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.

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?

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.

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 21^st century.

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.

Grounded by out-of-date policy

I am waiting for the next stage of the Department for Trade and Industry (DfT) consultation into aviation policy. The problem the DfT faces is huge swathes of conflicting advice from a wide range of people with different perspectives and often vested interests. This is a prime example where trying to compromise between the parties will lead to a hotchpotch of failed policy. The politicians and their advisors need to look at priorities and establish some principles. I suggest three principles:

1. Delivers a better aviation industry that serves the needs of society;
2. Allows the UK to have a big role in the development of the next generation of air vehicles;
3. Reduces the environmental impact of aviation with policy that is fit for mid 21st century.

My credentials for suggesting the basis of UK aviation policy is that I can wear, simultaneously, the three hats required: The economic and business perspective is one hat; the environmentalist is another and the third is the hard hat of the engineer. The shape of each hat is different.

 The economic and business cap has flaps on both sides that blinker the view of the wider issues and a low brim that stops you seeing more than the first few steps in front of you. The wearer of this hat blunders into policy with a very clear view of the short-term economic perspective. Wearers of this hat are often vocal and loud and look faintly ridiculous from the perspective of those around them that see the bigger picture.

The environmentalists wear a soft hat overgrown with foliage to such an extent that the green leaves obscure the view. Wearers of this hat see a patchwork view of the world in which flying should be rationed in some way or even banned without seeing fully the resistance that this approach generates.

The aeronautical engineers wear a helmet with a clear view in all directions but it is enclosed in a full visor so no one else can hear what they are saying. The engineers wearing this hard hat are forced to focus on 20th century aviation technology because the new 21st century technologies are not financially viable in the current policy framework.

Being a proponent of the capacity of business to implement change, and an environmentalist, and an engineer, I wear a special hat that allows a clear view in all directions. It is topped by a bit of green foliage, is strong enough to stand a few knocks and allows me the freedom to focus on real solutions. The principles I propose are hard to dispute. First, we should want a better aviation industry that serves the needs of society. Second, it makes sense that we plan a key role for UK industry. Third, in an industry with long lead times and high levels of investment it is crucial that we set now policy that is fit for the middle of this century when the air vehicles now being designed will still be flying.

Delaying the fall of the Euro Zone

World markets have risen this morning on news that The New Democracy party has beaten the radical left Syriza party in yesterday’s Greek election. This is an irrational response because further delay in sorting out the euro crisis will make the euro zone’s problems worse, not better.

The New Democracy party have promised to the country’s creditors that it will honour the terms of the bailout loans to keep Greece inside the euro zone; hence the positive reaction by the markets. If the Syriza party had won and carried out its promise to the Greek electorate to tear up the loan agreement, this would almost certainly have meant a rapid exit from the euro.

Stepping back from the immediate political turmoil, it is clear that Greece cannot remain inside the euro zone. This view is based on economic, political and social grounds; it is simply not sustainable. To leave the euro is the correct course of action, primarily for the Greek people but also for Europe and the world economy. A bankrupt Greece would default on its debts and start anew. The new Drachma would plummet in value against the euro and other currencies. Greeks would find imports were unaffordable. Other Europeans would find that Greece is an extremely good value holiday destination. They would and flock to book their next vacation and dash to buy holiday property which would be exceedingly cheap to foreigners. Greece inside the EU but outside the euro zone could do very well without losing its identity and retain its rather loose definition of fiscal discipline. The Greeks could return to a currency which tended to continually depreciate to counter the Greek way of running the economy. It is not the way the Germans run their economy but each country should build on its strengths and work around its limitations.

Sustainable economies are built around the resources that each country has and take into account the specific circumstances of a nation. This is the policy of ‘proximisation’[1] which will lead the world economy out of the current crisis. At the tail end of the era of economic globalisation, people are slow to accept this major paradigm shift, but change is coming, and it is change for the better.
Will the change in policy come soon enough to allow a controlled resolution of the euro crisis? Two years ago, or even one year ago, it would have been possible for Greece to leave the euro in a controlled manner and for the other members of the euro zone to hold the currency union together. Even now, it could be argued that if Greece left without further delay and Germany accepted joint euro bonds, Spain and Italy could be protected. But the longer the Greece departure is delayed the more likely that the euro zone will splinter apart.

The politicians squabble and try to hold the euro project together – and thus ensure its break up. A currency union of separate sovereign states was never going to be sustainable. The sooner a more stable economic system is established in Europe the better for everyone. Keeping the euro intact ensures that all euro zone countries stand or fall together. When the fall comes it will be far more painful than it needs to be.

[1] Also spelt ‘proximization;’ term introduced in Adapt and Thrive: the Sustainable Revolution, McManners 2008.