This is the first in a three-part series focusing on CORSIA. You can see our previous summary of CORSIA here. Parts 2 and 3 will focus on how to get CORSIA eligible credits and the use of insurance.

Reality Sets In

After a start to the year that saw many in the carbon markets celebrating record-setting retirements of credits, reality is finally setting in. Ecosystem Marketplace reported last week that Voluntary Carbon Market (VCM) sales activity dropped by 60% in 2023, down from a high of near $2B in 2022 to a more sobering figure of $700m. 

Broadly, these numbers reflect what we are hearing from the many developers and sellers of credits that we speak to on a regular basis: That demand in the VCM is hurting, in large part due to the steady drumbeat of negative press.  

We continue to believe that the VCM will continue to improve and play a major role in global decarbonization and that there are many quality projects out there. Yet this is little consolation to a developer or seller of credits today. So what are they to do?

Why CORSIA

In our view, selling credits in CORSIA represents one of the most significant market opportunities for carbon developers over the next several years. Developers and sellers who can get their credits CORSIA ready will enjoy greater buyer demand, and at better prices. Indeed, since April CORSIA futures are sitting somewhere between $15 and $23 per credit.

That’s why we partnered with DelAgua, the leading cookstove project developer in the world, to develop a world-first insurance product that would provide them the guarantees they need to get their credits CORSIA eligible. As of today, DelAgua’s credits are expected to be the only CORSIA credits available on Verra at the time of the registry’s anticipated approval by the CORSIA Technical Advisory Board in September.

Limited Supply, Growing Demand

Fundamentally, CORSIA is a great opportunity because while demand will be somewhat consistent, we believe eligible credits are going to be in very short supply. 

Most of the public reports so far have forecast that supply will be higher than demand until at least 2030. 

Technically, credits on a CORSIA approved registry with issuances after 2021 may be eligible except for those issued under some Agriculture, Forestry, and Other Land Use (AFOLU) methodologies. Using this filter alone, then, most of the credits from the major standards bodies would be eligible for CORSIA and supply would indeed outstrip demand.

Yet CORSIA eligibility requires something additional. Credits must either have:

• A corresponding adjustment that has been made under Article 6 of the Paris Agreement
• A Letter of Authorization(LoA) from the host country of the project and a third party guarantee (such as an insurance policy) for a corresponding adjustment that will be made in the future

These requirements will act as the bottleneck for supply of CORSIA credits. At the end of the day, neither of these processes is clearly defined or agreed at this point. Governments making corresponding adjustments to the Biennial Transparency Reports (BTRs) which are required to be done by the end of 2024 are unlikely to include many Corresponding Adjustments this year, and mechanisms for governments to give Letters of Authorizations are not yet fully up and running.

The Upshot

So what does it mean?  For the developer that manages to get their credits to be CORSIA eligible by working with host countries to get one of the first Letters of Authorization for their projects, the advantages are many:

1. Growing Demand for Credits: As international aviation emissions are projected to grow, airlines will need to offset these increases. First Phase of CORSIA, which started in January of this year, already includes mandatory offsetting for international flights. This creates a sustained demand for carbon credits, ensuring a stable market for your products.
2. Commanding Premium Pricing: CORSIA credits are expected to command a high price in many cases over non-CORSIA credits, particularly for non-tech based projects. This means greater revenue opportunities for your projects.
3. Having Global Reach: CORSIA is a worldwide initiative, involving nearly 200 countries. By participating, your projects can gain access to international buyers and a broader market, enhancing both credibility and visibility.
4. Being Leaders and Innovators: Engaging with CORSIA positions your company as a leader in the carbon market, showcasing your ability to meet stringent standards and innovate in carbon offset solutions.