How will the new Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) regime affect your aircraft operations?

Will the EU ETS continue to cover the European aviation industry? Does 2016 spell the end of the Stop-the-Clock legislation? What will free allocation look like in Phase IV of the EU ETS? Carbon risk has never been so complex for the aviation industry and it faces many uncertainties.

Background

CORSIA, adopted by ICAO in 2016, causes most international flights to account for their carbon emissions (see Fact Box). However, to the relief of aircraft operators CORSIA does not begin to cover international aviation emissions until 2021, although airline emissions have been part of the EU ETS since the EU took steps to include the aviation sector in the EU ETS from 1st of January 2012.

In 2013 the scope of EU ETS aviation emissions coverage was temporarily reduced to include only intra EU-flights under the ‘’Stop-the-Clock’’ legislation, in response to an international backlash. The EU initially introduced the stop-the-clock legislation for a year, it was then extended until the end of 2016, while ICAO came up with its own plan.

The ambition of CORSIA was to harmonise aviation’s contribution to international emissions reduction efforts.  Instead, the ICAO proposal has increased the number of regulatory regimes that aircraft operators need to keep on top of.  The EU ETS, the KETS, the regional Chinese ETSs all capture domestic aviation emissions (including positioning flights) and the arrival of CORSIA means that international flights are captured too, but by a different regime. Those airlines and aircraft operators that operate in multiple jurisdictions face multiple carbon risks.  The pressure from customers, employees and shareholders to act responsibly towards the environment add another layer of carbon risk that needs to be managed.

Many aircraft operators that we speak to consider that current carbon costs are entirely manageable, in particular, when the cost of meeting shortfalls is compared to the cost of purchasing fuel.  However, over time this outlook will change as free allocations drop and prices ultimately rise. The risk to aircraft operators presented by carbon, like with all of industry, is fast evolving. Our advice is to get on top of the risks now to avoid any surprises and to be prepared for an inevitably carbon constrained future.

Backed up by independent carbon market research from Energy Aspects, Redshaw Advisors provide a number of off-the-shelf solutions to aircraft operators as well as bespoke consultancy services. Some areas of our work that are relevant are:

CORSIA Fact Box

In October 2016 during its triennial meeting in Montreal, ICAO agreed to implement a Global Market Based Mechanism to reduce emissions from international aviation.

ICAO came up with the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) that will compensate for CO2 emissions growth, from a 2020 baseline, by obliging airlines to surrender emission units from carbon offsets projects.

CORSIA will start with a pilot phase from 2021-23 and then a first phase from 2024-26, both are voluntary. So far, 66 states representing more than 85% of international aviation emissions have indicated that they intend to participate from 2021. The system covers routes to and from CORSIA participant countries. From 2027 the scheme will be mandatory and will include most states except Least Developed Countries (LDCs), although they can voluntarily opt-in.

CORSIA still has to define the rules for monitoring, reporting and verifying emissions (MRV) and it is yet to decide on what counts as an eligible offset. Other details, including how to house and submit offsets for compliance are also to be decided.

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