The potential for costeffective CO 2 abatement in commercial aviation Brian Pearce July 2013 www.iata.org/economics To represent, lead and serve the airline industry
CO 2 projections have differed IATA 2010-2030 forecasts lower than MODTF s (low) scenario 6 for CAEP/8 but in line with FAA 2009 GIACC projections 3500 Scenarios for CO 2 from commercial airline fuel burn ICAO CAEP/7 baseline Million tonnes CO 2 3000 2500 2000 1500 1000 500 0 1990 1993 IATA scenario - fleet renewal and higher load factors only IATA scenario - frozen technology 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023 2026 IATA scenario - full implementation of cost effective pillar 1-3 measures, including 12% biofuel by 2030 2029 2032 2035 2038 2041 2044 2047 2050 ICAO MODTF scenario 6 FAA baseline FAA scenario B Source: IATA, ICAO, FAA
We are hopeful about biofuels in long-run E4tech aviation biofuel report for UK Committee on Climate Change concluded that, if land use impacts are managed, there is a potential for very significant biofuel use especially by the 2035-2050 period Source: E4tech
Estimating current aviation CO 2 emissions IEA data fuel consumption and IATA fuel efficiency survey used to extend model-based (FAST) CO2 projections Million tonnes CO 2, unless otherwise specified 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 'Bottom-up' estimate Scheduled, under ideal flight conditions 480 Charter 43 Correction for flight conditions 72 Commercial airlines 595 579 585 585 623 645 651 666 661 628 658 679 689 % change over year 4.1% -2.8% 1.1% 0.1% 6.4% 3.6% 0.9% 2.3% -0.7% -5.0% 4.7% 3.3% 1.4% % Total CO 2 2.0% 1.9% 1.9% 1.8% 1.9% 1.9% % IEA CO 2 from fossil fuel burn 2.5% 2.4% 2.4% 2.3% 2.3% 2.4% 2.3% 2.3% 2.2% % Transport 10% 10% 10% 10% 10% 10% 10% 10% 10% General aviation 14.00 13.63 14 14 15 15 15 16 16 15 15 Military 61.00 59.38 60 60 64 66 67 68 68 64 67 Total flight-based emissions 670 652 659 659 701 726 733 750 744 707 741 Difference to 'top-down' estimate -1 0 0 0 0 0 0 0 0 0 0 'Top-down' estimate Total aviation fuel use-based emissions 669 652 659 659 701 726 733 750 744 707 741 % change over year 3.9% -2.7% 1.1% 0.1% 6.4% 3.6% 0.9% 2.3% -0.7% -5.0% 4.7% % total CO 2 2.3% 2.2% 2.1% 2.1% 2.1% 2.1% % CO2 from Energy (inc bunker fuels) 2.8% 2.7% 2.7% 2.6% 2.6% 2.7% 2.6% 2.6% % transport (inc bunker fuels) 12% 11% 11% 11% 11% 11% 11% 11% 11% Source: IATA
Little difference on passenger outlook CAEP/8 baseline growth rates spliced on IATA 2012-2015 world RPK forecasts. Following the recession IATA forecasts are 3% lower than CAEPs 14000 12000 World RPK forecasts CAEP/8 baseline IATA Dec 2012 10000 RPKs billions 8000 6000 4000 2000 0 1990 1995 2000 2005 2010 2015 2020 2025 2030 Source: IATA
Higher load factors also in line with CAEP/8 With 85% load factors on some markets there is scope for a further rise in asset utilization, reducing the need for capacity, above the 81% LF assumed by 2030 80 Passenger load factor worldwide markets 75 70 % asks 65 60 55 50 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010 2014 2018 Source: ICAO, IATA
Similar fleet retirement profiles IATA modelling of fleet used CAEP/8 survivor curves Percent Remaining in Passenger Service 110% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% CAEP/8 FESG Passenger Aircraft Retirement (Survivor) Curves 0 5 10 15 20 25 30 35 40 45 50 Aircraft Age (years) Narrow Body aircraft (2-man flt crew) Wide Body Aircraft (Less MD-11) B707 / B727 MD-11 Russian Built TP/Jet aircraft Source: P&W
Fleet changes and emissions modelled IATA used survivor curves, traffic forecasts, flight stage lengths and emssion factors to model fleet bottom-up. Delay in new model introduction has limited their share compared to earlier forecasts 45000 Passenger fleet 40000 35000 30000 25000 20000 15000 50% of fleet Growth - existing models Growth - new models Replacement - new models 10000 5000 0 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Replacement - existing models Retained fleet Source: IATA
Fuel efficiency 1.5% pa from fleet renewal Fleet renewal and higher LFs alone reduce CO 2 growth from 4.7% to 3.2%, as a result of average fuel efficiency gains of 1.5% pa million tonnes CO 2 1800 1600 1400 1200 1000 800 600 400 Frozen technology and 'fleet renewal' CO 2 projections, m tonnes 'Frozen 2010 technology' 4.7% pa (2010-2030) Fleet renewal and LFs only 3.2% pa (2010-2030) 200 0 1990 1995 2000 2005 2010 2015 2020 2025 2030 Source: IATA
As additional measures to fleet renewal (which includes new aircraft types and embodied technologies later in the forecast period) the following technology options were modelled Wingtip devices Engine upgrades Re-engining Early retirement of aircraft Reduced speed with redesigned fleet Algae oil-based biofuel
These operations options were modelled Optimised flights using cost index Use of ground power Taxiing with some engines shut down Improved fuel management Cabin weight reductions Improved pilot technique Takeoff and landing procedures Centre of gravity measures No fuel tankering Reduced speed with existing fleet (no redesign)
These infrastructure options were modelled NextGen related ATM improvements European ATM improvements Flexible tracks North Pacific RVSM China (implemented 2007 but baseline emissions 2006) Pearl River Delta ATM improvements Chinese airspace redesign Flexible use of military airspace Gulf region airspace redesign
2020 potential for cost-effective CO 2 cuts Bottom-up modelling suggests a further 92mT of CO 2 could be cut in 2020 with costs less than the cost of carbon USD/tCO 2 1,200 1,000 800 Jet fuel price; 126 $/barrel 600 400 Carbon price 30 US$/tCO 2 200 0-200 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 105 110 115 120 125 130 MtCO2-400 -600-800 European ATM Improvements Gulf region Airspace China redesign Flexible tracks North Pacific PRD Wingtips Biofuels Cabin weight reductions Use of ground power Drag reduction RVSM Russia Takeoff and Landing Procedures Next Gen Fuel Management Center of Gravity Optimizing cost index Pilot Technique Flexible Usage of Military airspace Taxiing with some engines shut down Early retirement No tankering Re-engining Engine retrofit/upgrades Reduced speed operation with current fleet Source: IATA
2030 Potential for cost-effective CO 2 cuts Bottom-up modelling suggests a further 215mT of CO 2 could be cut in 2030 with costs less than the cost of carbon USD/tCO 2 1,200 1,000 Jet fuel price 135 US$/barrel 800 600 200 Carbon price 40 US$/tCO 2 0 0 10 20 30 40 50 60 MtCO2 70 80 90 100 110 120 130 140 150 160 170 180 190 200 210 220 230 240 250 260 270 280 290-200 -400-600 -800 European ATM Improvements Gulf region Next Gen PRD Cabin weight reductions Biofuels Wingtips Airspace China redesign RVSM Russia Drag reduction Flexible tracks North Pacific Pilot Technique Use of ground power Flexible Usage of Military airspace Takeoff and Landing Procedures Optimizing cost index Fuel Management Taxiing with some engines shut down Early retirement Re-engining Engine retrofit/upgrades Reduced speed operation with current fleet No tankering Source: IATA
Implementing cost effective CO 2 cuts MBMs set a price for CO 2 emissions and so a financial incentive to cut them. However, the 2020/2030 abatement cost curves show only biofuels may be incentivized. Some measures just too costly. All infrastructure measures are negative cost i.e. they should happen without an MBM. MBM will have no impact. Suggests other barriers requiring political action. Operational measures also negative cost. Again MBM will have no effect. Information instrument like IATA Fuel Teams required.
Potential to cut 2030 CO 2 to1025mt Implementation of all cost-effective pillar 1-3 measures could reduce average 2010-2030 CO 2 growth from 3.2% pa to 2.2% pa. Without biofuels CO 2 growth 2.8% i.e. 2% pa fuel efficiency gains are the maximum feasible 1300 1200 1100 Worldwide CO 2 emissions from commercial air transport, mt per year 1240mT CO 2 in 2030 after fleet renewal and higher load factors Operations Infrastructure Biofuels 1000 900 235mT offsets 800 700 600 689mT in 2012 790mT in 2020 CNG2020 cap 790mT 500 400 1990 1995 2000 2005 2010 2015 2020 2025 2030 Source: IATA
Back up slides
OECD markets are approaching maturity 4 Ratio of air transport volume to GDP growth 3 2 70s average 80s average 1 0 90s average 00s average -1-2 -3 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 Source: ICAO, IATA
But plenty of future demand from BRICs 4 3.5 Available aircraft seats per capita and population Available seats per capita per year (left scale) 1400 1200 Avialable seats per capita annually 3 2.5 2 1.5 1 Population (right scale) Providing 3.5 seats a year to BRIC population would mean additional 10 billion seats capacity 3x global capacity today 1000 800 600 400 Millions 0.5 200 0 US EU Brazil Russia India China 0 Source: Haver, IATA
Biofuels costly but may become economic 2.50 Jet fuel and carbon prices versus estimated costs of bio-jet HEFA study 2.00 US$ per litre 1.50 1.00 FT-BTL study HRO study Jet + cost of carbon Jet kerosene 0.50 0.00 2000 2005 2010 2015 2020 2025 2030 Source: IATA
Abatement potential over time was modelled Technology measures used detailed fleet forecasts to measure baseline emissions from targeted aircraft/engines Infrastructure measures used detail traffic flow forecasts to measure baseline emissions from movements in target regions/markets Operations measures used a combination of fleet and traffic flow forecasts to measure baseline emissions subject to these measures Together with data from the OEMs and industry experts on the improvements per aircraft/traffic movement from specific measures
Cost effectiveness was also modelled Cost effectiveness of different emission reduction measures is a key output of the ACM, allowing a comparison against ETS allowance prices Cost effectiveness is measured by full net costs per tonne of CO 2 saved (or tonne jet kerosene saved) Full costs means capital costs, amortised over the effective life of the measure using the average airline WACC, plus any operating costs Net costs means full costs minus fuel and any other operating cost (e.g. maintenance or block hour-related) savings
There are other ways of looking at the same data for different decisions Pay-back period - will cash flows from this measure cover my initial investment quickly enough in this business environment? Net present value if I discount future cash flows by my WACC will they exceed my initial investment and make this a financially effective use of funds? Internal Rate of Return will future cash flows generate a return on my initial investment that exceeds my WACC or target rate of return? Cost effectiveness will the full net cost of this measure at a particular future date be less than the cost of any alternative measure or the price of buying an emissions trading scheme allowance? We present data on cost-effectiveness for the purpose of this study, but can also show the payback period, PV and IRR