Europe Just Backed CORSIA for the Next Decade
In December we wrote that CORSIA had moved out of the design phase and into implementation, and that the real question was whether the scheme would hold together once airlines had to spend money on it. Eight months later we have a better answer than most of us expected.
On 17 July the European Commission published its revision of the EU Emissions Trading System. For the previous year, a lot of people in Brussels had been arguing that Europe should give up on ICAO's global scheme and simply bring international aviation back under the ETS. The Commission chose not to. Instead it proposed writing CORSIA into European law for the entire 2027 to 2035 period.
That is a stronger endorsement than the coverage suggested, and it changes the outlook for anyone supplying credits into this market.
What was proposed
From 2029, the ETS would cover flights leaving the European Economic Area for destinations within roughly 5,000 kilometres of Frankfurt. Istanbul, Cairo, Tel Aviv and Dubai fall inside that line. New York, Delhi, Shanghai and São Paulo fall outside it. Private jets come into scope wherever they fly, and arriving flights from third countries stay out.
Airlines operating inside the perimeter will not be charged twice. The proposal includes a deduction so that CORSIA costs come off the ETS bill for the same tonne of carbon.
Alongside that, the Commission dropped the extra eligibility conditions it had previously threatened to impose on Phase 1 CORSIA units, and set a review for 2032. If CORSIA is judged to be working well by then, the ETS scope contracts back to intra-European flights. If it is not, the ETS extends to everything departing Europe.
Why we read this as good news
Europe has spent fifteen years as CORSIA's most demanding critic. Having the EU commit to recognising the scheme through 2035 removes a risk that has been hanging over aviation credits since Phase 1 opened, namely that the world's strictest climate regulator would eventually walk away and take the demand with it.
The 2032 review is also a smarter piece of policy design than it first appears. It gives ICAO members a clear, dated reason to strengthen the scheme, and it does so without Europe simply overriding the global process. Countries that want to keep long-haul flying out of the ETS now know exactly what they need to deliver.
Markets took the point quickly. CORSIA futures rose significantly the week after publication, and has continued to steadily rise since.
Demand is going up
The more important number is what the proposal does to volumes. AlliedOffsets puts the newly covered routes at roughly 50 million tonnes of additional CORSIA demand by 2035, somewhere near 14% on top of where global demand sat before July. Because of the way the deduction is designed, airlines inside the perimeter still have to cancel CORSIA units. The obligation is preserved rather than replaced by allowances.
This arrives in a market that was already tight. ICAO's tracker shows around 41 million eligible emissions units in existence. Estimates of the Phase 1 requirement run could be upwards of 150 million and airlines have until 31 January 2028 to retire units covering their 2024 to 2026 emissions. Phase 2 becomes mandatory for most states from next year.
The constraint has never really been demand. It is supply, and specifically it is host-country authorisation. Fourteen countries have their authorisation arrangements finalised. Around eighty-six more are somewhere in the process. Until those letters are issued, credits that look eligible on paper cannot actually be used for compliance.
What authorisation looks like in practice
It is worth being concrete about why the supply side moves so slowly, because the gap is easy to misread as a shortage of projects. There is no shortage of projects. There is a shortage of projects that have been taken all the way through.
DelAgua's clean cooking programme in Rwanda is a reasonable illustration. It is one of the largest of its kind anywhere and has been running for years, but making it usable for CORSIA compliance still required meeting a higher standard of measurement and then obtaining authorisation from the Rwandan government. That second step is not something a developer can do on its own. It means Rwanda agreeing to add those tonnes back onto its own national inventory so that an airline somewhere else can count them. Understandably, countries take their time over that decision.
We took delivery of a tranche from the programme in June, and the timelines involved are the reason the sequencing matters more than the paperwork suggests. The Uganda programme we signed with DelAgua in May, covering 210,000 stoves, was structured for CORSIA from the outset for the same reason. Retrofitting eligibility onto a project after the fact is much harder than designing for it.
Multiply that across the eighty-six countries still working through their authorisation arrangements and the shape of the next two years becomes clearer. The July proposal has given the market a decade of demand visibility. Whether the supply arrives in time to meet the January 2028 deadline depends on work that is already underway in a lot of capitals, and that mostly cannot be accelerated by anyone buying credits.
Written By - Benjamin Michelson
