Two years after it was launched as a pilot by IATA and CBL Markets, part of Xpansiv CBL Holding Group (XCHG), the Aviation Carbon Exchange (ACE) has seen its first transaction via the IATA Clearing House (ICH), which makes it easier for airlines to purchase carbon credits using IATA’s financial back-end process. The new technical integration with the ICH functionality will make the need for financial settlements through a third party unnecessary and enable transactions to be seamless, risk-free and quicker, said IATA. As a centralised marketplace, the ACE was launched in response to a requirement by airlines to purchase eligible units in compliance with the ICAO carbon offsetting scheme CORSIA. Although the Covid-19 pandemic has largely pushed back that need by a number of years, IATA and non-IATA airlines can trade on the exchange to purchase offsets for voluntary passenger offset programmes and net zero commitments. According to IATA, several airlines have already used the exchange, with JetBlue being the first to make a trade, but Qatar Airways is the first to use the new integration with the ICH.
“Since it was launched in November 2019, the ACE has provided airlines with a secure access to real-time carbon offset data, with full price transparency. We’ve now completed the technical integration of the ICH functionality with the ACE, which is a significant milestone to make financial carbon offset transactions seamless, safe and timely for years to come,” said Michael Schneider, Assistant Director Environment Programs, in an IATA blog.
With an annual turnover of around $56 billion and over 430 participants, the IATA Clearing House provides billing and settlement services in multiple currencies for the air transport industry. Open to IATA and non-IATA airlines, airline-associated companies and travel partners, it is a “netting” solution for the clearance of passenger, cargo, UATP (corporate travel) and non-transportation billings between them.
“All of our member airlines already have access into IATA’s financial back-end process and can simply use the existing connectivity to have their trades settled,” explained Schneider. “To give you an example, let’s say airline X makes a $30 million trade for offsets. In the absence of the ACE/ICH set-up, it usually requires the involvement of numerous people to complete a trade, from procurement to treasury to finance, resulting in a lengthy process that can take weeks. By then the carbon price will no longer be guaranteed and they face issues each time they trade, because the price cannot be locked in.
“Using the ICH, on the other hand, will reduce the time to two days, offering a secure and safe mechanism to the airline. Furthermore, on the seller side the ICH guarantees payment, again with a speedy two-day process, so it’s excellent news for all participants.”
He told GreenAir that total trading volumes on the exchange in 2021 were close to 5 million tonnes of “high-quality” credits, most but not all CORSIA-eligible units. He pointed out that many forestry and REDD+ projects can be of high quality but have not yet been approved under the review process by ICAO’s Technical Advisory Body, which assesses and recommends programmes and units for eligibility under CORSIA.
“These non-CORSIA credits can be appealing to an airline in the context of its voluntary passenger offset programme where it is looking for a specific geographical region and/or the project is linked to a number of UN Sustainable Development Goals, for example gender equality and improving health and living conditions,” said Schneider. “So the ACE makes an important contribution to climate finance, providing project developers the opportunity to list their credits issued on the exchange and to reach out directly to airlines, instead of selling through intermediaries.”
He added: “Airlines’ individual offset commitments, the use of credits for passenger offset programmes and also to furnish corporate customers with credits has driven most of the demand in 2021 and we expect to see the same in the near future.”
Commenting on Qatar Airways’ trade following the ACE/ICH integration, IATA Director General Willie Walsh said: “CORSIA is a key tool for helping the industry achieve carbon-neutral growth as part of our long-term target to reach net zero carbon emissions by 2050. The Aviation Carbon Exchange enables airlines to purchase their offsetting credits with maximum transparency and minimum bureaucracy. By performing the first-ever trade on the ACE using the IATA Clearing House, Qatar Airways has demonstrated its support for the ICH as a means of pioneering efficiency in transactions that will make the purchase of quality carbon offsets easier for all airlines.”
Responded Akbar Al Baker, Qatar Airways Group Chief Executive: “Qatar is one of the States that voluntarily participates in the pilot phase of CORSIA. As a leader in aviation, Qatar Airways is driven by an ambitious environmental sustainability vision and we are determined to support Qatar in this pursuit by remaining compliant with the global scheme. We welcome the use of the Aviation Carbon Exchange as it enables airlines to invest in CORSIA eligible emission reduction units, further supporting Qatar Airways’ commitment to invest in a low-carbon future, while reducing our financial risk.”
Photo: Qatar Airways
Editor’s note: GreenAir is a co-organiser of the international Aviation Carbon conference and we are delighted to announce that Xpansiv CBL will be the lead sponsor of our 10th anniversary event, Aviation Carbon 2022, which will be held, hopefully in-person, at the London Heathrow Marriott on October 17-19. More details will be posted shortly.