RETHINK BUSINESS MODEL - LOW CARBON LEADERSHIP IN AVIATION INDUSTRY

1. RETHINK BUSINESS MODEL- LOW CARBON LEADERSHIP IN AVIATION INDUSTRY Changhua Wu Greater China Director The Climate Group GREENER SKIES 2008 HONG KONG FEBRUARY 25TH, 2008

2. AWAKENING TO CLIMATE CHANGE • Science and Awareness – ‘Climate change is unequivocal’ • Regulations – Efficiency, carbon emissions reduction • Technology – Available and cost-effective for many sectors, if not all • Market Leadership – Best practices and solutions emerging to build a business case and explore a new business model • Challenges – Many questions and uncertainties remain and demand better information and solutions

3. UNDERSTANDING AVIATION IMPACT ON CLIMATE CHANGE • Aviation contributes to the problem through different aircraft emissions: carbon dioxide and water vapour emissions, contrails or ‘aviation smog’, indirectly nitrogen oxides • Since 1990, CO2 emissions from aviation – which are directly related to the amount of fuel consumed – have increased by 87% and now account for around 3.5% of total ‘human activities’ contribution to climate change. IPCC has estimated that this share will increase to 5% by 2050 – undermining efforts made by other industrial sectors to fulfil Europe’s Kyoto Commitments • Market share of low cost carriers of short-haul passenger traffic: 31% in North America, 26% in Europe, and 9% in Asia • Expected market share: 40% in 20 yrs (2025) • Climate change is unequivocal • So, not ‘hysterical persecution’, but really contributing to the problem

4. EMERGING POLICY AND REGULATORY LANDSCAPE • Aviation sector was not required to do much to address climate change as international aviation is excluded from the Kyoto Protocol – which merely requests countries to work towards reducing emissions in this sector through the International Civil Aviation Organization (ICAO external) • Although the ICAO has endorsed the idea of an emissions trading system to meet CO2 emissions reduction objectives, prospects for a comprehensive global agreement appear distant • Several policy options were examined, including aviation taxes, such as fuel tax – as kerosene is currently exempted from taxation. This was strongly opposed by the aviation industry • December 2007 EU Council of Environmental Ministers approval – to include aviation industry into the EU ETS – regarded as the most cost-effective way of reducing the climate change impact of aviation, starting 2012

5. FRAMEWORK FOR CORPORATE LEADERSHIP PROGRAM

6. FLIGHT OFFSETS Over 140 organisations selling offsets directly to consumers Many of these are to offset emissions from flights Several airlines have also developed offset schemes directly for consumers

7. VCS - MARKET POSITIONING Specific Buyer requirements Sustainability and other attributes State and other sub-national programmes Other Standards Carbon quality guarantee

8. AIRLINE OFFSET PRODUCTS Example of airlines offering offset products and the offset used: Virgin Atlantic - Gold Standard credits Cathay Pacific uses VCS British Airways - CDM Easy Jet - CDM Virgin Blue (Australia) - Offsets approved under the Australian Government Greenhouse Friendly Programme Lufthansa - Gold Standard

9. MEMBER CASE STUDY – VIRGIN ATLANTIC Footprint Emissions data taken from fuels used in planes (not average figures) and use IATA emissions factor Differentiation between classes (business and economy) Does not include radiative forcing index multiplier (RFI) but provides option for customers to add it in Subtracts proportion of freight weight from equation so passengers are not responsible for offsetting this Reductions Invest in more efficient planes and low carbon fuels Reduce on ground emissions Offset Only uses Gold Standard offsets. Gold Standard projects are renewable energy and energy efficiency and have high sustainability benefits

10. IN THE MEDIA Value of U.S. House's Carbon Offsets Is Murky Another Inconvenient Truth • Guilt-Free Pollution. Or Is It? • Another Stab at Carbon Offsets

11. IMPACT ON CORPORATE BEHAVIOUR • Reduce GHG internally – rather than relying solely on offset purchases • CN product that are not indulgent GHG problems • Transparent claims • Third party audit • Offsets approved against international standard

12. TIPS WHEN SOURCING OFFSETS Develop a tailored offset strategy Decide how to buy offsets Choose offset standard that meets needs Undertake due diligence on projects Talk to different sellers Ensure offsets are retired on credible registry Be transparent and review approach

13. BUILDING A NEW BUSINESS MODEL … • Solution for Sectors • Understand possible reductions from increased fuel efficiency, plane construction, engine technologies, alternative fuels, air traffic control, airport management • Understand cost factors for those solutions and non-economic barriers • Understand demand-management solutions and opportunities for socially and financially sound alternatives to aviation, like high-speed rail or video-conferencing • Economics • Assess the potential impact of policy mechanisms and/or costs of carbon for addressing both solutions and residual emissions • Understand how money raised from economic instruments might be used to reduce emissions on the ground, eg through avoided deforestation or carbon capture and storage technologies • Evaluate how economic instrument may drive behaviour through a consumer sensitive analysis to prices, policies and peer-pressure with the aim of determining price-points for continued growth in profitability while managing demand • Aviation Industry would also need • A better understanding of the future of aviation in a carbon constrained society • More and good information for better business decisions regarding emissions • An analytical framework for further investigation of carbon management in the aviation sector

14. Thank You! cwu@theclimategroup.org www.theclimategroup.org GLOBAL LEADERSHIP FOR CLIMATE CHANGE