Saturday, 28 July 2012

Sustainable Milk Supply

The price of milk has become a political football as farmers get vocal about the low price they are being paid. The situation has come about because of a blinkered reliance on market forces without bringing in other important factors such as long-term health of the dairy industry and the sustainability and security of supply. These are important factors not to be dismissed lightly, but adherents of conventional economics argue that it should be left to the market. This is plain wrong. The farmers deserve a response based on common sense, sound policy and economic viability. The order of analysis is first ‘common sense’ leading to ‘sound policy’ and finally a check of ‘economic viability’.
The simple conventional economic model has consumers at the top selecting the cheapest milk supported by supermarkets seeking to attract more customers and driving a hard bargain with the suppliers.  At the bottom, the farmers have to accept whatever price the buyers are willing to pay with the middlemen, of course, taking their share. Market forces bear most heavily on the party with least power; in this case it is the farmers.

It used to be possible to manage a herd of 60 cows and make a living in the UK. Now a herd needs to be ten times as large to reap the economies of scale to generate a reasonable profit. The problems run deeper than this. In an open European market, the competition is not just with other UK farmers but with farmers across Europe. We end up with trucks carry milk and milk products criss-crossing Europe to take advantage of price differentials. Common sense tells us that this cannot be the best way to produce milk.

It is instinctively correct that milk is a local business. We should want a stable farming structure producing a safe healthy product in a way that is sustainable over the long-term. A marginally higher retail price is a small price to pay to protect security of supply and hardwire sustainability into milk policy. The economics is simple so leave the economists out of the decision making. The decision should be based on a commonsense approach to sustainability. Of course inefficient or bad farmers should be eased out of the industry but good farmers using sustainable practices should be able to plan ahead with confidence. Meanwhile we should not expect heavy discounts on the milk we buy. You pay for what you get; sustainable, secure supply has a cost which is well worth paying.

Tuesday, 24 July 2012

Renewable Heat Premium Payments

I spent this morning at the launch of Renewable Heat Premium Payments – Community Scheme (RHPP2). Through this project, the Department of Energy and Climate Change (DEECC) hope to ‘understand more about the potential financial, community and environmental benefits from community led deployment of renewable heat’. Greg Barker MP, Minister of State for Energy and Climate Change introduced the launch with enthusiasm and the words:

“Communities will be the galvanising force in championing and delivering renewable heating.”

As chairman or the Pangbourne and Whitchurch Sustainability group (PAWS), I already have a good idea of what is needed. The current situation is that relatively affluent people with spare cash and large houses are fitting renewable energy solutions and taking advantage of the government subsidies.  Relatively poorer people in smaller lower quality houses are not drawn into the system. We have to act differently to enable renewable energy solutions for the bulk of the countries housing stock, not just the relatively rich.

RHPP2 is intended to establish trailblazer communities so that other communities will follow. I hope that this might be so but the logic is weak. It is laudable that the government want to give power to communities, and so they should, such as reducing the red tape that strangles local renewable energy companies.  But the government has to do more.

The key barrier to renewable energy solutions is cheap fossil fuel. The government should have the political courage to set up a tax escalator for all fossil fuels to give firm figures to invest in renewable energy. This will be far more powerful than subsidies. The relatively rich will do the sums and rush to install renewable energy. The government will have considerable additional funds to invest in the housing stock of those at the bottom of the social pyramid. Fuel prices will rise steeply but fuel bills will be pegged through the rich investing in improving their houses and the poor benefitting from government programs to implement basic measures such as insulation across the housing stock.

Do we want complex systems to give away government money or real action to drive change?

Monday, 16 July 2012

Investing in Rail

The UK government has chosen today to announce investment in the rail network. The media have portrayed this as a tactic to divert attention from the delay in publishing the government’s aviation policy. It clearly is, but this makes both political and logical sense.

The prevarication over aviation policy looks bad as it appears to be dithering. However there are good reasons to take care because decisions taken now could have far-reaching consequences. It will be difficult, politically, to do the right thing. If the government has the courage to set aviation policy on the road to greener aviation, there will be a number of unhappy stakeholders, including the airlines and people who regularly take cheap flights, worried at the short-term consequences. This is a prime example where for a government to put the logic of sustainability to underpin policy requires facing down opposition. No wonder the politicians hesitate.

Announcing additional investment in rail is good tactics, not because it deflects attention from aviation policy, but because this is a logical consequence of analysing the future for aviation in a world that starts to deal effectively with holding carbon dioxide emissions in check. A high capacity, fast, electric rail network can be a viable alternative to short-haul flying. The problem is the need for substantial investment, and time, to deliver the require infrastructure. It is correct that the government push ahead with rail, without delay.

The future for transportation, currently served by aviation, includes expansion and upgrade to the rail network. The government gets full marks for today’s announcement. It remains to be seen whether it scores full marks when it finally announces policy specific to aviation.

Monday, 9 July 2012

Aviation Policy

The UK government has difficult decisions to take over aviation policy. The shape and nature of aviation up to the middle of this century will depend on the decisions taken over the next year. This will have huge environmental, social and economic consequences.

 Aviation accounts currently for about 3% of global CO2 emissions but are set to rise substantially. These emissions are one driver of climate change and scientists are concerned that emissions from aviation are at high altitude where they have an amplified effect. There are no plans to limit growth of these emissions apart from statements emanating from inside the industry which do not stand up to rigorous scrutiny.

The social impact of aviation has been extraordinary with people flying regularly, not just for the occasional holiday or business trip but international weekly commuting and weekend breaks. I met a courting couple this weekend, one who lives in the Middle East and works in the UK; the other who lives in Italy. They take flights to spend every other weekend together. Such lifestyle choices have become an expectation which people do not want to lose.

 Aviation is also an integral part of the global economy. Whilst we remain fixated on growing international trade, we require direct regular flights to existing and potential trading partners.

Striking the correct balance between the environmental, social and economic factors is tough. The key to setting policy is to understand timescales. The aviation industry is not like the car industry where changes can take effect within a decade as new models replace the old. In aviation, it takes years to develop a new aircraft which will then remain in production for a couple of decades and remain in the active fleet for three or four decades. Politicians may be slave to the electoral cycle, but their advisors have to have their eyes fixed on 2050 and beyond if we are to get appropriate aviation policy.
The difficult stage is the first stage. Get this wrong and everything that follows is built on unstable foundations. Do the hard work of getting it right from the start and the later stages of implementation are comparatively easy because this is a highly regulated industry. If we decide we want change, it can be enforced. The huge caveat is that this is a global industry which needs a global policy. If the government try to set policy within a UK bubble, it will be the wrong policy.

 There are difficult negotiations ahead which need a guiding principle. Aviation policy affects the advanced economies and the rich within the poorer economies. Therefore there are no grounds for special exemptions for aviation. Politicians should have confidence to face down vested interests to set policy appropriate for the 21st century.

Monday, 2 July 2012

Green Aviation 2012

Green aviation is a huge opportunity for the world to demonstrate that sustainability is achievable and leads to progress and improvement is the way society and the economy operates. However the aviation industry is very set in its ways and chooses to be blind to the possibilities. It is inevitable that the industry defends its future but this is counterproductive when the focus is on the short-term commercial imperative to survive in an industry with tight margins and huge sunk costs.

The industry is doing all it reasonably can within the parameters set by society. The majority of passengers like to fly cheaply; governments get concerned that change may hit adversely the economy; and shareholders want the management to increase the value of their shares. It is a tough sell to convince passengers that green aviation will cost more at the outset as the price of driving change. It is tough to persuade the government that championing policy that will be unpopular in the short term is the right course of action. It is tougher still to explain to shareholders that the companies they own could become worthless unless the management start to invest in the transition to green aviation.

I attended Green Aviation 2012, an event hosted by Imperial College, London. In open questions I asked Steve Ridgway, Chief Executive of Virgin Atlantic what he thought would be the effect of world politicians changing the policy framework to allow taxation of aviation fuel. He replied that it would destroy the industry. That is the perspective of the current key industry players with short-term financial targets to meet. The fact is that to deliver a better and greener aviation industry requires that the tax exemption on aviation fuel is removed. Resisting this truth is trapping the industry in 20th century practices flying 20th century aircraft.

The main plank of the aviation industry’s response to the challenge of green aviation is an aspiration to reduce net carbon emissions by 50% by 2050 with respect to a 2006 baseline. This gets good press coverage but the key word used is ‘net’, a word often omitted when the ‘target’ is discussed. The industry expects actual emissions to quadruple over the same period. How could the net and gross figures be so different? According to the International Air Transport Association (IATA) they have illustrated how this could work with 80% of aviation fuel being biofuel by 2050.

There are many reasons why the aviation biofuel aspiration is disingenuous ranging from the effect on food production of switching agricultural capacity to the growing demand for biofuel from other sectors. From a straightforward commercial perspective, Charles Cameron of BP gave a very informative talk to explain the difficulties of delivering biojet fuel in quantity to the industry. It is clear from a range of perspectives outside the aviation industry that its biofuel aspirations are not feasible.

A friend of mine, on hearing that I was at Green Aviation 2012, said that ‘green aviation’ had to be an oxymoron. I was left thinking that perhaps he was right because aviation is so stuck in the past, so locked down by outdated policy that it cannot be green any time soon.

The organisers of Green Aviation 2012 should be applauded for running a great event and setting up a forum to start a discussion but there is a long way to go before we will see real progress.