CORSIA offset eligibility explainer

At the time of writing 83 countries have signed up to participate in the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) pilot and first phases (2021-2023 & 2024-2026 respectively) accounting for around 76.64% of international aviation emissions. You can get the latest status of CORSIA here. However, China has yet to confirm participation in the pilot phase. India, Russia and Brazil look set to snub at least the pilot phases, and possibly CORSIA entirely.

In this section we cover:

• Current pricing based on the CORSIA offset eligibility criteria
• ICAO finally sets the rules for CORSIA offset eligibility
• The impact of COVID-19 on the CORSIA baseline emissions
• A simple guide to offsetting under CORSIA

ICAO sets rules for CORSIA offset eligibility

After more than 3 years of negotiations followed by lengthy assessments by ICAO’s expert Technical Advisory Body (TAB), the International Civil Aviation Organisation (ICAO) Council have finally revealed the programmes whose credits will be eligible for compliance under CORSIA. A total of 14 programmes had applied for approval but only 8 made it through.[1] Two further programmes: the British Columbia Offset Program (BCOP) and Thailand’s Voluntary Emission Reduction (T-VER) scheme have been invited to reapply as part of TAB’s recommendations.

ICAO is expected to open its second call for CORSIA programme applications in the coming weeks, with standards such as REDD+ already pledging to submit its new deforestation reduction standard. A decision on the next round of applicants, including the two programmes invited to re-apply, is expected within a year.

What you need to know

The approved programmes are:

1. Clean Development Mechanism (CDM)
2. China’s GHG Voluntary Emission Reduction Programme
3. Gold Standard
4. American Carbon Registry (ACR)
5. Climate Action Reserve (CAR)
6. Verified Carbon Standard (VCS)
7. Forest Carbon Partnership Facility (FCPF) (Conditional)
8. Middle Eastern and North African region’s Gulf Organisation for Research and Development’s Global Carbon Council (Conditional)

There are offset vintage criteria:

The criteria are two-fold. ICAO have followed the TAB’s recommendation to only allow:

1. Only Eligible Emissions Units (EEUs) generated from 2016-2020 can be used for compliance in the pilot phase of the scheme (2021-2023).
2. Approved EEUs must have been issued to activities that started their first crediting period in respect of emissions reductions from 1^st January, 2016 through to 31^st December, 2020.

[1] although two are pending further review.

The vintage restriction to emissions reductions generated pre-2021 is thought to be an attempt to avoid double counting from 2021, when countries’ own obligations under the Paris Agreement’s Nationally Determined Contributions (NDCs) are expected to start.

Double counting issues The issue of double counting has long held up Article 6 negotiations and occurs when the same emissions reduction is used as part of more than one member states commitments. Under the Paris Agreement’s market-based Article 6, also due to start in 2021, all nations are required to make contributions to a global emissions goal – a key difference to the predecessor Kyoto Protocol that only imposes obligations on developed nations and therefore does not give rise to the same double-counting issue for carbon credits generated in developing countries. TAB argued that most of the applicants did not have a mechanism in place to make sure the credits used within CORSIA are effectively subtracted from the national government’s GHG inventory.

Critics argue criteria not strict enough

Critics argue that some ICAO decisions, such as allowing VERs from China’s VER programme to qualify as EEUs, are part of a political compromise to, in the case of China, secure the country’s participation in the scheme from the voluntary phases, rather than being based on the programme’s robustness and merits. It is also unclear how much supply may come from the recently unveiled Chinese VER programme, raising further fears of a flood of EEUs from the programme.

ICAO has also chosen to allow all CDM project types to be eligible for CORSIA compliance, declining to follow the EU’s lead in banning the use of certain projects deemed to have questionable environmental integrity, including industrial gas plants and large hydroelectric projects.

Coronavirus casts doubt over choice of baseline years for CORSIA

The CORSIA baseline is set at the average of 2019 & 2020 emissions. Aviation emissions in 2020 are going to be severely curtailed due to the impact of Coronavirus on travel. This means that if aviation emissions recovers in 2021 there will be a huge gap between emissions and the lower baseline and will require aircraft operators to buy many more EEUs than expected.

The International Air Transport Association (IATA) have already called for a revision of the rules so that the baseline figure is now based solely on 2019 emissions. According to IATA: “allowing the use of 2019 emissions as an alternative would preserve the environmental benefits that were forecast to be achieved through CORSIA as the adjusted baseline would remain more stringent than what the baseline would have been without the COVID-19 crisis”.

However, the calls for such baseline revision have also led to questions on the recovery of airline emissions post COVID-19. Should aviation emissions remain muted in the years to come, as COVID-19 impacts linger, it is conceivable that there would be no offset demand from airlines. Environmental campaigners say that this would be a step backwards for aviation emissions reduction policy and it would instead invite a more fragmented, and less market friendly approach, for example the EU can decide to tax aviation fuel at airports. Our CEO was asked to comment on this subject by Bloomberg News and we held some discussion of it during our 3^rd April COVID-19 webinar.

It is also noteworthy that many aircraft operators are seeking to voluntarily offset their emissions in response to customer demand. Participation in CORSIA provides cover for airlines that do want to respond to this pressure but that don’t want to do anything that would disadvantage them relative to their competitors. Therefore, it will not be in the interests of all airlines to move to a 2019 baseline.

IATA have also pointed out that Phase I of CORSIA is voluntary and that environmental benefits will be lost if countries decide to simply opt-out of CORSIA. The reality is that adoption of a 2019 baseline is more likely to undo all of the benefits of CORSIA whereas the opting-out of some countries will have a limited impact. The EU, for example, is highly unlikely to opt-out of CORSIA.

It is unlikely that a decision will be made any time soon, so yet again, aircraft operators are left grappling with uncertainty in respect of climate change mitigation measures.

The small-print: temporary restrictions

The recommendations adopted by the ICAO Council also impose several temporary programme-specific restrictions on the six approved applicants, pending further changes. The TAB noted that under the VCS’ Jurisdictional and Nested REDD+ Framework (JNR), the crediting period duration for jurisdictional deforestation reduction initiatives is a maximum of 10 years, renewable twice. According to TAB, this provision was incompatible with its understanding of the Eligible Unit Criteria (EUC), because a 10-year crediting period could potentially end before the final year of CORSIA’s reporting period in 2037. The standard’s JNR requirements that allow the forestry projects to “nest” into a jurisdictional baseline without jurisdictional monitoring was inconsistent with the expert panel’s EUC interpretation.

As a result, the TAB excluded emissions units issued to VCS JNR projects and others in the standard’s agriculture, forestry, and land-use categories, with the exception of those that utilise one of six approved VCS methodologies outlined by the expert body. Once the VCS addresses those changes, JNR projects will be eligible to generate EEUs.

The TAB also excluded all offsets issued to the CAR or the VCS that have not reported their sustainable development contributions or co-benefits in accordance with their standards. Like the JNR restrictions, these units could become eligible for CORSIA once the two certifiers make appropriate changes.

The conditional approval placed on the FCPF and Global Carbon Council will be upgraded to a full approval, provided the two programmes undertake a series of measures laid out to ensure compatibility with the guidelines.

 

How Redshaw Advisors helps aircraft operators

We work with aircraft operators around the world with their compliance requirements under a multitude of emissions trading regimes. We inform companies of their requirements, we advise them on how those requirements will affect them financially and we procure carbon credits to enable our customers to comply with their exposure to each regime.

Please contact us if you would like assistance with any or all of the above. You can talk to your account manager or you can email us at: info@redshawadvisors.com or give us a call on: +44 20 3637 1055. We look forward to being of assistance.