All Things Aviation: CORSIA and the future of carbon markets in aviation (part 2)
Sep 6, 2024
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Marie-Louise Du Bois leads the global carbon pricing team, joined by Dana Agrotti, a low carbon market analyst, Agamoni Ghosh, editor of global compliance carbon pricing, and Eklavya Gupte, editorial lead for carbon news. They discuss CORSIA's impact on aviation emissions and the challenges of carbon credit availability. The conversation dives into the phased implementation of the CORSIA initiative and its significance in the battle against climate change. Issues like market dynamics, supply constraints, and the implications for airlines are also explored, offering insights into the future of sustainable aviation.
CORSIA's phased approach, starting with a baseline of 85% of 2019 emissions, aims to significantly reduce aviation-related carbon emissions.
The evolving landscape of CORSIA-eligible carbon credits poses challenges for airlines in terms of compliance, pricing, and market accessibility.
Deep dives
Understanding CORSIA: A Framework for Emission Reduction
CORSIA, or the Carbon Offsetting and Reduction Scheme for International Aviation, was established by the International Civil Aviation Organization (ICAO) to tackle the rising emissions from international aviation. It operates on a phased approach, starting with a baseline set at 85% of 2019 emission levels in its first phase from 2024 to 2026. Currently, 126 countries are participating, with more expected to join in subsequent phases. Airlines are responsible for offsetting emissions that exceed this baseline by purchasing carbon credits, a requirement that underscores the crucial role of this scheme in the aviation industry's roadmap to lower emissions.
Implementation Challenges and Airline Options
Airlines participating in CORSIA have choices regarding carbon offsetting and compliance, particularly through the use of sustainable aviation fuels (SAF). However, the current landscape of CORSIA-eligible carbon credits has become restrictive, narrowing down to a few standards recognized by ICAO. With only art and ACR approved so far, the limited supply has significant implications for pricing and accessibility of credits in the market. Moreover, individual countries hold the responsibility for setting penalties for non-compliance, adding a layer of complexity to how airlines navigate their obligations within the scheme.
Market Dynamics and Future Outlook
CORSIA represents a hybrid carbon market that combines regulated demand with voluntarily sourced supply, creating a unique pricing dynamic. The limited availability of eligible carbon credits, especially those adhering to the stringent criteria of corresponding adjustments, has driven prices upward significantly. Upcoming meetings may determine the approval of more standards, which could enhance the supply and lower costs of credits in the future. However, uncertainty looms from potential changes in participation from significant aviation markets like the EU, which could impact the overall demand and stability of CORSIA in its evolution.
This is episode 2 of All Things Aviation, a special six-part series focusing on the dynamics, trends, and outlooks in the aviation sector.
In this episode, Marie-Louise Du Bois, head of the global carbon pricing team is joined by S&P Global Commodity Insights experts Dana Agrotti, low carbon market lead analyst, Agamoni Ghosh, managing editor, global compliance carbon pricing and Eklavya Gupte, editorial lead, carbon news.
They delve into the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), discussing its role in reducing emissions and the challenges surrounding carbon credit availability. They also explore how CORSIA is shaping the aviation industry's approach to sustainability, looking at the big changes ahead for this hybrid carbon market.
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