April 19, 2005
Aviaton imposes large costs on society and the costs are not currently borne by the industry or its customers. These costs are termed ‘external costs’. Estimates suggest that the external cost of aviation in the UK may be £3 to 4 billion pa and could be higher.External costs are the costs imposed on people by impacts from activities that they are not themselves engaged in. Economists try to convert impacts of all type into a financial valuation. For example, aircraft noise impacts on local residents who are not flying and and a monetary valuation can be made of that noise nuisance.Aviation is a very intrusive activity and therefore generates large external costs. The impacts, each of which will have associated costs, are:
Not all these have been costed, but the first 3 items are generally recognised to be the most important. Costing these impacts is fraught with difficulty and is the source of ongoing debate and research. Most work has been done on climate change, local air pollution and noise, while nothing has been done on disease.
An analysis carried out by Airport Watch in 2003 put the external cost of aviation in the UK at £3.0 billion pa. This was a fairly conservative estimate. A ‘lowest likely’ value was estimated at £2.3 bn pa and a ‘highest likely’ at £5.8bn. These estimates used detailed work carried out by the DfT (Department for Transport), CE Delft (a Dutch consultancy) and the AEF.
In Oct 2004, European consultancy IWW/INFRAS produced an update of their earlier study that estimates the external cost of all forms of transport. The costs for aviation for the UK are £14.3 billion pa using a ‘high’ figure for the cost of climate change or £3.4 bn using a ‘low’ cost for climate change. The dominance of the climate change costs can be seen as can the wide range of possible estimates for it.If the DfT’s figures for the cost of climate change are substituted for IWW/INFRAS’s, the total IWW/INFRAS cost would then be £4.2 bn. This is of similar order to the Airport Watch estimate of £3.0 bn.
While there are big uncertainties in the true external costs, it is clear that the costs are very large. It is a well-recognised principle that those who cause adverse impacts should pay the external costs of those impacts. This is the ‘Polluter Pays Principle‘. The aviation industry and its customers should therefore be paying charges or taxes of perhaps £3-4 bn pa – perhaps more – to recompense society.
Payment of external costs is not the only fiscal issue for aviation. Most other sectors of the economy are expected to contribute toward the cost of public services and there is no excuse for aviation to be exempted from taxes such as VAT and fuel duty.