool University Slide 14

15. What should the Airline Industry do to offset its Carbon Emissions?
Analysis/Discussion
Technology policy
An aircraft's fuel consumption (and therefore its
amount of CO2 emitted) can be reduced by
minimizing its weight and aerodynamic drag.
Boeing and Airbus the two biggest manufacturers
of aircrafts, claim that their last generation
products the B-787 and A-380 will be 20 % more
fuel efficient per passenger that the current
generation of aircrafts.
Some manufacturers are offering aerodynamics
enhancement modifications (Winglets) to improve
approximately 3 % the fuel efficiency of current
airplanes.
Jet engine manufacturers are experimenting with
new fuels that pollute less (bio fuels).
01.06.07 John Moore Liverpool University Slide 15

16. What should the Airline Industry do to offset its Carbon Emissions?
Analysis/Discussion
Operational Efficiency
Aircrafts are supposed to fly in a straight line,
because that is the shortest distance between two
point. Unfortunately, due to Air Space restrictions
imposed by States, most of the times they are not
allowed to do this. According to the IATA, there is
aprox a 12 % inefficiency in air traffic
management globally. That represents up to 73
million tonnes of unnecessary CO2 emissions a
year.
Implementing schemes like the Single European
Sky and shortening routes would eliminate this
situation, this is a problem that only needs
political will to be solved.
01.06.07 John Moore Liverpool University Slide 16

17. What should the Airline Industry do to offset its Carbon Emissions?
Analysis/Discussion
Carbon pricing
There are different mechanisms designed to
quantify economically the cost of Carbon
emissions, the aim is to calculate the cost of
offsetting carbon emissions and through different
mechanisms such as, carbon pricing, green taxes
or emissions trading, pass the costs to the people
responsible.
01.06.07 John Moore Liverpool University Slide 17

18. What should the Airline Industry do to offset its Carbon Emissions?
Analysis/Discussion
Financial Mechanisms to offset Carbon emissions
Passengers offsetting their carbon emissions
voluntarily.
Green Taxes (example; Air Passenger Duty in UK)
Emissions Trading Schemes
01.06.07 John Moore Liverpool University Slide 18

19. What should the Airline Industry do to offset its Carbon Emissions?
Analysis/Discussion
Limitations of the carbon offset industry
There are some ETS that despite being usually well-
intentioned are unreliable or inefficient, because they
have these flaws.
Schemes are loosely regulated and wide open to
fraud (example; running schemes which do not
exist; claiming exaggerated carbon cuts; selling
offsets that have already been sold).
they require an accurate measure of the emissions
to be offset
require an accurate measure of the carbon saved
elsewhere and additional evidence that a carbon
reduction would not have occurred anyway
01.06.07 John Moore Liverpool University Slide 19

20. What should the Airline Industry do to offset its Carbon Emissions?
Conclusions
Governments are using a “Stick and Carrot” policy
with other industries to reduce their carbon
emissions, but only Sticks with the Airline Industry.
Airlines profits are squeezed with “Green taxes”, that
are not invested in the environment and not reward
their efforts to pollute less. They already have
enough incentives trying to save as much expensive
fuel as they can. If Governments are really willing to
tackle carbon emissions in the Airline Industry, they
should include airlines in ETS, unify Air Space
controls and incentivate R & D in environmentally
friendly technologies.
01.06.07 John Moore Liverpool University Slide 20

21. What should the Airline Industry do to offset its Carbon Emissions?
List of Abbreviations
CO2 Carbon Dioxide
ETS Emission Trade Schemes
IATA International Air transport
Association
IPCC - Intergovernmental Panel on
Climate Change
01.06.07 John Moore Liverpool University Slide 21