Jeremy Warner's Outlook: BAA's solution to aviation emissions that might just satisfy the regulators

Mike Clasper's response is perhaps surprising. He wants the industry to ensure an emissions trading scheme is imposed as early as possible

Forecast by the International Air Transport Association to lose $5bn this year, the global airline industry seems to have had more than its fair share of bad luck and challenges over the past five years, from September 11 to Sars, the wars in Afghanistan and Iraq to, more recently, the soaraway oil price. Yet according to Mike Clasper, chief executive of the airports operator BAA, the greatest potential threat to the future of the industry is still to come, which is the measures policy makers might impose to address the airline industry's effect on climate change.

Forecast by the International Air Transport Association to lose $5bn this year, the global airline industry seems to have had more than its fair share of bad luck and challenges over the past five years, from September 11 to Sars, the wars in Afghanistan and Iraq to, more recently, the soaraway oil price. Yet according to Mike Clasper, chief executive of the airports operator BAA, the greatest potential threat to the future of the industry is still to come, which is the measures policy makers might impose to address the airline industry's effect on climate change.

Mr Clasper's response to this new challenge is perhaps a surprising one. Rather than bury his head in the sand and hope, as many in the industry do, that international disagreement will ensure that in practice nothing is done at all, he wants to embrace it, and despite its likely costs to the industry, find his own solutions. At a conference on climate change in Brussels yesterday, he urged the industry to be much more active in ensuring that an emissions trading scheme is imposed on aviation at the earliest possible opportunity.

Oh do shut up, many in the industry will be whispering under their breath, or you'll only attract attention. Up until now, policy makers have largely ignored aviation, preferring instead to concentrate their efforts on electricity generating, manufacturing and household emissions. With the airline industry still collectively deep in the mire, the last thing it wants is to have a shed load of environmental costs imposed on top of everything else.

But actually BAA's self-flagellation is a perfectly rational approach to the problem. Mr Clasper says he's doing it as a good global citizen, which must fill him with a warm glow just to think about how he's helpingsave the planet. But investors demand something more, and the reality is that unless the industry sets its own house in order on climate change, then eventually the bureaucrats will get round to doing it instead. When they do, the solution will undoubtedly be a more heavy-handed stultifying one.

Aviation wasn't included in Kyoto - mainly because the Americans, who eventually rejected Kyoto anyway, couldn't be persuaded to agree on it. Yet it is one of the heaviest polluters, accounting for 2 per cent of global CO ₂ emissions.

Aviation is also responsible for other harmful emissions, and because it emits at altitude as it were, it may account for a much higher proportion of the global warming effect - perhaps as much as 5 per cent according to some estimates. More worrying still, it continues to grow at an astronomic pace, notwithstanding its apparent inability to make any money.

Airline travel just seems to get cheaper and cheaper. Quite a bit of this relative price deflation is being achieved at the expense of the environment. Even the second-home brigade, reliant as they are on low-cost operators to ferry them to and from their overseas bolt holes, are beginning to realise it cannot go on.

True enough, the airline industry has been largely ignored to date, but given its projected growth, it's already on the radar screen. Policy makers are rattling their sabres, and Mr Clasper may be right to think the public are behind them. Britain has imposed an Air Passenger Duty which every Budget time the Chancellor threatens to raise, hoping he can pass it off as a desirable environmental measure. The EU now permits tax on aviation fuel for transport between any two or more member states, while the French and German governments have called for a tax on international air travel, justified on environmental grounds, to help fund overseas aid.

As Mr Clasper points out, the choice is between the blunt instrument of an externally imposed system of taxes, whose end result would be to clobber demand and stifle growth, or the more aesthetically pleasing solution of emission permits, which could be freely traded. This would allow the more fuel-efficient airlines to continue to grow while ensuring that the polluters pay for their environmental costs.

But if we in Europe do it, while America and Asia doesn't, surely we only make ourselves even less competitive? As with all environmental initiatives, somebody, unfortunately, has to lead the way. Mr Clasper seems to have grasped this, even if others have yet to see the merits of being called a good global citizen. Doing nothing and hoping the regulators don't notice no longer amounts to a strategy.

Inflation is creeping up again

Interest rate hawks were out in force yesterday after the release of inflation data showing that the consumer price index "leapt" O.3 percentage points in March to a seven-year high of 1.9 per cent. This was higher than most analysts were forecasting and seems to strengthen the hand of those on the Bank of England's Monetary Policy Committee who argue that interest rates need to rise at least another quarter point before reaching the top of the cycle.

Never mind that inflation is still actually below what is meant to be an "asymmetric" target of 2 per cent. The Bank tries to keep inflation roughly on target, but it is not instructed to come in consistently below target, which is what in practice has occurred ever since Labour came to power eight years ago, at least on the new measure of prices if not the old one. Indeed, it could be argued that ever since being granted independence, the Bank has consistently operated too tight a monetary policy. This seemed reasonable in the early days, when the Bank needed to establish its credibility in markets, but it may now be too much of a good thing.

In the present environment, with oil prices spiking, it would seem perfectly acceptable to see the inflation rate stray a little bit above target. In any case, the Bank's remit allows the rate to be as much as one percentage point either side of target before the Governor has to write to the Chancellor explaining how he's managed to get it so wrong.

Transport, which includes the cost of oil, accounted for roughly a third of the increase in the inflation rate last month. If oil is the main driver of a higher inflation rate, it is not something that should automatically demand a higher interest rate. Only if oil prices were to feed through into the cost of other goods should the MPC start to become worried, for in usual circumstances, the inflationary effect of higher fuel charges is cancelled out by their deflationary effect on the wider economy.

YouGov, MeRich as pollster floats

Investors know the risks, so there is nothing overtly wrong with YouGov tapping the markets for £6m (£3m of new money, £3m for the joint founders) less than two weeks before the accuracy of its findings are tested at the coal face of a general election. Yet if YouGov is shown to be way off beam, then its reputation will be dog meat, and the shares will take a hammering.

Interestingly, YouGov and other internet pollsters have shown the two main parties much closer together than more traditional rivals, so the election is likely to be a defining moment for this relatively young addition to the industry. Peter Kelner, the chairman, knows the risks only too well. As a journalist, his stock in trade was analysing the pollsters, from which in the 1992 election, he confidently predicted a Labour win. He hadn't reckoned on people's propensity to change their minds on the way to vote.

YouGov claims to have been much more accurate than others in predicting the size of the Labour win at the last election. It also successfully forecast that Will, rather than the favourite, Gareth, would win Pop Idol. None the less, corporate clients will be mighty disillusioned if it gets the latest election wrong. As for investors... well, it's a gamble, isn't it.