All information is accurate as of 6th August 2025
Author: Daniel Atzori
CORSIA: Navigating the next phase in carbon offsetting
The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), a cornerstone of global efforts to decarbonise the sector, is set to become mandatory from 2027. But how will CORSIA align with the EU and UK ETS? What impact will the ongoing shortage of eligible carbon credits have on market dynamics? And what could be the impact of the US withdrawing from the scheme?
How does CORSIA work?
The International Civil Aviation Organisation (ICAO) introduced CORSIA in 2016 to offset CO₂ emissions growth from the aviation sector. CORSIA is the first global market-based measure aimed specifically at addressing carbon emissions from international aviation. It requires airlines to offset the growth in emissions covered by the scheme above a given baseline (85% of 2019 levels), with exemptions granted for smaller operators emitting less than 10,000 tonnes of CO₂, and for flights among states not participating in the scheme.
CORSIA is built around a framework that integrates carbon offsetting with Monitoring, Reporting and Verification (MRV) processes. Airlines are required to purchase carbon offsets called Eligible Emission Units (EEUs) from ICAO approved standards to neutralise the growth in their collective emissions beyond the aforementioned baseline emissions. These offsets are meant to support projects that actively reduce or remove carbon emissions from the atmosphere.
The implementation of CORSIA is taking place in three phases: the pilot phase (2021- 2023), the first phase (2024-2026), and the second phase (2027-2035). This is meant to ensure a gradual transition for aviation operators worldwide. Initially voluntary, participation is set to become mandatory from 2027.
Airlines’ offsetting obligations under CORSIA are calculated based on their annual CO₂ emissions from flights among countries participating in the scheme. This approach ensures that offsetting responsibilities are proportionate to the airline’s contribution to emissions growth within the international aviation sector.
EU ETS and CORSIA alignment
Flights within the European Economic Area (EEA) and from the EEA to the UK and Switzerland are currently subject to the EU Emissions Trading System (EU ETS). These routes, however, also fall within the scope of CORSIA, creating a partial overlap in emissions coverage.
The European Union has taken steps to address this overlap by deciding not to implement CORSIA for flights already covered by the EU ETS. This means that emissions from intra-EEA flights and flights from the EEA to the UK and Switzerland are regulated exclusively under the EU ETS. Conversely, flights between the EEA and non-EEA countries participating in CORSIA are subject to CORSIA's offset requirements. This demarcation ensures that flights covered by the EU ETS adhere to the EU's more stringent climate policies, while international flights comply with globally agreed-upon measures.
Both the EU ETS and CORSIA employ similar MRV systems to ensure the accuracy and reliability of flight emissions data. This alignment facilitates compliance for airlines operating under both schemes.
UK ETS and CORSIA alignment
The UK faces a similar issue as the EU in terms of potential overlap in emissions coverage, as flights from the UK to the EEA and Switzerland may fall under the scope of both CORSIA and the UK Emissions Trading Scheme (UK ETS). To address this issue, the UK Government launched a consultation, which closed on 24th February 2025, to outline proposals for implementing CORSIA within the UK.
The consultation sought feedback on whether to adopt a “UK ETS only” or “price-based hybrid” approach to implementing CORSIA alongside the UK ETS. Under the ”UK ETS only” approach, only the UK ETS would apply on flights from the UK to the EEA and Switzerland, with CORSIA applying to all other international flights from the UK in scope of the scheme. In a price-based hybrid approach, both CORSIA and the UK ETS would apply to flights from the UK to the EEA and Switzerland, and aeroplane operators would be compensated for the cost of complying with CORSIA offsetting obligations on these flights. Operators would comply annually with UK ETS obligations and be retrospectively compensated for CORSIA offsetting costs on flights from the UK to the EEA and Switzerland every three years, aligning with CORSIA's compliance cycle.
EEUs: rising demand, persistently tight supply
According to ICAO’s July 2025 analysis, cumulative offsetting requirements under CORSIA could total 950–1500 MtCO₂ between 2024 and 2035, with 105–150 MtCO₂ required during the first phase (2024–2026). Offsetting costs for 2024–2026 are estimated at $1–5 billion using only EEUs, rising to $10–20 billion if combined with sustainable aviation fuels (SAF).
However, while the demand is expected to increase dramatically, supply is currently very tight. To qualify under CORSIA’s first phase offsetting requirements, carbon credits must comply with ICAO regulations and obtain a Letter of Authorisation (LoA) from the host country of the carbon project. This LoA confirms the host country’s intention to make the necessary corresponding adjustments where the credits are generated. The primary constraint on supply arises from the host countries’ lack of readiness to issue LoAs. Due to this supply constraint, MSCI forecasts Phase 1 CORSIA EEUs to reach up to $63 per unit.
While in October 2024 ICAO approved four additional standards (Verra, Gold Standard, Climate Action Reserve and Global Carbon Council), estimates on the future supply of EEUs remains uncertain.
Guyana currently remains the sole supplier of eligible credits, having issued just over 7 million Jurisdictional REDD+ 2021 vintage credits in 2024, of which around 3 million have been sold. On 21st February 2025, approximately 8.7 million, 2022 vintage Jurisdictional REDD+ CORSIA-eligible credits from Guyana were verified as ready for issuance by ART Trees. In addition, between 250,000 and 500,000 CORSIA-aligned cookstove credits from Madagascar are anticipated to enter the market towards the end of 2026 or start of 2027. However, these supply injections still fall significantly short of the projected demand, leaving the market substantially undersupplied and prone to sudden price hikes.
CORSIA at a crossroads
While both the EU and the UK are taking steps to integrate their own ETSs with CORSIA, the global landscape currently looks more uncertain. With President Trump signing an executive order on 20th January to withdraw the United States from the Paris Agreement, questions have risen about whether a similar decision might be made regarding CORSIA, effectively pulling the US out of the global aviation offsetting scheme.
Given the size of the US aviation sector, its departure would reduce demand for offset credits, potentially depressing prices and undermining the broader credibility of the scheme. However, some US carriers might still choose to comply voluntarily, aligning with the scheme as part of their broader corporate sustainability strategies. This would also allow them to maintain flexibility should a future administration decide to reverse course and rejoin the initiative.
The US stance on CORSIA could also influence other major aviation markets. China, which has so far taken a cautious approach to international aviation emissions regulation, may choose to follow suit. A domino effect could weaken the global integrity of CORSIA if other jurisdictions adopt a similar stance.
In response, the EU, which has historically taken a strong regulatory approach to aviation emissions, may move to expand the scope of the EU ETS. Currently, the EU ETS covers only intra-European flights, but if CORSIA loses participation from key players, the EU might include international aviation emissions under its scheme. This would force airlines operating to and from Europe to comply with the EU's carbon pricing system, even if their home countries have opted out of CORSIA.
Overall, while a US exit from CORSIA would not dismantle the scheme outright, it would weaken its effectiveness, encourage non-compliance from other major economies, and could lead to unilateral actions from climate-ambitious jurisdictions such as the EU. The coming years will be crucial in determining whether CORSIA remains a viable global framework for aviation emissions.
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