Aviation industry comes under the climate change scanner… finally

The pressing issue of climate change has induced change in various industrial sectors. From thermal plants to dairy farms, each industry has gotten involved, either willingly because it believes in eco-friendly practices or unwillingly because it is required under governmental regulation, in the movement to safeguard our planet from the effects of climate change. But surprisingly, a certain industrial sector which is an important emitter of greenhouse gases, has managed to escape the climate change scrutiny. We are talking about the aviation industry. Between 2 to 3 percent of global greenhouse gas emissions are by airplanes. And even though technological advancement has significantly reduced aircraft fuel consumption and emissions on a per passenger basis over the last decades, emissions from the airline industry are still increasing nearly 5 percent a year according to a report last week from the European Environment Agency. Between 1990 and 2005, the last full year from which data were available, total carbon dioxide emissions from aviation in the European Union grew by 73 percent.

In view of these facts, there is growing support to include international aviation in any successor treaty to the Kyoto Protocol. The EU has already taken steps to regulate emissions from airplanes. The new EU regulations which will go into effect in 2012, will cap carbon dioxide emissions for European and foreign airplanes alike, while allowing airlines to buy and sell emissions credits in the EU carbon market.

It is expected that the new EU regulation along with growing public concern over climate change, will mobilize the airline industry into becoming more environmentally responsible. It will be interesting to see how low cost flights, whose revenues have flourished in the last few years, will absorb the costs of the new EU regulation. Moreover, one will have to wait and watch to see how the aviation industry adjusts its financial bottom-line to the increasing pressure on reducing its carbon-intensive operations

Price of oil is influential factor in the carbon market

It will be interesting to see how the industrialized world fulfills its carbon reduction obligations now that the price of crude oil has climbed over U$130/ barrel. With oil prices reaching record-highs (and predicted to yet rise), power companies may have to switch from oil to coal, which is a cheaper but dirtier fuel. Coal based plants emit more carbon dioxide. This will increase greenhouse gas emissions and make it harder for industrialized nations to meet their emissions reduction targets.

Industrialized nations will have to work harder to find methods to reduce their emissions. Further research and investment in breakthrough technologies that are clean and offer effective internal abatement solutions, is required. In the mean time, industrialized nations will have to participate in carbon trading to buy offsets that can neutralize their emissions. While the preference for carbon trading for industrialized nations will be other industrialized nations, it is expected that these countries will also look into buying verified and reliable carbon credits from the developing world, giving a boost to the carbon market there.

The Carbon Market Incentivises Eco-friendly Business Practices

One of the big successes of the carbon market is that it has converged together environmental concerns and financial trends. The carbon market has put a price on emission of greenhouse gases and this is making companies finally take note of their emissions and to become more environmentally responsible.

The success of the EU carbon market is noteworthy in this regard. The EU's strict compliance laws have made the EU's emissions trading scheme (ETS) dominate the global carbon market; moreover, these stringent caps are compelling the European private sector to get serious about its emissions. European companies are not only aggressively partaking in carbon trading but are also earnestly exploring opportunities to reduce emissions. Investment decisions by European industries now take into account the carbon price and the related cost of polluting the air with greenhouse gases. 73 per cent of the EU ETS respondents in the Carbon Market Survey 2008 by Point Carbon said that the carbon price is relevant to investment decisions. As the carbon market matures further, we can expect the carbon price to play an even stronger role in the investment and financial decisions of companies.

Similarly, in the developing world, the carbon market is creating lucrative incentives for companies to adopt green policies and to reduce their polluting activities. Industries of the developing world can now earn ready cash for every pollution-saving measure they undertake.

This is a win for the environmental movement. Traditionally private companies have known to be committed to their profit margins and not to environmental concerns. But the carbon market has meshed environmental causes with economic profitability and the private sector is now batting on the same side of climate change policy as the environmentalists.

Thus, for the first time, market forces are working in tandem with governmental regulatory forces and environmental causes. And one can be confident that this trend will not only continue but also get stronger in the near future.