The International Air Transport Association (IATA) has announced that airlines are set to invest $600 million in offset credits in 2024. This expenditure is part of their compliance strategy with the Carbon Offsetting and Reduction Scheme for International Aviation (Corsia), a decarbonization initiative led by the UN's International Civil Aviation Organization (ICAO).
Understanding the Corsia Offset Program
Corsia aims to stabilize carbon emissions from international aviation by requiring airlines to offset any emissions above 2019 levels. From 2024 to 2026, airlines must reduce their emissions to 85% of 2019 levels, with full compliance required by early 2028. The offset credits, known as Corsia-eligible emissions units (EEUs), play a crucial role in this strategy.
Projected Costs and Demand for Offset Credits
IATA's forecast, released at its annual congress in Dubai, predicts that the cost of Corsia-related offsets will reach $600 million in 2024. This figure is based on an expected demand of 9 to 31 million EEUs, priced at an average of $30 per unit. This estimate pertains specifically to 2024 and does not represent an average for the entire compliance cycle from 2024 to 2026.
Supply and Demand Dynamics
The supply of EEUs currently comes from a limited number of carbon standards and registries accredited by ICAO. A significant portion of these credits has been issued by the ART TREES standard for Guyana's avoided deforestation scheme. In 2021, Guyana received 7.1 million Corsia-compliant credits, which contribute to the current supply pool.
Financial services and commodities trading firms are expected to lead the charge in purchasing EEUs, with airline buying anticipated to increase significantly from next year. This cautious approach by airlines stems from a 'wait and see' stance as they await greater visibility on credit supply and standards accreditation.
Challenges and Future Outlook
The US government's recent support for high-integrity voluntary carbon markets, including Corsia, has provided a stronger signal for EEU purchases. However, concerns about the revocation risks of Corsia-compliant credits remain. These issues may be mitigated by political risk insurance and carbon credit buffers, potentially leading to positive accreditation decisions for registries such as Verra, Gold Standard, and Climate Action Reserve by September. Despite this, meaningful credit supply is not expected until 2025.
The Role of Sustainable Aviation Fuel
The demand for EEUs will also be influenced by the adoption of sustainable aviation fuel (SAF) and the introduction of new fuel-efficient aircraft and engines. IATA's June 2 forecast indicates that SAF supply will triple this year, reaching 1.5 million tonnes and accounting for 0.5% of overall aviation fuel demand. This increase will add approximately $2.4 billion to airlines' fuel bills.
Passenger Demand and Market Growth
IATA predicts a robust recovery in the aviation sector, with demand for passenger flights expected to exceed pre-pandemic levels. Global customer numbers are projected to grow by 10.4% this year, driven primarily by the Asia-Pacific region.
As airlines navigate the complexities of Corsia compliance and the broader push for decarbonization, the industry faces significant financial and operational challenges. However, with strategic investments in offset credits and sustainable fuel, the aviation sector is poised to make meaningful progress toward its climate goals.
For more information on Corsia and the role of offset credits in aviation, visit ICAO Corsia and IATA’s Annual Report.
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