Carbon project developers warn of a supply shortage of CORSIA eligible credits

The Project Developer Forum (PD Forum), a body representing developers of greenhouse gas emissions reductions and removal projects in the international markets, with members looking to sell carbon credits to airlines under ICAO’s CORSIA carbon offsetting scheme, has written to the UN agency to raise concerns over CORSIA implementation. It calls for ICAO’s Technical Advisory Body (TAB), which recommends for approval by the governing ICAO Council eligible emissions units that can be used by airlines under the compliance scheme, to engage with project developers to avoid a potential shortfall of eligible credits. Against a specific eligibility criteria, TAB assesses individual emissions unit programmes that administer standards and procedures for developing carbon offset projects and verify offsets, or units, created by those projects. It does not assess offset retailers or project developers.

“CORSIA is a critical tool for aviation’s climate strategy but its success depends on a functioning carbon market,” commented Nick Marshall, Director of the PD Forum, on the open letter sent to ICAO’s TAB, which is made up of 19 expert members nominated by countries to ensure a wide international representation. “Without better engagement with project developers and greater flexibility in credit eligibility, we risk creating an artificial supply crisis that could drive up costs for airlines and undermine confidence in the system.”

CORSIA, which was adopted in 2016 after many years of negotiation by countries at ICAO, has the objective of carbon neutral growth to ensure net CO2 emissions from international aviation do not exceed an agreed a pre-determined baseline, with airlines required to purchase and retire CORSIA eligible emissions units (CEEUs) to offset increased emissions by the sector. The scheme has three phases, starting with a pilot phase (2021-2023) and first phase (2024-2026) – both of which are voluntary – and a second phase (2027-2035) designed to include all countries, with a number of smaller developing countries exempted.

Following the Covid downturn in international air travel, no offsetting requirements were accrued in the pilot phase and are only expected to begin from 2024. According to IATA projections in September 2024, the demand for CEEUs in the first phase (2024-2026) is expected to be between 107 and 161 million units.

The scheme received a crucial boost at COP29 in Baku last November with an agreement by countries on implementation rules of Article 6 of the Paris Agreement that unlocked the potential for large quantities of eligible units coming onto the carbon market for use by airlines.

However, the situation is complicated over the issuance of ‘letters of authorisations’ (LoAs) and performance of the ensuing ‘corresponding adjustments’. These processes are designed to address the concern of double counting so that ‘host countries’ (where the CEEUs are generated) do not count emissions reductions claimed by aircraft operators under CORSIA towards their own pledges under the Paris Agreement through Nationally Determined Contributions.

“However,” said IATA in a fact sheet posted last December, after COP29, “approved programmes are currently hesitant to vouch for this, partly due to host countries’ lack of awareness about how, or their reluctance, to put in place the required infrastructure and perform this procedure.”

Eligibility requirements under CORSIA are stringent, as credits must come from projects that are registered with an ICAO-approved programme or standard, currently Verra (Verified Carbon Standard), Gold Standard, Climate Action Reserve, Architecture for REDD+ Transactions and Global Carbon Council; have received a valid LoA from the host country; and implemented a liability management mechanism (for example third-party insurance) to provide protection against potential corresponding adjustment (CA) revocations. While credit supply from these standards provide airlines with more certainty of meeting both compliance and environmental integrity requirements, it does not fully resolve underlying supply issues. As CORSIA approaches its second phase starting in 2027, which requires compliance across more countries, demand for CEEUs is projected to nearly double.

“Challenges in obtaining CA revocation insurance, combined with the complex and slow process of securing LoAs, may continue to contribute to upward pressure on prices for CORSIA-compliant credits,” believes CFP Energy, which provides organisations with energy transition and decarbonisation services.

The PD Forum letter says the lack of clarity and uncertainty on how CORSIA will interact with Article 6 mechanisms, particularly regarding CAs and host country approvals, is discouraging investment in new projects. It also calls for a reconsideration of “rigid” crediting rules that “risk sidelining high-quality projects”, and argues restrictive eligibility criteria and methodology exclusions may limit the availability of CORSIA-compliant credits, “potentially leaving airlines without enough offsets to meet their obligations.”

The body also has an issue with the CORSIA Phase 1 eligibility requirement for third-party insurance or guarantees where the corresponding adjustment has not yet been accounted for in host country reporting. “We note that both Gold Standard and Verra have made third-party insurance a keystone in their CORSIA eligibility guidelines,” says the letter. “We have considerable concerns about the practicality of insurance in this context.”

PD Forum believes that given the uncertainty of market supply or future prices, there is an implication that the liability in the event of a claim against the insurance or guarantee is unlimited. “From our engagement with various stakeholders, we cannot envisage any third party being able to provide or accept unlimited liability,” it states. “We encourage ICAO and TAB to address these concerns and ensure that liability is shared and does not just sit with project developers and programmes.”

Despite its misgivings, PD Forum welcomed statements by TAB that it will start making recommendations for CORSIA Phase 2 this year, two years prior to the start of the phase. ICAO recently invited programmes already eligible for the first phase to apply for re-assessment by TAB for the 2027-2029 compliance period (part of the second phase). In early 2026, TAB will launch a first call for new applications for eligibility for this compliance period.

“This is a very positive development and one we welcome after the CORSIA Phase 1 approval delays,” says the letter. “With such notice, project developers can orientate their projects to meeting CORSIA Phase 2 demand in advance and ensure that supply will reach the market in a more ordered fashion.”

Requesting a bilateral meeting with the TAB, PD Forum says: “We encourage ICAO and TAB to engage with project developers throughout its processes and review cycles as without project developers, there will be no CEEUs for airlines to meet their obligations.”