Carbon credit supply crunch puts CORSIA compliance by airlines at risk, warns report

The airline industry is potentially facing a carbon credit supply crunch in respect of obligations under the First Phase of ICAO’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) that could derail the sector’s flagship carbon programme, finds a report by market intelligence firm Sylvera. With airlines required to purchase up to 144 million CORSIA-eligible emissions units (EEUs) by January 2028, only one host country (Guyana) has so far issued credits needed to meet this demand. EEU supply could therefore fall short by tens of millions. As a result of the shortage, credit prices could surge to $25-$36 or more – possibly as high as $60 – by 2027, with a cost to the sector ranging from $1.8 billion to $5.2 billion in the First Phase (2024-2026), comparable to the entire annualised value of the voluntary carbon market. Without swift regulatory and market action, CORSIA could fall into partial or even total non-compliance, warns Sylvera.

The report is based on modelling a series of potential scenarios that may unfold as CORSIA enters its critical period and insights from more than 40 policy and market experts from around the world who participated in roundtable discussions recently hosted by Sylvera.

“These revealed fascinating market tensions that airlines and stakeholders should understand,” said Sylvera CEO Allister Furey. “While airlines might be purchasing up to 144 million EEUs by January 2028, the authorisation process under Article 6 of the Paris Agreement is creating unique supply dynamics that will define this nascent market.”

Under CORSIA, airlines from ICAO member states voluntarily participating in the First Phase (currently 129 countries) must purchase EEUs to offset any annual emissions that exceed 85% of their 2019 baseline. To ensure integrity of the scheme, ICAO has established a framework for assessing crediting programmes and their methodologies for CORSIA eligibility, and has so far approved six carbon programmes or standards to provide EEUs for the First Phase.

EEU supply is subject to exclusions based on methodology, carbon credit type, vintage and project start date. Furthermore, only projects that secure a Letter of Authorization (LOA) from the host country, along with corresponding adjustments (CAs) to ensure against double counting of emissions, or insurance if CAs are not obtained, can supply EEUs.

Five more standards have been conditionally approved by ICAO for the First Phase, although they contain far fewer projects. Further growth may come from the Paris Agreement Crediting Mechanism (PACM), established under Article 6.4 of the Paris Agreement. Although not yet operational, there are expectations that it will be approved by ICAO after it has done so. “This is potentially significant due to the large number of CDM [UN Clean Development Mechanism]  projects that could transition to PACM methodologies,” says the report.

However, it adds, given the requirement for host country authorisations to grant corresponding adjustments, the current limited scope of EEU supply represents a major constraint. Of the more than 4,000 projects that meet ICAO’s eligibility criteria, only around 1,500 of those are located in the 16 countries that are at least moderately ready for Article 6 authorisation. They have an estimated inventory of around 80 million credits that have been issued and not yet cancelled or retired.

“CORSIA EEU supply in the First Phase depends crucially on the willingness and ability of those governments to provide authorisations to the credits, including those in the inventory and those to be issued by 2027,” says the report.

It reports the 40-plus experts taking part in the roundtable voted the risk of inadequate credits with LOAs and CAs as their primary concern in the success or failure of CORSIA.

The demand side for EEUs also faces uncertainties, with few countries having taken steps to enforce CORSIA through national regulation. Out of 36 countries responsible for 90% of international aviation emissions, fewer than 15 have indicated willingness or proposed regulations to implement CORSIA, although some airlines may comply irrespective of legal enforcement by their country of attribution.

Another uncertainty is whether the EU, up until now a strong supporter of CORSIA, at least publicly, deems CORSIA unsatisfactory in a review scheduled in 2026 and decides to extend its Emissions Trading System to cover international ex-EEA flights. This could also complicate demand for EEUs.

A further challenge is that credits used by airlines to comply with CORSIA could be attractive to the voluntary non-aviation market, who may view them as a benchmark for quality, and push the CORSIA EEU market to even greater scarcity.

According to the roundtable participants, the most likely outcome for the First Phase is partial compliance with a limited credit supply, meaning that only some jurisdictions – such as the EU, UK, Japan and the UAE – may enforce compliance obligations. This, suggests Sylvera, could undermine the credibility of the scheme and create uneven costs for airlines.

On the other hand, concludes the report, “If CORSIA is fully implemented as hoped, it will transform the landscape for carbon credit markets.

“However, a potential shortage of credits and incomplete compliance globally could significantly erode confidence in this nascent market. Integrity also needs to be upheld if this market were to achieve lasting impact.”

Added Sylvera’s Furey: “Many regulators haven’t yet defined enforcement rules, airlines are hesitant to commit without supply certainty and host countries see no urgency to accelerate the authorisation of credits without clear demand signals.

“The opportunity here lies with the organisations that understand and navigate this supply challenge, who will not only secure their compliance obligations but gain significant economic advantage in a potential supply crunch.”

Photo: As of June 2025, only a single supply source has issued credits that are eligible under CORSIA First Phase (15.84 million ART TREES credits from a Guyana jurisdictional REDD+ programme). In an auction in late 2024, Guyana’s EEUs were offered at $21.70, but only 11 airlines bought fewer than 400,000 of them.

Christopher Surgenor

Editor

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