News
17/07/26
Carbon - In focus: EU hands Corsia lifeline
London, 17 July (Argus) — Prices for spot credits tagged for approval under the
first phase of the Carbon Offsetting and Reduction Scheme for International
Aviation rebounded this week to a two-month high, driven by increased confidence
from policy signals from the European Commission. Market participants welcomed
the commission's decision to scrap its proposed additional requirements on phase
1 credits, and were mostly relieved at a weaker-than-expected scope expansion
outcome from the EU's emissions trading system (ETS) review on Friday. Trading
activity has been rising notably in the past couple of weeks, with prices
climbing day-by-day as market participants were crowding to offer credits into
two requests for proposals for Japanese airlines. But this week the largest rise
in prices for spot CP1-tagged credits since Argus started assessing in November
2025 was recorded, after some much-awaited regulatory clarity calmed anxieties
for European airlines and elsewhere in the world. Two important developments in
the EU drove renewed confidence in the scheme this week, after a long period of
the market doubting whether Corsia Phase 1 has a future in the bloc. No
additional eligibility criteria On Wednesday, minutes from a meeting of the
commission's working group revealed that the bloc's executive body will propose
to scrap the previously proposed additional eligibility criteria requirements
for CP1 compliance for European Economic Area (EEA)-based airlines. The
previously floated requirements would have excluded about 90pc of the currently
tagged credits for Corsia Phase 1 for EEA-based airlines. The commission had at
the time proposed operators should not use units issued under high forest, low
deforestation methodologies — activities credited based on existing carbon
stocks — and credits issued by projects whose fraction of non-renewable biomass
is above the host country value, as adopted in Table 3 of version 3.0 of TOOL33
of the Clean Development Mechanism. But the committee said this would be the
"only" proposed change, meaning the other requirements discussed in the draft
note would remain — including restricting eligible credits in phase 2 to only
those certified under the UN's Paris Agreement Crediting Mechanism (Pacm).
Two-tiered pricing had emerged previously for so-called EEA-compliant units. A
methane reduction project from Uzbekistan was the only one available on the spot
markets, having issued about 1.5mn credits for which the bid-offer spread was
most recently seen this week at $11-14.50/t CO2e. Some trades were said to have
been concluded in the months since the concept note came out in the $14-16/t
CO2e range. Discussions and trading activity had also emerged around forward
offtake contracts for EEA-based credits, but sources said it was likely only
intermediaries that had the financial structures to take on this risk concluded
some of these. "We had anticipated a bifurcated market if the EU maintained
additional criteria. I think that the decision to stick with overarching
international standards will have great repercussions for the maturity of the
carbon market in general," Marex environmental products trader Rosie Burton said
in a statement today. More intermediaries were seeing renewed interest in the
market this week. One source had received demand for 200,000-300,000 credits on
a guaranteed structure basis from an intermediary, a prospect buyer seeking to
resume previous negotiations. The expectation of a secondary act that would
determine additional eligibility criteria for CP1-tagged credits used by
EEA-based operators was one of the main obstacles holding back demand from these
airlines. Corsia Phase 1 implementation had already been integrated in the EU
ETS delegated regulation, meaning Friday's EU ETS review would not have affected
airlines' obligation to comply. Stop-the-clock expanded to 2032 More global
demand is expected to be unlocked in the coming weeks after the commission
proposed extending the scope of the ETS to cover flights landing in countries
within 5,000km from Frankfurt airport from 2029, while still allowing airlines
to deduct costs incurred from Corsia to avoid double-charging. The market has
also found some relief from another extension of the stop-the-clock provision
preventing full extension to departing flights until a 2032 review. By the end
of 2032 the UN's International Civil Aviation Organisation (Icao) review of
Corsia is due. While Icao plans these every three years since 2022, this is due
to be a potentially more consequential assessment, because the body will decide
whether to expand Corsia beyond 2035. As it stands, phase 2 runs between 2027 to
2035, with surrender deadlines every 3 years — in 2031, 2034 and 2037. The
commission also proposed to include compliance with Corsia Phase 2 in the EU ETS
regulation from 2026 to 2035, meaning airlines will have to comply with Corsia
obligations regardless of any another potential change to the ETS scope in 2031.
This cements EU's determination to "support multilateralism" and will likely be
encouraging for other jurisdictions throughout the world to go ahead and
transpose Corsia implementation — including penalties for non-compliance — into
their national legislation. Lack of such affirmation by countries has kept
potential airline demand for CP1-tagged credits at bay so far. Some market
sources have welcomed this initial proposal because it was less aggressive than
expected in terms of scope expansion, and because it creates a path forward for
Corsia in the EU and across the world. "In proposing that longer-haul flights
continue under CORSIA until at least 2032, rather than folding all departing
flights into the extended ETS, we believe the commission has just removed the
single biggest remaining barrier between carbon credit supply and demand: policy
uncertainty," project developer Burn commercial director Douglas Greenwell told
Argus. "That has been reinforced by this week's clarity around which credits are
expected to qualify, giving buyers a set pool to plan their purchases against.
Airlines now have the final permission they were waiting for to buy, and project
developers who have already done the hard work on quality are ready to meet that
need," Greenwell added. Other market stakeholders, however, saw this as a
"compromise" that will only serve to impose more regulatory burden on airlines.
"Applying the ETS to flights travelling up to 5,000km from Frankfurt, capturing
major international hubs such as Dubai, risks creating fragmented rules for
comparable routes - one regime applying outside the radius and one inside. These
carbon costs are likely to be reflected in higher ticket prices and air cargo
rates," developer and intermediary South Pole chief executive Nadia Kaddouri
said. Icao — the Corsia ruling body — also expressed "concern" with the
commission's proposal, claiming it would fragment aviation decarbonisation
efforts and jeopardise the effective implementation of Corsia. Trade body
International Air Transport Association (Iata) echoed similar criticisms, saying
it was watching further details on how increasing sustainable aviation fuels
(SAF) allowances and a SAF book-and-claim system could be implemented. The
commission decided to expand the scope of its ETS to extra-EEA aviation
emissions after its due assessment of the environmental integrity of Corsia
found that the scheme did not meet the commission's requirements, namely that it
has not been strengthened and it covered less than 70pc of international
aviation emissions. Prices may rise above $20/t CO2e: Marex Overall this week's
developments have brought a sense of revival to the market, after a long and
drawn out period where some participants' financial wills were tested by a shaky
outlook at best. Corsia — like other compliance schemes that embrace offsetting
— has been seen as a lifeline to the voluntary carbon credit market, with many
developers of clean cookstove projects redirecting efforts to the scheme. But at
lows of $9.30/t CO2e for CP1-tagged hit earlier this month, it made little sense
for developers and intermediaries alike to invest on Corsia or participate in
the market. With the newly announced EU proposals, the market now expects upside
to hit, as fundamentals-wise the scheme is still structurally undersupplied,
with only about 38mn credits available of the projected 170mn-180mn airline
demand. Marex's Burton expects prices to rise to "around mid-$20s", she said in
a statement. Such levels were last seen in late 2025 and very early 2026.
"Increased trading activity in Asia, together with the EU's sign-off, will
bolster the market globally," Burton said. Noting that while supply remained
small, airlines were "much more likely to lift volumes at a faster rate than
credits appear in the market," supporting prices. By Alexandra Luca Send
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