Major Airlines Face Carbon Credit Shortage Amid EU Tax Threat

The global aviation industry is bracing for a potential crisis as major airlines grapple with an anticipated shortfall in carbon credits, a crucial component of their compliance with the United Nations-backed Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). Currently, the pool of available credits is alarmingly limited, primarily deriving from a solitary forest protection initiative in Guyana. This precarious situation has raised concerns, particularly as the European Union prepares to evaluate CORSIA's effectiveness in fostering decarbonization among its airlines, with the possibility of extending a carbon tax on international flights.

Airlines are faced with a dual challenge: they must either invest in carbon credits or secure sustainable aviation fuel, both of which are in short supply. The looming threat of increased regulatory costs has prompted fears within the industry, notably from Marie Owens Thomsen, senior vice president for sustainability at the International Air Transport Association (IATA). She expressed concern that an EU tax on international aviation could represent an "existential threat" to the industry, likely distorting competition and elevating operational costs.

Despite commitments from a coalition of 130 countries, including the US, Canada, Australia, and the UK, to participate in CORSIA, hurdles remain. Countries have been cautious about approving the sale of credits from projects like Guyana's rainforest conservation, largely due to concerns that their availability for airline use would hinder national climate goals. Consequently, analysts predict a significant credit shortfall for the scheme's initial phase, with compliance costs potentially soaring to $10 billion by 2026.

The reliance on a singular project for carbon credits poses reputational risks, as assessments have raised questions about the accuracy of Guyana’s carbon storage claims. Indigenous groups have also voiced concerns over a lack of consultation regarding land linked to credit issuance, although the certifying body has dismissed these complaints. Guyana asserts its commitment to forest conservation and the empowerment of indigenous communities through its initiatives.

As the aviation sector prepares for the forthcoming assembly of the International Civil Aviation Organization (ICAO), the future of CORSIA hangs in the balance. While it aims to mandate participation from 2027, several key players, including China and Brazil, have yet to confirm their involvement. IATA is advocating for an increase in credit supply to address the looming shortage and reinforce the scheme's place in global climate strategies.

Experts warn that CORSIA's current framework may only serve to slow the growth of aviation emissions rather than achieve significant reductions. With carbon credits priced considerably lower than those in the EU and UK markets, the scheme risks unraveling politically while failing to elevate the necessary carbon prices to drive genuine climate progress.