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Bio-fuels allows long-term CO2 reduction in air transport

Threat of a three-fold increase in CO2 emissions by the year 2050

Global air transport is growing by an average 4.5 percent p.a. This growth is offsetting efficiency improvements in aircraft technology, and the development of high-quality bio-fuels is emerging as the big hope for achieving ambitious climate targets. However, change in the industry is only possible with a concentrated approach involving politicians, business and research

Worldwide air transport volumes are set to double within 15 years, given average annual growth of 4.5 percent, and by the year 2050 they will have increased six-fold, to around 3 billion tonne-kilometres transported. The strongest boom in the sector is expected to be in Asia - particularly India and China - as well as in the Middle East. In particular, the Middle East is set to witness a rapid expansion in air travel including a very fast increase in the size of the fleet serving the region, driven by its major hub carriers (Emirates Airlines, Etihad Airways and Qatar Airways), said Fadi Majdalani, Partner with Booz & Company. Currently, air transport accounts for just 2 percent of global CO2 emissions.

However, given the expected advances in technology and the forecast rates of growth, this share is set to increase disproportionately over the decades ahead. Despite significant technological innovations with new types of aircraft, it is particularly the long working life of aircraft (between 30 to 40 years), which means that improvements in efficiency only gradually take effect over the entire international fleet. As a result, the presumption is for a 3 percent year-to-year increase in worldwide CO2 emissions from aviation. This would increase CO2 emissions from this transport sector more than three-fold by 2050, despite the assumed efficiency improvements.

These are the key findings from the latest study, Sustainable Aviation, being presented today by the international strategy consultants Booz & Company and the World Economic Forum (WEF). The study describes planned strategies for reducing climate-harming CO2 emissions, in addition to sustainable growth in air transport.

Bio-fuels pave way out of the CO2 trap

These forecasts stand in stark contrast to the ambitious self-imposed climate protection targets the international aviation sector collectively adopted in 2009. Building on a targeted 1.5 percent annual improvement in fuel and CO2 efficiency through to 2020, the industry aims to grow CO2 neutrally from 2020 onwards. For 2050, the aim is to go so far as to achieve a 50 percent net reduction in emissions, compared with 2005. "In freeing itself from this strategic dilemma, there is no route map for the international aviation industry that doesn't involve bio-fuels," says Jürgen Ringbeck, Partner and Air Transport Expert with Booz & Company.

"Even if other levers can bring about further efficiency gains in the short- to medium-term, it is only highly-developed fuels from biomass that have the potential to achieve the long-term, ambitiously-framed industry targets. They alone get around the problem of long aircraft life-cycles, since they can be added to the mix used in the existing fleet as well. However, this form of bio-energy for air transport is, as yet, at a very early stage in development, bringing considerable risks with it. Achieving the industry targets would call for 13.6 million barrels of second-generation sustainable bio-fuels in 2050. These produce 80-90 percent lower life-cycle CO2 emissions than conventional kerosene. This would correspond to around 90 per cent substitution by bio-fuels,"Ringbeck adds.

Concerted action needed

The study presented today quantifies the scope of the CO2 reduction required, and outlines the various levers in air transport needed to bring this about. These include - measures such as operational excellence for flights; optimised infrastructures for air traffic control and at airports; additional investment in R&D for radical new designs of more energy-efficient types of aircraft; bio-fuels; and also market-based mechanisms (emissions trading and offsetting). According to Booz & Company, key factors in the market success of environmentally-sustainable aviation fuels (the most important lever in long-term reduction of CO2) include the regulatory framework; new types of co-operations; innovative financing concepts; and targeted information for consumers.

He further comments, "The sector change requires huge investments to bring about a quantum leap in the technology, as well as a massive expansion in production. However, the market dynamics needed for this can only develop if industry and politicians offer targeted and joint support, and establish the right incentives."

Furthermore, the Middle East region might offer opportunities to produce and distribute bio-fuels. Jatropha, in particular, is a non-food crop that can grow in desert regions and does not require much irrigation, said Alessandro Borgogna, Principal with Booz & Company.

In the short- to medium-term there is also huge potential in consistent expansion of infrastructure - in areas such as air traffic management and at airports. There is an urgent need for this, particularly in regions of high growth. If the necessary additional capacities in airspace and on the ground are not created, then the increasing volumes of traffic threaten to bring about an additional deterioration in the sector's CO2 efficiency.

Positive incentives more effective

The study attributes much greater potential for further reductions in climate-harming CO2 to positive incentives, such as tax concessions, than to the state-imposed environmental levies and taxes currently under discussion. These latter solutions drain a significant amount of money out of the industry, which is then no longer available for investment in reducing measures in CO2. Market-based mechanisms such as emissions trading and offsetting certainly offer scope for reducing emissions cost-efficiently - as long as CO2 savings can be realised more cost-favourably in other sectors. However, due account of the effects from the flow of funds (out of the air transport sector) and of the associated negative macroeconomic effects also needs to be taken care of.

"The survey's summary offers a suitable warning. By implementing these market-based mechanisms, there is a fundamental need to forge a significantly more intense collaboration between the airlines and their umbrella body, IATA, and the national governments and the International Civil Aviation Organisation (ICAO) - in order to define a global and sustainable approach for the air transport sector. In the long term, this will be critical in achieving ambitious climate protection targets," concludes Ringbeck.

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About Booz & Company:
Booz & Company is one of the leading global strategy consultants, with over 3300 staff in 60 offices around the world. Its clients include successful businesses, together with governments and agencies.

Our founder Edwin Booz established the basic principles of corporate consulting as early as 1914. Today we work closely with our clients worldwide to overcome the challenges of global markets and to achieve lasting growth. To that end, we combine unique knowledge of the market and in-depth functional expertise with a practically-oriented approach. Our single objective is to forge a critical advantage for our clients at all times - we call it "Essential Advantage".

For information about our management magazine strategy+business, please visit: www.strategy-business.com.

© Press Release 2011