The aviation industry is bracing for a major shift as a predicted shortfall in CORSIA-eligible carbon credits threatens to drive prices as high as $50 per tonne of CO2, according to a new report by MSCI. Analysts estimate a supply gap of up to 40 million units during the scheme’s first mandatory phase, from 2024 to 2026, which could have wide-ranging impacts on airlines and ticket prices.
View of a dense forest from an airplane window. AI generated picture.
At the heart of the supply challenge is the need for ‘corresponding adjustments’ (CA), a mechanism under the Paris Agreement to ensure emissions reductions are not double-counted. Few governments have the necessary infrastructure to issue Letters of Authorization (LoAs), which are critical for CORSIA compliance. MSCI's analysis of 40 nations revealed that only two are fully prepared to implement these adjustments, casting doubt on credit availability throughout the decade.
The demand for CORSIA-eligible credits is expected to hit 106–137 million tonnes of CO2 equivalent (MtCO2e) in Phase One. In Phase Two (2027–2035), demand could soar to 502–1,299 MtCO2e, driven by aviation growth and decarbonisation challenges. Meanwhile, supply in Phase One is estimated at just 94 MtCO2e, leaving airlines facing a potential shortfall that could disrupt compliance and operational costs.
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CORSIA credit prices are projected to range from $18–$51 per tonne in the first phase, rising to $27–$91 in later stages. Airlines may face additional costs of $1.9–$7 billion in Phase One and $13–$109 billion in Phase Two. These costs could translate into ticket price increases of up to $5, depending on whether airlines pass them on to passengers or absorb them in their operations.
Developers of carbon offset projects warn that the anticipated credit deficit may force airlines to rethink their CORSIA strategies. Airlines could either secure forward contracts to hedge against future price spikes or risk higher costs later in the compliance period. The report also noted increased competition for Article 6 credits, which are in high demand among corporations and governments.
The release of the MSCI report coincides with COP29, where international leaders agreed to finalise Article 6 rules. This development may open pathways for greater market participation and could help ease the supply bottleneck. However, experts caution that without accelerated action from governments and registries, meaningful supply growth may not occur until the late 2020s.
While CORSIA is vital for limiting aviation emissions in the near term, industry leaders stress the importance of long-term solutions such as sustainable aviation fuels (SAFs), fleet upgrades, and operational efficiencies. Airlines with slower decarbonisation efforts may face steeper offsetting costs, further incentivising investments in greener technologies.
CORSIA serves as both a challenge and an opportunity for aviation. As the industry grapples with tight credit supplies and rising costs, collaboration with carbon markets and regulatory bodies will be crucial in meeting global environmental goals.
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