Airlines are hesitating on carbon credits amid uncertainty over global climate rules
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By Lara Williams / Bloomberg Opinion
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The aviation industry has a lot on its plate right now. Not only is it coping with multiple geopolitical conflicts that are reducing route options and sending jet fuel prices sky high, but it is also navigating a complicated carbon offsetting scheme that may or may not become mandatory next year.
The average flyer might not realize it, but since 2021, the International Civil Aviation Organization (ICAO) has been running the Carbon Offsetting and Reduction Scheme for International Aviation, otherwise known as CORSIA. Participation has been voluntary so far, but starting in 2027, CORSIA would become a requirement for international travel between all ICAO member states (excluding some developing nations). At the moment, it is expected that 134 countries would have to participate.
It is a rare example of international climate diplomacy where even the most reluctant nations, such as Saudi Arabia and Russia, agreed to participate. However, as with many such efforts, gaining that agreement meant compromise. In this case, the end result is a scheme where airlines are hesitant to buy in, enforcement is patchy, and the environmental benefits are negligible.
Illustration: Yusha
The purpose of CORSIA is to offset any carbon dioxide emissions from international flights that rise above 85 percent of 2019 levels. To do so, airlines can either use sustainable aviation fuel (SAF), become more efficient, or purchase carbon credits.
The first two strategies are not getting a lot of takers. Although the production and use of SAF, which can reduce tailpipe emissions by up to 80 percent, has massively increased in the last few years, it still costs far more than conventional jet fuel and accounts for only about 0.6 percent of airlines’ fuel use. A University of Oxford study found that an 11 percent reduction in emissions would be possible if airlines used their most efficient aircraft more strategically on existing routes. However, with demand growth set to continue outpacing efficiency gains, the only way airlines can realistically comply with CORSIA’s requirements is by purchasing carbon offsets.
For the carbon offset world, the hope was that the looming CORSIA requirements would help turn around a multi-year slump in the voluntary market. At the end of the first phase, demand is expected to reach around 150 million credits (representing 150 million tonnes of carbon dioxide), which is far higher than other markets dedicated to international carbon offset plans. As only about 32 million CORSIA-eligible credits have been issued, the vast majority of which come from a single forest project in Guyana, market watchers have been predicting a supply crunch that would send prices soaring.
However, the reality may be more complicated. As the end of CORSIA’s voluntary phase draws closer, the expected uptick in buying activity has not arrived. Why? Airlines are likely hedging their bets because they expect big changes from two major markets: the US and the EU.
US President Donald Trump’s contempt for anything remotely climate-related is well documented. Having already pulled the US out of the Paris Agreement and numerous other international organizations, he might also wish to exit CORSIA. It is worth noting that while he has not formally endorsed the mechanism, he also has not publicly criticized it. Trying to predict the president’s actions is a fool’s game.
If the US drops out, it would reduce demand for CORSIA credits by 2 percent in the current phase and 15 percent in the mandatory phase starting next year, BNEF, reducing upward pressure on credit prices.
The potential objection from the EU would likely come from the opposite direction: that CORSIA does not do enough. The bloc has until July to decide whether to stick with CORSIA or abandon it, and instead extend the bloc’s own emissions trading scheme to cover all departing international flights from Europe, as well as intra-European flights. That would cost airlines significantly more because it would cover their total pollution rather than just the growth above a baseline.
Knowing that either move could impact demand — or that the whole program might simply collapse — airlines have little motivation to act. Why buy before they know what they are buying into?
They are also wary of reputational damage. As far as compliance markets go, CORSIA is weak. In addition to targeting emissions growth rather than actual carbon reduction, all its credits so far are what is known as avoidance units. This means that buyers are purchasing a credit to prevent a ton of carbon dioxide-equivalent being emitted elsewhere. (The bulk of CORSIA-approved methodologies are for forest protection projects or clean cookstoves.)
In contrast, more expensive “removal credits” actually take carbon dioxide out of the atmosphere, which, in theory, cancels out ongoing pollution.
Of course, this assumes every credit is equal and does what it says on the tin, which we know is often untrue. BeZero Carbon, a carbon market ratings agency, has evaluated CORSIA-eligible and feasible projects and found that while there is plenty of potential supply, they also have a wide distribution of credit ratings. In other words, some projects have a high likelihood of delivering on their carbon claims, but most are far riskier.
Buyers are very attuned to these risks after multiple recent exposes found that carbon credits can look a lot like greenwashing. For example, Koko Networks, a clean cookstove company in Kenya, went bust earlier this year after it failed to receive the authorization needed to sell credits under the Paris Agreement, a requirement for CORSIA eligibility. The project was expected to add significant supply to the ICAO’s compliance market, but some may see it as a dodged bullet: BeZero gave Koko an overall B rating, but a D — the lowest possible score — for its carbon accounting integrity.
The ICAO should take this seriously. Even if CORSIA escapes a collapse triggered by the US or EU, a bigger reputational crisis could be on the horizon if airlines are found to be counteracting their very real carbon emissions with credits rooted in fantasy.
Embedding carbon credit ratings into the program would help, giving airlines and the wider public more confidence while weeding out poor-quality projects.
That said, the very bones of CORSIA are imperfect. Giving it real teeth would mean including efforts to encourage more SAF production, expanding its mandate to cover all international aviation emissions rather than just emissions growth, and adding a program to tackle contrails — the vapor clouds that account for roughly half of aviation’s total warming impact. Avoidance credits should be replaced by high-quality removal credits.
Enforcement should be standardized, rather than left up to each participating country.
However, with international agreements harder and harder to come by these days, I would not hold my breath for radical change — even if it is what CORSIA needs. Ultimately, a flawed effort to reduce the climate damage of our jet-setting is better than no effort at all.
Lara Williams is a Bloomberg Opinion columnist covering climate change. This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
