In 2016, the UN International Civil Aviation Organisation (ICAO) initiated the first global offsetting scheme for the private sector. Designed to foster low-carbon growth in the aviation industry, the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) sets a new precedent for climate regulation — and a new course for carbon markets.
What is CORSIA?
“CORSIA is the first global market-based measure for any sector and represents a cooperative approach that moves away from a “patchwork” of national or regional regulatory initiatives. It offers a harmonized way to reduce emissions from international aviation… by offsetting the amount of CO2 emissions that cannot be reduced through the use of technological improvements, operational improvements, and sustainable aviation fuels, with emissions units from the carbon market.”
Source: ICAO
To reach their ambition of net zero by 2050, ICAO and its members cannot rely exclusively on innovations such as sustainable aviation fuel (SAF). Emissions from the aviation industry are among the hardest to abate or eliminate at source. To compensate for their unavoidable emissions, international airlines and operators must, therefore, buy Eligible Emissions Units — or authorized carbon credits — from regulated carbon markets.
Mandatory compliance enters effect 2027, but pressure is building already. The voluntary first phase, which started in January 2024, has attracted participation from 126 of 193 member states. On top of that, the offsetting requirement applies retroactively. Regardless of when they take action, airlines must account for any emissions released after 2021 that exceed a 2019 baseline level.
The CORSIA Countdown
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ICAO initiates CORSIA for international airlines operating between two member states
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All qualifying operators begin monitoring and reporting emissions for international flights
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CORSIA begins voluntary pilot phase
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CORSIA begins Mandatory first phase FOR airlines’ international flights
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Our Insurance Solution Protects Market Access -
CORSIA begins mandatory second phase
Our Insurance Solution Protects Market Access
There’s no doubt that CORSIA will be a powerful tailwind for carbon markets. The question is not if it fuels demand for carbon credits, but when — and for which.
Voluntary Credits Chart New Flight Paths
Credits from the voluntary carbon market (VCM) are eligible for CORSIA, provided the issuing registry is approved by the CORSIA Technical Advisory Board (TAB) and the issuing project authorized by its host country. Critically, the Letter of Authorization (LoA) includes the proviso that a Corresponding Adjustment has been applied to the credits, i.e. the country has adjusted its emissions inventory to reflect that credits have been “exported” and will not be claimed against its nationally determined contributions (NDCs).
Corresponding Adjustments in the VCM
Under Article 6 of the Paris Agreement, a nation state can authorize credits for use in international compliance markets (i.e. as Internationally Transferred Mitigation Outcomes (ITMOs)) or against its NDCs — but not both. To prevent duplicate claims — so-called double-counting — an accounting mechanism known as a corresponding adjustment is applied to the project credit(s). It is a prerequisite for any voluntary credit sold in the compliance markets, including CORSIA.
But what happens if the host country fails to submit or apply a corresponding adjustment, or withdraws prior Article 6 authorization, rendering credits ineligible?
The Sell Side Navigates New Turbulence
Corresponding Adjustment non-application is a very real threat for CORSIA customers. It would catalyze heavy losses both financial (in the form of their failed investment, plus the cost of new credit procurement) and reputational (in the form of potential greenwashing accusations).
It’s also a serious risk on the sell-side, not least because the eventuality is — at least to a degree — out of the hands of market participants. (Hence the fierce debate, now settled, as to whether corresponding adjustments should even be a CORSIA prerequisite.) It cannot be mitigated entirely. It must be managed.
Tailwinds Gather Behind Carbon Insurance
In recent weeks, Verra, Gold Standard, and the American Carbon Registry have indicated that project developers wanting to sell credits to CORSIA buyers will need a third-party guarantee mechanism to qualify. Each points to insurance as a provider of that guarantee, indicating that most if not all credits destined for CORSIA will require insurance.
Verra requires “a certificate of insurance with a Verra-approved corresponding adjustment risk insurance product,” Gold Standard, “a guarantee… from a reputable third-party, such as the Multilateral Investment Guarantee Agency (MIGA) or a recognised insurance provider.”
Recently, our SVP Zachary Kane wrote that “we’re going to look back at this moment as a turning point for the VCM” — or, as he termed it, “The Big Unlock.” CORSIA is expected to unlock buyer demand for eligible credits to the tune of 100-200 million, annually, driving prices to as much as $40 per metric ton. For state-authorized and registry-approved developers, the opportunity is seismic — provided they insure against the risk of Article 6 revocation. Have you?
Following months of collaboration with key players in the VCM, Oka has launched an insurance solution designed to streamline your access to CORSIA. If you’re a project developer pursuing a LoA, speak with a member of our team to find out more.
Corresponding Adjustment Protect™
Carbon Protect™
