Airlines fear carbon tax as flagship climate scheme develops holes
Brussels to review Corsia system and consider extending levy to long-haul flights
The world’s biggest airlines are grappling with an expected shortfall in the industry’s flagship climate scheme, as they try to fend off the risk of the EU imposing a carbon tax on long-haul flights to countries including the US.
The pool of available credits in the scheme is running low and mostly made up of just one forest protection project — in the South American nation of Guyana.
A group of 130 countries including the US, Canada, Australia and the UK has committed to take part in a UN-backed market system to compensate for international aviation’s carbon footprint, known as Carbon Offsetting and Reduction Scheme for International Aviation (Corsia).
Airlines in these countries must either buy carbon credits or procure so-called sustainable aviation fuel — which is also in short supply — to keep net emissions at 85 per cent of a 2019 pre-pandemic peak.
Brussels is due to review next year how effective Corsia has been at encouraging EU airlines to decarbonise, and whether it should consider extending an existing carbon tax on flights inside the bloc to international flights. Any tax would likely be matched by the UK, which has outlined plans to re-link its carbon tax to the EU’s following Brexit.
Marie Owens Thomsen, senior vice-president for sustainability at the International Air Transport Association, told the Financial Times she had an “intense fear” the EU would proceed with a tax on international aviation.
This would be an “existential threat to our global industry”, like “throwing a nuclear bomb into our system”, because of the increased costs and competitive distortion. Iata represents airlines responsible for 80 per cent of global air traffic, including American Airlines and British Airways.
Countries have been reluctant to greenlight the sale of credits from projects such as national rainforest protection under a recently finalised UN mechanism.
Governments cannot use credits to meet national climate goals once these have been used by airlines, creating a disincentive to sell them.
As a result, MSCI Carbon Markets, part of the global rating agency, has said that nearly all its scenarios for the scheme’s first phase in 2024 to 2026 predict a shortfall of credits available for airlines to buy ahead of a deadline in January 2028. Its most pessimistic scenario puts compliance costs for participating airlines in this period at $10bn.
The reliance on just one project carries reputational risks. MSCI told clients earlier this year in a note seen by the Financial Times that it had identified material “legal” and “ethical” risks for the project, saying Guyana’s government may have overestimated the CO₂ stored in trees.
Guyana said its forest stock had been independently assessed, and that it had a long-term national commitment to keep forests standing.
MSCI also noted a complaint by Amerindian groups that they had not been consulted on the decision to issue credits linked to land they said they own.
ArtTrees, the certifying body hosted by US non-profit group Winrock International, rejected the complaint as well as later appeal in 2023. It was a “global quality benchmark” aiming to “unlock finance at scale for ambitious climate action”, it told the FT this week.
Guyana said its forest protection scheme afforded indigenous groups “genuine self-determination and direct benefit sharing”. It added that the period covered by the complaint preceded the issuance of credits eligible for Corsia.
Historically, aviation has been responsible for about 4 per cent of man-made global warming including all vapours, scientists have found, or about 2.5 per cent of annual CO₂ emissions from burning fossil fuels.
Countries will gather next week for the first assembly of the UN International Civil Aviation Organization (ICAO) agency in three years, to discuss questions that include the implementation of Corsia.
While the scheme is meant to be mandatory for all members from 2027, some including China, India, Russia and Brazil have yet to confirm they will fully take part. Others that have joined, including the US, have not yet passed domestic laws to make it mandatory.
Iata is pushing to increase the supply of credits, and to defend Corsia’s role in the industry’s climate plans.
“The global world order that has governed civil aviation, now that’s going to fall apart, and we’re all just going to go into our little layers and do what we feel like . . . that will also be to the detriment of everyone in the global economy,” Thomsen said.
Iata had called on diplomats in the EU and UK to encourage developing countries with natural carbon sinks such as rainforests to start issuing carbon credits that airlines can purchase and address the “terrifying” shortfall, Thomsen said.
The UK Department for Transport said it had confidence Corsia would become a “strong, effective tool supporting decarbonisation across the aviation sector worldwide”. The ICAO said that Corsia was on “track and providing crucial momentum” to scale up cleaner aviation fuel, cut emissions and provide a market solution.
A bigger problem, industry climate experts say, is that Corsia aims only to limit the pace of aviation growth, rather than to bring aviation emissions down to “net zero” by mid-century. Credits are much cheaper per tonne of CO₂ than the EU and the UK’s carbon tax on other polluting industries.
“Politically, it [Corsia] runs the risk of unravelling,” said Tim Johnson, director of the Aviation Environment Federation. More importantly, “it’s not getting the carbon price up — it’s in crisis for that reason alone.”