What's Happening?
Ten years after its adoption, the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is entering its first voluntary compliance phase (2024-2026), requiring airlines to offset emissions above a set baseline by purchasing CORSIA Eligible
Emission Units (CEEUs). While supply has grown threefold this year to 54.4 million units, it remains significantly short of the estimated 200 million units needed for the First Phase, representing a market value of $2 billion to $4.6 billion. The Second Phase (2027-2035) could require 1.2-1.8 billion units, valued at $12 billion to $41 billion. Key challenges include the slow pace of host countries issuing Letters of Authorization (LoAs) for carbon credits, which commit governments to 'correspondingly adjust' units to prevent double-counting. Developers face hurdles with host country 'Article 6 readiness,' insurability, commercial viability of government rules, and cost competitiveness. Airlines are beginning to build procurement capabilities, but the market still struggles with fragmented information and risk sharing between buyers and sellers.
Why It's Important?
The challenges within the CORSIA market have significant implications for the global aviation industry, including U.S. airlines and related businesses. As international aviation aims for carbon-neutral growth, the effectiveness of CORSIA directly impacts the financial and operational strategies of carriers. A persistent supply-demand gap for CEEUs could lead to increased costs for U.S. airlines, affecting profitability and potentially ticket prices. The complexities surrounding host country authorizations and the need for robust 'Article 6 readiness' highlight the global interconnectedness of climate policy and the need for international cooperation. For U.S. companies involved in carbon project development or climate finance, the CORSIA market represents a substantial opportunity, but also underscores the need for clear regulatory frameworks and risk mitigation strategies to ensure the integrity and liquidity of carbon credits.
What's Next?
As the January 2028 compliance deadline for the First Phase approaches, all stakeholders are moving quickly. Developers anticipate that the supply shortfall will push prices up, with prices already recovering from $9 to $12-$13 per tonne. The International Air Transport Association (IATA) is fostering collaboration through the Aviation Carbon Markets Compact, encouraging airlines to buy CEEUs, developers to bring supply to market, and host countries to provide implementation support. The focus will be on improving host country readiness, streamlining authorization processes, and enhancing coordination between environment and transport ministries. Airlines are expected to continue building their procurement capabilities and signaling demand to help developers and governments plan. The market will need to address issues of risk sharing and information exchange to match supply with demand effectively and meet the substantial requirements of both the First and Second Phases.
Beyond the Headlines
The CORSIA market's struggles reveal deeper systemic issues in establishing effective global climate mechanisms. The reliance on host country authorizations and the complexities of 'corresponding adjustments' highlight the challenges of reconciling national sovereignty with international climate goals. The ethical dimension of carbon offsetting, particularly ensuring that credits represent genuine and additional emissions reductions without negatively impacting local communities, remains paramount. The market's slow start and the current supply-demand imbalance also underscore the difficulty of rapidly scaling up climate solutions in a complex global industry. This situation prompts questions about the long-term viability and equity of market-based approaches to climate change, especially when they intersect with diverse national regulatory landscapes and the need for rapid decarbonization.
