Airline bailouts – Has Air France been tied down by ‘green strings’?

By Calum Harvey-Scholes, 20th of May 2020

Covid-19 has spread rapidly around the world, partly due to busy international transport connections. Attempts to suppress its transmission and save lives have precipitated a sudden and acute economic crisis. Lockdown measures imposed to limit the spread of the virus have resulted in a rapid contraction of flights (around 5% of services are running) and many airlines have suggested that they expect it to be three to five years or more before they fully recover – with some believing it may never fully recover. This has resulted in airlines around the world calling for multi-billion dollar bailouts.

Given the substantial carbon impact of air travel, many academics, organisations and individuals have called for Government bailouts to be tied to reducing carbon emissions (among other conditions). Many have highlighted the French Government’s €7 billion bailout of Air France, which was announced along with conditions for the airline to increase profitability as well as cut carbon emission, as a leading example. The French Economy and Finance Minister declared that Air France would be required to become “the most environmentally friendly airline on the planet”. This is a welcome aspiration given that aviation is around twice as carbon intensive as any other form of transport, and there is no viable prospect of decarbonising commercial flights within the next decade or two (with the possible exception of the smallest and shortest-range aircraft) – Indeed, in the midst of this crisis Rolls-Royce and Airbus have ended their R&D collaboration exploring hybrid electric aircraft propulsion. This blog examines the ‘green strings’ attached to Air France’s bailout agreement and reflects on how effective these policy measures are likely to be in reducing carbon emissions.

The French government, already a major shareholder in Air France, announced the airline’s bailout on television[1] with three clear concrete conditions, but it was emphasised that the plan as a whole was yet to be finalised – which makes this a valuable time to reflect on what has been stated and how it might be improved. These conditions are:

  • Halving overall emissions from domestic flights by 2024 (with suggestions of restricting flights on routes where there is a viable train alternative)
  • A target of sourcing 2% of its fuel from ‘sustainable sources’ by 2025
  • A 50% reduction in carbon intensity (kg CO2/passenger-km) by 2030 over 2005 levels.

 

Halving overall emissions from domestic flights by 2024

Reducing emissions from domestic flights (~10% of Air France’s total emissions) is a good idea: because emissions are disproportionately high during take-off and landing, short-haul flights emit more CO2 per kilometre travelled. Furthermore, short distance journeys are most likely to be easily transferred to rail. It has been suggested by the Minister of the Economy, Bruno Le Maire, that routes where the journey by train is 2.5 hours or less should be minimised. Limiting short-haul flights (e.g. no flights less than 400km, or by alternative travel time) could be an effective policy contributing to achieving the emissions reduction target: it is simple, clear and cost-effective. It could also reduce the unfair competition between planes, which benefit from tax-free fuel and often subsidised airports, and trains.

There are, however, limitations to how the policy is proposed. Firstly, the emissions reduction target (and possible restriction of competition with trains) is only being applied to one airline. Without further restrictions, other carriers could simply pick up and serve the vacated routes. Secondly, cutting domestic flights means that Air France will have spare take-off slots from strategic airports, such as Charles de Gaulle in Paris. These slots could potentially be used to run more medium and long-haul flights which are both more profitable and emit more carbon per flight due to the longer travel distance. Finally, it appears that these plans are an acceleration of a planned restructuring from Air France. Their domestic carrier ‘Hop!’ posted a €200 million loss in 2019 and, as outlined above, longer distance flights are generally more profitable. In short the effectiveness of the new policy is limited in its application to only one airline and only to their domestic flights. It is not at all clear that this measure will lead to a reduction in Air France’s total carbon emissions.

 

A target of sourcing 2% of its fuel from ‘sustainable sources’ by 2025

Substituting fossil kerosene for ‘sustainable’ fuel is one of the aviation industry’s preferred methods for cutting carbon emissions. These fuels are either derived from oil crops, such as palm oil, or from synthetic hydrocarbons.  All new fuels are in the early stages of commercial development and synthetic hydrocarbons require a large amount of electricity to produce. Given that most electricity is still generated by fossil fuels, the emissions-reduction potential of alternative fuels is questionable. This leaves us still better off using fossil kerosene in the short term; although exploring sustainable fuels’ viability may be useful over time.

Alternatively, a limited range of biofuels are viable for use when mixed with fossil kerosene. However, relying on food crops brings risks of food-fuel conflict as well as additional emissions from land use change as rainforest is clear-felled to plant biofuel crops. The cheapest and most easily-processed feedstock for bio-kerosene is palm oil; already a leading driver of deforestation globally that is partly driven by demand for biodiesel. Some EU and other research has suggested that the life cycle emissions of some biofuels are higher than the fossil fuels they displace.

Aside from sustainability concerns, the production of alternative fuels is extremely limited at present. Dan Rutherford has calculated that 2% of Air France’s 2018 fuel consumption amounts to 55 million litres, which is 10 times global use of bio-kerosene in the same year. Considering that many airlines have adopted similar targets, sourcing this amount of bio-kerosene is a challenging goal for Air France.

Finally, fuels burnt at altitude in jet engines have roughly twice the planet heating effect compared with fuels burnt at ground level. Whilst alternative fuels could reduce consumption of fossil fuels, there is not yet clear evidence that the additional heating effect due to altitude is reduced by using alternative fuels rather than fossil kerosene. Therefore, biofuel-based aviation would still have a heating effect on our climate.

A 50% reduction in carbon intensity (kg CO2/passenger-km) by 2030 over 2005 levels.

Reducing the carbon intensity of aviation is a useful target which will cut fuel use, costs, and carbon emissions per passenger-km travelled. Improvements can be made across aeroplane and engine design, traffic management, and weight reductions. The announcement of a 50% reduction by 2030 is extremely ambitious given that annual improvements have historically been 1-2% per annum. So how can Air France make such rapid improvements?

Further research into the detail of this commitment reveals that this is a reaffirmation of a commitment the airline made at the end of 2019 as part of their Air France Horizon 2030 initiative. Interestingly, the 50% reduction is not from current levels but is compared to 2005 levels – an apparently arbitrary baseline. It will reduce the fuel burned per passenger-km to <3 litres. According to their most recent sustainability update, Air France burn 3.3 litres of fuel per passenger-km. Therefore, to achieve their target reductions they need improve efficiency by around 10% from current levels, or 1% every year until 2030 – which is in line with the historical rate of improvement. This realistic 10% efficiency gain appears to have been framed as a more radical 50% improvement by adopting the otherwise arbitrary baseline of 2005. In fact this condition appears to be a reaffirmation to continue business-as-usual improvements in efficiency, no faster than any other airline.

In this light, the ‘green strings’ attached to the Air France bailout appear to be narrowly focused commitments that recycle pre-existing targets using elaborately selective framing, rather than a clear plan to step up action towards meaningful carbon reduction.

Towards policy to cut emissions

Looking forwards, in order to develop policy with a fighting chance of reducing emissions from aviation we must apply a wider, strategic lens. Fundamentally, the approach must be holistic rather than bit-part; applying to the whole aviation industry, incorporating all emissions, and treating aviation fairly with the rest of the economy. This approach requires several points of focus: the scale and coordination of policy-making; a focus on total emissions; and a reformed tax regime.

Policy scale and coordination

The appropriate scale at which to implement aviation policy is problematic.  Currently, responsibility for cutting emissions from aviation has been almost entirely ceded to the UN ICAO. This approach is justified by the need for a coordinated response and to avoid risks from unilateral national action such as ‘carbon leakage’ as traffic diverts away from nations with stricter policies.  For example, a tax on kerosene in the UK could merely encourage services to switch to Amsterdam or Paris for tax-free fuel.  While a coordinated, international approach to policy is therefore preferable, ceding this responsibility to the ICAO is problematic. The organisation lacks transparency, has very limited powers of enforcement, and has demonstrated low climate ambition so far. This rock and hard place problem is part of why there has been so little progress in limiting aviation emissions. However, we are seeing airlines bailed out by national governments around the world, reminding us that national level governance can play a role in the aviation sector. International co-ordination is undoubtedly needed, but this must be through a new mechanism if we are to reduce emissions from aviation.

Given the unexpected and rapid impacts of Covid-19, in this case it is easy to see why the measures for Air France have been applied ad hoc to one airline. However, future governmental involvement in airline environmental policy would benefit from application to all airlines, both in order to ensure fairness and increase the likelihood of reducing emissions.  Covid-19 perhaps presents an opportunity to join up action: airlines are struggling globally, with many likely to be in need of assistance before this crisis is over. For example, British Airways’ owner IAG has received a £300 million loan from the UK Government, even after BA opposed airline bailouts. Airlines around the world have received emergency support from government suggesting that an industry-wide framework could be practicable.

Total emissions

The rise in global temperatures relates to the total volume of fossil carbon we emit, and the Paris Climate Accord requires economy-wide emissions reductions. Carbon offsets do not reduce direct carbon emissions from aircraft. Regulation must focus on capping and reducing total emissions. A primary criterion limiting total emissions, either by airline or nationally, would also motivate airlines to improve efficiency so they can offer more services within their stipulated carbon budget. Such an approach contrasts with the focus above on efficiency improvements (reduced carbon intensity). Focusing on the emissions per passenger-kilometre alone does not encourage (much less require) a reduction in total carbon emissions. For example, Ryanair claim to be the most efficient airline in Europe, whilst also being the most polluting.

In many countries, such as the UK and France, aviation also remains excluded from national carbon budgets which apply to every other sector apart from shipping. Aviation should be incorporated into these national frameworks. As we reorient our economies onto a path to zero carbon, ensuring a fair contribution to decarbonisation from all sectors is important. This is particularly significant for air travel which disproportionately serves wealthier people – the wealthiest 10% consume around 75% of air travel globally.

Tax

The aviation industry continues to enjoy exceptional tax status in a number of ways. For instance, around the world petroleum products carry both excise duty and VAT, which together often constitute a large proportion of the final fuel cost, kerosene for aviation is exempt on both counts. This makes air travel artificially cheap compared to trains and sometimes even driving. There is a misconception that there is an international agreement which prohibits any tax on kerosene – there is no such prohibition in any agreement. A tax on kerosene is both legally possible, fair and could reduce emissions.

Conclusion

Under current arrangements the French State has placed itself in a dilemma: they have binding CO2 reduction targets and have stated that they want Air France to lead the world in sustainability; at the same time le Maire has emphasised that the airline must improve its profitability, in order to repay the bailout loans. However, the analysis here indicates that the best way for the airline to become more profitable is to shift towards more medium- and long-haul flights and in doing so increase its overall emissions. This in no way represents the green recovery the French Government has mooted.

If the goal is a long-term strategy for decarbonisation, a case could be made for a sector-level Covid-19 recovery package. A package which supports workers and maintains jobs, in exchange for a comprehensive new framework working towards cutting carbon emissions from aviation. One substantive initial move would be to include aviation in national climate targets. Another broader approach, termed ‘Cap and Adapt’, has been proposed as an economy-wide model that could equally well be applied to a particular sector. The basic premise is that you cap the total volume of fossil fuel available at current levels, in parallel introducing policy and money to support the transformation of the energy system to renewable sources and, where needed, the reskilling and redeployment of workers.

We are currently in an exceptional moment in history, where the economy has all but stopped. This has already been met with imaginative policy responses, such as the job retention schemes devised and deployed rapidly around the world. Global governments need to do much more to recognise that creative policy to alleviate the Covid-19 crisis could simultaneously set the course for industries like aviation towards a future compatible with the net zero 2050 economy.

[1] What we know of the conditions is based on a live television announcement and so it is not always possible to discern hard conditions from suggestions.

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