4. The economic benefits of airport expansion are exaggerated and the economic and environmental costs underestimated or ignored.
As part of the planning application for the proposed Runway Extension, Birmingham International Airport (BIA) Limited commissioned York Aviation to undertake a study into the economic impact of the project. The study was required to provide an economic impact assessment of the benefits (and costs) arising from the extension of the runway at BIA, including an examination of employment and income impacts, economic costs and benefits, and wider economic impacts.
Costs-benefit analysis
The UK Department for Transport (DfT) uses a detailed econometric analysis to estimate the net benefits (total benefits minus total costs) of airport expansion proposals. York Aviation's analysis 'draws heavily' [1] on DfT's approach to the economic appraisal of the airport development proposals set out in the 2003 White Paper 'The Future of Air Transport', an approach that has been widely criticised for exaggerating the economic benefits and ignoring the economic and environmental costs of airport expansion.
The table below shows the estimated economic costs and benefits identified by York Aviation's economic impact assessment of the proposed Runway Extension over the assessment period 2006 to 2052 (columns may not sum owing to rounding). [2]
Benefits (£ million) Costs (£ million)
Journey Time Savings £1,684 Construction Costs £104
Air Fare Savings -£315 Aircraft Emissions Costs £1,551
Government Revenue £590 Surface Access
Producer Benefits £253 Emissions Costs £4
Total £2,211 Total £1,659
The report concludes:
'Over the period 2006 to 2052, the proposed runway extension project is forecast to generate total discounted benefits of around £2.211 billion (at 2006 prices). The corresponding discounted value of the costs associated with the project is estimated to be £1.659 billion (at 2006 prices). Therefore, the proposed runway extension achieves a positive net present value (that is, the economic benefits outweigh the costs) of £553 million (at 2006 prices). This corresponds to a benefit-cost ratio for the project of 1.33. A benefit-cost ratio greater than one indicates that a project’s benefits outweigh its costs.' (emphasis added) [3]
There are two main problems with this cost-benefit analysis:
1. On the 'benefit' side, the inclusion of 'Government Revenue' as a benefit of airport expansion is dubious;
2. On the 'cost' side, the figures for aircraft and surface transport emissions are significant underestimates.
Government Revenue
'Government Revenue' here refers to the extra the Air Passenger Duty (APD) collected by the Chancellor as a result of the Runway Extension. A longer runway will allow the airport to operate more long-haul services, and passengers on long-haul flights pay higher rates of APD. [4] However, any extra revenue raised in this way should properly be thought of not as a benefit of airport expansion but as a benefit of the existence of APD itself, if indeed this simple transfer of funds from UK consumers to HM Treasury can really be considered a genuine economic 'benefit' at all. If we discount the £590 million the Runway Extension is forecast to generate over the assessment period from the total benefits of £2,211 million, then the positive net present value of the Runway Extension evaporates, the total costs (£1,659 million) exceeding the total benefits (£1,621 million).
Another good reason to discount APD as a benefit of the Runway Extension is that APD might not exist by the time BIA begins operating the longer runway in 2012. Despite the apparent boon to the economy of this particular tax, plans are afoot to scrap it. In his 2007 ‘pre-budget statement’, Chancellor Alistair Darling announced that the government proposes to replace APD from 1st November 2009 with a duty payable per plane rather than per passenger. [5] The government has even hinted that it may abolish APD altogether (presumably along with whatever new tax replaces it) when aviation is eventually included in the European Union's Emissions Trading Scheme, which could be as early as 2011. [6]
Aircraft and Surface Transport Emissions Costs
York Aviation's estimate of the environmental cost of the extra aircraft and road transport carbon dioxide emissions attributable to the operation of the Runway Extension assumes a value of carbon of £70 per tonne in 2000 (at 2000 prices), rising by £1 per tonne per year in real terms. [7] After converting these costs to 2006 prices, York arrived at a total cost of aircraft surface transport emissions over the assessment period of £1,551 million and £4 million respectively.
There are two main reasons to suppose that these figures are significant underestimates. First, the figure of £70 per tonne of carbon fails to capture all of the economic and environmental costs of climate change. The figure originates in a 2002 report for HM Treasury and DEFRA, 'Estimating the Social Cost of Carbon Emissions', which concluded that £70 per tonne carbon was a figure 'at least roughly consistent with the level of effort needed to meet the UK's ongoing international commitments on climate change'. [8] However, since then the science of climate change has moved on, and it is now accepted that the damage associated with a given concentration of greenhouse gases is likely to be a much higher than previously thought. What's more, many of the wider potential impacts of climate change have not been ascribed a monetary value. These 'unmonetised' impacts include socially contingent effects', such as conflict, migration and the flight of capital investment. [9]
Second, estimates of aircraft carbon dioxide emissions do not capture the full climate-change impact of air transport. Aircraft emit other greenhouse gases besides carbon dioxide, such as nitrogen oxides, and generate contrails and cirrus clouds (although there is still scientific uncertainty surrounding the precise effect of these). In June 1999 a comprehensive report undertaken jointly by independent scientists and experts from the aviation industry and published by the United Nations' Intergovernmental Panel on Climate Change (IPCC), 'Aviation and the Global Atmosphere', concluded that the total global-warming effect of aviation emissions is two to four times greater than the impact of aircraft carbon dioxide emissions alone. [10] The report's assessment of aviation's climate impact was confirmed in 2005 by a subsequent study by Sausen et al, 'Aviation Radiative Forcing in 2000: An Update of IPCC (1999)'. [11]
For these reasons we contend that the future climate-change costs of the Runway Extension have been significantly underestimated. In particular, the cost of aircraft emissions should be at least double the figure of £1,551 million arrived at by York Aviation. When we consider that, according to York's 'sensitivity test', the cost of aircraft carbon dioxide emissions would have to rise by only 36 per cent to reduce the net present value of the proposed Runway Extension to £0, [12] it is likely that the true climate-change cost of the runway extension outweighs all the potential benefits of the development identified by York put together.
In reality, then, it is very likely that the true economic and environmental costs of the runway extension outweigh the benefits.
References
[1] York Aviation, Birmingham International Airport Proposed Runway Extension - Economic Impact Assessment, Final Report December 2007, para.4.1, p32. http://tinyurl.com/2ggjew
[2] Ibid., Table 4.1: Economic Appraisal of the Proposed Runway Extension, p41.
[3] Ibid., para.11, piii.
[4] Ibid., para.4.16-4.18, pp36-37.
[5] '2007 Pre-Budget Report and Comprehensive Spending Review', HM Treasury, 9 October 2007, para.7.54-7.56, pp122-123. www.hm-treasury.gov.uk/media/C/8/pbr_csr07_chapter7_258.pdf
[6] Aviation Environment Federation, 'APD to be replaced by per-plane tax', 10 October 2007. www.aef.org.uk/?p=206
[7] York Aviation, op. cit., para.4.24, p38.
[8] Clarkson, R. and Deyes, K., 'Estimating the Social Cost of Carbon Emissions', HM Treasury/DEFRA, January 2002, para.9.13, p41. www.hm-treasury.gov.uk/media/5/F/SCC.pdf
[9] Friends of the Earth, 'Heathrow expansion - its true costs', January 2008, p5-6. http://www.foe.co.uk/resource/briefings/heathrow_expansion.pdf
[10] UN Intergovernmental Panel on Climate Change, 'Aviation and the Global Atmosphere', June 1999. www.ipcc.ch/ipccreports/sres/aviation/index.htm.
[11] Sausen, R.. et al., 'Aviation Radiative Forcing in 2000: An Update of IPCC (1999)', Meteorologische Zeitschrift Vol 14, No. 4, August 2005, pp555-561. www.myclimate.org/download/2005_IPCC_update.pdf.
[12] York Aviation, op. cit., Table 4.2: Sensitivity of Analysis to Individual Inputs, p42.