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Is a foreign holiday a luxury, only for those who can afford them? Or a necessity that should be available to everyone regardless of income? According to the Campaign for Better Transport (CBT), it is the latter. At least if you are British.
The CBT is up in arms at proposals to deal with increasing aviation emissions by introducing some sort of carbon tax. According to the CBT, this approach will mean foreign holidays are no longer affordable for many people. A problem that, in its view, will only be exacerbated by the Airport Commission’s recommendation to expand capacity (and therefore emissions) at Heathrow Airport.
The CBT is under the impression that any carbon tax is intended to reduce demand by increasing prices. Such an approach would predominantly affect those on lower incomes, who are more price sensitive than wealthier households.
However, as those familiar with the issue will know, the aviation industry is doing all it can to find an approach that does not stand in the way of growth. The industry has been lobbying hard ahead of the upcoming ICAO triennial Assembly, where some sort of scheme for managing emissions from international aviation is expected to be announced.
That British obsession with two weeks of guaranteed sunshine would still be within reach for most. The current preferred approach is some sort of offsetting regime. As we discussed in this blog post, the cost of offsetting aviation emissions is expected to be small. It is therefore proving to be relatively popular with the airlines. Based on the price of offsetting a tonne of CO2 emissions under the UN’s offsetting program, the Clean Development Mechanism would add only €0.25 to the cost of a typical short-haul trip. However, it leaves open a broader philosophical debate about the point of a tax that does not change behaviour, but that is for another day.
Despite this, the CBT has suggested an alternative solution…of sorts. It suggests government intervention to guarantee that ‘most people could afford a limited number of international flights’. By this logic, the government should also intervene to ensure that most people are able to afford such necessities as a nice car, the latest smartphone and cable television.
To deal with the issue of carbon emissions from aviation, the CBT proposes that frequent flyers should be subject to higher tax rates. In their view, this will have the effect of limiting overall demand for air travel and have the further bonus of removing the need for a new runway in the South East.
The CBT has half a point here, and may get its wish. From an economics (and an airline profitability) perspective, the best outcome is that the cost of the offsetting regime is borne largely by those travellers who are least sensitive to increases in prices, and are therefore least likely to stop flying in response to a fare increase. That includes frequent flyers, as well as customers who fly premium class. Any significant increase in fares resulting from ICAO’s decision will most likely be disproportionally borne by these passengers.
Meanwhile, we can’t wait to hear how the CBT proposes to deal with the decline in the value of the Pound Sterling following the Brexit referendum. The value of the Pound against the Euro fell from around €1.30 to around €1.17 in a matter of days, resulting in a significantly greater effect on the cost of foreign holidays than any carbon scheme ever will. That camping holiday in Wales has never looked more attractive.
