The balance between promoting greater global connectivity via air travel and protecting the environment against increasing emissions has been a complex and nuanced discussion between regulators, airlines, commercial and financial stakeholders, as well as environmental/social justice organizations. The growing COVID-19 Coronavirus health crisis and the economic impact on the airline industry has only re-energised the debate on how far emission countering measures, including carbon pricing instruments, should go, and how these measures might impact the aviation sector in the years to come.

In this client alert, we consider the International Civil Aviation Organisation's[1] (ICAO) ratification of the rules governing the eligibility of the carbon offset programmes of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). CORSIA has been hailed as proof of the aviation industry's continuing commitment to climate change.

What is CORSIA?

In October 2016, ICAO adopted CORSIA, a global market-based mechanism to combat the CO2 emissions produced from international aviation. CORSIA requires flight operators to offset a part of their emissions through the purchase and cancellation of CORSIA eligible emissions units (also known as carbon credits).

The CORSIA obligations came into force on 01 January 2019, and were adopted as an Annex to the Chicago Convention[2]. Aircraft operators conducting international flights between countries signatories to the Annex and producing annual CO2 emissions greater than 10,000 tonnes must:

  • have prepared and submitted an Emissions Monitoring Plan (EMP)[3][4] to their national competent authority[5] by 28 February 2019;
  • monitor and record fuel use on each flight from 01 January 2019. This can be done using ICAO's estimation and reporting tool (CERT);
  • submit an annual Emissions Report (ER) to their competent authority containing the number of international flights and CO2 emissions; and
  • cancel emissions units at the end of each 3-year compliance period. Operators will be required to submit a cancellation report to their competent authority demonstrating that they have satisfied their offsetting requirements by cancelling the appropriate number of emissions units. Flight operators that took part in the CORSIA pilot phase be will required to do this by 31 January 2025

Emissions from domestic flights are outside the scope of CORSIA.

Carbon Offsetting

The idea behind carbon offsetting is that airlines can compensate for their CO2 emission output by funding an equivalent reduction in emissions elsewhere (e.g. investing in a project, which reduces CO2 emissions). Carbon offsetting is considered to be an essential tool to slow the airline sector's emissions growth and to be more effective than regional and national measures such as carbon "eco" taxes, which do not guarantee emission reductions.

Under CORSIA, airlines will have to buy emissions reduction offsets from other sectors to compensate for any increase in their own emissions. Alternatively, they can opt to use lower carbon "CORSIA eligible" fuels[6].

ICAO set an aspirational goal of making all growth in international flights after 2020 carbon neutral. In other words, the members agreed that the average emissions for 2019/2020 should be used as the baseline for future carbon offsetting.

When will these offsetting measures start to apply?

CORSIA will be implemented in phases in order to take into account the special circumstances and respective capabilities of member states. Offsetting requirements are to apply from 2021 as follows:

  • From 2021 until 2026, only flights between states that volunteer to participate in the pilot phase (2021-2023) and/or first phase (2024 – 2026) will be subject to offsetting requirements. Member states can volunteer by notifying ICAO of their intent to participate by 30 June of the preceding year (see Annex A for the list of States that have signaled their intent to voluntarily participate from the outset).
  • From 2027 until 2035, all international flights across ICAO member states will be subject to offsetting requirements, unless exempted. Exemptions relate to flights to and from Least Developed Countries[7], Small Island Developing States[8], Landlocked Developing Countries[9] and states, which represent less than 0.5% of international Revenue Tonne-kilometres[10].

Each participating Member State will be responsible for introducing domestic legislation that requires airline operators to comply with CORSIA and sets out the enforcement measures for non-compliance (i.e. not purchasing enough credits, failing to accurately report emissions etc.)

Has COVID-19 put CORSIA in jeopardy?

The decline in commercial air traffic due to the COVID 19 pandemic began during the third week of January and has been accelerating since. The average number of daily departures from China's 25 busiest airports fell by 8,000 (an 80% drop) during the period from January to February alone[11]. During last March, global commercial air traffic was down 21.6% from March 2019, and in the final week of March, commercial air traffic was down 62.9% from the same period in 2019.[12]

As explained above, ICAO had agreed to use the 2020 emission figures as the baseline figure for CORSIA. However, given the unprecedented interruptions to global travel flows due to COVID-19, the 2020 figures will most likely be significantly lower than anticipated. The unexpected shift in the baseline, and the anticipated rebound in air traffic (and hence emissions) in coming years, could increase the number of offsets airlines to make more carbon offsets than previously anticipated. This means a potential increase in compliance costs as airlines will need to purchase more carbon credits to comply with CORSIA than factored in by the industry.

This potential cost increase does not seem to deter the ICAO’s commitment to CO2 reductions. Indeed, the ICAO published, in the midst of the pandemic, the eligible emissions units for CORSIA. However, whether ICAO relaxes the requirements to help facilitate the sector's rebound remains to be seen.

New Eligible Emissions Units

On 13 March 2020, ICAO approved the eligible emissions unit programmes that airlines will be able to use to meet their offsetting obligations for the initial pilot phase of CORSIA. The decision confirms that the following six emission unit programmes out of the fourteen applicants immediately met CORSIA's Emission Unit Criteria (EUC)[13] as judged by the 2019 Technical Advisory Body’s (TAB)[14] assessment:

The above six emission unit programmes:

  • were able to "generate units that represent emissions reductions, avoidance, or removals that are additional"; and
  • provided information as to how they addressed the issue of "double counting, issuance and claiming in the context of evolving national and international regimes for carbon markets and emissions trading"[17].

Looking ahead

The eligible emissions units will be those issued to activities which commenced as of 1 January 2016, and in respect of emissions reductions occurring through 31 December 2020, subject to each programme’s respective scope of eligibility. ICAO launched the 2020 TAB assessment of emissions unit programmes on 23 March 2020 (two 2019 applicants, British Columbia Offset Program and Thailand Voluntary Emission Reduction Program, were invited to re-apply here). Applicants had until 20 April 2020 to submit their application. It is too early to say with certainty what the ultimate impact of COVID-19 will be on CORSIA. However, given the financial hardship it caused to the industry, ICAO may face growing calls to revise the baseline year to reflect more conventional flight demand levels. No indication has yet been given by ICAO as to how it will handle this issue. For now, ICAO has simply decided to postpone the 2020 ICAO CORSIA Regional Seminars to a later date[18]. These two-day seminars were scheduled to provide Member States with additional clarity on CO2 verification procedures.

One thing is for certain, in light of heightened stakeholder activism, growing environmental, social, and governance reporting requirements and the pressing need to address climate change, CORSIA is here to stay. Airlines will need to factor-in compliance with CORSIA in their post-COVID-19 business model and beyond. ICAO CORSIA Implementation Elements ICAO CORSIA Emissions Unit Eligibility Criteria *As of 27 February 2020, 82 States signaled their intent to voluntarily participate in CORSIA from its outset in 2021.