The aviation industry, a cornerstone of global connectivity, faces mounting pressure to address its environmental impact. As international air travel expands, so do greenhouse gas (GHG) emissions, positioning the sector among the fastest-growing contributors to climate change. Enter the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)—a groundbreaking initiative by the International Civil Aviation Organization (ICAO) designed to cap international aviation emissions at 2020 levels.
While CORSIA represents a critical step toward a sustainable future, its implementation brings challenges and opportunities. This blog explores how fluctuating carbon credit costs are reshaping the aviation sector and highlights the transformative potential of this initiative.
CORSIA Credits: A Blueprint for Sustainable Aviation
CORSIA’s core mechanism is straightforward: airlines must offset emissions that exceed 2020 levels by purchasing carbon credits. These credits fund projects that actively reduce or remove CO2 from the atmosphere, such as renewable energy initiatives, reforestation, and carbon capture technologies. Certified by internationally recognized standards like the Verified Carbon Standard (VCS) and the Gold Standard, these projects ensure measurable and permanent emission reductions.
The initiative operates in two phases:
- Voluntary Phase (2021–2023): Airlines participate at their discretion, setting the stage for widespread adoption.
- Mandatory Phase (2024 onward): Compliance becomes a requirement, fostering industry-wide accountability.
By encouraging investments in sustainability and aligning aviation with global climate goals, CORSIA serves as a transitional mechanism while greener technologies take flight.
Carbon Credit Costs: A New Financial Landscape for Airlines
The financial implications of CORSIA compliance are substantial, with carbon credit costs projected to vary widely. During Phase I (2024–2026), prices are expected to range between $18 and $51 per tonne of CO2 equivalent (CO2e). By Phase II (2027–2035), prices could escalate to $27–$91 per tonne.
Impact on Airlines and Passengers
- Cost Pass-Through to Consumers
Airlines might transfer these costs to passengers, leading to a modest increase in international ticket prices (0.5–1.0% during Phase I). While relatively small, this change reflects the industry’s commitment to integrating environmental costs into its pricing structure. - Absorption of Costs by Airlines
Alternatively, if airlines absorb the costs, operating profits could decrease by up to 4%. This scenario underscores the importance of strategic planning and investment in sustainable practices to mitigate financial risks.
Navigating Credit Demand: Scenarios for the Future
The demand for CORSIA credits will depend on several factors, including international aviation growth and the adoption of sustainable aviation fuels (SAFs). MSCI Carbon Markets analysts have modeled three scenarios to project credit requirements:
- High-Demand Scenario
Strong aviation growth (+4% annually) and slow SAF adoption could drive demand to 137 million metric tons of CO2 equivalent (MtCO2e) in Phase I and 1,299 MtCO2e in Phase II. - Medium-Demand Scenario
Moderate growth and increased decarbonization efforts would reduce demand to 123 MtCO2e in Phase I and 1,006 MtCO2e in Phase II. - Low-Demand Scenario
Limited growth and poor SAF adoption would lower demand further, requiring 106 MtCO2e in Phase I and 502 MtCO2e in Phase II.
Challenges in Credit Supply: Addressing the Shortfall
Ensuring the availability of high-quality CORSIA credits is a critical challenge. Credits must meet stringent ICAO criteria, including corresponding adjustments to prevent double counting under host countries’ Nationally Determined Contributions (NDCs). However, as of late 2024, only 7 MtCO2e of available credits meet Phase I criteria.
Barriers to Supply Growth
- Regulatory Hurdles
Host countries must issue Letters of Authorization (LoAs) for projects to be eligible. Currently, only two of the 40 major credit-producing countries are prepared to do so. - Underdeveloped Infrastructure
The process of aligning carbon accounting frameworks remains complex, delaying the issuance of corresponding adjustments and slowing supply growth. - Limited Project Pool
A single REDD+ project in Guyana accounts for most of the eligible credits under Phase I. Diversifying project types and geographic locations will be essential for future supply expansion.
Scenarios for Carbon Pricing: Preparing for Volatility
The price of CORSIA credits will reflect the balance—or imbalance—between supply and demand. Under tight-supply conditions, Phase I prices could soar, driven by a potential shortfall of 12–43 million tonnes of CO2. Conversely, a surplus of 2–33 million tonnes in Phase I could stabilize prices temporarily.
By Phase II, increasing demand from airlines and other sectors (e.g., corporate commitments, sovereign programs) is expected to push prices higher. Analysts project a market value of $2–$8 billion by Phase I, growing to $5–$66 billion by the final compliance period (2033–2035).
Beyond Carbon Credits: Toward a Sustainable Future
While carbon credits are an important tool, they are not a standalone solution. Airlines must pursue long-term strategies to reduce their environmental footprint, including:
- Adopting Sustainable Aviation Fuels (SAFs)
SAFs, derived from renewable resources, have the potential to reduce lifecycle emissions by up to 80% compared to conventional jet fuel. Scaling SAF production and adoption will be key to achieving meaningful decarbonization. - Fleet Modernization
Investing in newer, fuel-efficient aircraft can significantly lower emissions while reducing operating costs over time. - Operational Efficiencies
Optimizing flight paths, improving ground operations, and leveraging digital solutions can enhance fuel efficiency and minimize emissions.
The Role of Collaboration and Innovation
The aviation industry cannot achieve sustainability in isolation. Partnerships with governments, environmental organizations, and technology providers will be essential to:
- Expand SAF production and infrastructure
- Accelerate regulatory progress for carbon credit eligibility
- Develop innovative solutions for emissions reduction and carbon capture
A Future in Transition
CORSIA represents a critical step forward in the aviation industry’s sustainability journey. By integrating carbon markets into its operations, the sector is taking responsibility for its emissions while fostering innovation and collaboration. However, the path ahead is not without challenges. Rising carbon credit costs, supply constraints, and regulatory complexities must be addressed to ensure the program’s long-term success.
As airlines navigate this transformative period, their commitment to sustainability will shape the future of global travel. By embracing CORSIA and beyond, the aviation industry can lead the charge toward a greener, more sustainable future.
In the end, the journey to net-zero aviation is not just about compliance—it’s about creating a legacy of innovation, accountability, and environmental stewardship.