The carbon market for aviation – issues under discussion and possibilities for REDD+

19 Feb 2019

The International Civil Aviation Organization (ICAO) has advanced much towards setting the rules for the Carbon Offsetting and Reduction Scheme for International Aviation, or CORSIA. Under this scheme, airlines will cap emissions at 2020 levels and offset any increase above this threshold. In the absence of a major technological breakthrough, significant amounts of offsetting will be required. The average increase in fuel efficiency is running at about 2% a year but the growth of the industry is well above that. For 2017, the industry reported 4.1 billion passengers, or an increase of 7.6% over the previous year. If nothing changes, emissions from the sector could increase to 300% by 2050. If global aviation were a country, it would rank among the top 10th of emitters.

 

 

ISSUES

 

There are several unresolved issues regarding carbon markets and the aviation industry. At the simplest level, the problem is an old one for markets that rely heavily on offsets: the environmental benefits of the system are as good as the environmental integrity of its offsets. And, currently, environmental integrity is a major concern for civil society attending CORSIA negotiations, as well as for some key countries and even representatives of the airline industry. Issues of additionality (whether the offset does represent a genuine emission reduction) and double counting (whether the offset is only counted once) are some of the elements of the discussion.

 

At a deeper level, there is the issue of a long-term goal for emission reductions. For example, the International Maritime Organization (IMO) has set the 2050 goal of a 50% reduction compared to 2008 levels. In contrast, ICAO does not have a long-term goal. It is just exploring the feasibility of having one. The difficulty of setting a long-term goal puts additional scrutiny on the environmental integrity of the aviation market.

 

CORSIA and REDD+

 

The proposed criteria for eligibility of offsets in CORSIA reflects a set of conditions that are already utilized in other settings and includes the need for additionality, realistic baselines, solid MRV systems, permanence, safeguards and avoidance of double counting.

As discussions go, there would be a technical body at ICAO to evaluate offset programs against the approved criteria. This technical body would submit its recommendations to the ICAO council, which would ultimately determine eligibility.

 

Whether REDD+ offsets can access CORSIA will first depend on whether REDD+ programs meet the eligibility criteria. In principle, there is nothing in the criteria that would be inaccessible to REDD+ though there could be challenges regarding the issue of permanence, additionality, and to a lesser degree, double counting. The permanence issue could be dealt with through discounts, or credit buffers. The additionality issue will depend on the ambition of the country´s NDC. And the double counting issue will depend on the strength of national or jurisdictional accounting systems.

 

 

WHAT'S MORE

 

But that is not all. Whether REDD+ accesses CORSIA will also depend on the equilibrium price of offsets. A price too low could discourage programs from taking the time and effort to meet the eligibility criteria in full. Price will depend on demand and supply. On the demand side, the estimate is that the airline industry will need at least 2.5 billion offsets, and probably more depending on the growth of the sector and the pace of technological progress.

 

The estimations of supply vary wildly according to how strict the eligibility criteria is applied. For example, if taken at face value, the existing backload of Certified Emission Reductions (CERs) from the Clean Development Mechanism (CDM) could supply 3.8 billion offsets at prices below 1 Euro. Even if the vintage is restricted to CERs issued after 2016, there would be still enough CERs to supply 2.5 billion offsets maintaining the price below 1 Euro. This does not consider other potential sources of offsets under discussion in CORSIA, including those from the voluntary market, which would further increase supply and lower prices.

 

Only when issues of quality of offsets come into discussion, the supply of offsets diminishes substantially and allow prices to climb to levels compatible with the opportunity and implementation costs of REDD+. For example, restrictions on additionality applied to CERs could limit supply to less than 700 million offsets while restrictions on accounting could pose non-trivial difficulties to offsets from the voluntary market. With restricted supply, prices of offsets could go well above what the GCF currently pays per ton CO2e. Of course, restrictions on supply are heavily contested by a number of interest groups, including representatives of the airline industry.

 

 

INTEGRITY

 

To summarize it all: opportunities for REDD+ in CORSIA will depend not only on the environmental integrity of REDD+ offsets but also on the environmental integrity of CORSIA in general. An aviation market that is weak on the application of eligibility criteria will likely flood the market with low-quality credits, resulting in a plunge in prices and the exclusion of high-quality offsets (as these will be more expensive to achieve). An important coalition of actors including civil society organizations, key countries, the UN and airlines representatives are working together towards ensuring an environmentally solid aviation carbon market.

 

 

Author:

 

Gabriel Labbate

Global Team Leader, UNREDD, Senior Programme Officer, 

UN Environment

gabriel.labbate@un.org

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