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July 11th, 2011:

Could city still fly without runway 3?

South China Morning Post — 11 July 2011

Controversial plan for a third runway has attracted massive support from business and the aviation sector, but others question the social and environmental costs

Is the HK$136.2 billion third runway project our only choice to remain competitive?

The barrage of information in the three weeks since the proposal’s release would make you think so.

The Airport Authority has argued that the investment would bring a huge return: an economic benefit of HK$912 billion over 50 years.

Stakeholders from the tourism, aviation, logistics, hotel and retail sectors have all echoed their support for what would be the city’s most expensive works yet.

But every time there is a public debate on the need of a new piece of infrastructure, the economic benefits are touted first, with officials pledging to mitigate the social and environmental costs. It takes longer for the project’s impact on public health, air quality, water, marine life and natural habitats to emerge.

When the secretary of state for transport of the United Kingdom voiced his support back in 2009 for the building of a third runway at London’s Heathrow Airport, it was estimated that the improvement would provide a net benefit of £5.5 billion (HK$68.7 billion).

However, a group called the New Economics Foundation found that if the costs of noise, air quality, surface congestion and community blight were taken into account, the project’s costs could outweigh its benefits by at least £5 billion.

In a world-class city as fast and efficient as Hong Kong, it may seem like there is no reason big enough to stand in the way of growth. But while the damage to our environment may not have quite reached breaking point yet, we are no longer the up-and-coming economy we were three decades ago, when development ruled above everything else.

For those who find Mong Kok and Causeway Bay suffocating and the city’s traffic intolerable, this project may offer exactly the right opportunity to contemplate how much more of our standard of living and natural resources we are willing to sacrifice in exchange for a boost to the city’s economy.

Officials have never clearly explained how many years of growth the third runway will bring.

But a careful look at figures provided by the Airport Authority shows that the runway – with an annual capacity of 620,000 flight movements – could handle growth only until 2031 before the airport would be saturated again. That assumes annual growth of 3.2 per cent in traffic demand, said to be a prudent projection.

Is it value for taxpayers to spend HK$136.2 billion, plus other unquantified costs in worsened air quality, traffic and the permanent loss of 650 hectares of marine habitat, for a runway that could become saturated eight years after it opens?

Here are some of the factors that have not received much public discussion yet.

How important is an airport to the economy of a city?

No one disputes the aviation sector’s importance to Hong Kong. But it would be an overstatement to suggest Hong Kong’s economy would fall into the abyss if the airport failed to expand.

While accessibility is crucial for a city’s economy, air traffic is not the only means of facilitating the flows of goods and people.

Macau, for example, has only a tiny airport serving some 4 million passengers a year – less than one-tenth of Hong Kong’s traffic – but its gaming and tourism sector has prospered throughout the years.

An enclave with just a fraction of the land area of Hong Kong’s Lantau island, Macau entertained nearly 25 million tourists last year, compared to 36 million for Hong Kong.

“People fly to a city, not to its airport,” an industry insider said. “A corporation does not decide where to list its shares because the place has a nice big airport.”

Could Hong Kong make better use of nearby airports on the mainland?

Chek Lap Kok need not be the only airport that serves Hong Kong.

The Airport Authority and Cathay Pacific have repeatedly rejected suggestions that we should use the capacity of neighbouring airports, such as Shenzhen Baoan and Zhuhai . They said co-operation between airports “simply never works” because passengers hate switching between them.

Besides, the argument goes, funnelling passengers to other airports would deny Hong Kong the economic benefits of keeping them here.

But advocates for regional co-operation say this is tunnel vision.

“Forget about the money you could have made by selling a bowl of fish-ball noodles – as long as traffic keeps flowing, it does not matter which airport they land in,” a business leader familiar with the industry said. “The whole region’s economy will benefit.”

And the advocates are not really talking about funnelling passengers from airport to airport. They see Shenzhen simply as a second airport for Hong Kong – like Gatwick Airport is for London.

Shenzhen Baoan airport just opened its second runway and will add a third in time. It takes more than an hour now to get there from Hong Kong by metro or cross-border coach, and flights suffer frequent delays due to congested airspace.

But civil aviation officials are struggling to free up more sky for commercial flights in light of an acute growth in air traffic demand, and there are plans for a rail link that could link Chek Lap Kok and Shenzhen Baoan in 20 minutes, with a stop possibly in Hung Shui Kiu, Yuen Long.

“Shenzhen airport is just 30 kilometres away from us, why don’t we make better use of it?” asked Peter Lok Kung-nam, former commissioner of civil aviation. “They have space to expand, not us. Besides, with five airports co-existing in the congested airspace within a radius of 150 kilometres, it is difficult to see how any of them can utilise its capacity well.”

For years, the Airport Authority engaged in talks with mainland authorities over closer co-operation for the five airports in the Pearl River Delta: Guangzhou, Hong Kong, Shenzhen, Zhuhai and Macau. The idea was to consolidate the airports’ interests and assign Hong Kong to manage it all, but the Hong Kong government apparently didn’t like the idea.

“Hong Kong thinks it could excel on its own, but the truth is we have this natural limitation in land and resources,” the business source said. “Today they may be slow and inefficient, but you can’t count on their flaws forever, when they become just as efficient as us, why should a mainlander shun the airport in his backyard and come all this way to Hong Kong to bridge a flight?”

Hong Kong now processes 80 per cent of air passengers and 90 per cent of cargo originating from the Pearl River Delta. But most future growth will be from the mainland, according to projections by the aviation sector.

Even supporters of the third runway say it could take the mainland less than a decade to catch up.

“It may have taken us many years to build our critical mass,” a former aviation official said. “But the mainland airlines do not have to wait before they gather sufficient cargo and passengers to launch a route. They have the backing of the government.”

The rise of the mainland in terms of infrastructure and labour skills has driven both Hong Kong’s manufacturing industry and port cargo businesses to the north during the past three decades.

Hong Kong argues aviation is different because it competes more on service quality than costs. But costs still make an impact somewhere, as can be seen by the many budget flyers who have shifted to Shenzhen over the years.

“Decades ago, the shipping industry also cited economic reasons to persuade the government to build a tenth container terminal. They didn’t succeed, and the sector is shrinking. But is it because they failed to get that terminal? Or was it a losing game anyway?” the official asked.

Even without the third runway, Chek Lap Kok will be able to handle 74 million passengers and 6 million tonnes of cargo when already-planned expansions are completed – exceeding Heathrow, which served a total of 65 million passengers last year.

With a third runway, Hong Kong would be able to handle 97 million passengers – more than Hartsfield-Jackson Atlanta International Airport, the world’s busiest since 1999, handling an annual average of just below 90 million passengers in the past five years. It has five runways.

Will a saturated airport maintain its global connectivity?

Officials say that when an airport is saturated, its global connectivity doesn’t remain at the same level. It slowly deteriorates. That’s because airlines, squeezed with fewer flight slots, tend to replace the less profitable destinations with more flights to profitable ones.

At Heathrow, the number of destinations fell from a peak of 220 during the 1990s to 186 nowadays. But a better deployment of flight slots has enabled the London airport to top the world in international passengers captured.

If an airport reaches capacity, some connecting flights may be replaced by direct flights that serve mainly local residents and those for whom the airport is their final destination.

Direct-flight passengers are said to bring four times the level of economic benefit of transfer and transit passengers – who only stop by in Hong Kong for a few short hours before boarding another flight to their intended destinations.

In the past five years, transfer and transit passengers made up about one-third of all passengers at Chek Lap Kok; during the Kai Tak era, that proportion was once as low as 10 per cent. Because travel demand by local residents has largely matured, the momentum for future growth is expected to come from mainland visitors – many of them using the Chek Lap Kok airport for overseas flights – further boosting the proportion of transit and transfer passengers at the Hong Kong airport.

“There is only so much growth you can expect from local residents,” the business leader said. “The bankers in Central are already travelling two to three times a week, if they travel any more their wives will divorce them. Shall we spend all this money to build a runway that serves primarily the less profitable transit and transfer passengers?”

He added: “It is funny that when we suggested sending the passengers to Shenzhen Airport, officials said it would not work because it was inconvenient for passengers. However, it was not so inconvenient when they asked mainland passengers to come to Hong Kong for transit.”

A full-capacity airport actually has some benefits for airline companies, as they are forced to make more efficient use of their aircraft in loading and yield.

“Sometimes an airline opened a route just to keep a favourable time slot or expand its network. The economic value of that destination, however, could be marginal,” Lok said. “The aircraft may only be half full or even less at off-peak seasons, wasting resources and [being] not so environmentally friendly.”

Runway supporters say that transit passengers do help boost traffic volume.

And airports in major cities like Singapore and Dubai compete to act as hubs for their regions.

Stanley Hui Hon-chung, the Airport Authority’s chief executive, has warned that passengers may shoulder higher air fares and suffer a worse service if a saturated airport suffers the stress of constant overcrowding.

More flights may be delayed and more bags may go missing, as they do at Heathrow.

On the other hand, if the HK$136.2 billion third runway is given the go-ahead, passengers may be charged more under the user-pay principle.

Is expansion really the key to boosting air traffic levels?

There may be as many arguments for as against the runway proposal – but even without an airport expansion, there are ways to increase Hong Kong’s air traffic.

A recently published study from the European Commission said Europe’s busiest airports could boost their capacity by 28 million passengers every year just by improving the allocation of take-off and landing slots. Another possibility would involve opening up more of the airspace controlled by the mainland.

Although this is largely a decision for the mainland’s military authorities, the Civil Aviation Department in Hong Kong could continue to develop new air traffic control arrangements with its counterparts in Macau and the mainland.

After the latest update of air traffic control handling, the two runways at Chek Lap Kok can handle up to 68 movements an hour, well behind the 80 movements an hour London Heathrow can handle with the same number of runways.

Geographical constraints – the presence of two hills to the south of the runway – go some way to explaining that discrepancy – but there are hopes that improvements in technology will allow the city to offer more flights per hour and further narrow the gap.

Australia steps up battle to cut pollution

South China Morning Post – 11 July 2011

PM Julia Gillard unveils carbon tax plan that aims to cut national emissions by 5 per cent of 2000 levels by 2020 – a reduction of some 160 million tonnes

Australia unveiled its most sweeping economic reform in decades yesterday with a plan to tax carbon emissions from the nation’s worst polluters, reviving hopes of stronger global climate action with the largest emissions trade scheme outside Europe.

Prime Minister Julia Gillard said 500 companies including steel and aluminium manufacturers would pay a A$23 (HK$193) per tonne carbon tax from next year, rising by 2.5 per cent a year, moving to a market-based trading scheme in 2015.

“It’s time to get on with this, we are going to get this done,” said Gillard after a battle to win political support for the scheme, which has polarised voters and business. A parliamentary vote on the scheme is expected before the year-end.

Australia is the developed world’s worst per-capita greenhouse gas emitter because of its heavy reliance on cheap coal for power generation. Emissions are set to rise in the booming economy without a carbon cost, the government says.

The stakes are high for Gillard’s Labor party, which relies on the support of Greens and independents for a one-seat lower house majority. Her popularity has slumped to record lows over the scheme.

With the details now finally released after months of waiting, Gillard will now try to convince voters opposed to the plan ahead of a parliamentary vote, trying to deflect a campaign against it by the hardest hit businesses.

“It is absolutely critical that the government sells this effectively,” said Tony Wood, a director of the energy programme at the Grattan Institute, a policy think tank.

Retail and clean-energy stocks were expected to be among the winners, and airlines and miners the losers, but analysts said financial markets overall were expected to take the policy in their stride.

The scheme aims to cut national emissions by 5 per cent of 2000 levels by 2020, which would mean a cut of about 160 million tonnes.

The package already has the broad support of the Greens and independents, although crossbenchers said they had yet to support extra measures to protect steelmakers and jobs in the vital coal industry.

Parliament twice rejected previous attempts to price carbon in 2009 and any fresh rebuff in a vote expected later this year would seriously threaten Gillard’s government.

The danger is that a vigorous campaign by the conservative opposition and business groups opposed to the tax, could erode public support and frighten political backers ahead of elections due by 2013.

“This tax is going to go up and up and up as time goes by. I think this package is going to compound the trust problem that has dogged the prime minister. This package certainly sets up the next election to be a referendum on the carbon tax,” said conservative opposition leader Tony Abbott.

Abbott has seized on voter fears of a new tax and higher costs from a scheme that aims to transform how the nation generates and uses energy across the economy.

To neutralise opposition, Gillard said more than A$24 billion to be raised from pollution permit sales over the next three years would go to households through generous tax cuts worth more than A$15 billion.

Australia’s scheme will cover 60 per cent of carbon pollution apart from exempted agricultural and light vehicle emissions, with Treasury models showing it would boost the consumer price index by 0.7 per cent in its first year, to June 2013.

It could also aid global efforts to fight carbon pollution, which have stalled since US President Barack Obama last year ruled out a federal climate bill in his present term. Outside the European Union, only New Zealand has a national carbon scheme.

“Other countries will look at one of the most carbon polluting economies on the planet that has made one huge stride forward towards putting a price on carbon,” said John Connor, the chief executive of the Climate Institute.

Australia said it hoped to link its scheme, which would cost A$4.4 billion to implement after household and industry compensation, to other international carbon markets and land abatement schemes when its emissions market was running.

Gillard said her government would spend A$9.2 billion over the first three years of the scheme to ensure heavy polluting industries like steel and aluminium production were not killed off, and help close the oldest and dirtiest power stations.

Australia, a major coal exporter, relies on coal for 80 per cent of electricity generation, which in turn accounts for 37 per cent of emissions.