The aviation sector is preparing for a significant shift as a predicted shortage of CORSIA-eligible carbon credits threatens to push prices up to $50 per tonne of CO2, according to a recent MSCI report. Analysts estimate a supply gap of up to 40 million units during the scheme's first mandatory phase (2024–2026), with potential ramifications for airline costs and passenger ticket prices.
The supply bottleneck is driven by the requirement for “corresponding adjustments” (CA), a Paris Agreement mechanism ensuring emission reductions are not counted twice. However, few countries have the infrastructure to issue Letters of Authorization (LoAs), a critical step for CORSIA compliance. MSCI’s assessment of 40 nations found only two fully equipped to implement these adjustments, raising concerns about credit availability through the decade.
Demand for CORSIA-eligible credits is projected to range from 106 to 137 million tonnes of CO2 equivalent (MtCO2e) during Phase One. By Phase Two (2027–2035), demand could climb to between 502 and 1,299 MtCO2e, driven by growing aviation activity and slow decarbonisation. In contrast, Phase One supply is forecasted at just 94 MtCO2e, highlighting a severe deficit.
CORSIA credit prices are expected to fluctuate between $18–51 per tonne in Phase One, rising to $27–91 in subsequent periods. Airlines could face additional costs of $1.9–7 billion in the first phase and up to $109 billion by Phase Two, potentially increasing ticket prices by as much as $5.
Offset project developers caution that the credit deficit may compel airlines to adopt more strategic approaches, such as securing forward contracts to manage future price volatility. The report also highlighted increased competition for Article 6 credits, which are in high demand across corporate and government sectors.
The MSCI report coincides with COP29, where global leaders finalized rules for Article 6 markets. While this development could boost market participation, experts warn that without faster regulatory progress, significant credit supply increases may not materialize before the late 2020s.
CORSIA remains essential for managing aviation emissions in the short term, but industry experts emphasize the importance of long-term measures such as sustainable aviation fuels (SAFs), fleet modernization, and operational efficiencies. Airlines with slower decarbonisation strategies may face higher offsetting costs, incentivizing investments in greener technologies.
As the aviation industry navigates tight credit supplies and rising costs, collaboration with carbon markets and regulatory bodies will be crucial in achieving global climate goals.