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This piece has been authored by Harshwardhan Singh, a third year student at the NALSAR University of Law, Hyderabad and Eshita Trivedi, a third year student at JECRC University, School of Law, Jaipur.
Introduction
Air travel in India is booming. As per the report of Directorate General of Civil Aviation, [i] the number of the passengers availing the benefit of air travel between January and September 2018 to that of the corresponding period in 2017, increased by 20.94 %. This is the highest recorded growth in the world for that period of time. Statistics show that at the end of March 2009, the total number of passengers that were handled by all the airports put together in India, stood at 68 million passengers, a figure that seems miniscule if we consider that Delhi alone handled the same amount of traffic at the end of 2018.[ii] But while the number of passengers is on rise, the aviation sector is taking a nosedive in recent times with no signs of recovery. It comes as no surprise that numerous airlines like Jet Airways, Air India, and SpiceJet are racking up huge losses, among many others.
ATF price surge
One such problem is the rising price of the Aviation Turbine Fuel (ATF) coupled with a constant depreciation in the price of rupee as well as the market practices adopted by the companies. The increase in the cost of ATF can be attributed to the uncertainty surrounding the global oil market as well as the heavy taxes that are levied by the Government. Transport fuels like ATF have not been put under GST and hence the taxes are levied by both centre as well as each of the state which ultimately leads to an increase in the price of the fuel.[iii]
If there is any fluctuation in international crude oil prices, it affects the price of ATF.[iv] Fluctuation in international crude oil prices is due to variety of factors like decisions and negotiations by Organization of the Petroleum Exporting Countries (OPEC) and Russia to cut supplies. Other reasons include imposition of sanctions on the Venezuelan state-owned oil company ‘Petroleos de Venezuela SA’ and sanctions placed on Iran by USA.[v] All these events affect the price of ATF globally and cause losses to airlines
The price of ATF is significantly higher in the Asia pacific, in countries like Singapore, Indonesia, Thailand, and India as compared to other countries.[vi] The problem could have been easily resolved by putting the transport fuels like ATF under GST. Bringing the transport fuels under GST will lead to an increase in efficiency due to ease in transport and taxation levied upon it.
Emergence of Bio jet fuels
The oil ministry had unveiled a promising, new bio-fuels policy last year. Biofuel is indigenously developed and extracted from a crop known as Jatropha and has been developed by the Council for Scientific and Industrial Research-Indian Institute of Petroleum (CSIR-IIP), recognised by the American Standard Testing Method (ASTM), and meeting the quality standards put forward by ‘Pratt and Whitney’ and ‘Bombardier’.[vii] India’s first biofuel-powered flight was tested for domestic operations on 26th August 2018 between Dehradun and New Delhi.[viii] The SpiceJet aircraft was flagged off following the announcement of new Biofuel policy by the Prime Minister on 10th August.[ix] It was lauded as “a great achievement for clean energy, biofuel energy, and aviation industry.”
Advantages of the switch to biofuels
Stability and Generation of jobs
A switch to biofuel is beneficial as it will help in generation of a number of jobs that will increase income for tribals and farmers. It will also lower the quantity of our imports by serving as an alternative fuel source thus reducing dependence on ATF by almost 50 per cent.[x] As a result, the aviation sector will not be left completely at whims and fancies of global actors and markets, making it self-sufficient, and benefiting the consumers in the long run by lowering the fares.
Environmental impact
The fuel is not only low cost but also environment friendly, as it will also help in reducing carbon emissions. India is one of the fastest developing aviation market in the world, it is therefore suggested that, it switch to sustainable and clean technologies. According to the figures released by the International Air Transport Association (IATA), the contribution of aviation sector is about 2 per cent of total greenhouse gas emissions across the world. Biofuel is thus advantageous for lowering carbon emissions.[xi]
Implications of biofuel technology adaption
There are certain implications associated with excessive use of biofuels that need to be taken into account before completely adopting them as substitutes to ATF.
The Fallacy of Assumptions
Policy makers often make the mistake of overestimating the effect of biofuels for reduction in carbon emissions and present it as a carbon free source. The policymakers tend to argue that while use of biofuels is not emission free, however this exact amount of CO2 that is released is reabsorbed by the crops being grown for the production of biofuel. However, it is not true because all the trees and plants in general act as carbon sinks to CO2 in atmosphere during the process of photosynthesis, and this argument makes an assumption that the land used for biofuel production was not already a carbon sink.
Trade-offs with regards to usage of land
Food and Agriculture Organization of the United Nations predicts that till 2050, we will need to grow 70% more calories worth of food to feed the growing population.[xii] The land to be used for production of biofuels will inevitably compete with land use for food production and since land fit for food production is limited, this will create further pressure on other lands being used for farming purpose. As the population increases, the situation will only be aggravated as mouths to feed increase exponentially.
Conclusion
In the end, one can say that not all hope is lost and there are certainly some steps that can be undertaken by the Government to help revive this ailing sector as discussed above. It has been a tendency of airlines in India to price tickets lower than what cost of production of a seat is to them, in the hope that while they may suffer some loss in process, but their competitors will suffer even more losses by these pricing strategies, thus making them quit eventually, enabling the other airline to secure a larger share of customer base for themselves.[xiii] Airlines do this, as they have an incentive to do it in the shorter run. If Government reduces the price of ATF or brings it under GST and introduces bio jet fuel as an alternative fuel in a sustainable way, it will certainly help in reducing such an incentive for airlines of rendering the competitors out of the competition. Due to a change in market conditions, they will not suffer the losses they were suffering before and will be able to make profits without lowering the prices below the costs that they incur, as was the case before, which will certainly help in regeneration of the ailing aviation sector.
[i] Civil Aviation Annual Report 2017-18 (4) (2019), Ministry of Civil Aviation, http://www.civilaviation.gov.in/sites/default/files/annual_report-2017_18_hi.pdf (last visited June 21, 2019).
[ii] Id.
[iii] PTI, Natural gas, ATF in GST this week?, The Economic Times (Jul. 15, 2018), https://economictimes.indiatimes.com/news/economy/policy/natural-gas-atf-in-gst-this-week/articleshow/64995549.cms?from=mdr (last visited June 21, 2019).
[iv] Surge in crude oil prices, aviation and oil marketing stocks decline, Federation of Indian Airlines, https://www.indiainfoline.com/article/news-top-story/surge-in-crude-oil-prices-aviation-and-oil-marketing-stocks-decline-117092600285_1.html (last visited June 21, 2019).
[v] Airlines face headwinds on higher jet fuel prices, Live Mint, https://www.livemint.com, https://www.livemint.com/companies/news/airlines-face-headwinds-on-higher-jet-fuel-prices-1551484978140.html (last visited June 21, 2019).
[vi] Improving the Financial health of India's Airline Industry through a reduction in the Cost of ATF in India, Federation of Indian Airlines, http://www.fiaindia.in/Cost_of_ATF.html (last visited June 21, 2019).
[vii] Biofuel from jatropha oil to help aircraft fly, The Pioneer, https://www.dailypioneer.com/2013/state-editions/biofuel-from-jatropha-oil-to-help-aircraft-fly.html (last visited June 21, 2019).
[viii] Jagriti Chandra, SpiceJet operates country's first biojet fuel flight, The Hindu (Aug. 27, 2018), https://www.thehindu.com/business/Industry/spicejet-operates-indias-first-biojet-fuel-flight/article24790919.ece (last visited June 21, 2019).
[ix] --, PM Modi addresses World Biofuel Day 2018 in New Delhi, Bioenergy International Bioenergy International (Aug. 11, 2018), https://bioenergyinternational.com/biofuels-oils/pm-modi-addresses-world-biofuel-day-2018-in-new-delhi (last visited June 21, 2019).
[x] ET Online, India to join elite club on Monday with first biofuel flight between Dehradun and Delhi, The Economic Times, https://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/india-to-join-elite-club-on-monday-with-first-biofuel-flight-between-dehradun-and-delhi/articleshow/65530257.cms?from=mdr (last visited June 21, 2019).
[xi] Carbon-Neutral Growth by 2020, IATA (June 8, 2009), https://www.iata.org/pressroom/pr/Pages/2009-06-08-03.aspx (last visited June 21, 2019).
[xii] Searchinger, T. and Heimlich, Avoiding bioenergy competition for food crops and land, World Resource Institute, https://www.wri.org/publication/avoiding-bioenergy-competition-food-crops-and-land (last visited June 21, 2019).
[xiii] V. Kumara Swamy, Why the Indian aviation industry is nosediving, Telegraph India (Nov. 25, 2018), https://www.telegraphindia.com/business/why-the-aviation-industry-is-in-nosedive/cid/1676400 (last visited June 21, 2019).