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The Government’s economic case for expanding Heathrow airport is flawed and should be independently reviewed, a new report says today (23 July 2008) [1,2].
 
Independent international research body The Stockholm Environment Institute was commissioned by Friends of the Earth to examine the UK Government’s economic justification for allowing Heathrow airport to expand.

The Government’s case for expanding Heathrow rests on an evaluation of the economic benefits of providing more flights at cheaper prices to an increasing number of people and weighing this up against an evaluation of the ‘dis-benefits’ from expansion such as an increase in climate-changing emissions such as  carbon dioxide.
 
In the Government’s analysis, Generated User Benefits [3] comprise the largest share of the economic benefits. This is an abstract economic value derived from allowing people to fly more cheaply and more frequently as a result of Heathrow’s expansion. But if Generated User Benefits were not included - or calculated more realistically - the economic case would collapse.
 
The report found three major flaws in the assessment of these benefits:-
 
1.      The passenger demand projections are uncertain - for example they rely on fares falling because the cost of oil per barrel is predicted to fall from an assumed $65 in 2006 to $53 in 2030. Oil is currently around $130 a barrel and experts predict will not fall below this before the end of 2016.
 
2.      Foreign passengers changing planes in the UK are counted as a benefit to the UK economy - but this is against HM Treasury guidance on project appraisal. In 2005 nearly 30% of Heathrow passengers were travellers simply changing planes.
 
3.      It assumes ‘doing nothing’ is the only alternative to airport expansion – but there are plenty of alternatives with less environmental impact like switching short haul passengers to rail travel, investing in video conferencing or limiting transfer passengers.
 
Friends of the Earth's aviation campaigner, Richard Dyer, said: “The Government’s economic case for Heathrow is fundamentally flawed, based on assumptions which are often highly speculative and biased.
 
“If it wasn’t for this economic sleight of hand the case for airport expansion would collapse.
 
“The Government must fundamentally review its entire aviation strategy and appoint an independent commission to examine the economic case for airport expansion.
 
"Ministers must also include Britain’s share of international aviation emissions in its new climate change law and invest in alternatives to short-haul flights such as fast rail travel.”
 

Notes

1. The report was written by Elizabeth A. Stanton and Frank Ackerman from the Stockholm Environment Institute - US Centre. A link to the full report is here:-
www.foe.co.uk/resource/reports/consumer_surplus.pdf
 
2. The Government's green advisers the Sustainable Development Commission in their May 2008 report "Breaking the Holding Pattern" also called for the case for expansion to be re-examined by independent parties, see:-
www.sd-commission.org.uk/pages/aviation.html
 
3. The research by The Stockholm Environment Institute particularly looked at one of the little-noticed features of the Government’s analysis: its absolute reliance on a highly abstract ‘benefit’ derived from economic theory called ‘consumer surplus’ or ‘generated user benefits’, which is based on the notion that consumers are sometimes willing to pay a higher price for something than that which they actually have to pay.
 
In its economic assessment of the economics of Heathrow, the Government predicts that airport expansion will lead to air fares being lower than the maximum that passengers would be willing to pay. And with more flights available at a lower price, more people would fly, and each new passenger flight would add to British welfare.
 
The Government has assigned an economic value to this benefit (essentially the difference between what the Government calculates that people will have to pay for flights from an expanded Heathrow and what they would be prepared to pay. This is then multiplied by the anticipated extra passenger journeys that would occur to give an overall figure).
 
The Government calculates that Heathrow expansion will generate £9billion in generated user benefits over a 60-70 year period - and is crucial to the economic justification for the scheme to proceed. If Generated User Benefits were not included the economic case would collapse.
 

 

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Published by Friends of the Earth Trust