SSE NEWS ARCHIVE - April to June 2006

In the words of the panel: "The decision on the future expansion of Stansted Airport is a momentous issue for the East of England Region, and one on which many participants and others maintain strong views. However, as we made clear during the EiP preparatory process, it is not for the East of England Plan or the EiP to review Government policy as contained in the Air Transport White Paper (AWTP) or to consider the fundamentals of air traffic growth."

"…the growth of traffic on the current runway is likely to proceed at whatever pace the market dictates until such time as the operator's long term confidence results in a decision to proceed with a second runway. Although supported by the AWTP, a second runway remains to be brought forward and considered through the proper statutory processes. It is in that sense immaterial whether the RSS 'supports' one runway or two, and we consider that the first sentence of draft policy ST5 and similar references in E14 and the supporting text are inappropriate."

Policy ST5 has been eliminated and policy E 14 has been modified.

OUR COMMENT: Exactly the same considerations apply to the current application by BAA to increase the number of flights each year and remove the cap on the number of passengers. It has to be considered through the proper statutory processes, which includes the Environmental Impact Assessment. Uttlesford Council have invited members of the public to put their view to the Development Control Committee during the first week in July. If you wish to participate contact the Council on 01799 510510. Don't forget that formal comments should be sent to the Council by June 30th. The reference is UTT/0717/06/FUL, the address, Uttlesford District Council, London Road, Saffron Walden, CB11 4ER

Pat Dale

Restrictions on night-time aircraft flights could help in the fight against global warming as well as making life easier for people living near airports.

A study found the condensation trails, or contrails, left by the exhaust of aircraft engines contribute more to global warming during the night than by day. The effect was greater in the winter when nights are longer than during summer.

The scientists behind the study, published in Nature, said the results suggest rescheduling flights for the day could help minimise the impact of aviation on climate change.

Contrails are clouds of tiny ice particles that reflect light and heat. They have opposing effects on the Earth's natural greenhouse effect. They tend to trap more heat leaving the ground than they reflect back into space.

But the amount of heat they trap depends on what time of day the contrails are produced because during day the trails reflect more incoming sunlight from space than they trap.

A nationwide ban on night flights would significantly reduce the aviation industry's impact on the climate, a new study shows. Scientists have found that the warming effect of aircraft is much greater when they fly in the dark, because of the effects of the condensation trails (contrails) they leave.

Piers Forster, an environmental scientist at the University of Leeds who led the project, said: "Night flights are twice as bad for the environment. If the government wanted to reduce the likely impact of aviation on climate then it could ensure that more flew during the day."

Writing in the journal Nature today, Dr Forster and his colleagues say aircraft contrails enhance the greenhouse effect because they trap heat in the same way as clouds. During the day, their warming effect is not as pronounced because contrails reflect sunlight back into space, which helps to keep the planet cool. This means contrails are responsible for about half of the aviation industry's impact on climate.

Dr Forster added: "Aircraft currently only have a small effect on climate. However, the fact that the volume of air traffic is set to grow rapidly in coming years makes it important to investigate the effects of contrails on our climate."

Shifting all UK night flights to the daytime would save the equivalent of 2.5% of the UK's annual carbon dioxide emissions, he said.

The team studied flights crossing the UK at night, not takeoffs and landings from its airports, but campaigners say both will increase as air traffic increases. The number of overnight takeoffs and landings at so-called designated airports - Heathrow, Gatwick and Stansted - are currently restricted, but flights into other airports face few controls.

The scientists monitored air traffic over the UK and worked out that, although one in four flights occurred between 6pm and 6am, they contributed 60-80% of the warming that could be attributed to contrails. Winter flights had more effect than those in the summer, contributing 50% of the warming despite providing only 22% of traffic.

Nicola Stuber, a meteorologist at Reading University, said the warming effect of contrails was roughly the same as that caused by the carbon dioxide emitted from an aircraft's engines.

The team looked at contrails that lasted for an hour or more over south-east England, passed by aircraft heading for the north Atlantic. They combined flight data with measurements from weather balloons to predict whether flights would form contrails or not. They found that contrails formed more easily when conditions high in the atmosphere are very humid, as they are during the winter.

The latest official EU greenhouse gas data has revealed that emissions of the six Kyoto protocol gases increased for the second year running in 2004. EU emissions rose by 0.4%, and 0.3% in the old EU-15, the European commission and European environment agency (EEA) reported on Thursday. They had increased by 1.5% the previous year (EED 21/06/05 http://www.endseuropedaily.com/19041).

Commenting on the data, EU environment commissioner Stavros Dimas called for greater decoupling between economic growth and greenhouse gas emissions. He added that member states had a "major opportunity" to reverse unsustainable emission trends in their national allocation plans for the second phase of the EU emission trading scheme, due by the end of this month.

EU-15 emissions are now just 0.9% lower than in 1990, against the bloc's Kyoto commitment to achieve -8% during 2008-12.  It would be politically embarrassing for the EU if emissions exceed the 1990 baseline in 2005.  Emissions of carbon dioxide are already 4.4% higher than the baseline.

The rising trend in greenhouse gas emissions calls into question official optimism that the EU can still meet its Kyoto emission commitment with little or no recourse to overseas emission credits.  Only last December the European commission projected that the EU-15 could achieve -6.8% or even better by 2010 (EED 01/12/05 http://www.endseuropedaily.com/19941).

The main reason for the overall emissions increase in 2004, according to the EEA, was a 1.5% rise in CO2 output from road transport. Emissions of CO2 from the steel industry and oil refining were also up. The agency also reports higher hydrofluorocarbons (HFCs) emissions from cooling and air conditioning systems.

In country terms, the largest increases are in Spain and Italy. This is due to a switch to fossil fuels in Spain to make up for a shortfall in hydro power caused by drought. Higher CO2 emissions from oil refining and road transport are to blame in Italy, EEA says.

Reductions were achieved in Germany, Denmark and Finland. Denmark brought down its emissions from 6.3% above 1990 levels in 2003 to 1.8% below. Others like Luxembourg drifted further away from their Kyoto target, with emissions going from 11.5% below levels to 0.3% above.

However, several countries seem to change their baseline emissions year-on-year, which makes it difficult to track their progress towards targets. In particular, previous EEA data show that the UK revised its 1990 baseline upwards from 746 to 767m tonnes of CO2-equivalent between 2002 and 2004.

OUR COMMENT: These figures do not include any contributions from aircraft emissions, rising world wide and especially in the UK - supported by the government's current expansion policy in the AWTP. Increasing air traffic in China and India is inevitable and justified, but if further damage to our climate is to be avoided the west must manage their own expansion, including tourist traffic. Other ways of travel need more encouragement.

Pat Dale

The government's obsession with the "war on terror" is counterproductive and distracting politicians from more fundamental threats to global security, a leading UK think tank warns today.

The most likely causes of future conflict are climate change, competition for natural resources, social and economic marginalisation and militarisation, it says.

The independent Oxford Research Group says in its report Global Responses to Global Threats that the effects of climate change - displacement of peoples, food shortages, social unrest - have long-term security implications far greater than those of terrorism, and notes that the Pentagon's office of net assessment takes the same view.

However, it adds that the response to climate change should not involve greater reliance on nuclear power because this would encourage the spread of nuclear weapons and increase the risk of terrorists getting hold of them.

Deepening global socio-economic divisions will be a serious trend, it says: "The marginalised majority is increasingly likely to support political violence against the rich minorities of the world."

Separately, Hans Blix, the former UN weapons inspector, will today in the Commons present MPs with his new commission's report on how to rid the world of weapons of mass destruction. Among his recommendations is a commitment by states to remove all their nuclear weapons from foreign soil.

The US has more than 100 nuclear weapons at its Lakenheath base in Suffolk, an arms control group says. A Greenpeace poll found 60% of Britons did not know or did not believe it.

GERMANY'S biggest airline is blocking a British plan to make passengers pay for the environmental damage caused by their flights.

Lufthansa has rejected proposals put forward by British Airways for an emissions-trading scheme, under which airlines would buy permits to cover their production of carbon dioxide.

Britain strongly supports the scheme and, with the backing of France and the Scandinavian countries, hopes to introduce it within Europe by 2008.

The scheme would add up to £6 to the cost of an airline ticket, depending on the length of the flight and the market price of permits. The European Commission is studying the idea and is expected to produce firm proposals in September.

But Lufthansa is lobbying heavily against the scheme in Brussels and is trying to persuade politicians from Germany and other countries to vote against it. The airline has infuriated BA by issuing statements claiming that the scheme could cost airlines more than £1 billion a year and burden them with an "unacceptable cost risk".

Wolfgang Mayrhuber, the chief executive of Lufthansa, said that climate change was a global issue and that it would be better to wait for a worldwide scheme covering all airlines rather than focusing on a solution within Europe.

He told The Times: "We want to understand the consequences before we go for emissions trading. It would be better to work on improving technology to reduce emissions as this will help everybody."

But BA believes that it is important to act now on aviation emissions because the industry is fast becoming the scapegoat of environmental groups across Europe. Aviation is the fastest-growing source of greenhouse gases, and flights within Europe are due to double by 2020.

Andrew Sentance, the head of environmental affairs at BA, said that Lufthansa had exaggerated the costs. While he was unable to say how much the scheme would cost airlines, he insisted that it would be affordable and far cheaper than the alternative of a flat-rate tax on flights.

Dr Sentance said: "We accept that there are risks to airlines, but we can work to manage those risks. It is better to co-operate with the policymakers devising the scheme. That way we can influence the outcome."

Roger Wiltshire, the secretary-general of the British Air Transport Association, which represents 13 airlines, including Virgin, bmi and BA, said that Lufthansa could undermine the whole initiative.

If airlines failed to co-operate with emissions trading, he said, the European Commission could seek to impose a tax on flights that would leading to a steeper rise in ticket prices.

Jeff Gazzard, the co-ordinator of the GreenSkies Alliance, a coalition of environmental groups, said: "Lufthansa are pretty determined not to pay one euro towards the climate damage their flights cause and are going all out to wreck the Commission's proposals."

European households will be urged to turn down their heating and switch off electrical appliances as part of an official drive to reduce greenhouse gas emissions and meet Kyoto protocol targets.

The new European Commission campaign, aimed at raising awareness of how simple actions can have a significant impact on climate change, comes amid warnings from officials yesterday that consumers and the transport sector must take more responsibility for reducing emissions.

The campaign is an answer to complaints from industry leaders who say businesses bear too much of the burden of cutting greenhouse gas emissions, through the European Union's emissions trading scheme.

Stavros Dimas, the environment commissioner, told the Financial Times: "This is also good for people's pockets, as they will reduce their energy use."

Turning down heating systems by 1ºC and switching appliances off rather than leaving them on standby could reduce emissions from consumers, who account for a quarter of all greenhouse gas emissions in Europe, by between 5 and 10 per cent.

Mr Dimas said the EU had introduced a series of regulations aimed at reducing emissions, such as minimum standards for buildings and the labelling of electrical goods according to their efficiency, but consumers must be educated to change their behaviour. Drivers will also come under pressure to improve their fuel economy, by accelerating and braking more slowly and maintaining a good tyre pressure - moves that can reduce fuel use by a third.

The Commission also has a voluntary agreement with the car industry to reduce emissions from vehicles, which could become mandatory after 2008 if targets are not met.

Brussels is further putting pressure on member states to submit proposals for imposing emission cuts on businesses during the second phase of the emissions trading scheme, from 2008 to 2012.

The deadline for the proposals, which should be based on an average 6 per cent cut in emissions, is June 30 but at least one member state - the UK - is likely to be late.

Mr Dimas defended the emissions trading scheme, which has been criticised in recent weeks after revelations that member states had issued businesses with a surplus of permits to produce carbon dioxide.

For the scheme to work, companies must be issued with fewer permits than they need to cover their carbon dioxide output, giving them an incentive to cut greenhouse gases.

Mr Dimas blamed the surplus on business optimism: "Companies over-estimated what their growth would be, because businesses are always optimistic about their growth, and member states were too complacent [about the scheme]."

OUR COMMENT: Every section of society should be cutting carbon emissions. That includes aviation.

Pat Dale

A. BOWDEN incorrectly claimed in the letters page on May 11 that Stansted Airport uses 30 per cent of the water supply in Essex. Given current headlines regarding water usage I want to clarify this issue.

Stansted Airport uses about 715,000 cubic metres per annum. When compared to the annual figure for Essex, which is over 473 million cubic metres, Stansted accounts for around 0.15 per cent of Essex's total usage.

Another point raised was that of washing aircraft and the water wasted doing this. Aircraft aren't cleaned for cosmetic reasons, but for reasons of safety. The ground handling agents at Stansted are currently trialling a dry wash system, which will remove the necessity to use water for this - but in the meantime, recycling systems are being installed into new vehicle washing facilities, which will stop water being wasted.

Finally, the comment that aircraft fumes are highly toxic is confusing and could easily cause needless stress to people living in the area.

Air quality is monitored by the airport and Uttlesford District Council. All government standards are being met and there are no highly toxic levels of nitrogen dioxide or any other pollutant present.

Garry Cornell
Environment Manager, Stansted Airport

OUR COMMENT: Mr Cornell may be technically correct at the present time, BUT what most residents are concerned about is the future, if Stansted expands, even to the full use of the present runway, what will happen to those toxic gases (mainly nitrogen oxides)? Will the extra water required mean that households may have to be restricted? This area is the driest in the UK and already we have a hosepipe ban and dire warnings about water shortages. BAA's assessment of the effects of their application to expand are as bland as Mr Cornell's letter and need a very careful analysis of their optimistic assumptions.

Pat Dale

Until yesterday morning the future of BAA hung in the balance, in spite of the recommended offer of 9501/4p from a consortium led by Spain's Ferrovial. Some nifty regulatory footwork followed by a swoop into the stockmarket yesterday morning, finally forced a rival Goldman Sachs-led consortium to cede the field.

Ferrovial's triumph in the battle for the British airports operator must be all the sweeter, because Goldman might well have been willing to offer a higher price. Does that mean that BAA's board should have held off accepting the Ferrovial offer, which included a 1% break-up fee? Agreeing to a fee helped to scupper the chance of a slightly higher price for shareholders but this was not a dead cert.

Conceding a break-up fee allowed the BAA board to secure an offer that was considerably higher than had seemed feasible at the start of this saga. Nor is the lesson that break-up fees should be banned. The Takeover Panel rule limiting the size of break-up fees to 1% of the value of the bid - much lower than in the US - provides sensible protection for shareholders.

The BAA recommendation late on Monday was followed by some aggressive share-buying by Ferrovial on Tuesday and again yesterday morning, taking its stake to 29%. The latter was possible following the rather timely approval by the Australian Foreign Investment Review Board (both buyer and seller have assets there), no doubt expedited by the well-connected Macquarie Bank, which advised Ferrovial.

But whether it was lucky timing, clever tactics by Ferrovial, or even a subtle preference on the part of BAA's management, the airport operators have more cause to celebrate than complain.

OUR COMMENT: After weeks of financial manoeuvres the fate of Britain's major airports is finally decided. Like many other public services they are now in the hands of foreign companies. It remains to be seen what plans emerge from their new management, and whether Ferrovial will follow the government's environmentally disastrous expansion policies.

Pat Dale

A GROUP of determined campaigners who are battling the expansion of Stansted Airport have promised to continue their fight when a new owner takes over. Yesterday airport operator BAA backed a takeover bid headed by Spanish firm Ferrovial.

A decision will be made in two weeks time whether ownership of airports including Stansted, Heathrow, Gatwick and Glasgow will be handed over.

And The Stop Stansted Expansion (SSE) campaign group, which is fighting against plans for a second runway at the Uttlesford airport, said it hoped a new owner would re-think the proposals.

Spokeswoman Carol Barbone said last night: "If it (Ferrovial) wants to make a good return to its shareholders then not expanding Stansted would be the best option for all concerned."

News of an 'alternative capital expenditure plan' for Stansted has been outlined in a document by Ferrovial's bid vehicle the Airport Development and Investment (ADI), which some have speculated could mean the second runway plans are in doubt.

Mrs Barbone said: "When a company does a take over bid it means it thinks it can run the other company more effectively and make more profit. It is difficult to see how Ferrovial could make a second runway commercially viable. There is no evidence to date that BAA could do it."

But she warned that SSE would continue its fight against the second runway for as long as it took to overthrow it. Mrs Barbone added: "If Ferrovial thinks it can get away with expanding on the cheap at the expense of local residents and a heavy cost to the environment it has another think coming."

A spokeswoman for Stansted Airport denied the expansion plans were in doubt and said Ferrovial was fully committed to enhancing airport capacity in the UK especially in the south east of England. Ferrovial said it had no plans to break up the UK estate and said it was committed to the existing capital expenditure programme of BAA.

BAA resisted the approaches of Ferrovial for more than three months, but admitted its own valuation had been reached after a late-night auction took place ahead of a deadline for Ferrovial to table its final offer.

The US-based Goldman Sachs-led consortium, which made a rival offer, said it was reviewing its position and urged BAA shareholders to take no action on the Ferrovial offer in the meantime.

Ferrovial has more than 78,000 employees and a presence in 40 countries and already owns 50% of Bristol Airport, all of Belfast City Airport and 20.9% of Sydney Airport in Australia.

Spain's Ferrovial consortium is poised to clinch the airports operator. Alistair Osborne tracks the luggage to this point.

There's a tipping point in all bid situations when a company either sees off its predators or signals it is ready to succumb.

For BAA, that point was reached 12 days ago when the airports operator posted a half-baked final defence document. The promised £750m cash return was far too low to put the frighteners under any bidder, while the board's teasing 940p-per-share valuation simply gave suitors something to shoot for.

Even more telling, BAA and its defence team started muttering that breaking up its London airports monopoly - Heathrow, Gatwick and Stansted - could actually create value for shareholders.

Having spent its entire corporate life since 1987's privatisation arguing exactly the opposite, BAA's abrupt U-turn was as comic as it was jaw-dropping - even allowing for that morning's bombshell from the Office of Fair Trading, saying it was going to look at the case for breaking up the London airports.

While BAA's management - led by chief executive Mike Clasper and chairman Marcus Agius - are a good deal more enlightened than their predecessors, it was a bit late for the company to be changing its tune.

It is because BAA has for far too long thought like a monopolist that it is about to fall into foreign hands, with the Ferrovial consortium in pole position over a rival bid group, led by Goldman Sachs.

The Stop Stansted Expansion campaigners have an obvious axe to grind but in a catty press release entitled Bye Bye BAA, they made a good point: "Although privatised almost 20 years ago, BAA continued to behave like a Government subsidiary and considered itself immune from any threat to its position."

Few companies have ever been privatised with a dowry like BAA's - ownership of London's three main airports, including the world's busiest, Heathrow, which together handle 92pc of passengers coming into the capital. Moreover, although regulated, BAA was handed a growth business, with passenger traffic increasing by an average of 4pc a year as far over the horizon as anyone could see. Successive managements singularly failed to capitalise on this legacy.

As the first airports group ever privatised, BAA could have used its London base to build an impregnable position around the world, snapping up foreign rivals - a position now usurped by relative upstarts such as Ferrovial and Australia's Macquarie. Instead, before last December's £1.3bn acquisition of Budapest airport, its biggest overseas foray was the disastrous acquisition of retailer World Duty Free Americas.

Neither did BAA capitalise on the growth of low-cost airlines. Certainly, it priced landing charges at Stansted so far below the regulatory cap that Ryanair and easyJet were able to build soaraway businesses from their base at the airport. A more entrepreneurial BAA, however, might have tried to capitalise on the growth by taking a share of any revenues above a certain level, badgering industry regulator, the Civil Aviation Authority, if necessary, to allow it to do so.

Instead, for years, BAA sat back and managed the business as if it was a dull utility, while Heathrow and Gatwick (admittedly hindered by the snail-pace of planning approval for new facilities, such as Terminal 5) grew ever more congested. Content to screw the best deal possible out of the CAA, BAA failed to do the logical thing and gear up the business to maximise equity returns.

As Ferrovial said the result has not been pretty. Over the past one, three and 10 years, BAA has underperformed the FTSE Utilities index, FTSE 100 and FTSE All Share on the basis of total shareholder returns (capital growth plus dividends).

In an age of cheap money, this left BAA vulnerable to attack from a smart, financially driven bidder. While the Ferrovial consortium has paid a decent price - £10.3bn including BAA's 15.25p final dividend - it is not hard to see why it thinks it can improve BAA's performance.

For starters, it is using the private equity trick of gearing up BAA with about £7bn of additional debt to maximise equity returns. This adds risk, but given that 75pc of BAA's business has steady regulated returns, it's a risk it can take. The CAA is hardly likely to let Heathrow go bust. To soup up the returns, Ferrovial will use structured debt, with different forms of financing for BAA's regulated airports and the non-regulated ones, such as Budapest and its Australian interests.

Ferrovial is also hinting at selling off some of the non-core airports, possibly including one or more of BAA's Scottish trio, while analysts see plenty of upside from its direct involvement in construction projects. With a major construction wing, Ferrovial will repatriate many of the revenues ensuing from BAA's £9.5bn 10-year investment programme.

There is another opportunity too. Ferrovial has bought an option on breaking up BAA's London monopoly, whose regulated asset base will rise from £10bn today to £12bn by 2008 with the opening of Terminal 5 at Heathrow.

Currently BAA is allowed to make a 7.75pc return on its regulated airports, with Heathrow's regulated asset base (Rab) valued at about £7.3bn, Gatwick's £1.6bn and Stansted's, £1bn. Amid airlines' complaints that such returns - above BAA's cost of capital - encourage it to "gold plate" investment, analysts expect the CAA to reduce allowable returns at the next five-year review period from 2008. This, though, would do little to address a major problem - that BAA's charges for landing at its regulated airports are far to low, given the scarce capacity.

As Mark McVicar, an analyst at Dresdner Kleinwort Wasserstein, argued in a recent note, 20 years of utility regulation have left Heathrow "underpriced and undervalued in relative economic terms... Capacity can be better rationed through something closer to open-market pricing, having the effect of driving out the operators of small aircraft or uneconomic routes who are only using Heathrow because of the artificially low aeronautical charges, thereby freeing up capacity, lowering the investment requirement of BAA and reducing the planning and environmental pressure."

This a seductive political argument. Ferrovial could offer to break up BAA's monopoly in return for lighter regulation. It could sell Gatwick, for example, allowing it to compete with Stansted. Free of the regulators, Gatwick could be worth towards £1bn more than its Rab value, but there would be an even more dramatic impact on Heathrow. Assuming lighter regulation - effectively ending the current practice whereby retail revenues subsidise low landing charges -Heathrow could put its landing charges up.

McVicar reckons Heathrow's Rab value would rise by £3.3bn, worth more than 270p per share. Whether BAA would be allowed to keep this is a moot point. McVicar suggests a windfall tax, while another analyst, Andrew Fitchie at Collins Stewart, warns. "It remains uncertain how the regulator would deal with any windfall." Even so, it illustrates the value that Ferrovial - or Goldman - could potentially unlock in the future. It's a pity BAA was so slow in making the case itself.

FERROVIAL'S takeover of BAA will accelerate the building of a third runway at Heathrow, British Airways said yesterday.

Willie Walsh, chief executive of British Airways, said that the Spanish infrastructure group had indicated a firm intention to continue to develop Heathrow beyond the completion of Terminal 5 in 2008.

Speaking to The Times at the International Air Transport Association (IATA) conference in Paris, Mr Walsh said: "I have no doubt Ferrovial will be committed to investing in Heathrow. The conversations I have had with them indicated to me that they were serious investors interested in the long term.

"Given the premium they are paying, I am convinced they will be very focused on developing Heathrow and adding to its capacity. I am more optimistic now that the third runway will happen sooner rather than later."

BAA had pledged to build a second runway at Stansted before adding a third at Heathrow. However, by far the greater demand for extra capacity is at Heathrow, which will have room for 30 million extra passengers when Terminal 5 opens, but no extra slots on runways.

Mr Walsh welcomed statements by the Civil Aviation Authority (CAA) that bidders for BAA should not expect to be allowed to raise airport fees to cover costs of burdening BAA with debt. "I am confident that the regulator will do the right job and make sure that quality of service at Heathrow is safeguarded," he said.

Mr Walsh refused to be drawn on BA's view as to whether BAA should be broken up after the current Office of Fair Trading inquiry into its near-monopoly on airports in London and Scotland.

However, bmi, the second-largest customer of BAA, called for more competition between airports. Nigel Turner, bmi's chief executive, said: "Regulators must take a rigid stand and use any change in ownership as an opportunity to review some critical questions about the strategic importance of the UK's airports.

"Effective monopolies in London and in Scotland are not healthy for the consumer and airlines alike. Divestment of interests in Scottish airports is long overdue. Now must be the time to look at all of these ownership issues."

"Competition among airlines has been of tremendous benefit to travellers, yet this same healthy competition has been desperately lacking between the major airports of the UK."

Robert Milton, chief executive of Air Canada, voiced concern that the takeover of BAA would result in higher airport charges. "It's hard for us to paint a happy picture," he said.

Giovanni Bisignani, IATA's director-general, said that the CAA had let BAA make huge profits at airlines' expense. "The takeover is a wake-up call for the UK regulator," he said.

ClearSkies, which represents people living under Heathrow flight paths, said that it was mustering an international "armada" of volunteers to take direct action to block construction of a third runway. John Stewart, its chairman, said: "Such is the growing anger across the country about the effects of airport expansion that Heathrow residents will not be alone in opposing further expansion."

OUR COMMENT: Not even Ferrovial's bargaining skills can whisk away the pollution from Heathrow, already above legal limits. The official DfT Project for a sustainable Heathrow has been busy trying to achieve a promise of cleaner air with more flights. Their results remain to be published, - and examined.

Pat Dale

Fourteen business leaders, from companies such as Shell, Tesco, BAA and Reckitt Benckiser on Tuesday wrote an open letter to the prime minister urging him to take tougher action on climate change.

The move, which was broadly welcomed by environmental campaigning groups, is backed by members of the Corporate Leaders Group on climate change which includes James Smith, chairman of Shell UK, Mike Clasper, chief executive of BAA and Sir Julian Horn-Smith, deputy chief executive of Vodafone as well as Lucy Neville-Rolfe, company secretary of Tesco.

The group, brought together by the Prince of Wales's business and environment programme, has put together an open letter which sets out seven areas of concern. It pushes for greater certainty about the long-term value of emissions reductions by setting targets for 2025. The letter also underlines the importance of low carbon technologies, scaling up low-carbon investment in fast-developing countries and improving energy efficiency in the commercial sector.

The move by the group contrasts with those in industry who have argued that stricter targets would be bad for competitiveness. The Confederation of British Industry has said in the past that business was performing well in keeping emissions down and it was now up to consumers now to do their bit.

In October last year the business body backed the government's goal of cutting carbon dioxide emissions relative to 1990 levels by 60 per cent by 2050. But it said that it would be difficult to meet the government's target to cut emissions by 20 per cent by 2010.

The signatories also called for the government to stimulate consumer action on climate change and raise public awareness as well as strengthening product and building regulation, including energy saving in the home through energy saving domestic appliances and electrical products.

Charlie Kormick, head of the climate change campaign at Greenpeace the environmental lobby group, said:

"This is a clear challenge from progressive businesses saying lets get real about climate change. Rather than lobbying to cut emissions targets, they are taking a longer term view. I think what is interesting is the range of players involved. This makes it harder for the heel draggers who oppose cuts in emissions."

Friends of the Earth, the campagning group also welcomed the move. Its director, Tony Juniper, said: "This is exactly what is needed if we are to tackle climate change and ensure that the British economy reaps the rewards of going green. Companies can lead by example and take steps to cut emissions from their own operations."

Ryanair said on Tuesday that profit after tax, adjusted for exceptional items rose 12 per cent to €302m in the year to March, from €268m. However, Europe's biggest low-cost airline warned investors only to expect growth of between 5 to 10 per cent in the current year if oil prices remained at $70 per barrel.

Ryanair had, at the nine month stage, fully hedged its fuel requirements to the end of March at $49 a barrel, but had still been unhedged for the 2007 financial year. On Tuesday, the company said it had now hedged 90 per cent of its needs from June to October at $70 per barrel.

Shares in the airline lost 1.9 per cent in early trade to €6.6.

Fuel costs rose 74 per cent last year, as the US dollar price of oil continued to skyrocket. Recent dollar weakness would help partially to offset the effects of oil prices, the company said.

Excluding fuel, unit costs fell 6 per cent, a smaller decline than some analysts had hoped for. Ryanair's net margin fell to 18 per cent across the year, down from 25.6 per cent in the more lucrative first half and a fall of 2 percentage points from last year.

"This robust performance validates our lowest fare/lowest cost model," said Michael O'Leary, chief executive, pointing out that other airlines fuel surcharges were driving customers to Ryanair. "We will continue to absorb significantly higher oil prices thanks to the benign yield environment and continuing unit cost reductions."

Mr O'Leary again took aim at BAA, the UK airports operator, whose board on Monday night agreed to recommend a takeover offer from Spain's Ferrovial after stonewalling its Spanish suitor for more than four months.

Ryanair's chief executive welcomed the announcement by the UK's Office of Fair Trading into BAA's control of the main London airports and accused BAA of "featherbedding its balance sheet, at the expense of airline users and the travelling public."

Ryanair's yields - average fare prices - rose 1 per cent across last year despite a 27 per cent expansion in capacity. Ryanair said that it expected to carry 42m passenger in the coming year, a 20 per cent rise, but warned that yields would remain flat.

Total revenues rose 28 per cent to €1.7bn.

The airline is close to finalising plans to launch a mobile phone service on board flights next year and website gambling to boost its ancilliary revenues. Last year ancilliary revenues - from sources such as commission earnings on internet sales of car rental, travel insurance and hotel bookings - grew faster than passenger volumes, up 36 per cent to €259.2m.

OUR COMMENT: A pity Ryanair did not join the business leaders' call to Tony Blair!

Pat Dale

The board of BAA, the world's biggest airports operator, agreed late on Monday night to recommend a takeover offer of 950.25p a share from a consortium led by Spain's Ferrovial after a tense head-to-head fight against a rival bid from a grouping led by Goldman Sachs, the US investment bank. On Tuesday the BAA board said the Ferrovial offer represented an "attractive price" for BAA.

The airports group said Ferrovial offered 950.3p a share, including a proposed final dividend of 15.25p a share. In morning trade BAA shares were up 2.2 per cent at 948.3p. However, the Goldman Sachs consortium said on Tuesday in a statement that it had offered 955.3 p a share, also including the 15.25p final dividend, arguably offering BAA shareholders the better deal.

BAA would still be open to the Goldman Sachs consortium to return to try to win BAA board backing, however, for a higher offer by the June 16 deadline agreed by the Takeover Panel on Tuesday.

The Goldman-led consortium on Monday night appealed to the Takeover Panel on the grounds that Ferrovial had breached the 60-day timetable. The Ferrovial offer values the BAA equity at £10.3bn ($19.3bn). Together with net debt of £5.3bn it places an enterprise value on BAA of £15.6bn, making it one of the largest foreign takeovers of a FTSE-100 company.

It will be the biggest takeover ever made in the global airports industry, where BAA has widespread interests including seven airports in the UK and other operations in Hungary, Italy, Australia and the US. If Ferrovial succeeds in closing the deal it could face a far-reaching investigation by the UK Office of Fair Trading, which potentially could lead to the break-up of BAA's London airports monopoly.

Goldman Sachs Group Inc. may raise its offer for BAA Plc, the world's largest airport operator, after Commonwealth Bank of Australia said it's considering contributing more than A$1 billion ($751 million) to a bid.

Australia's largest asset manager is part of a Goldman-led group and is reviewing options, Sydney-based Commonwealth said today. BAA rejected an initial offer of 870 pence a share, or 9.4 billion pounds, from the group in April, and Goldman has until June 9 to say whether it will make a formal bid.

BAA, owner of London's Heathrow airport, is fighting off bids from Goldman and Grupo Ferrovial SA, Spain's second-biggest building company. Ferrovial will today raise its offer to 915 pence a share, the Wall Street Journal reported today, citing people familiar with the matter.

"They are monopoly-type assets and the revenue streams are very stable,'' said Peter Vann, who helps manage $1.1 billion at Constellation Capital Management in Sydney, which holds Commonwealth Bank stock. "Anything to do with infrastructure is popular and sexy, but there's growing competition for assets.''

Shares in BAA rose as much as 11 pence, or 1.2 percent, to a record 916 pence and were trading up 0.3 percent as of 9:05 a.m. in London. They've surged almost 39 percent since Ferrovial, based in Madrid, said on Feb. 8 it may bid.

"We continue to look at our options,'' a spokesman for the Goldman-led bidding group said.

Managing A$137 Billion

Commonwealth's Colonial First State Global Asset Management arm manages A$137 billion and is seeking investments in airports and utilities that it bundles into funds and manages for a fee. Macquarie Bank Ltd., Australia's No. 2 asset manager, oversees stakes in six airports, including Rome, Copenhagen and Brussels.

London-based BAA on May 30 rejected a 900 pence a share offer from Ferrovial. Goldman Sachs and its bidding partners said in April they were prepared to pay 870 pence a share. The Goldman-led group may offer 950 pence a share, the Financial Mail reported yesterday, without citing anyone.

Goldman's bidding partners include Borealis Infrastructure Management Inc., a unit of the Ontario Municipal Employees Retirement Fund, and American International Group Inc., the Sunday Times newspaper reported on June 4.

Colonial already owns stakes in airports in the Australian cities of Brisbane, Perth and Adelaide. Chief Executive Officer Warwick Negus, 44, worked at Goldman as an asset manager and banker for nine years. He quit in 2002 to start Australian fund manager 452 Capital before joining Colonial last year.

Commonwealth Bank stock was unchanged at A$44.10 at the close of trade in Sydney. It's risen 17 percent in the past year, the same as the gain in the eight-member S&P/ASX 200 Banks Index.

Steady Earnings

Colonial may join the bidding for BAA amid rising passenger traffic and steady earnings at the U.K. company, which also runs airports in Italy, Hungary and the U.S.

BAA last month forecast passenger growth at its three London airports, where fees are regulated, will be 3 percent a year for the next decade. BAA is fending off bids as the U.K.'s Office of Fair Trading said it may investigate BAA's dominance of U.K. airports. An investigation might lead to the breakup of the company's seven U.K. airports, which include Scotland's Edinburgh, Glasgow and Aberdeen.

The southeast of England will generate 300 million passenger flights a year by 2030, from 117 million in 2000, the Department for Transport has forecast.

'No Formal Decision'

Ferrovial has to make any higher bid by today, under U.K. takeover rules.

"No formal decision has been made by the consortium with regards to a possible offer,'' Negus said. "Colonial will continue to look to create new investment opportunities for our clients in both Australia and around the world,'' he said.

Colonial agreed in September 2005 to pay 25 million pounds for 13 percent of Inexus Group Holdings Ltd., a U.K. gas pipeline owner, as part of a group led by Sydney-based Challenger Infrastructure Fund.

"There's a fair bit of interest in infrastructure funds at the moment,'' said Paul Xiradis, who helps manage $5 billion at Ausbil Dexia Ltd. in Sydney, which holds Commonwealth shares. "Colonial sees management fees and performance fees, and they've seen money being made by the likes of Macquarie Bank.''

Sell Airport Stakes

Airports account for A$844 million of the A$1.12 billion of infrastructure funds managed by Colonial. It bought stakes in Brisbane and Adelaide airports when they were privatized in the past decade.

Ferrovial on March 29 added Macquarie Bank as an adviser on its BAA offer, removing a potential counter bidder. The builder also agreed to sell stakes in airports in Sydney and Bristol to Macquarie Airports, a fund set up by the Australian bank, for as much as 754 million euros ($976 million) should its bid succeed.

Citigroup Inc. is also advising Ferrovial, which is bidding with Caisse de Depot et Placement du Quebec, a Canadian pension- fund manager, and GIC Special Investments Pte Ltd., a Singapore- based investment company.

BAA, the besieged airports operator, has valued Gatwick airport at £2.5bn, more than twice its book value, and has sounded out investors on the potential break-up of the company. Executives of the airports company have spent the past week meeting shareholders to stress the hidden value in the group that could emerge if it stayed independent.

On Friday the Spanish construction giant Ferrovial launched a massive dawn raid on BAA's stock, but it largely failed as big shareholders such as Schroders, M&G and Threadneedle refused to sell their shares.

Under an Office of Fair Trading investigation, BAA's London monopoly could be broken up. But the so-called "break-up option" was also said to be a contributory factor in BAA's shares shooting up by 85p on the week to close at 905p, above the level at which Ferrovial is pitching its offer for the company.

The theory among BAA's major shareholders is that with an Office of Fair Trading investigation under way, BAA's London monopoly could be broken up, which could lead to a looser regulatory regime.

Ferrovial must now make a final offer by tomorrow and its bankers are holding a crunch meeting this evening to decide how to proceed. It is currently offering 900p a share and there is speculation that it will allow shareholders to keep a 15p dividend, thereby increasing its offer a third time. BAA claims the company is worth at least 940p.

A second consortium, led by Goldman Sachs, the investment bank, could also make a revised offer above its initial approach of 870p. It has been given a deadline by the Takeover Panel of the end of the week.

One person present at BAA's shareholder meetings said: "The top 20 shareholders, who own about 45 per cent of the shares, are pretty well rock solid. The discussion was all about the option value over a break-up. Should that value go to existing shareholders or be handed over to Ferrovial?"

The ownership of BAA affects millions of people. Not only are 10 per cent of its shares owned by 350,000 investors who bought when it was privatised 20 years ago, but London is the world's largest aviation city, handling 122m passengers a year.

Any break-up is months away at least. BAA believes it would be worth it only if the regulatory regime is loosened, because landing charges at Heathrow and Gatwick are massaged down by the Civil Aviation Authority. The OFT inquiry could take up to six months; if the matter were referred to the Competition Commission, the review could last another year.

One complicating factor is BAA's labyrinthine £8bn debt structure. About £2bn of its outstanding bonds are secured on specific assets, including Heathrow, Stansted and Gatwick airports.

According to one banker who has examined BAA's balance sheet in detail, a break-up of the company could trigger a cascade of penalties which would cost the company about £700m.

However, that is disputed. A different source claimed that BAA could sell 30 per cent of its assets without triggering the redemption penalties. As Gatwick makes up only about 15 per cent of BAA's assets, a sale would be possible without upsetting the company's delicate debt structure.

Until the OFT investigation began, BAA had always resisted the idea of abandoning its monopoly. A valuation of Gatwick at £2.5bn is reached by assuming that BAA could make a margin of £5 a passenger, £1 more than now.

On that basis, Gatwick's underlying profit this year would be £170m. If that were put on a multiple of 15, as used in recent airport deals, it would value Gatwick at £2.5bn. No one from BAA was available to comment.

Mike Clasper, BAA's chief executive, is jubilant. Ferrovial's attempt to buy a 15 per cent stake in the besieged airports operator on Friday was a spectacular flop. In the end it managed to acquire only around 3 per cent. The traditional long-only funds, such as Schroders and M&G, were having none of it. They are sticking with BAA as a long-term investment.

But this is, nonetheless, a critical weekend for BAA; Ferrovial could raise its offer tomorrow. Furthermore, even if that flops too, a consortium led by Goldman Sachs is waiting in the wings.

We are very close to the board being forced to talk to its predators and a fully fledged auction developing for the company. If that happens, Heathrow, Gatwick and Stansted, the busiest cluster of airports in the world, could be in foreign hands within months.

So Clasper needs to raise his game. Until now the company has relied on a conventional defence, promising a return to shareholders of £700m. For 20 years BAA has refused to contemplate the beautiful truth that it should be broken up.

If all the different airports competed with each other, the regulatory regime would be looser and value would be created. Ferrovial and Goldman know this and that is why they are effectively bidding for an option over the break-up value.

Now that the Office of Fair Trading has intervened, Clasper and his chairman, Marcus Agius, should advocate, publicly and forcefully, breaking the company up. In the short term, that would be fearfully difficult and expensive, not least because it might trigger a restructuring of BAA's gothic pile of debt, some of which is secured on individual airports.

But in the long term it is the right thing to do - for the company, for its shareholders and for the millions who use London's overcrowded airports every year.

A CONSORTIUM led by Goldman Sachs is preparing to launch a £10 billion counterbid for BAA in response to an expected increased offer from Spain's Ferrovial.

Ferrovial and its advisers, Citigroup and Macquarie, were holding meetings this weekend ahead of tomorrow's deadline for the submission of an improved offer. Ferrovial has already offered BAA shareholders 900p a share, valuing the airports group at £9.5 billion.

City sources expect Ferrovial to improve its offer in the hope of securing a recommendation to accept from the BAA board, which has said the company is worth at least 940p a share. But BAA's board is unlikely to grant a recommendation until it hears from the Goldman team.

Last month The Sunday Times revealed Goldman was preparing a "white-knight" bid, and it is understood the consortium is still keen to trump any Ferrovial offer.

Goldman has bolstered its team by recruiting Colonial Insurance, an Australian firm that is part of the Commonwealth Bank group. The other members of its consortium are two Canadian pension funds, Borealis and Ontario Teachers, and AIG, the American insurance giant. The Goldman group has until this Friday to decide whether to make a formal takeover bid for BAA or walk away.

Sources close to the Goldman camp said last night that they were serious about making an offer, but would not go hostile. Nor would they join the fray if Ferrovial offered a knock-out price, the sources said.

BAA, the owner of seven of Britain's largest airports, including Heathrow, Gatwick and Stansted, has been a target since Ferrovial confirmed its interest in February.

The battle heated up on Friday when Citigroup, which is advising and part-funding the Ferrovial consortium, mounted a raid on BAA's shares. Broking sources said the bank had sought 150m shares "a 15% stake" but it was not clear when the market closed on Friday how many shares it had actually bought.

Sources close to BAA said last night it was still confident of retaining its independence, but most transport bankers believe the company will fall to either Ferrovial or Goldman.

"I think two things are certain, that BAA will be sold and that BAA will be broken up," said one banker.

The Office of Fair Trading recently launched an investigation into BAA's market dominance that could result in a call for its break-up. Analysts also believe the company would be worth more if it were broken up.

Ferrovial said in its most recent offer that it would consider the sale of BAA‚s foreign airports to help reduce debt if it was successful in its bid. To allay fears about its ability to meet BAA's investment commitment, the runway at Stansted - a key plank of the government's airport policy.

Spanish group has told regulators that it would set up a special £2 billion debt facility to give flexibility on capital spending.

SPANISH construction giant Ferrovial will on Monday unveil a raised final offer for airports operator BAA that falls far short of the £10.2bn ($19.2bn, E148bn) the company's board is demanding.

The Business understands that Ferrovial's advisers presented their final offer to BAA on Friday in a last-minute attempt to win the management's support. But in an emergency board meeting on Friday night, BAA's board opted to reject the bid. This indicates that Ferrovial's final offer failed to meet the 940p per share that BAA has laid out as the bottom line to win board approval.

After the meeting, advisers of Ferrovial and consortium partners Caisse de Depot et Placement du Quebec and GIC Special Investments held talks well into Friday night to determine the exact terms of their offer. But by Saturday morning the final offer document was already being printed ahead of being posted to BAA shareholders for Monday's deadline. A bid of 910p would value the firm at £9.9bn.

The Ferrovial consortium last Tuesday hiked their initial 810p bid to 900p, adding more than £1bn to the offer price. BAA shareholders last week welcomed the increase, but many said they would need an offer of 950p before Ferrovial's offer becomes "interesting".

Stephen Furlong, analyst at Dublin-based Davy Stockbrokers, said he believed the Ferrovial-led consortium will come back with an offer nearer 910p. He said: "Clearly this is the last day that they can raise their price so they will be looking to prevent Goldman Sachs from coming in. At 900p the price is close, I would expect one final tweak to the bid – perhaps the low nines or 910p."

Ferrovial may be forced to go beyond the £10bn mark by the presence of a Goldman Sachs consortium on the sidelines. To pass the symbolic £10bn mark requires a bid of 923p.

The Ferrovial consortium's attempt to block a rival bidder by instructing its advisers, Citigroup, to buy a 14% stake in a dawn raid on Friday failed when only 3% of shareholders agreed to sell at the 900p offered. The news pushed BAA's shares to an all-time high on Friday, closing up 27p to 905p valuing it at £9.8bn.

A spokesman for Goldman Sachs said the consortium was still "actively looking" at the situation. He pointed out that the takeover panel would have forced Goldman Sachs to declare that it was no longer interested if it had not been able to convincingly demonstrate its readiness to bid. Goldman has until Friday to make its offer.

BAA shareholders, led by Schroder Investment, Invesco Asset Management, M&G Investment and Scottish Widows, will have 14 days to accept or reject the highest offer.

Airport owner BAA would be prepared to sell Gatwick Airport so it could keep its prized assets of Stansted and Heathrow in any break-up ordered by competition tsars, Business Weekly understands.

Airport owner BAA would be prepared to sell Gatwick Airport so it could keep its prized assets of Stansted and Heathrow in any break-up ordered by competition tsars, Business Weekly understands.

Multi-billion pound investment has already been committed to the long-term development of both Stansted and Heathrow but Gatwick has reportedly been earmarked as a potential makeweight if the Competition Commission is called in to oversee an end to a perceived BAA monopoly of London's airports.

While some industry analysts have been predicting that Stansted would have to go in any break-up, management is taking a different view. The reasons Stansted is the most sought-after of the three BAA London airports are exactly what make it most attractive to keep and nurture - providing massive long-term benefits for the owner.

Gatwick, on the other hand, is under the twin clouds of legal restrictions and lack of real growth prospects so there are limits to the progress BAA could achieve there.

Gatwick as a stand-alone purchase would still make an attractive option for potential buyers without forcing BAA to part with the ŒCrown Jewels‚ Stansted and Heathrow. Expect a price tag of around £2.5bn to be placed on a Gatwick sale. BAA may even consider the Gatwick sell-off option even before the Office of Fair Trading makes any official recommendations to the Competition Commission, we understand.

OFT felt obliged to reveal that it was looking at BAA's so-called London monopoly to be fair to both BAA and the international consortia involved in hostile takeover bids.

Both the Ferrovial and Goldman Sachs-led groups are thought to be considering fresh offers for BAA.

The stakes were raised when rejected a hugely sweetened offer from Spanish group Ferrovial of 900p a share - valuing the UK business at £9.73bn. Although the offer was 11 per cent higher than the original bid, BAA smashed the hostile move out of court. It is believed that BAA has also rejected an approach from US bank Goldman Sachs. But the bidding won't stop there.

Ferrovial and Goldman Sachs are believed to be gathering even larger war chests to make an offer BAA can't refuse at well over £10 bn. Both the hostile bidding consortia are making sure their intentions are made known to BAA shareholders, caught in the middle like a card player with a stutter, not knowing whether to stick, twist or fold.

BAA's own defence strategy includes a pledge to return £750m to investors if a hostile takeover bid fails so there is hardly any need for stockholders to do much more than sit back and wait and see what unfolds. They are certainly not going to lose out.

Heathrow, Stansted and Gatwick together handle 90 per cent of passengers in the London area and 63 per cent nationally. The UK government is backing a second runway at Stansted amid growing clamour against the further growth of Heathrow, buoyed by BAA's commitment to invest £9.5bn in upgrading its airports over the next 10 years as well as focusing on the growth potential of its assets.

The Government is keen to see BAA stay in British hands, otherwise its entire long-term aviation strategy for the UK could be blitzed.

The purchase of a strategic stake in a listed company is one of the oldest M&Atactics in the City of London. Whether to block an unwelcome bidder or to gain a voice in the boardroom or to force a higher offer from a rival bidder, stake building is as in vogue as ever.

Grupo Ferrovial attempted yesterday to deploy the tactic as part of its hostile bid for BAA, the airports group which owns Heathrow and Gatwick.

However, the raid, launched ahead of this Monday's final deadline for Ferrovial to improve its offer, failed. Citigroup, the Spanish group's advisers, had tried to buy 150m shares, or about 13 per cent, at 900p.

The move echoed a more successful one by Nasdaq, the US-based stock exchange, which last month raised its stake in the London Stock Exchange to 25.1 per cent. Although this stake is not sufficiently large to block an alternative offer, it has acted effectively as a significant barrier for any competing bidder.

This is not a new tactic but a recent change in the Substantial Acquisition Rules (SARs) has made it easier to build stakes in public companies. SARs were introduced 26 years ago following a series of corporate assaults in the late 1970s and were designed to limit the speed at which a stake of more than 15 per cent could be acquired. This was designed to allow the board of the target company time to respond.

Under the old rules, corporate raiders could only acquire 14.9 per cent of a company in a day. They then had to wait a week before acquiring a further 9.9 per cent followed by a further seven days before picking up another 4.9 per cent. Now, there is no restriction on the speed at which a 29.9 per cent stake can be built in a public company. However, shareholders are still required to make a full offer for a company once their holding rises above this threshold.

Bankers and brokers are divided over whether the rule change will increase takeover activity. While the rules have made it easier to purchase a large stake, in practice it still remains difficult to buy more than 14.9 per cent in one day. This is because shareholders suspect a takeover approach or some other form of corporate action will follow a dawn raid.

Activist investors such as JO Hambro Capital Management say the rule change has made little difference because they only require a holding of 10.1 per cent to requisition extraordinary meetings. Moreover, they usually work with existing shareholders when they attempt to shake up underperforming companies.

However, activists such as Vincent Bolloré are unlikely to be shaken by the new rules. The French investor's modus operandi typically involves stalking a company by gradually building a stake over a long period.

Indeed, Mr Bolloré first started building a stake in Aegis last year and he now holds more than 29 per cent of the UK group. This device has helped unnerve the incumbent Aegis management but can also force them to radically restructure their business in order to maximise shareholder value.

"Buying stakes in target companies can be used to prevent a rival bidder from gaining full control of that target," says Liam Beere, managing director at UBS.

Indeed, Mr Bolloré became chairman of Havas last year after employing a similar tactic - he built a stake of slightly more than 20 per cent and demanded boardroom representation.

Another reason for building a stake during a hostile situation is that if a bidder loses out to a rival, the stakebuilder may still cover his costs by stirring take-over interest and achieving an eventual profitable exit.

Robert Tchenguiz, the property investor, recently acquired an 8.5 per cent stake in Mitchells & Butlers through Violet Capital, his investment vehicle.

The move came just a few days after the UK's second biggest pub group rejected a 550p-a-share cash offer from Mr Tchenguiz. Although under Takeover Panel rules Mr Tchenguiz cannot make another hostile bid for M&B for six months, he may very well be able to recover the costs of his earlier failed bid. As one corporate financier wryly points out: "Stakebuilding is just a bit of insurance cover."

The trouble with market forces is they have a habit of rooting out political patch-ups and picking at the stitching until something comes loose. The queue of advisers looking to "help" Eurotunnel out of its denial phase is one example. Another is the upsurge of interest in acquiring regulated utilities, such as BAA.

Partly, this reflects the innocent desire to find safe long-term earnings streams to match the long-term liabilities of pension fund and insurance investors. It also reflects a desire to exploit the implicit tensions in many regulated industries, particularly the debate over how much debt companies can withstand.

Mike Clasper, BAA's chief executive, talks of finding the regulatory sweet spot by tweaking the balance sheet to give the most back to shareholders while reassuring the regulator there is enough flexibility to weather the ups and downs of running an airport. Ferrovial, which has to make its mind up today or tomorrow on whether to raise its takeover offer, clearly believes there is another sweet spot involving more debt. But what if neither is right? The more investors try to milk this monopoly for all it is worth, the harder it is to protect the interests of customers fully.

For this reason, the Office of Fair Trading's decision to review BAA's monopoly status is sensible. What is less clear is whether someone in government thinks this will somehow act as a deterrent to a bidder. Opening up London's airports to competition is just as likely to make them more valuable, especially if price regulation is partially lifted in exchange. Freeing Gatwick, for example, could add £900m to BAA's value, if it were priced on the same multiple as other unregulated airports, such as City.

The trouble is no one knows whether this will be the result of the OFT inquiry. For Ferrovial. even a 25 per cent chance of a break-up could provide the incentive it needs to bid a few more pence. For BAA shareholders, a bird in the hand may be worth more than two in the regulatory thicket. If the OFT and Civil Aviation Authority hoped their intervention might preserve BAA's awkward half-way status, it seems to have backfired.

A draft resolution voted on by the European Parliament's Environment Committee suggests introducing a tax on kerosene and capping CO2 emissions from all flights departing and landing in the EU.

MEPs in the European Parliament's Environment Committee have voted unanimously in favour of a draft resolution calling for tough new measures to reduce the global warming impact of aviation and apply the "polluter pays" principle to the airline industry. The report will be submitted to the full House for approval at the July plenary session.

"Aviation is the fastest growing source of greenhouse gas emissions, with airlines currently taking almost no responsibility for the pollution they cause," said Caroline Lucas MEP (Greens/EFA, UK), the author of the draft resolution.

"The report recognises the need to level the playing field between aviation and other forms of transport," she said. To achieve this, MEPs supported the introduction of a kerosene tax for all domestic and intra-EU flights as a first step towards a global kerosene tax.

The Environment Committee also supported a Commission proposal to cap CO2 emissions for all airplanes departing from EU airports. Airlines would be able to trade their potential surplus 'pollution credits' on the EU 'carbon market' (Emissions Trading Scheme).

The Commission is expected to put forward a formal proposal to include aviation in the EU ETS by the end of the year.

The Spanish construction firm Ferrovial has seized the initiative in its struggle for Britain's dominant airport operator, BAA, by rasising its takeover bid by £1bn to £9.75bn and accusing the group's management over presiding over a litany of failures. Ferrovial, which had previously insisted that its interest was friendly, turned aggressive with a list of criticisms of BAA for falling short of traffic forecasts, proving unable to increase income from airport shops, delaying new runways and struggling to keep its costs under control.

The Madrid based firm increased its offer from 810p a share to 900p a share. The bid is likely to split invester opinion – some have indicated that "a number beginning with nine" would be sufficient, making for a potentially tense outcome.

Ferrovial pointedly stopped short of sayimg its offer was final, leaving the door open for negotiation. Insiders pointed out that the investment bank Goldman Sachs could yet step forward with a "white night" bid, having previously offered 870p a share.

BAA's chairman, Marcus Agius, was told of the higher offer by his Spanish counterpart, Rafael del Pino, at a brisk meeting in a neutral city venue, which lasted just 15 minutes on Monday afternoon. It was swiftly followed by a BAA board meeting, at which the directors unanimously rejected the approach. Mr Agius told the Guardian:, "It wasn't a long meeting because there wasn't a lot to talk about."

He said BAA had "no difficulty" in turning down the approach: "The number is higher but its still not a number we're willing to accept." Under the terms of Ferrovial's bid, shareholders would not be paid a final dividend of 15.25p due on August 11th. BAA argued that this meant that the offer was in effect only worth 885p a share.

The increased bid came less than a week after the Office of Fair Trading announced that it was considering a formal review of BAA's near momopoly. The company owns 7 airports in Britain including Heathrow, Gatwick, Stansted, Edinburgh and Glasgow. It handled 63% of passengers travelling to and from Britain last year.

Ferrovial was not deterred by the intervention but its advisers have expressed irritation at BAA's refusal to engage in negotiations over an acceptable takeover price.

In a lengthy critique, Ferrovial said BAA had undershot both its own and the Civil Aviation's Authority's traffic forecasts at its London airports for the last 3 years. It pointed out that retail income per passenger had been falling for the last 2 years and that a new runway at Stansted has been pushed back from 2012 to 2015 at the earliest.

The Spanish company has calculated that £100 invested in BAA a decade ago would have risen to £184, compared with £210 if invested into the FTSE Utilities index. A source close to Ferrovial said: "Heathrow is not the most pleasant travelling experience and they (the Spaniards) have ideas in what can be done better."

BAA said the criticisms were "backward thinking" about events in the past. It has held out the prospect of a £750m handout to investors through a share byback if the takeover is rejected.

BAA's shares jumped 52.5p to 873p yesterday, staying below the bid price to indicate uncertainty about the takeover's chance of success.

Scottish Widows and Shroders, both shareholders which had publicly rejected Ferrovial's ear;ier bid, declined to comment on Ferrovial's higher offer. However, another large institutional investor told the Guardian: "It (the price) is getting there but we're not there yet. There's a lot of value in this franchise and 900p doesn't reflect a significant premium for it."

OUR COMMENT: It is clear that the protagonists in this battle have no thought for the environmental impacts of the services they are aiming to provide. We already know that the government is still refusing to consider any back tracking on their potentially disastrous aviation expansion policy. So, it is up to local people and local councils to make sure that, whatever happens to the ownership of BAA, they do not get permission to continue to expand beyond 25 mppa.

Pat Dale

WANT to know the future of airports? Visit your local bus shelter. It's drab and draughty, but it's functional and it's cheap, requiring minimal expenditure on maintenance.

It's an approach taken by Schiphol in the Netherlands at its new Pier H for low-cost carriers, an ugly steel corridor without loos. Kuala Lumpur built a new terminal in similarly austere style, and in Geneva the old terminal at Cointrin is to be refurbished sparingly for use by easyJet, the dominant carrier at an airport that used to pride itself on its VIP passenger profile.

The main problem with the bus shelter approach to airport terminals, apart from the lack of loos, is that it's bad business for airport owners and their friends in government. Politicians like flashy new bits of infrastructure that make great backdrops for press conferences, while endless building projects are essential if airport owners are to justify landing fee increases. BAA is accused by its domestic low-cost carriers of goldplating its Stansted expansion project. More telling is a lawsuit by Iata, the airline organisation, against Aeroports de Paris (AdP), the company that owns the three Paris airports — Roissy-Charles de Gaulle, Orly and Le Bourget.

Iata is seeking to annul the contract between AdP and the French Government, which permits landing fee increases of 5 per cent per year over the next five years. Carriers at Charles de Gaulle have borne the burden of a 26 per cent increase in fees over five years, those being some of the worst years in the history of commercial aviation.

The latest government- authorised increase is a particularly cynical piece of featherbedding as AdP is groomed for privatisation; an initial public offering to raise between €1 billion and €1.5 billion (£700 million and £1 billion) including €500 million of new money, is expected this week.

AdP does have a problem: it has been starved of capital under municipal ownership - the original ten-storey terminal at CdG, with its airborne escalators, now resembles a torture chamber for demented rodents. AdP says that it wants to spend €2.7 billion on new facilities and create more retail space, emulating the strategy of its main competitor, BAA. AdP also wants to boost its profit margin, currently 30 per cent of revenue, to BAA's lofty rate of 46 per cent, an extraordinary rent that is the principal lure for the various bidders that are circling the UK airports group.

Only yesterday Ferrovial, the Spanish building contractor, raised its offer to a princely £9.7 billion, some 21 times prospective earnings. BAA, too, reckons the coffers are full to the brim and the board, in an effort to persuade investors to stick with the current management, is promising a 40 per cent dividend increase and a £750 million share buyback.

The problem with airports is that they are not in the same business as airlines. BAA, privatised two decades ago, has seen its best business opportunities in stretching the rubber band that links it to its airline customers to virtual breaking point.

Airlines want two things from airports: low landing fees and rapid movement of happy passengers. Neither is in the interest of airport owners, who need to extract the maximum rent from the real estate they inherit. That means rack rents and fees and the imprisonment of passengers in vast shopping malls. There is a continuing struggle between the airlines that want to cosset premium passengers in cosy lounges and the airports' need for footfall in shops where the landlord dips into the retailer's turnover.

But what is of value to the airline? It is the right to land an aircraft, an obscure privilege that belongs to no one and which airlines trade secretly in an unregulated market. At Heathrow, landing rights can change hands for £10 million.

After two decades of pussy-footing, the Office of Fair Trading is finally going to have a proper look at the business of running parking bays for aircraft. BAA has toyed with a number of business models since its original sell-off, including non-airport property development and duty-free retailing. But the one that works best is squeezing more margin out of Heathrow, hence its big investment in a fifth terminal.

If the OFT is serious, it needs to go back to basics and consider what is of value and to whom. BAA should certainly be broken up, but so should AdP, and landing rights across Europe should be bought and sold freely at transparent prices on a regulated exchange.

STANSTED MP Sir Alan Haselhurst has called on Uttlesford District Council to "scrutinise rigorously" BAA's planning application for the existing runway at Stansted Airport.

The airport operator has submitted plans seeking an increase on the limits imposed three years ago by the council. It wants to have the current 25m passenger and 241,000 flights per year restrictions raised to 35m passengers and 264,000 flights.

But Sir Alan said BAA was becoming "more and more intrusive", adding: "The council needs to subject the application to scrutiny most rigorously in terms of health and enviromental impacts."

"We need to know what impacts the plans will make on noise, fumes and traffic build-up on roads and rails that are unfit for traffic. This has all been glossed over."

"The interesting thing is BAA arguing that all it wants is an increase on the limits imposed by conditions last time. Amazingly it says this does not require any construction works."

"This tells us a great deal about the way it operates by smoke and mirrors."

"The terminal is not yet expanded to accommodate 15m passengers but currently operates at 22m. BAA obviously has the scope in hand with regard to terminals and car parks."

"We've never got to grips with what BAA is up to."

The European parliament's environment committee has called for all flights to and from the EU to be included in the bloc's carbon dioxide emission trading scheme (ETS). In a draft resolution adopted on Tuesday MEPs said a revised ETS should cover all flights through EU airspace. It also called for measures to tackle the sector's non-CO2 climate impacts, such as the effect of contrails.

Green party rapporteur MEP Caroline Lucas said the resolution sent a strong signal to the airline industry to take responsibility for its emissions. "Given the non-CO2 impacts of aviation can be two to three times more damaging than the CO2 impact, I welcome the committee's endorsement of the need for these to be addressed in parallel," she said.

The resolution was adopted in response to a European commission policy paper published last September on reducing the climate impact of aviation (EED 27/09/05 http://www.endseuropedaily.com/19491). It will now be forwarded to the parliament's plenary session. Environment ministers backed the paper last year, also calling for all flights, not just those within the EU, to be included in trading (EED 02/12/05 www.endseuropedaily.com/19952).

MEPs said a separate pilot trading scheme for aviation should be set up between 2008 and 2012, with the sector fully included only after this date. The carbon allocation should be in line with the EU's Kyoto protocol targets and allowances should be auctioned, MEPs said. A global trading scheme for aviation emissions should be established as soon as possible, they said.

Any move to include non-EU carriers in the ETS is likely to provoke confrontation with the USA, which wants its airlines excluded from the scheme (EED 30/11/05 http://www.endseuropedaily.com/19933). MEPs called on the commission and council to defend this approach against "possible attacks" by third countries.

The European commission is is due to publish draft revisions to the EU ETS directive, including provisions on aviation, before the end of the year. The decision on whether aviation will be incorporated into the ETS before or after 2012 will depend on how quickly the revisions can be finalised by EU institutions, a spokesperson told ENDS.

Meanwhile, a stakeholder working group set up by the commission to make recommendations on the best way of integrating aviation into the ETS has failed to offer proposals on key issues, www.endseuropedaily.com/19491). The group's final report reveals that no agreement was reached on which flights should be covered by the scheme. A member of the working group told ENDS that another key question - that of how to establish emissions limits for aviation - was not broached due to a lack of consensus.

Kyoto protocol signatories have agreed a work plan to move towards setting post-2012 emission targets during UN convention on climate change (UNFCCC) talks in Bonn, Germany, which ended on Friday.

"We have set an ambitious agenda.. there is a strong sense of urgency and there's clear consensus that there should be no gap after 2012" said Michael Zammit Cutajar, chair of an ad hoc working group of Kyoto parties set up to discuss what to do after the current Kyoto protocol targets expire.

The ad hoc working group complements a "dialogue on long-term cooperative action", involving all convention members, that met in mid-May .

Two UNFCCC committees meeting alongside the ad hoc group adopted 30 conclusions and one draft decision.  Most call for further discussion leading to agreement at a later date.  The meeting made little progress in discussions on adaptation to climate change.

Some observers welcomed fresh ideas on, for example, deforestation in developing countries. Environmental group WWF insisted the brakes were off and the process was moving forward.  Nonetheless, there is general agreement that significant advances will have to wait until 2008-9 when there will be a review of the protocol.

The UNFCCC meetings demonstrated strong business interest in climate change policy. For the first time, Carbon expo, a trade event held a week earlier in Cologne, attracted more participants than the UN meetings that followed.  In Bonn, there were more interventions from business than environmental NGOs.

At the UN talks, carbon trading and carbon capture and storage (CCS) attracted most business interest. A third of the 45 side events related to the carbon trade and two of three in-session workshops and six side events related to CCS. This could indicate the development of a new architecture to address climate change, say observers.

The ad hoc working group and associated UNFCCC committees will next meet alongside the 12th meeting of parties (COP12) in Nairobi, Kenya, in November 2006.

Meanwhile, UK climate change minister Ian Pearson has called on parliamentarians in the G8 and emerging economies Brazil, China, India, Mexico and South Africa to keep pressurising governments to develop an international agreement on climate change.

Addressing Canadian and British MPs in Ottawa, Canada, Mr Pearson said they had a key role to play in the Gleneagles dialogue - a forum for countries to discuss actions outside the formal UN negotiating process.

Britain's main airport operator, BAA, is to press for changes in the way it is regulated at its London terminals and is willing to negotiate over its ownership of seven international hubs in the UK.

The company is to use a tentative review of the airport industry by the Office of Fair Trading as an opportunity to argue for its long-term car parks, bureau de changes and in-terminal display advertising to be removed from the regulatory regime on the grounds that competitors provide similar services.

BAA's ownership of Heathrow, Gatwick and Stansted is the subject of vigorous criticism by airlines – as is its dominance in Scotland, where it operates Edinburgh and Glasgow airports. In a surprise move, the OFT announced on Thursday it was considering a formal review of the company's position.

For the first time, BAA is prepared to contemplating divesting airports – a move which would generate huge interest from potential buyers and which, according to City sources, could prove earnings enhancing for its shareholders.

The open-minded approach comes as BAA strives to fight off a £8.75bn hostile takeover by a consortium led by Spanish company Ferrovial, which has offered 810p a share. Its Airport Development and Investment yesterday insisted that it was pressing on with its bid despite the uncertainty created by OFT's intervention. After falling steeply on Thursday BAA's shares recovered by 33p to 820.5p.

In a statement, the consortium simply said it "noted" the consumer authority's interest, adding: "If ADI is successful in its offer for BAA, ADI will, of course, cooperate fully with any review, if the OFT does, in due course, decide to initiate one."

Ferrovial's executives were taken completely by surprise by the OFT's announcement but have taken the view that they should get used to such regulatory interventions if they end up owning such a large part of Britain's strategic infrastructure. The consortium is still expected to raise its offer by the Takeover Panel's deadline of June 5th.

It is the first time the OFT has examined the ownership of Britain's airports since 1989. The government has looked at BAA's monopoly on several occasions and concluded that it creates no problem as long as its prices at Heathrow and Gatwick are tightly regulated.

However, MPs on the transport select committee have been critical – in 2003 they said the position was "deeply flawed", "ineffective" and "inappropriate".

Many airlines are anxious for change. Smaller carriers have often complained that BAA charges too much in landing fees and that it favours British Airways.

The combination of a bank holiday weekend, a half-term break and a wet spring means that in the next few days Britains airports are likely to be filled to the seams with travellers. The majority of those entering and leaving the country will go through one of London's major airports, including Heathrow and Gatwick, two of the busiest in the world. But both airports, along with Stansted, are owned by one company, BAA.

The three airports together account for nearly 55% of all passenger traffic in this country. The company also dominates Scotland, owning Glasgow, Edinburgh and Aberdeen airports. So it should not be a surprise that the Office of Fair Trading is considering an investigation into the ownership structure of UK airports – as John Fingleton, the chief executive of the OFT, put it: "You don't have to be a rocket scientist competition expert to see this might be a bit of an issue."

BAA is the private sector incarnation of the British Airports Authority, privatised 20 years ago by the Thatcher government. Like many of the sell-offs of that era, including BT and British Gas, the change in ownership effectively privatised a monopoly, one that has taken many years and a high degree of regulation to unpick. BAA has since grown to be the world's largest operator, running runways as far away as Australia. In the case of its airports around London, its operations are regulated in terms of the landing fees it can charge, although it earns considerable income from profitable retail leases. One small example is at Stansted, now home to the second busiest Starbucks coffee shop in the world.

The question is: does BAA's domination of the air-travel market hurt the interests of holiday makers? Do they pay more and get a worse service as a result, or do BAA's economies of scale work in their favour? And what about the environmental impact of BAA's ownership – would the battle against climate change be helped or hindered by breaking up its ownership in return for a lighter touch from the Civil Aviation Authority and central government? Michael O'Leary, the acerbic boss of Ryanair, certainly thinks BAA's near monopoly is a bad thing, and objects to his customers having to pay for the expansion of Stansted.

There are no simple answers to these questions – all the more reason for the OFT to decide on a full competition enquiry. The current hostile bid for BAA by the Spanish construction giant Ferrovial complicates matters, but the OFT should still go ahead.

BAA, which is fighting a hostile takeover bid from Spanish construction giant Ferrovial, said this week it was planning to offer a cash return to its shareholders.

As part of its defence to thwart the £8.8bn bid by the consortium, BAA said its proposed £750m capital return was conditional upon the offer from Ferrovial, or any other offer, lapsing.

BAA, which operates Stansted, has already advised shareholders to reject the bid.

Ferrovial has until June 5th to raise its offer.

Your report in Observer May 11th, "Essex police dispute with Stansted airport over £2m deficit", should come as no surprise to the community and must cause us all real concern. Bearing in mind that the airport is a low price operation, not low cost, if the airport is unable to pay the real costs associated with security, then it should not be allowed to expand.

Expansion will need more policing with the consequential increase in costs. And why should the police suggest that the unpaid monies might need to be transferred to council tax. If the police were accountable, unpaid bills would result in withdrawel of its services from the airport.

If the police took this action, the airport would have to find alternative security policing resources. If this was not done, then there would be no alternative, but for the airport to close as it would become a high security risk, a target for terrorists, a route for drug traffic and be a considerable threat to the local community.

Already the British public subsidises the aviation industry as a consequence of it not paying its fair share of tax such as VAT on aircraft and tax on aviation fuel. We are now told that BAA Stansted is not paying a significant part of its airport policing bill, surely BAA does not really expect £2m to come from the local council tax payer.

Come on, BAA, its about time you and your industry started to pay your true costs, if you want to operate in a high security risk business, you and your customers should pay for minimising the risks.

Ray Woodcock
Stansted

Climate change models have dramatically underestimated the extent to which global warming will raise temperatures, scientists warned yesterday.

The flaw means existing predictions for temperature rises are inaccurate and will have to be revised upwards by as much as 2C, suggesting the world could experience a hike of up to 7.7C by the year 3000.

British efforts to combat climate change have focused on preventing carbon dioxide levels rising above 450 parts per million, equivalent to a rise of 2C. If the world warms by more than this, many climate experts believe fragile ecosystems will be pushed beyond their "tipping point", triggering runaway global warming. The flaw came to light during a study of the effects of global surface temperatures on atmospheric carbon dioxide levels.

Scientists have long known that greenhouse gases raise temperatures by insulating the planet. But a less well known mechanism is that the warmer the planet gets, the more carbon dioxide is released naturally by soil and oceans. The result is a mechanism where atmospheric carbon dioxide creates warming that causes even more carbon dioxide to be released.

Peter Cox, scientific director for climate change at the Centre for Ecology and Hydrology in Dorset, with researchers from the US and the Netherlands, used ice cores from the Antarctic to study carbon dioxide levels trapped during a period called the Little Ice Age, from 1550 to 1850. They found carbon dioxide increased rapidly with warming, as soils decomposed faster and oceans lost more of the gas.

Because scientists have been unable to quantify the effect before, it has not been included in many climate models. But when it is taken into account, it lead to carbon dioxide levels that boosted temperatures by between 15 and 78%.

A recent report by the Intergovernmental Committee on Climate Change found that carbon dioxide levels were likely to double pre-industrial levels by 2050. The latest research pushes those estimates to between 1.6C and 6C, Geophysical Research Letters reports.

Lead author Margaret Torn, of the Lawrence Berkeley National Lab, said: "To predict the future you have to guess how much carbon dioxide levels will go up. That depends on the biggest uncertainty of all, what humans do."

Is it the plasma screens and halogen lights left glowing behind leaky Tudor windows? Or has the relentless trimming of lawns to within an inch of their lives put the residents of Thaxted at the top of the domestic carbon emissions charts? The commuter-belted swath of prosperous farms and historic villages that make up Uttlesford district council are best known as the homes of Jamie Oliver, Germaine Greer and Stansted airport. But the results of a study revealed yesterday show that its residents are the biggest domestic polluters in Britain.

The average household in leafy, tidy Uttlesford spews 8,092kg of carbon dioxide each year, more than double the comparatively clean, green dwellings of Camden in London, which on average produce just 3,255kg of CO2.

Two symbols of our energy crisis loom over the higgledy-piggledy, half-timbered houses of Thaxted.

The sails of the Essex town's stocky windmill stopped turning when it became uneconomic to grind flour with wind power in 1907. Overhead, more and more planes thunder overhead on their descent into Stansted.

Many residents are vocal campaigners against the airport's expansion. Most, however, seem unaware that their comfortable lifestyles, rather than the jets overhead, make them the biggest domestic polluters in the land.

Each year the average home here produces CO2 emissions equivalent to taking a Boeing 747 to Australia and back.

"There's all these huge pads out in the sticks where they leave their lights on all night and their big tellies on. That's where it's happening," said Joe Hobbs, an architect. Jake Roos, who has taken up the new post of the council's energy efficiency surveyor, agreed that affluence was the key problem.

"Uttlesford is a very affluent area and that has a knock-on effect in high carbon emissions. We try and lead by example but there is nothing else we can do to get people to save energy. It's not illegal to waste energy, unfortunately."

Domestic emissions make up 25% of the country's CO2 pollution. Keen to cut its share, the council is offering everyone two free energy efficient lightbulbs if they complete an energy-use survey about their home.

A grand total of none was collected yesterday from the office in Thaxted, although the council has handed out 5,000 - to nearly one in 10 homes in the area - since last August. Eileen Walsh, former chairman of Thaxted parish council, had another explanation for Uttlesford's unenviable record: farms - which require lots of energy to operate.

The area also has one of the lowest percentage of households connected to the gas network, which produces less CO2 than oil-fired, electric or open-fired central heating system. "I'm sure it's farming. It's also an affluent area and we like to heat our houses," said Mrs Walsh.

Some are already making strenuous efforts to tackle the problem.

Mr Hobbs lives in a new thatched house near Thaxted's old windmill, which is the energy-efficient exception to the rule. Planners rejected his first scheme for a grass roof but the one he built 18 months ago features traditional thatch, triple glazing with gas filling for thermal insulation and three solar panels to provide all his hot water. South facing, with state-of-the-art insulation, his home needs just one 4kw gas heater.

Mr Hobbs has also obtained permission to build a small wind generator in his garden; as it's adjacent to the historic windmill, the council could hardly refuse. But according to a local builder, Peter Wright, plenty of people have tried to fit solar panels and double-glazing but were refused on conservation grounds. There are 3,000 listed buildings in Uttlesford - nearly 10% of homes. Few can be fitted with panels or new windows; old homes are energy inefficient homes.

Affluent rural areas dominate the highest polluters in the report, which was commissioned by British Gas.

Second to Uttlesford is Teesdale, with an average of 7,731kg of CO2 per household, while Surrey Heath, Chiltern and South Oxfordshire are third, fourth and fifth highest polluters. The bottom five include three London boroughs - Camden, Westminster and Hackney - and Eastbourne and Norwich, both of which produce on average less than half of Uttlesford's emissions.

Ben Tuxworth, strategy director of Forum for the Future, said the study was a "wake-up call" to those who believed that reducing domestic emissions was a luxury for the wealthy. "Downward pressure on prices seems to mean that it's only the less affluent that bother to save energy. If the rich are using over three times as much energy as the poor, we need to incentivise them."

According to a Thaxted estate agent, Carl Fisher, even wealthy buyers do not want to spend on energy efficiency if they will not quickly recoup the cost.

"A lot of houses in the area have open fireplaces and they are well used," he said. "Residents are conservative - why spend money on anything that doesn't justify itself in the short term? There's an outdoor lifestyle here where people like to have their windows and backdoors open and probably have heating blasting out, costing them a fortune."

OUR COMMENT: The average Uttlesford home, we are told, produces 8 tonnes of CO2 each year, the same amount of CO2 as a plane travelling to Australia and back. Put the equation the other way round, if Uttlesford expands its one runway, the additional flights will produce as much CO2 in a year as 618,000 houses like Uttlesford - high emitters. The difference is that while Uttlesford is trying to do something about reducing these high levels, Stansted airport (and government aviation policy) is doing its best to increase them. At the moment the airport's air traffic is probably responsible for producing about 6 million tonnes of CO2 during the year - compared to Uttlesford's 0.23 million tonnes from its 29,000 dwellings.

Pat Dale

Parties to the UN climate change convention and its Kyoto protocol started a fortnight of talks on climate change this week in Bonn, Germany.  The session includes the first UN-brokered discussions on developing a framework for climate change policies after the Kyoto protocol's caps on industrialised country emissions expire in 2012.

Debate on future action kicked off on Monday and Tuesday with the first of four planned workshops under a "dialogue on long-term cooperative action" between all parties to the convention agreed last December (EED 12/12/05 www.endseuropedaily.com/20011).

The wide-ranging talks ended without formal conclusion.  In a statement the UN said there had been a "strong consensus on the need to reduce emissions" and support for the use of economic incentives and involvement of the private sector in climate protection.

During the discussions the Austrian delegation, speaking for the EU, highlighted Europe's target of limiting global temperature rise to 2 degrees Celcius, and called for a focus on how developing countries can achieve development goals while keeping down carbon emissions.

A facilitators' report on the workshop will be circulated in August ahead of a second session in November.  Two further workshops will be held in 2007.

A second stream of talks on future action is now underway in an ad hoc working group of parties to the Kyoto protocol.  This is focusing on measures to be taken by industrialised countries after 2012.  In the discussion the EU is promoting a goal of reducing emissions by 15-30% by 2020 (EED 27/03/06 www.endseuropedaily.com/20671).

Alongside the ad hoc working group, routine discussions are continuing throughout the two weeks in committees on implementation and on scientific and technical matters.

Uttlesford District Council will devote an entire week to public meetings to let people express their views after receiving a major planning application from BAA Stansted.

The planning application is for the expanded use of the existing facilities at Stansted Airport including the removal of the limit of the number of passengers that can travel through the airport.

The council is anxious that the decision making process is as transparent as possible, and to this end the application will be explored through a series of special meetings of the Development Control Committee.

All the meetings are open to the public but uniquely there will be a week set aside for public engagement in early July, at which Stakeholders, objectors and others will be invited to participate, and also an interactive "public examination" of the proposal at the end of August.

Cllr Christina Cant, Chair, Development Services:

"This is an innovative approach to public engagement in the planning process that builds on the consultation exercise on the draft masterplan for the airport that we carried out last year."

"This is a significant proposal with widespread implications far beyond the district's boundaries and we want people to be involved in the decision making process."

"It is the council's intention to ensure that the current planning application is the subject of the most rigorous scrutiny by the Development Control Committee prior to making a decision, drawing on the advice of consultants and other experts where necessary."

HERTFORDSHIRE County Council is keeping its cards close to its chest over plans to increase the use of the existing runway at Stansted Airport.

Airport operator BAA has submitted plans to Uttlesford District Council to have the limit on aircraft movements and passenger numbers lifted, to allow 264,000 flights and 35m passengers per year.

But the county council's strategic planning and partnerships executive member, Derrick Ashley, said the council had "reservations" about the development of the airport and its effects on the surrouding areas.

He added: "It's to early to give a formal response but we will be examining the application closely and looking into the impact it will have in great detail before preparing our response to Uttlesford District Council."

Uttlesford council will make the final decision after consulting with Hertfordshire and Essex county councils and East Herts District Council, but Mr Ashley warned as many residents as possible to make their views on the development heard.

"If this application goes through it could have a big impact on our county and it's crucial that everyone knows the facts.

"People must be clear this application is not about creating a second runway at Stansted - it's about increasing use of the existing runway "We anticipate a further application to create a new runway will be submitted next year. We don't have the capacity in Hertfordshire to cope with a second runway and we will do everything in our power to prevent it going ahead."

Copies of the application document can be viewed at East Herts council Offices, Pegs Lane, Hertford, and online at www.uttlesford.gov.uk/stanstedairport/default1.htm.

The Civil Aviation Authority has made its starkest warning yet that any bid for airports operator BAA involving a high level of debt could run into regulatory concerns.

Fears have been raised about the £14bn of debt that will be taken on if an £8.75bn, 810p-a-share hostile bid for BAA, which operates Heathrow, Gatwick and Stansted airports, by Spanish infrastructure group Ferrovial succeeds.

The CAA said in a statement: "Higher debts mean higher annual interest payments, reducing net cash flow available to fund investment. Higher levels of debt can reduce a company's credit quality which might cause the airports difficulty as they seek to raise new finance."

It noted that BAA's latest capital investment plan is for investment at the three major airports of around £9bn over the next 10 years. The CAA added: "the scale of the investment programme... means that these airports are likely to experience negative cashflow... and continuing access to the debt and/or equity markets will be required in order to finance the growth."

BAA has advised shareholders to reject Ferrovial's offer. The CAA, which regulates airports, is currently working through a price control review and warned that it would not accommodate costs incurred from any deal to acquire to BAA in its decisions.

Harry Bush, the CAA's director of economic regulation, said: "The CAA has made it clear that it will not accommodate in price control decisions the costs and risks arising from any financial transactions entered into as a result of that bidding process."

"These will be for the owners and financiers of BAA - present or future - to bear."

BAA has also rejected an conditional 870p-a-share proposal from Goldman Sachs

The European Commission has questioned the effectiveness of the EU's emissions trading scheme, the cornerstone of its climate change policy.

Under the scheme, governments set quotas for the carbon dioxide emissions produced by 9,400 large factories and power stations in 21 member states.

Carbon permits are issued to give firms a financial incentive to invest in clean technology and cut emissions.

But the commission's report showed that states have issued too many permits.

The permits effectively make the right to pollute a tradeable commodity - giving companies the ability to buy and sell permission to emit extra carbon dioxide.

Emissions of carbon dioxide - a greenhouse gas - are widely thought to be a key factor in global warming, increasing atmospheric temperatures around the world.

The Commission's reports showed a 2.5% surplus for 2005, with the 21 states granting 44.2 million metric tons more carbon dioxide permits than needed.

Quota questions

Unlike many other states, the UK kept a tight rein on the number of pollution permits it issued.

But as a result, it exceeded its quota of permits for 2005.

However, the UK has been in conflict with the EU over its level of permits, with Britain now arguing that it set itself too tight a target when the scheme was originally launched.

The EU has threatened to take legal action against the UK for exceeding its national quota, set in April 2004.

But the UK government is claiming that it should be measured against the revised quota it set in October 2004, which gave business more generous targets.

When it emerged that the number of permits exceeded demand, prices slumped.

The price of carbon credits traded in Europe has already fallen by around 60% over the past two weeks because some of the data from the report was released early.

"It's clear that most countries were too generous when handing out allowances," said David Foster, head of emissions and weather derivatives at Calyon, part of Credit Agricole.

"The dissemination of the information has been a farce."

The idea of the carbon-trading scheme was to raise the cost to firms of continuing to pollute while creating a market to give an incentive to become more efficient.

Companies in the EU's greenhouse gas emission trading scheme (ETS) emitted 2.5 per cent less carbon dioxide in 2005 than allocated to them in government allowances, the European commission confirmed on Monday.

Carbon allowance prices hit a new low of E9 on Friday after figures confirming the undershoot were temporarily posted on the internet. But by close of business on Monday the price had rebounded to over E16.

The commission said it was too early to conclude that member states had systematically overallocated allowances, blaming the surplus permits on rising energy prices, a mild winter and industry caution during the scheme's inaugural year. But it said it would take the new figures into account when judging second-phase allocation plans.

Monday's announcement marked an important ETS milestone: the first publication of aggregate, externally-verified installation-level emissions measured with a harmonised EU methodology. Figures for only 21 of 25 member states were available, however: four countries - Poland, Luxembourg, Cyprus and Malta - have yet to submit data.

The 9,000 or so installations covered by the announcement released a total of 1,785m tonnes of carbon dioxide in 2005. This is 63.6m tonnes less than the 1,847m tonnes of allowances distributed through national allocation plans for the year. The figures confirmed the initial reports of allowance surpluses that prompted the carbon price to plummet last month (EED 27/04/06 www.endseuropedaily.com/20861).

Of the 21 reporting member states only six recorded emissions higher than initial allocations: Ireland, the UK, Italy, Spain, Sweden and Austria. Firms in these countries will have had to be net overall buyers of allowances to meet their carbon caps. Five UK utilities have launched legal action against the European commission over its opposition to an increase in the UK's allocation, the Guardian newspaper reported at the weekend.

Firms in the other fifteen member states will have been net sellers of permits. Lithuania, Estonia, Latvia and Finland recorded the biggest surpluses relative to their initial allocation. Germany recorded the biggest surplus in absolute tonnage terms, with actual emissions 21.4m tonnes lower than the original allocation to installations.

The German government said on Monday that 9m tonnes of the surplus was down to genuine efforts by industry to reduce emissions. The rest was due to overallocation, it admitted. It said it would attempt to reclaim the permits through an "ex-post" adjustment of its allocation.

Germany is fighting a legal battle with the commission for the right to carry out ex-post changes to its allocation. Ironically, the commission's opposition springs from a fear that the mechanism could be used to bail out firms short of permits rather than vice-versa.

Despite the overall surplus of allowances, the commission's figures show that 865 installations failed to buy enough to cover their emissions. Three-quarters of the non-compliant installations are in Italy.

The European commission will not alter its permit allocation guidance for the second phase of the EU emission trading scheme despite the surplus of allowances in many countries in the scheme's first year, officials said on Monday. But the new emission data will influence its decisions on second phase allocation plans, they added.

"We will not amend the guidance document," Artur Runge-Metzger, head of the emission trading unit said on Monday. Released last December, the document named countries that needed to significantly tighten allocations in the 2008-12 second phase (ED 06/01/06 www.endseuropedaily.com/20111).

It also said the second phase allocation for 2008-12 across the 25 member states should be around 6% lower than the first phase allocation to be consistent with Kyoto protocol targets. The commission said its guidance still stood: "I don't think we'll come up with a new figure," Mr Runge-Metzger said.

The official said it was too early to say whether the surplus of allowances during the first year was due to over-generous governments: "It would be premature to say there's been gross overallocation". High energy prices, a warm winter and industry caution during the scheme's start-up phase may have been responsible for firms' having recording lower emissions than expected, he said.

But he said the finding that actual emissions were lower than predicted in the first year of operation would affect the commission's consideration of second-phase allocation plans (Naps), due to be finalised by member states next month.

"We will look at the figures carefully, there's no doubt. We'll have to take [them] into consideration, and [member states] will have to too." The publication of first-ever real emissions data would help member states produce more accurate Naps, the commission said.

Germany, which emerged with the biggest absolute allowance surplus, is already considering revising its draft second-phase plan, Point Carbon reported an official as saying on Monday. Meanwhile the environment ministry in the UK, which recorded the biggest absolute deficit, urged the commission to "improve the enforcement of tough caps in phase two".

Other observers were less diplomatic. Green groups said governments recording surpluses had "blatantly ignored the aims behind the scheme". Green MEP Satu Hassi urged the EU to "learn from this mistake" and set "much lower" allocations in the second phase.

Liberal MEP Chris Davies said many firms had duped their governments into overallocating permits. "Companies in France, Germany and elsewhere will only have themselves to blame if the European commission ignores their views in the future and imposes tough requirements," he said.

OUR COMMENT: When will aviation join? Joining is unlikely to solve the whole problem of reducing aircraft emissions but it could help. Only a halt to unlimited aviation expansion will ensure that all sections of the UK contribute to the need for a reduction in carbon emissions.

Pat Dale

David Miliband's Speech on Clim