24/04/26
Carbon - In focus: Corsia debate heats up with EU draft
Carbon - In focus: Corsia debate heats up with EU draft
London, 24 April (Argus) — The EU's draft proposal to impose additional
eligibility criteria on credits approved for the first phase of the Carbon
Offsetting and Reduction Scheme for International Aviation (Corsia) used by
European Economic Area (EEA)-based operators, while intended at supporting
integrity and quality of credits, could dampen confidence in the scheme by
fragmenting the market and making it increasingly difficult for airlines to
comply, and posing a higher burden on EU airlines, market sources told Argus.
The European Commission aims to adopt the implementing act that lays out the
requirements for Corsia credits in the second half of 2026. A draft proposal
discussed at the European Commission's expert group on climate change policy
(CCEG) seen by Argus earlier this week suggested additional criteria for credits
used by EEA-based operators to comply with Corsia obligations could render
nearly all of the existing Corsia Phase 1 (CP1) tagged supply ineligible for the
bloc. This "represents preliminary ideas and not an official position of the
commission," a commission official told Argus on 24 April. According to the
proposal, projects crediting existing stocks of carbon through high forest, low
deforestation (HFLD) methodologies — such as the Guyana-based forestry project
registered on the ART-TREES registry which currently has 25mn CP1-tagged credits
of the 34mn tagged in total so far — and from projects whose fraction of
non-renewable biomass (fNRB) is above the host country value, as adopted in
Table 3 of version 3.0 of TOOL33 of the Clean Development Mechanism. The
proposed rules suggest clean cookstove projects could cancel some of their
credits to reach the volume they would have issued with an appropriate fNRB
value and become eligible ex-post. This would leave with just about 10pc of
existing credits eligible. It is also unlikely any developer takes this path. "I
cannot see any project developer voluntarily sacrificing credits ex-post," a
developer told Argus, adding that even if the EAA airlines would pay for the
revenue differential, by doing this, developers would implicitly be agreeing
that their initial math was flawed to prospective non-EAA airlines. The
commission is proposing to set Article 6 of the Paris Agreement (PA) as a
benchmark for credits to be purchased and cancelled by EAA airlines as part o
their Corsia obligations, a "clear signal in support of environmental integrity
and Article 6, including the Article 6.4 of the PA crediting mechanism … the
best-in-class on credits' quality," the official said. Adding that the proposal
for CP1 aimed at providing airlines with more flexibility for their compliance
compared with Phase 2, "while excluding credits with the lowest environmental
integrity." Some developers speaking to Argus raised concerns that industry
players may unfairly infer that this rule speaks to the quality and integrity of
HFLD and other related methodologies in the future, which may have ripple
effects into the wider voluntary carbon market. That said, one intermediary said
they would "rather have a strong scheme than have another [mainstream media]
attack on the market." The market could form an argument that metered
methodologies with accurate emissions reduction calculations are useful and even
necessary, another source said. Price to soften on tepid demand The proposed
criteria for EEA airlines could lead to market fragmentation if approved, and
cost operators based in the bloc much more to comply with Corsia compared with
their non-EEA peers. Many market stakeholders were digesting the proposed rules
throughout the week, but said these might temporarily pressure prices for
CP1-tagged credits, provided that none of the existing compliant credits —
except the 500,000 generated by a methane reduction project in Uzbekistan which
just received the tag on 24 April — meet the criteria. EAA airlines may switch
to project types different to the existing supply to fulfil their obligation
under Corsia Phase 1, and allow non-EAA airlines to snap up the remaining
credits at relatively lower prices. CP1 demand from EEA countries is estimated
to count for around 10-15pc of the total projected demand for this phase, for
emissions generated in 2024-26. The EU applies its own emissions trading scheme
(EU ETS) for any intra-EEA flights, and only applies Corsia for extra-EEA
flights. Further out, prices for CP1-tagged credits could face further pressure
as the market nears the deadline for submitting biennial transparency reports —
greenhouse gas inventory submissions to the UN. This is when host countries will
have to apply corresponding adjustments — stamp emissions reductions for export
and acknowledge they will not be counted towards its nationally determined
contribution to avoid double counting. Prices could face a sustained fall with
an even greater pool of supply against stagnant demand, a market source said.
Shifting supply pipelines In response to tightening restrictions on supply from
the EU, developers could adjust their project pipelines to tap into an emerging
two-tiered pricing structure and sell at a premium in the EAA. For instance,
most developers of methane reduction projects in countries that have capacity to
approve exports under Article 6 of the Paris Agreement by providing a letter of
authorisation are targeting Corsia, some said. One such project in Asia that
received a letter of authorization (LoA) from its host country this month could
supply about 700,000 credits into the scheme. But the developer is facing delays
in obtaining insurance, and therefore the CP1 tag. Regardless, it is targeting
to sell to Asian end users, Argus understands. "We expect more [CP1-compliant]
supply to come online. It is key to uphold higher quality for credits, and we
hope to orientate future supply in the right direction. We will strike a balance
between this and allowing EEA airlines to meet their offsetting obligations,"
the commission official told Argus. But this will come at a cost for European
carriers. "It's not the same being unable to comply due to [an overall] lack of
supply and being unable to comply due to restrictions imposed by your government
that fall outside the scheme's rulebook," the intermediary source said. Further
supply could come from large-scale renewable energy or non-jurisdictional
reducing emissions from deforestation and forest degradation credits. But this
would be a step back from the commitment to quality highlighted in the EU draft
proposal. Renewable energy methodologies were rejected by the Integrity Council
for the Voluntary Carbon Market (ICVCM) for its high-integrity Core Carbon
Principles tag in 2024 because they had broadly not considered additionality, a
principle that proves a project would not be able to exist without carbon
finance. Although, the ICVCM expects one new renewable energy methodology
currently under development may receive the CCP label in the near future, Argus
understands. Fragmented pricing, for a while A temporary two-tiered pricing
structure could emerge driven by regional supply restrictions, until prices
merge when extra-EAA participants soak up the credits that would not be eligible
in the EAA, and developers adjust projects based on the prevailing sub-market,
some said. One developer currently holding CP1-tagged credits said they were not
taking any forward-looking decisions based on this proposal alone. Developing or
transferring projects can take months, depending on registry administrative
capacity, with little time for the new project pipeline to recalibrate in line
with new EU criteria. Therefore, adopting the implementing act in the current
proposal's shape would make it more difficult for European airlines to comply
and raise their costs. Reducing supply and narrowing a globally standardised
approach is a "sub-optimal outcome for all concerned ," a market source said.
What next? In its current form, the proposal does not send a signal of
confidence to stakeholders, and may affect ongoing tenders and future CP1
demand. In recent weeks a large EU-based carrier was seeking significant volumes
for compliance — for about 6mn spot tagged credits — with a view to purchasing
by June or July. The said carrier was likely aware about the EU concerns
already, as they asked suppliers to offer guarantees should the EU put extra
layers of requirements for eligibility of credits in the terms of the request
for proposals (RFP), a source involved in the auction said. The European
Commission told Argus on 24 April that it will adopt the final implementing act
on the criteria for credits for EEA airlines to meet their Corsia offsetting
obligations in the second half of this year. This will likely follow a wider
review of the EU ETS expected to be announced in July, whereby the commission
will also express an opinion whether it thinks the Corsia scheme is sufficient
for the aviation sector to meet Paris Agreement objectives or whether it
believes the EU ETS should be extended to international flights. "We urge all
partners to continue the momentum under the internationally agreed cleaner
energy, innovation, operational improvement, and market-based mechanisms that
function together to drive progress towards net zero carbon emissions by 2050,"
a spokesperson from the International Civil Aviation Organization (Icao) — which
is the body managing the Corsia scheme — told Argus. Adding that they would not
comment on the position of external parties. By Alexandra Luca Send comments and
request more information at feedback@argusmedia.com Copyright © 2026. Argus
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