To Fly or not to Fly

In response to comments on Chiara's post yesterday, and as a user of short-haul flights for European holidays,  I though that I would use this post to detail my personal response to the air transport debate.

Statement [1]: I am a rational economic agent. As are (or should be) all others around me and all firms with which I interact. On this basis I expect the free markets within which I operate to be efficient and to trade in response to price signals without subjective bias. I do not expect them to take into account non-costed negative externalities except for the case that these provide a 'kudos' value representative of the subjective internalised belief of a subset of market agents.

Fact [1]: A recent ticket cost me £0.79 to fly over 1782 miles (London - Rome). This will emit 375kg of Carbon. per passenger. Airport taxes are paid for runway maintenance and general airport overheads. No fuel tax is charged on my fuel. No VAT is charged on my fuel.

The failure to tax aviation sufficiently is actively creating the very market distortion that central government is expected to correct through fiscal, financial and administrative instruments. The market is not so much a beneficiary of Smith's Invisible Hand but is being force-fed under a blind mandate of social 'Liberty' and 'Vitality' for the economy. Provide, beyond the statement of expected growth and 'knock-on' effects, the details of the mechanism under which the economy and the aviation industry are inextricably linked. Show us the figures on negative economic growth in the financial sector under heavy fuel taxation, show us the detrimental impact on social welfare of a trip by rail to the Cornish coastline.

It may sound like a selfish argument but I stand by the following. I am a rational agent whom, whilst concerned with the environment, admit fully that the figures are still lacking with regards to the precise details of almost all sustainability issues backed by Agenda 21. My personal area of interest is bioenergy. Whilst I research this with fervour, I harbour inherent scepticism as to whether there exists a future, sustainable, steady-state balanced precariously upon a technological spire. However impact reduction is a feasible goal. Increase the cost of flying and I will cut down my air-miles; simple. Until that is done, I will increasingly intertwine my social (liberty) and career (economic prosperity) within a the low cost global transport technological infrastructure. I would be foolish not to, given the great joy that it brings me, my friends and family.

I therefore see this as a no-brainer from a policy perspective and see little reason as to why an argument exists on the issue (from the perspective of anyone but the most hardened climate / eco-economy sceptic). With demand elasticity for air-travel highly uncertain at between 0.5 and +1.5 (dependent on terminals, class, time of year etc.) taxation would need to be carefully modelled (through some level of empirical identification and statement of the mechanisms which link air-transport with the economy at large) and optimised in order to ensure that robust policy was implemented. Ideally this should come early in the next term of UK government, so as to allow a period of readjustment of the social norm within a single term. It should at least match the fuel tax, or equivalent passenger mile consumption value (cost service km rather than means), on road transport fuels (50.9p/L Unleaded). This would ensure that aviation (and the users of aviation) makes a fair contribution to the cost of running the health, education and police services. Secondly it would go some way to cover external costs which are now widely accepted prior to an anticipated shift to direct carbon pricing (as a subset of a broader ETS) in the long term. Fuel taxation, whilst a paradigm shift to the industry, would merely bring the market to the table of fair trade in the logistical good.

There is an urgent need to curtail the expansion rate of the sector with the open skies pact coming online in April 2008. Once the US are integrated into the free-for-all transport network, the economic incentives for low cost air-travel can only be expected to increase. Calls too cheap to monitor, once a dream, are now a reality but they have few negative externalities. Flights too cheap to dissuade are a reality right now but can't be allowed to continue. Tax aviation fuel now. Bring up the price of air transport and I will consider other means as I am rational. The government has subsidised this industry long enough and I want them to help me from doing wrong. That is in part my perception of the role and responsibility of the maternal state.    

Else, ignore all of the above and see this excellent (if a little outdated) review (2003): The Hidden Cost of Flying

Comments

[Miles Perry]

Excellent summary Alex - but what's the bottom line for the concerned individual?
Advocate systematic fiscal change but do nothing in the meantime?
Is that really the best a rational-but-caring individual can do? Shouldn't we at least try emotional appeals?

[Alex]

Is it truly the work of a rational economic agent to base decisions soley on the utility to be gained in the immediate present? I enjoy holidaying as much as the next person. But I would also quite enjoy a stable climate for my older self and my children.
Democratic governments operate on a mandate from their electorate. They have to second-guess what we really want and weigh these hunches about the popular will in the balance when making decisions. If they see no fall in demand for cheap flights, they are likely to decide that their chances of re-election would be harmed by instituting appropriate taxes. If they see no fall in demand even from those who are extremely informed about climate change, they are surely even less likely to fancy their chances...
Personally I feel that relying on the government to stop me doing what I feel is wrong and labelling it as the economically rational choice is an abnegation of personal responsibility.

[Nathan Rive]

Interesting discussion, and I'm glad you posted on it, Dunnett.

I agree with Alex's comment about personal responsibility - it would be a bit of a cop-out for us to claim 'rational consumer' as the reason we take flights. We should do what we feel ourselves is appropriate - similar to how we choose what food, stocks, clothing is ethical to buy.

As it happens, I take a lot of flights. On top of that, I don't make any enviro excuses. My family lives in Canada, so I fly back twice a year. I visit my Gran in Denmark twice a year or so. I also fly a lot for work (5-6 Euro flights a year, plus maybe a long-haul somewhere). While it may be a bit like rearranging deckchairs on the Titanic, I do try to mitigate it. We offset all work flights using CDM Gold-Standard credits. I try to take trains when possible (I took the overnight to Barca once for work), and have recently been staying in the UK for other holidays. (The latter is only partly for climate reasons, I must admit, though.)

But ultimately prices need to change if flights are going to be slowed. We can't escape that. Beyond our own personal choices, the broad consumer base is a rational agent. Planes are cheaper than trains, so they get used. This needs to change, and environmental economists like ourselves need to push for it through our work. This is equally valuable as our own transport choices.

[Alex]

I fully agree that ultimately legislation will be needed and the best form that could take is a tax on emissions. But I only feel confident that governments will feel empowered to make those changes with quite a strong signal from the electorate.
It seems to me that if those in the know do not set an example, the general public may believe that climate change is not as important as the science suggests ('Well if they're not doing anything - it must be a hoax. Keeps them in reseach funding I guess...'). And I would find it hard to blame them...

[Skeptic]

Come on, isn't this my "rational" action the source of the probelm? Do you think my rational choice, can solve the problem it has already created?

[Nathan Rive]

Skeptic - it's not about changing the rational tendency, but rather changing the boundaries within which the choices are made.

[Miles Perry]

Agreed Nathan, but I think all readers of this blog get the 'rational given incentives' and 'free rider' idea now and we need to move the debate forward somehow.

Skeptic has a valid point. Is it really ok just to claim 'rational incentivised behaviour' when you know that behaviour is causing harm and that waiting for societal consensus gives everyone the excuse to blame an anonymous mass of other people?

I'm not arguing with the concept of demonstrably rational behaviour but that still leaves us stuck with the current democratically-mandated incentive framework - which is why I'm fumbling around with second-best notions of guilt and 'warm glow'.

[Nathan Rive]

I don't agree with Skeptic. If he was right, we wouldn't be promoting the profit-driven motives of the renewable energy industry. After all - wasn't it the profit motives that caused all the pollution to begin with?

A simple solution to cheap flights is a carbon tax, with investments in rail networks. Demand for Ryanair flights is very price elastic. If no one is allowed to get on a flight for less than £100 each way, we'd fly a lot less. There is no doubt a role for info campaigns as well. As for business flights, we'll never get rid of them - but anyway they haven't actually grown much in the last 15 years (if I recall my data correctly).

The troubles with democracy are those we face in any field: drug, health, human rights, air quality, etc. Just because cheap flights are visible, bad for the environment, and we use them - we feel especially guilty.

[Miles Perry]

I'm not disagreeing with you about the merits of a carbon tax. But I still think it's equally important, if not more so, to explore how people could/should react when such a tax isn't in place.

It's a kind of game theoretic calculation here. Either

a) lobby for fiscal change. or
b) change personal behaviour

Too much of a) means nothing gets done until fiscal change is achieved - and nothing happens at all if fiscal change is not achieved. Too much b) sends the signal that 'gullible' individuals will bear the brunt of personal sacrifice, weakening the impetus for fiscal change and leading to a win-win situation for those who refuse to do anything.

Yup, definitely a PhD thesis in Bayesian game theory there. Maybe one of Mankiw's students could take it on.

[Alex]

I'm not sure that there really are the two choices outlined: a) without b) risks the charge of hypocrisy from the media. Al Gore didn't have a very good time when information was published on how profilgate his home energy use is.

[chiara]

I triggered this discussion, so here my “rational/emotional” position.

I think prices should be right. If we consider environmental costs, price of flying away for a week end cannot be higher than round trip london-brighton. This for me is the starting point. Then I agree the behavioural change is also needed.

On that respect this is my personal position:
I have been living in UK for 6 years and I have been flying very often back to Italy, where I am from. And I will probably continue doing it even if a carbon tax is introduced and prices will be higher.
However, in the past I often preferred to take a fly for a week end abroad than going somewhere around England, simple because it was cheaper for me to do it! it was cheaper for me to take a flight to a European capital or have a week end back home (not particularly needed for family purposes) than taking a train and pay 2 night in a bed and breakfast around UK. In the last years I reduced a lot this type of flights, mainly for "emotional"/environmental reasons. Moreover, when I consider what next after my PhD I do take into account the fact that I have to decide at some point how important is for me to come back home, i.e. it is not sustainable to live in London, when every week end you then fly back Italy. I also have to say that I am sick of airplanes, and who knows how much of this "emotion" is at least indirectly environmentally driven..

But, would a carbon tax be enough, without behavioural change? probably not.
Let's take my example: in the future, from an economic point of view, I am likely to be in the position of flying as much as I did and do now even if a carbon tax is introduced (hopefully, potentially even more when I'll be in the job market again!). So the behavioural change is needed. And this consideration can easily extended to other peoples and, most of all, business.

Finally an equity issue: what low cost companies have also done, most of all, is giving the chance of flying abroad to a big group of people which otherwise would have not been able to do it. A simple carbon tax without behavioural change is likely to just harm that category of people. This could be a good thing not just for GHG emissions reduction but generally from a habitat and natural conservation point of view (less tourism, just “quality” – allow me- tourism -> less hard to the natural environment). But the social equity of this should be considered.

So, I think the carbon tax is crucial, but for sure it is not enough.

[Torben]

Although the point raised by Skeptic some how less prcise, I agree more with Nathan. Skeptic argues "Come on, isn't this my "rational" action the source of the probelm? Do you think my rational choice, can solve the problem it has already created?"
In my understanding, the word rational can have different interpretations in different frameworks and Mr. Skeptic is not clear to which interpretation he refers to. An action can be rational, in Rawlsian, Becker's or Nash's sense. More technically inclined people might define rationality as a property of an object that statsfies the principle of completeness and transitivity like Whinton, Mas-Collel, and Green. But, when Mr. skeptic said my "rational" action, I believe he is in line with the principle of rationality we have in neoclassical economics. This made precise, the next question, atleast as I understand it, is whether rationality is the source of the problem and there could be solution within the same framework of rationality.

The answer is yes to both questions. First and foremost, in the absence of knowledge of modern climate change-- man caused climate change-- carbon emission is a free good that any one can access it freely. So, rational agents have been "consuming" carbon emission as a biproduct of their "consumptions" or profits since the great industrial revolution. And, as long as consumption is constrained within "budget set", a positive price greater than some treshold, it is possible to reduce the optimal consumption of carbon emission, from an individual perspective, zero. Hence, in my view, indvidual rationality has been the problem and the problem can effectively be resolved while maintaining individual rationality. There is no need to resort to totalitarian or non liberitarian, in the weak sense, instruments to adress the problem of modern climate change!

[Alex Dunnett]

A nice set of responses and an interesting, if rather deep debate. I guess, I should hold up my hand and declare that the 'rational' argument was perhaps a rather abstract / metaphorical model in response to the orginal request for some insight into what the enviro-policy bloggers are actioning with respect to air-passenger-km reduction.

Having read all comments, and thought in some detail about the embodied issues, I have a few thought that I wish to (attempt to) convey.

Technological reliance is a nagging point. Although not an issue confined to the UK, internal UK transport logistics (i.e. Rail and Road) are (in my opinion) slow, congested and overpriced. Air travel, being cheap, fast (a huge issue! how busy are you right now?) and heading south for the summer has resulted in the expansion of social, academic and business networks onto the continent. These networks have evolved rapidly in the past 10 years to result in some degree of techno-social 'lock-in'. The 'green' option is now to substitute alternative rail, road or sea-bourne solutions in order to maintain our european networks; themselves formed (in the majority) of cases through the liberalisation of the air. Thus, our decision to fly is often not only enviro-economic but deeply social, personal etc. the list of externalities extending to relationship security, social acceptance, self actualisation etc. The model of 'rationality', from a personal perspective, is expanded ever further.

This is coherent with the fear that carbon taxation alone (i.e. price signals) may not be enough to halt the growth rate of the industry (the real concern!?). Viable substitutes are required. High speed rail for example is approx 10 times as fuel efficient as short haul flights. (http://en.wikipedia.org/wiki/Fuel_efficiency_in_transportation). A fair taxation on all logistics in line with carbon emissions would at least allow a decision (note: the dropping of the 'rational' model) made on a basis of cost and speed - whereas currently air-travel exhibits a total logistical monopoly.

I still feel that there is more in this debate, but I have to go. I have a flight to Bologna this afternoon that I have to catch. It cost me £0.79! Ludicrous!

[Jeremie]

If only rational economic agents were not so selfish!
"Only when the last tree is cut; only when the last river is polluted; only when the last fish is caught; only then will they realize that you cannot eat money." - Cree Indian proverb

[Alex Dunnett]

Enviro-proverbs - That's going to be my next post! Suggestions please. Alexander.Dunnett@ic.ac.uk
The best will get a mention, Jeremie is already in with one of the greats!

[Alex]

The I-want-the-government-to-save-me-from-myself argument strikes again (and is dissected):

http://www.economist.com/blogs/freeexchange/2008/01/bad_faith_as_policy.cfm

[Nathan Rive]

Nice find, Alex - thanks for posting it. I agree with the poster, the commentary is highly disingenuous in saying he is really concerned about the environment but all he cares about is price. I trust that if we showed up at his house we'd find only CFL bulbs, instead of incandescent bulbs? Or top of the line insulation? (After all, those are cost-saving measures.) My guess is not. Sadly, we humans aren't as rational about prices as neo-classical economics would have us believe.

While I agree that government intervention (i.e. giving carbon a price) is needed, and that we can't rely on our own (and others') altruism to solve the carbon problem - there is always more than one way to frame the issue. Claiming that he only relies on price, but then claiming we need to take away Hummers and Priuses completely isn't only bad faith - it's bad economics.

If his carbon is taxed, we can be sure that his overall emissions will be reduced. Transport is always tricky, but why can't we have a LPG or fuel cell Hummer? Or a plug-in Prius?