Changes in course needed for UN scheme to address aviation emissions

A new UN scheme requires airlines to compensate part of their CO2 emissions from 2021 onwards. A recent decision clarified which carbon credits can be used in the first three years. Our analysis shows that, under these rules, the scheme is unlikely to reduce emissions.

Aviation contributes with more than five percent to global warming, due to its CO2 emissions and other effects such as condensation trails. As its emissions are expected to double over the next 15 years, addressing aviation’s climate impact is crucial to achieve the temperature goals of the Paris Agreement of limiting warming to 1.5 or 2 degree Celsius. Emissions from flights within one country are typically included in countries’ climate targets under the Paris Agreement, while emissions from international flights are regulated under the United Nations International Civil Aviation Organization (ICAO).

After nearly 20 years of negotiations, ICAO adopted its Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) in 2016. From 2021 onwards, the scheme will require airlines to buy carbon credits from greenhouse gas mitigation projects to compensate for their growth in CO2 emissions above 2019-2020 levels. In March 2020, the ICAO Council took an important decision to implement the initial phase of the scheme from 2021 to 2023: it approved six carbon offsetting programs (see below) as eligible for delivering carbon credits to airlines and decided that carbon credits must come from projects that started operations on or after 1 January 2016. How does this decision affect the supply of carbon credits and what does it mean for addressing aviation’s climate impact?

Too much supply and too little demand – even with COVID-19 impacts

Ecosystem Marketplace estimates that total supply from already existing emission reduction projects could amount to 386 million carbon credits. A further 183 million units could emerge from projects currently under development. ICAO has launched a second call for applications by carbon offsetting programs, and a decision is expected by the end of the year. This could bring new eligible programs and, consequently, even more supply into the market.

The demand for carbon credits by airlines is much lower: ICAO estimated in 2019 that airlines would have to buy about 100 million carbon credits in the initial phase of the scheme. This means that airlines would need to compensate only about five percent of their CO2 emissions during that period. This falls well short of the ambition needed to address climate change. It also means that there could be a considerable imbalance between supply and demand of carbon credits, which could lead to sustained low credit prices and consequently little incentives to address aviation emissions.

The COVID-19 crisis could affect demand in two different ways. First, grounded airplanes in 2020 means fewer emissions from the sector, lowering the 2019-2020 baseline beyond which airlines need to compensate for their emissions from 2021 onwards. And second, the expected recession could lower the future emissions pathway of the industry. Both effects impact CORSIA’s carbon credit demand. If international aviation emissions were to rebound very sharply in 2021 back to the emission levels that had been estimated before the crisis, this could lead to higher demand for carbon offsets under CORSIA. A 20 percent decrease in aviation emissions in 2020, for example, alongside a full rebound in 2021, would mean that demand for offsets would roughly double in the 2021-2023 period. This scenario, however, seems unlikely: after previous economic recessions, aviation emissions resumed growth at previous rates, but from lower emission levels – leading to a lower overall emissions pathway. This would mean that the CORSIA demand for offsets could be even lower than the 100 million previously estimated. The available supply will thus likely continue to considerably outstrip CORSIA’s demand.

What will CORSIA mean for the environment?

A key consideration for the environmental impact of offsetting is additionality – that is, whether the emission reductions occurred because of the incentives from the carbon credits or would have happened anyways. Assessing additionality, however, is difficult, and studies have questioned the additionality of project types that will be eligible under CORSIA.

What makes it worse is that ICAO does not allow airlines to implement new emission reduction projects but requires them to purchase credits from already existing projects. Airlines can only use carbon credits from emission reductions generated between 1 January 2016 and 31 December 2020. Previous research found that about 80 percent of the existing projects from the largest offsetting program – the Clean Development Mechanism (CDM) – continue to reduce emissions irrespective of whether they can sell carbon credits. In a market that is over-supplied, buying these credits does not trigger emission reductions beyond those that would have occurred anyway.

Missing: Incentives for new projects and a robust price signal

ICAO’s current rules leave no time for implementing new climate projects to serve the 2021-2023 CORSIA demand. In principle, new projects could be developed now to serve the demand for CORSIA’s subsequent phases, from 2024 onwards. For this to happen, however, ICAO would need to decide on new rules for the 2024-2026 period as soon as possible and limit eligibility of carbon credits to new projects. A robust price signal – preferably in line with the 50-100 USD per ton of CO2 recommended by the High-Level Commission on Carbon Prices – would also be important to take truly additional projects off the ground.

Controversial: forestry programs

In its March decision package, ICAO also clarified its rules for forestry projects, which are one of the contentious topics under ICAO. Tree planting or avoiding deforestation is seen as a vast and cheap source of carbon credits for airlines. For these projects, an important risk is that the storage of carbon in trees could be reversed in the future, for example if a fire destroys a plantation and releases the carbon back to the atmosphere. Some of the approved carbon offsetting programs offer carbon credits from forestry projects, but their rules for how long such reversals need to be compensated for vary. Some require ensuring “permanence” of emission reductions or removals for at least 100 years, others for much shorter periods.

ICAO now clarified that programs only need to address reversals over CORSIA’s implementation period until 2037. This decision seriously undermines the ability of the scheme to contribute to achieving the Paris Agreement temperature goals, which requires lowering CO2 emissions over long time intervals. CO2 from kerosene will stay in the atmosphere for hundreds or even thousands of years, until it is absorbed by oceans or biomass or other sequestration processes. Compensating “permanent” CO2 emissions from kerosene with only a temporary storage of carbon in trees means that CORSIA may not actually reduce CO2 emissions to the atmosphere but only delay their release by about 20 years. A 20-year delay in emissions however does nothing to limiting temperature increase to 1.5 or 2 degree Celsius.

Course change needed for ICAO

Our analysis indicates that CORSIA is unlikely to trigger any actual emission reductions during its initial phase from 2021 to 2023. Rather, this period may serve the purpose of establishing initial rules and testing the system. For CORSIA to deliver actual benefits for the climate, it is crucial that ICAO changes course and strengthens the criteria for carbon credits used from 2024 onwards – allowing only new projects and truly additional emission reductions to be used under the scheme and ensuring that forestry projects do better than merely delaying emissions by 20 years.

Finally, to address aviation’s climate impact, much more needs to be done, including terminating the many tax exemptions for aviation, addressing its climate impact beyond CO2, establishing targets and policies for the sector that are consistent with goals of the Paris Agreement, and fostering a long-term transition towards zero emission technologies.

The authors: Stephanie La Hoz Theuer is Senior Project Manager at adelphi, where she focuses on international and national climate policy, particularly carbon pricing and emissions trading. Dr Lambert Schneider is Research Coordinator for international climate policy at Oeko-Institut. He works among others on carbon markets and international aviation. Jakob Graichen is Senior Researcher at Öko-Institut and works among others on international aviation. We thank Hannes Böttcher, Martin Cames, Constanze Haug, Kai Kellner, Anne Siemons, and Claudia Weigel for inputs and comments.

This text was written in cooperation with Oeko Institute and has been published on the Institute's website as well.

Contact person: lahoztheueradelphi [dot] de (Stephanie La Hoz Theuer)

The six approved carbon offsetting programs are: American Carbon Registry (ACR); China GHG Voluntary Emission Reduction Program (CCER); Clean Development Mechanism (CDM); Climate Action Reserve (CAR); Gold Standard (GS); and Verified Carbon Standard Program (VCS))