Policy fragmentation is the primary obstacle keeping airlines from taking firm positions in the market for credits compliant with the Carbon Offsetting and Reduction Scheme for International Aviation (Corsia), carriers told Argus on Tuesday on the sidelines of the International Civil Aviation Organization (Icao)'s climate week in Montreal.
Experts across the board emphasized that Icao should persist with the implementation of Corsia's first phase as a global market-based mechanism, as uncertainty looms over the European Commission's revision of the scheme next month.
"Corsia is a phenomenal start. It needs some tweaking, but let's keep going with it," British Airways director of sustainability Carrie Harris said. And Airbus vice president of regulatory and external engagement Bertrand de Lacome urged Icao to strengthen Corsia.
"Icao should remain the global standard for policy, to avoid the fragmentation that creates such a burden to our industry," Boeing vice president of sustainability Allison Melia told delegates.
But in practice, Corsia has faced challenges when implemented at the national level, Singapore SAFco's chief executive Seow Hui Tan said, noting "the devil is in the details at a national level".
Only a handful of the 130 countries that have opted to comply with Corsia Phase 1 have implemented penalties for non-compliance in their national legislation. In Japan, for example, where the law would require airlines to withdraw their operating licenses in the event of non-compliance with Corsia, the penalty has successfully driven airlines to the market. Japanese airlines are also leading on Corsia credit retirements, even though the combined total of retired volumes remains small. Regardless of penalties having been adopted or not, some airlines still have a strong incentive to comply because this would help with their image and coordination with other decarbonization policies such as increasing the use of sustainable aviation fuels.
Airlines repeatedly brought up uncertainty around regional policies — particularly the EU's upcoming revision of the scheme — as a primary concern holding them back from entering the market, when talking to Argus on the sidelines of the event. Many said it is likely that the European Commission will advise that the Corsia scheme is not sufficient to meet the Paris Agreement goals and has not strengthened. But they are split on the possible outcomes to the revision, with some arguing that the commission can only express its opinion, while it is down to national member states to decide whether they continue to implement Corsia.
The EU's threat to expand the coverage of its emissions trading system to international aviation emissions — within any scope it may take — has stifled confidence among airlines around the world.
One large Middle Eastern carrier is closely watching proceedings in Brussels amid expectations that the decision will have an impact around the world, Argus understands. Noting that this was a bigger concern for them than the temporary challenges from the US-Iran war, the airline is waiting until after the EU ETS review is published later this year to enter the market and hopes to purchase credits by the end of the year, a source told Argus.
An intermediary working with airlines in Asia also said many carriers were waiting until the end of the year or the first quarter of 2027 to begin purchasing credits. As the jet fuel crisis is easing, airlines' main concerns will be alleviated once the EU sends clear policy signals in July, they said.
Airlines are also looking for more diversified supply to come to the market, an end user said. Currently, the choice between mostly jurisdictional reducing emissions from deforestation (J-REDD+) credits and African clean cookstove units is too sparse and does not allow for flexibility, the end user added.
At the same time, developers of Corsia-labeled projects are threatening to redirect efforts to different Article 6 framework markets if demand does not come to market soon for Corsia Phase 1. Many developers are small companies with little financial capability to hold positions for extended periods of time, and some are already trying to redirect credits to the wider voluntary carbon market for products labeled by the high-integrity Core Carbon Principles (CCP) tag.
Demand for high-integrity carbon credits issued by highly-rated clean cookstove projects could push prices close to current Corsia levels, clean cookstove developer DelAgua's chief financial officer Rory McDougall said. Developers would have an incentive to switch to such markets if airline demand for Corsia Phase 1 credits continues to lag.
