“It’s dominating discussions here in our boardroom” said IATA (International Air Transport Association) Corporate Secretary Paul Steele when asked by reporters how airlines are preparing for climate change.
Airlines are currently responsible for 2% of all man-made Greenhouse Gas emissions, attributable to their highly fuel dependent business. Current demand for jet fuel worldwide is about 5 million barrels per day, or 5.8% of total global oil consumption according to OPEC Energy review.
Historically what kept airline CEOs at night was rising fuel prices that negatively impacted the bottom line, however, the imminent change in Greenhouse Gas emissions regulations is poised to become the new industry headache. Since the ETS (EU Emissions Trading System) was launched in 2005 airlines have managed to narrowly escape the long hand of regulators. In 2006 the industry avoided inclusion in the list of sectors that would have to pay a “carbon tax” that applies when companies go over their maximum emissions cap. A study by IATA estimates that if the industry globally agreed to these conditions, at least 2% of their revenues would have to be invested in carbon credits. The burning question industry analysts are asking is whether an industry that has historically suffered from low to negative margins can survive a global carbon tax.
One South American Airline isn’t going to wait to find out
Surprisingly, an unexpected company is becoming an industry leader in environmental sustainability. LATAM Airlines Group, a South American based airline is leading the pack and getting ahead of regulators. It is currently one of only two airlines that are part of the Dow Jones Sustainability Index, the world’s first global sustainability benchmark. LATAM Airlines is voluntarily planning to become carbon neutral by 2020, and to reduce its absolute carbon emissions in 2050 to 2005 levels. This is an ambitious plan that the company is trying to achieve using a three-pronged approach:
- Managing the chain: LATAM has established its global procurement and supply chain policy in a way that guarantees their suppliers are complying with the companies demanding environmental standards. They have periodic audits and have gone as far as including an environmental clause in all their contracts, making suppliers accountable for any possible sanctions.
- Joint Construction: The company has been partnering with several organizations to promote debate and actions geared toward sustainability and GHG emission reductions. Among these partners you can find the CPD (Carbon Disclosure Project) which has played an important role as a forum for debate, and to whom the company reports its carbon emissions performance. It is also possible to find Carbon traders such as BAM, an Amazon forest based organization that has worked along with the company to offset 25,046 tons of CO2 emissions since 2012.
- Relations with Strategic Stakeholders: Rather than face off with regulators, LATAM has decided to work alongside them to develop a “balanced vision incorporating the mitigation of risks and the pursuit of new opportunities to manage the business’ actual and potential environmental impact, with special emphasis in reducing the company’s carbon footprint, using alternative energy sources, and implementing eco efficiency measures”. It is refreshing to see a company willing to ask for help from the same regulators its competitors seem to fear.
While LATAM’s efforts are laudable and a viable alternative for the short term, there is still an elephant in the room. All these actions are designed to either minimize or compensate the harmful effects of jet fuel consumption on the atmosphere. However, I believe it is time to start asking harder questions. Why does the industry insist on using fossil fuels in the first place?
Skeptics might say that the technology isn’t there yet. I would argue that the public and the airlines have not demanded significant change from aircraft manufacturers. Currently Boeing and Airbus dominate the commercial aircraft manufacturing industry, living in a comfortable duopoly with small competitors such as Embraer and Bombardier making up a very small part of the market. Even though there are several bio-fuel run aircraft that have been tested successfully, none of the aircraft manufacturers have committed sufficient resources to getting them off the ground and making them a viable alternative for airlines.
In the long term, what LATAM and other airlines should do is exert pressure on manufacturers to design and produce aircraft that can work on alternative fuels. The technology already exists in other transportation sectors; manufacturers just need that extra push to be able to translate it to commercial planes. Why should airlines alone bear the brunt of carbon regulation? Shouldn’t it be a shared burden on the manufacturers who have decided to keep investing on fossil fuel operating aircraft?
LATAM Airlines 2015 Sustainability Report: http://media.corporate-ir.net/media_files/IROL/81/81136/Sustainability_Report_2015.pdf