The Way Forward: Beyond EU ETS Greener Skies, 27 September 2011 Mark Watson Head of Environmental Affairs, Cathay Pacific Airways Ltd

Outline What’s the problem with the EU ETS? Why is a global sectoral approach the right way? How can a global deal be realised? What challenges need to be overcome?

EU ETS – Right idea, wrong approach South China Morning Post 2011

EU ETS Implications - Distortion of Competition Middle East Hong Kong United Kingdom The HKG-LON route is 16% shorter than HKG-DXB- LON, yet will attract a 76% higher carbon charge HKG-LON 9646km HKG-DXB 5964km DXB-LON 5476km

How much is it going to cost? IATA estimates cost to carriers of US$4.7bn, with RDC/Point Carbon = EUR 1.1bn at today’s carbon prices ICF calculate compliance costs of US$12bn across all carriers by 2020, rising to US$35bn by 2030 Ecometrica estimate 3.5 – 3.7% CO2 allowance add-on per LHR-SIN flight, depending on aircraft type Point Carbon calculate total carbon liability costs of for EU based carriers to range from EUR 17-50m in Sept 2011 study Until the overall EU permit allocation and CO2 costs in 2012 are known, these are estimates Source: Ecometrica

Managing Carbon and EU ETS Carbon and its associated risks becoming a key component of airline business strategies for major carriers CX adopts a proactive, yet pragmatic approach to carbon  Europe is key to our operations – long haul carrier  Fuel efficiency improvements vital – year on year  Linked to overall risk management  Active monitoring of carbon markets  Finance experts work closely with ENV, PLN, REV and CGO teams  Sourcing credits an increasingly important issue

Need for a global approach to aviation emissions The longer aviation sits outside of existing global climate policy framework, the more regional schemes will proliferate Creates competitive distortion, carbon leakage, double counting of emissions EU ETS complex and costly, no revenue hypothecation to environmental causes CX fully endorses the need for a global sectoral approach under ICAO leadership

……many thanks © Cathay Pacific Airways, HK 2011