Optimizing CORSIA Compliance: Practical Insights for Airlines

The aviation industry is currently navigating a complex landscape of carbon regulations, with the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) at the forefront. A recent webinar, Runway to Regulation: Insights for the Aviation Industry in Preparing for CORSIA, hosted by ClearBlue and featuring insights from industry leaders, shed light on CORSIA's fundamentals, market dynamics, and critical strategies for airlines to optimize their compliance positions.

The webinar featured expert speakers including Jennifer McIsaac, ClearBlue's Chief Market Intelligence Officer; Nico Curtis, ClearBlue's Manager of VCM Market Intelligence; Kedar Kelkar, ClearBlue's Carbon Offset Manager; and James Cooper, Head of Origination for Environmental Products, Europe at Mercuria. These experts underscored the necessity for airlines to proactively engage with CORSIA, highlighting that the sector's long-term goal of net-zero carbon emissions by 2050 depends on a multi-faceted approach, including technology investments, Sustainable Aviation Fuel (SAF) uptake, carbon offsetting, and supportive government policies.

CORSIA: Foundations and Framework

CORSIA was adopted in 2016 by the International Civil Aviation Organization (ICAO), with international implementation standards applying to ICAO member states starting in 2019. The scheme entered its First Phase in 2024, with 129 participating states as of January 1, 2025.

For compliance, airlines have two main pathways:

• CORSIA Eligible Emissions Units (EEUs): These are project-based credits leveraging existing voluntary carbon market infrastructure, but with additional strict criteria.
• CORSIA Eligible Fuels (CEF): This primarily refers to Sustainable Aviation Fuels (SAF) and Lower Carbon Aviation Fuels (LCAF).

Airlines are responsible for annually reporting emissions, purchasing and canceling EEUs, and submitting cancellation reports to their respective states. States, in turn, implement regulations, calculate offsetting requirements, issue Letters of Authorization (LoAs) for corresponding adjustments, and report to ICAO. For the 2024-2026 period, states will notify operators of their offsetting requirements by November 30, 2027, with airlines needing to cancel credits by January 31, 2028.

The Critical Role of Letters of Authorization (LoAs) and Insurance

A key concept underpinning CORSIA is the Letter of Authorization (LoA) and Corresponding Adjustments (CAs), which prevent double claiming of emissions reductions. LoAs ensure that credits used for international purposes like CORSIA are not also counted towards a country’s Nationally Determined Contributions (NDCs) under the Paris Agreement. These can be issued at either the jurisdictional or specific project level, and registries must tag EEUs accordingly to provide buyers with confidence.

For the 2024-2026 compliance period, six programs are approved to supply CORSIA EEUs: ACR, ART, CAR, GCC, Gold Standard (GS), and Verra’s Verified Carbon Standard (VCS). Consistent eligibility criteria include:

• Project first crediting period starting from January 1, 2016.
• Emissions reductions occurring from January 1, 2021, through December 31, 2026 (Vintages 2021-2026).
• Host country LoA, attesting to the avoidance of double-claiming.

Specific exclusions apply, such as California Registry Offset Credits, California Early Action Offset Credits, and grid-connected renewable electricity generation projects with a maximum output capacity greater than 15MW, among other registry specific methodologies and activities.

For Gold Standard and Verra, the EEU criteria also specify that either a corresponding adjustment must have already been applied, or the units must be subject to an approved Guarantee covering all units to which the host country LoA applies. This guarantee acts as insurance against the risk of an LoA being revoked at a future date. Currently, the Multilateral Investment Guarantee Agency (MIGA), a World Bank Group member, is the only insurer recognized by Gold Standard for this purpose. Experts highlighted the need for multiple insurance products to come onto the market to truly unlock more EEU supply.

Supply and Demand Dynamics of EEUs

Preliminary estimates indicate a potential CORSIA Phase 1 credit supply of 453+ million issuances from approved programs (credits with first crediting period 2016+ and vintages 2021-2026). However, after applying program-specific exclusions and removing credits from the United States (which has withdrawn from the Paris Agreement and lacks the infrastructure to apply a corresponding adjustment), this figure drops to 138+ million credits, however the potential supply once factoring in the likelihood of countries issuing an LoA is significantly lower. Of these, over 33 million have already been retired.

Crucially, the current supply of CORSIA Phase 1-eligible EEUs is largely restricted to a single project: Guyana’s jurisdictional REDD+ (J-REDD) program under the Architecture for REDD+ Transactions (ART) framework. While over 49 million credits have been issued to this project, only 15.8 million correspond to the eligible vintages of 2021 onwards.

Regarding demand, the Committee on Aviation Environmental Protection (CAEP) projects Phase 1 offsetting requirements (2024-2026) to be:

• High Traffic Scenario: 148 MtCO2
• Mild Traffic Scenario: 120 MtCO2
• Low Traffic Scenario: 101 MtCO2

These figures do not account for the use of CORSIA Eligible Fuels (CEF), which are projected to contribute only 6 MtCO2 to 11 MtCO2 in Phase 1 due to limited supply. This indicates that the offsetting requirements for EEUs will be quite high.

Looking further ahead, cumulative CORSIA demand from all phases (2021-2035) is projected to be substantial:

• High Scenario: 1.51 billion tCO2
• Mild Scenario: 1.23 billion tCO2
• Low Scenario: 980 million tCO2

Of which the final demand for EEUs depend on the variability in the usage of CEF, which is projected to account for between 70 and 400 tCO2.

Market Activity and Pricing Signals

Historically, the aviation sector's engagement with the Voluntary Carbon Market (VCM) peaked in 2022 with over 20 million retirements, largely led by Delta Airlines, which later withdrew due to greenwashing allegations. In 2024, only 3.91 million credits were retired from the sector. This contrasts sharply with the projected Phase 1 demand and over a billion cumulative demand projected for the entirety of the program, underscoring the significant demand CORSIA is expected to bring for EEUs.

Given the limited supply, EEU procurement events have been key. The IATA Aviation Carbon Exchange (ACE), a centralized marketplace, has hosted procurement events for airlines to bid on EEU volumes at a fixed price.

• The Q4 2024 event saw credits selling at $21.70 per credit.
• The Q1 2025 event had credits selling at $22.25 per credit.
• Each event offered 1 million ART Trees Guyana credits, with over 30 airlines participating and 15 individual airlines making purchases.

These events serve as the first real test case and base example of what CORSIA EEUs could sell for on the market.

Regarding ICE futures exchanges, while theoretically offering advantages like standardized contracts and pooled credit risk, they currently suffer from a lack of liquidity and volume. For instance, the open interest for December 2025 is only 200,000 tons, which is less than most airlines' exposure for the first compliance phase. This scarcity of supply, partly because ART Trees credits are not yet eligible for delivery into the ICE contract, contributes to price discovery issues and observed auction prices being higher than ICE contract prices.

Optimizing Your Market Position Now

Airlines that have been delaying compliance are now realizing that risk is accumulating. The smart decision is not to wait, as prices are high and potentially rising. Airlines are growing tired of waiting for projects that merely promise eligibility and are increasingly seeking units that are already eligible.

James Cooper of Mercuria observed a paradigm shift where more airlines are actively seeking compliance. He highlighted the crucial role of risk takers like Mercuria who take on the project performance risk from airlines, allowing airlines to focus on purchasing a guaranteed, compliant product. This is particularly important for European airlines concerned about EU regulations, with risk takers assuring that "whatever we deliver to you will meet the requirements you need".

Procurement Strategies:

• Spot Procurement: Offers certainty as credits are issued and tagged as EEUs with LoAs. However, availability may be limited closer to deadlines, and prices are subject to market fluctuation.
• Forward Offtake: Allows securing a position and potentially a favorable price, and can contribute to project financing. Buyers must be mindful of project delivery and political risks.
• A hybrid approach is suggested, combining near-term spot purchases with forward offtakes for future positions.

Due Diligence Considerations:

• Project and Methodology Requirements: Ensure alignment with approved registries and protocols.
• Counterparty Assessment: Evaluate the project developer's experience and policies, including land rights for nature-based projects.
• Carbon Quantification: Fundamental aspects like baseline, additionality, and permanence.
• Detailed Risk Assessment: Crucially, evaluate the host country's carbon market frameworks and their ability to appropriately issue LoAs and account for corresponding adjustments.
• Market and Pricing Assessment: Monitor dynamics for purchasing decisions.

ClearBlue also offers bespoke advisory services that can guide airlines to an optimal path forward, integrating its deep knowledge of global markets, carbon policies, and credit procurement ensuring the best moves are made at the right time for each company. 

For market participants seeking to build a base of understanding to support their market engagement, ClearBlue’s new Aviation Basecamp dashboard to provide airlines with timely market analysis, curated news, CORSIA-specific issuance and retirement data, and price summaries across EU ETS, UK ETS, CORSIA, and VCM to keep them informed of market activity and to help them create an optimal strategy for their participation.

Enforcement and Global Participation

While some legislative details are still being finalized, non-compliance with CORSIA in countries where it's in place typically results in a notice of non-compliance and a fee. Airlines often view compliance as a license to operate, particularly national flag carriers, and many will self-regulate and self-police regardless of a clear penalty, making it a "doing the right thing element".

The role of the United States remains a significant topic. Under current FAA rules, compliance is voluntary. It is unlikely the current administration will make it a strict compliance requirement with clear penalties. However, individual US-based airlines are already engaging in purchasing activity. The risk for US airlines of not complying with CORSIA is potentially ending up under the EU ETS for international aviation, which would entail orders of magnitude in the cost potential compared to CORSIA. The ambition from the 129 countries signed up for the voluntary Phase 1 underscores a collective willingness to participate, irrespective of direct US governmental mandates.

Governments face challenges in issuing LoAs, involving forward-looking scenario testing, national inventory assessment, reinvestment strategies, overselling risks, and benefit-sharing mechanisms for Indigenous Peoples and Local Communities (IPLC). Despite these teething issues, being first to market with CORSIA creates a price signal that fosters ingenuity and will lead to more supply, as Phase 2 looks even more tight. Countries like Guyana, Thailand, Ghana and Cambodia are showing willingness and have advanced frameworks for issuing LoAs. There is a clear financial incentive for these countries to establish these procedures, as they will drive revenue from exporting credits.

Ultimately, the market is "functioning," and while it may not be oversupplied for every airline, the demand for correspondingly adjusted high quality credits is strong, extending even beyond airlines (e.g., Apple buying from Guyana's J-REDD program). Misinformation and fraudulent claims are dissipating, signaling a maturing market.

For more information and to understand the nuances of CORSIA, especially concerning potential EU ETS regulations, contact ClearBlue directly.