Clear airline demand signals and education for countries hosting carbon projects on revenue opportunities are needed to boost the volumes of Carbon Offsetting and Reduction Scheme for International Aviation (Corsia)-eligible carbon credits, which are now in extremely short supply.
"Around 10 countries will supply 70-80pc of credits during the 2024-26 Phase I of compliance from our studies, but most are not ready with letters of authorisation (LoA), hence the undersupply," Juan Carlos Arredondo, director of Knowledge, Policy and Advocacy at carbon services firm Abatable, said at a panel discussion during the International Air Transport Association (IATA)'s World Sustainability Symposium in Hong Kong last week.
Abatable also predicts a significant rise in carbon credit prices in the next 18-24 months before the compliance deadline.
Futures pricing for Corsia Phase 1 has picked up in recent weeks on concerns about the amount of supply that will be deliverable into the front-year contract. A deal was sealed this week for the Ice December 2025 contract at $21/t CO2 equivelant (CO2e), the highest trade level heard to date.
In addition, there is a "big revenue opportunity" for governments from Corsia, IATA's director general Willie Walsh said in a media briefing on the sidelines of the event. "There's around $1.5bn of funds which will go to countries providing Corsia-eligible units this year, which will rise over time to around $35bn-40bn in 2035," Walsh said. Corsia implies a determinable demand for internationally transferred mitigation outcomes (ITMOs) from the aviation industry, resulting in considerable investments in countries hosting projects that generate Corsia-eligible emissions units.
Airlines are projected to spend around $30bn-60bn on these credits from now until 2035, said Marie Owens Thomsen, senior vice president of sustainability and chief economist at IATA. The wide range is due to uncertainty around future prices, but the figure stands at roughly $35bn considering current ones. Market sources have assessed physical spot prices for credits approved for Corsia Phase 1 — currently limited to a single project based in Guyana — at around $22/t CO2e or slightly higher this week.
This is in comparison to the Argus-assessed HEFA-SPK jet/kerosene CO2 abatement fob Singapore price at $642/t, which is the cost of abating 1t of CO2e GHG emissions by fuelling a plane with physical SAF volumes rather than fossil jet fuel.
Airlines need to signal clear demand
But airlines need to clearly announce their demand for Corsia-eligible credits, said Rocco Huesch, chief executive and co-founder of UK-based project developer and carbon market consultancy Valor Carbon. He cited the example of Japanese conglomerates aggressively engaging governments to get projects authorised under Japan's Joint Crediting Mechanism (JCM), a bilateral carbon credit framework.
"We need more PR for the Corsia scheme, to explain technical carbon terms to host countries. This is now being left to project developers, which are oft small and underfunded," said Boris Hristov, managing director for climate at fellow project developer Koko Networks.
"Governments will also more likely listen to a national airline, more than project developers or even myself, simply due to aviation's importance to their economic development," added Corsia's technical advisory body chair Molly Peters-Stanley.
But governments have the option to use carbon credits towards meeting their Nationally Determined Contributions (NDCs) under the Paris Agreement, which could thus compete with Corsia for carbon credit supply, panellists said. Demand from Corsia and from countries under the Paris Agreement are roughly equivalent now, Peters-Stanley added.
"While states have put obligations on airlines under Corsia, they are not themselves obliged to supply the credits. The upcoming COP in Belem would be a good place to align efforts, avoid policy fragmentation, and achieve certifiable reductions in carbon dioxide emissions," IATA's Owens Thomsen said.
Long road to get carbon credits to market
Another challenge would be getting carbon credits to market, especially in regions such as central Asia that are new to the carbon space.
Valor Carbon kicked off their flagship 25,000 hectare afforestation project in Kyrgyzstan in end-2024.
"You have to understand how bizarre [carbon markets] are to a country that's historically not done much there," Valor's Huesch said. "If I had a dime for every single time a ministry official asked me, ‘So are you basically just selling air?' I'd have a dollar by now. This is a pretty common issue we're facing."
Huesch also emphasised the "incredibly long" lead time of bringing these credits to market, involving everything from acquiring land codes ready to getting buy-ins, from the locals to regional governments, to the prime minister, who has since endorsed the above project.
"But we're now really moving forward with the LoA, which should be a hopeful market signal that supply expansion is possible," Huesch said.
"Every compliance carbon market, including that introduced by the Kyoto Protocol, the California cap-and-trade system, has previously run into bottlenecks, and they've all made it to the other side. Let's keep discussing and innovating, and hopefully we'll have a very different discussion this time next year," Corsia's Peters-Stanley added.
