UN Airline Carbon Ruling Could Add Cost Pressure Amid Pandemic
UN Airline Carbon Ruling Could Add Cost Pressure Amid Pandemic
(Bloomberg) --
The global aviation regulator’s decision to toughen a new carbon market for airlines will cut supply of emission credits to offset greenhouse gases as the coronavirus slams ticket sales.
Only credits from emissions-cutting projects beginning in the five years starting Jan. 1, 2016, will be allowed, the United Nations’ International Civil Aviation Organization said on Friday. The Carbon Offsetting and Reduction Scheme for International Aviation, or Corsia, calls for airlines to compensate for their carbon growth beyond 2020 by buying emission credits.
The rules will “dramatically reduce supply” available to airlines in Corsia, said David Antonioli, chief executive officer of Washington-based Verra, which manages the Verified Carbon Standard, the biggest program for voluntary carbon credits globally.
ICAO’s decision to restrict the pool of eligible offsets could boost costs at a time when the airline industry reels from the plunge in bookings caused by the viral outbreak as people scrap travel plans and countries place restrictions on flights from nations with the highest levels of infection.
The regulator is seeking to address the omission of airlines from the 2015 Paris climate accord by adopting guidelines that call for offsetting emissions by planting trees or investing in cleaner technologies.
Six programs were ruled eligible in Corsia, including the UN Clean Development Mechanism, where Certified Emission Reduction prices have been crushed because of a lack of demand.
The Corsia restrictions won’t save existing market prices because many of the credits traded in those were issued before 2016. But a new post-2016 Corsia market is now set to emerge.
The 2016 cutoff will probably exclude about 90% of projects listed on Verra’s database, and meeting demand is “probably going to take investment in new projects,” Verra’s Antonioli said.
While credit prices could increase, there will still be enough supply to meet demand weakened by the coronavirus pandemic, researcher Ecosystem Marketplace said in a report published before ICAO’s decision.
Current and potential supplies of offsets are between two and four times higher than the demand estimated in the International Air Transport Association’s latest coronavirus scenarios, Ecosystem Marketplace said.
The Corsia rules will probably only be a problem for airlines if they can return to health next year. But if the current airline and travel industry crisis continues, demand for jet fuel and the need for offsets will fall.
On the bright side for the industry, it won’t need to account for its emissions until after the end of the compliance period, providing a chance for the market to boost supply of carbon credits.
For Corsia, there may be an initial flurry of activity during the next few weeks, but “the real buying probably won’t happen until the lead up to 2024, the year of the first compliance true up -- when airlines know their actual exposure,” said Louis Redshaw, founder of London-based carbon trading company Redshaw Advisors Ltd.
To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net
To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Andrew Reierson, James Amott
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