Climate Change Challenges for Aviation and Tourism

1. Climate Change Challenges for Aviation and Tourism Peter Forsyth Monash University ABARE Climate Change Workshop Canberra February 5, 2008

2. Themes: How climate change impacts on tourism, and how tourism impacts on climate change Issues arising from the impact of climate change mitigation policies on tourism

3. Research Team Sustainable Tourism Cooperative Research Centre funded research Centre for Tourism Economics and Policy Research: Ray Spurr (UNSW) Larry Dwyer (UNSW) Thiep Van Ho (Monash) Daniel Pambudi (Monash) Serajul Hoque (Monash) Peter Forsyth (Monash)

4. Outline Climate Change impacts on tourism Tourism impacts on climate change Aviation- specific aspects Climate change policies and their impacts on tourism Issues Conclusions

5. Climate Change Impacts on Tourism Tourism relies heavily on the natural environment, especially in Australia Change will mean natural attractions will be damaged, or even destroyed Great Barrier Reef; Kakadu; ski fields; beach areas Impacts mainly negative for Australian attractions- a few could be positive A matter for case by case assessment (STCRC study proposed) Other countries both more and less affected- Australia likely to lose out in terms of visitor numbers, on balance

6. Adaptation May be feasible to halt or minimise damage in several cases (not all) E.g. Snow making on ski fields; barrages to prevent flooding Case by case assessment needed- what is feasible, and cost effective? Adaptation is costly Who will pay for it? Users? Earmarked funds (from carbon permit sales?)

7. Assessing the Cost Need physical projections of effects and damage Factor in adaptation costs Project loss of tourism visitation Estimate loss of expenditure from inbound visitors (to region, state, Australia) Estimate the welfare losses (consumers surplus) to Australian tourists Model economic impacts of changed expenditure patterns (using a computable general equilibrium model) All these to be done in projected STCRC study

8. Tourism Impacts on Climate Change Matter of measuring the “carbon footprint” of tourism- how much of GGEs does it produce? What is “tourism”? – not in the accounts A combination of parts of several industries- accommodation, aviation, etc Direct emissions from tourism- e.g. from use of aviation and motor vehicle fuel Indirect emissions- e.g. From hotel use of electricity Two alternative approaches- production and expenditure based

9. Production and Expenditure Based Footprints Production: emissions from production by the various components of the tourism industry, as defined in the Australian Tourism Satellite Account Expenditure: emissions from providing tourists will goods and services, including aviation to Australia Draft production based carbon footprint now prepared- for release soon

10. Carbon Footprints of International Visitors (tonnes)

11. Notes Ground component includes direct and indirect Aviation includes direct only Based on Lundie, Dwyer and Forsyth (2007); BA carbon calculator

12. Aviation Aviation attracts particular attention as a source of GGEs Around 2% of world total GGEs GGEs from aviation likely to be more damaging than surface emissions (suggested multiplier, 2.7) – but this issue is controversial Aviation becoming more fuel efficient, at about 1% PA Little scope for big shifts to alternative technologies in short/ medium term (next 15 years) Aviation demand growing quite rapidly Total GGEs from aviation will grow moderately rapidly, and share of total GGEs will grow over the medium term Hence, aviation is controversial

13. Impacts of Climate Change Mitigation Policies Could have carbon tax, or tradable permits Various carbon prices: Low $20/tonne; High, $50 per tonne Can allow for higher damage by aviation – use factor of 2.5

14. Impacts on Trip Costs- Low Scenario % increase in total trip cost Low carbon price, low damage GROUND Air Fare Total NZ 4.1 2.4 3.6 HK 3.0 2.8 2.9 UK 3.7 3.4 3.5

15. Impacts on Trip Costs- High Scenario % increase in total trip cost High carbon price, high damage GROUND Air Fare Total NZ 10.4 15.0 11.7 HK 7.6 17.4 10.9 UK 9.1 21.2 14.7

16. Implications for Tourism Carbon pricing will affect outbound and inbound tourism (latter probably more) Impact quite significant under “bad” case scenario Price increase over a period of years Partial equilibrium results: General equilibrium results would be less negative for tourism- other changes, such as lower exchange rate, would help tourism Of tourism industries, only aviation would be likely to be awarded many free tradable permits- most of tourism industries simply pay higher prices for inputs

17. Issues- 1: Policy Revenues and Adaptation Costs Major costs will be imposed on tourism by climate change- loss of markets, adaptation costs Tourists will pay more under climate change mitigation policies, but other industries and governments gain higher revenues Who should pay for costs of adaptation? Should revenues be earmarked?

18. Issues-2:Tourism as a “footloose” Export Industry Special consideration may be given for “footloose” export industries (which may shift offshore and produce GGEs there) Tourism and aviation are more footloose than most industries Could consider exemption of international aviation from climate change policy (e.g. ETS) (except where other partner country includes aviation) Cost: higher cost of meeting home targets Benefit: less loss of tourism benefits Benefit: lower GGEs in competitor countries Balance of costs and benefits unclear

19. Issues-3:Aviation Cost Pass Through It has been assumed that airlines will pass through to passengers the costs (value) of permits/taxes 100% Passengers will respond- and reduce travel Airlines may have difficulty in passing though the full cost- especially in the short run Impact of climate change policy will be less than under full pass through But what if airlines are given free permits? Do they pass through the cost ($0) or the value (quite high) of the permits? Little impact on travel if the former is the case

20. Issues-4: Aviation-Special Measures in Order? Aviation a growing source of GGEs, even with new technology and climate change policies Many call for additional measures on aviation- restrictions on travel, extra taxes etc May be popular, but poor environmental economics Under the ETS, overall costs to the economy are minimised by facing all industries with the same carbon price- some adjust more than others Special measures on aviation add to costs But do not reduce GGEs in total (set by the ETS) In sum: special measures directed to aviation add to costs but achieve nothing by way of reductions of GGEs

21. Conclusions Costs of climate change on tourism quite high for Australia Tourism contributes to GGEs through use of transport and indirectly, electricity Climate change policies will add to the cost of tourism, but the net impact needs further research to establish Aviation is a controversial area, and it poses a number of issues to be resolved Best handled thorough part of an overall climate change policy rather than by special measures

22. References CTEPR/STCRC Climate Change Policies and Australian Tourism (2007) www.crctourism.com.au Lundie, Dwyer and Forsyth, Journal of Sustainable Tourism, 2007

23. Thank You! peter.forsyth@buseco.monash.edu.au