GREENAIR NEWSLETTER 30 APRIL 2019
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Delta offsets the carbon emissions of 300,000 passengers in celebration of Earth Day
Tue 30 Apr 2019 – To coincide with Earth Day last week, Delta Air Lines offset the emissions of over 300,000 passengers on domestic flights into and out of New York, Boston, Seattle, Los Angeles, Raleigh-Durham and Atlanta. As a result, the carrier said it will buy around 50,000 carbon offsets that will benefit the Conservation Coast project, which provides environmental protection from deforestation and sustainable economic opportunities for communities in Guatemala. In 2013, Delta purchased over 500,000 UN CDM credits that were intended for compliance with the EU Emissions Trading System but were not subsequently required as the scope of the scheme changed. Instead, the credits were retired against the airline’s 2013 emission levels and Delta has since voluntarily capped carbon emissions at 2012 levels by purchasing offsets.
“Delta led the US aviation industry by launching the first carbon offset programme in 2007, making it easy for customers to reduce the environmental impact of their travel,” said John Laughter, SVP Corporate Safety, Security and Compliance. “Delta is also the only major airline to voluntarily cap carbon emissions.”
Since 2013, Delta has purchased over 12 million offsets – “more than any other airline,” it said – that was equivalent to the emissions from 1.7 million cars or electricity use for one year in nearly 2 million homes.
The Conservation Coast project, run by Ecosphere+, helps conserve over 400 bird species and 54,000 hectares of threatened rainforest along the Caribbean coastline of Guatemala. It also supports local communities through teaching economically viable and environmentally sustainable agricultural practices. To date, said Delta, over 700 jobs are being supported by the project, 30% of which are held by women.
“The offset projects we support are holistic, going beyond addressing the environmental impact of travel to provide resources, empowerment and financial opportunities to underserved communities like those involved in the Conservation Coast project,” said Laughter.
Delta passengers on the Earth Day flights received plantable seed paper cut-outs shaped like airplanes to inform them the environmental impact of their flight had been offset. Once planted the seeds can produce non-invasive wildflowers.
The airline said it hoped the gesture would inspire customers to offset their additional travel in future through its carbon offsetting web page. Offsetting is affordable, it added, with a roundtrip journey from Atlanta to New York emitting 0.28 tonnes of CO2 that would cost less than $5 to offset. Delta partners with The Nature Conservancy on its voluntary offsetting programme and customers can also donate their airmiles to the conservation organisation.
Weather data service from Avtech helps Norwegian save fuel and emissions as well as providing added safety
Mon 29 Apr 2019 – A weather forecasting service developed by Swedish IT company Avtech has enabled Norwegian Air Shuttle to reduce CO2 emissions by 2,000 tonnes from its Boeing 737-800 fleet over a three-month test period. Avtech’s 10K resolution weather service allows pilots to avoid unfavourable winds at given altitudes during the flight and to start the descent phase at the right moment. No new equipment needs to be installed on the aircraft as all real-time calculations are made on the ground by Avtech. The 10K weather grid is based on the UK Met Office’s high-definition weather modelling system and calculations on a per-flight basis use Avtech’s patented algorithms. The company claims that as well as saving fuel and emissions, the system can provide added safety and help avoid cabin incidents caused by clear air turbulence.
“We saved from one to 80 kilograms of fuel per flight – the average being 22 kilos – purely by optimising the descent phase of the flights,” said Norwegian pilot and project manager Stig Patey. “Our pilots have reportedly been very pleased with the easy-to-use service that in real conditions proved to be much more accurate than the standard weather systems.”
An average saving of 22 kilos of fuel per flight across 33,000 flights a day could result in fuel savings of around 700,000kg per day in Europe alone, estimates Avtech, equivalent to a reduction of over 2 million kilograms of carbon emissions.
The Met Office, alongside the US NOAA, is one of only two World Area Forecast Centres (WAFC) that deliver regulated high-level weather information for aviation services.
“Our Cray supercomputer gathers 215 billion weather observations a day from all over the world, which it then takes as a starting point for running atmospheric models,” said James Guscott, Senior Account Manager at the Met Office. “With Avtech we have developed a solution that allows airlines to benefit from our 10km high resolution source data by application of a 4-dimensional trajectory API. The result is that our big data can be developed into better data for airlines.”
Added David Rytter, Chief Technical Officer at Avtech: “The timeliness and accuracy of our high-definition weather forecasting means that the normal pre-flight package is usually sufficient on shorter flights. On longer flights, updates can be uplinked when necessary, since the files are very small in size.”
The Met Office’s Transport Business Manager, Emma Connett, said: “Weather has always been one of aviation’s greatest hazards and it is becoming even more of a risk as we continue to see an increase in the intensity and frequency of extreme weather events. As a result, it’s increasingly important that airlines have access to the most up to date weather information available to inform decision-making.”
Avtech says another benefit is that its services are scalable to airlines of different sizes.
“Our service has already proven to be valuable for Norwegian and other customers but we are still at the beginning of a paradigm shift,” said Sören Skog, Marketing Director at Avtech. “In 2017 alone, more than 300 passengers were hospitalised for more than 24 hours due to accidents caused by turbulence, so using our high-definition 10K weather data can help airlines save a lot from different perspectives.”
ACI’s global carbon management programme for airports completes its first decade
Fri 26 Apr 2019 – As it completes its tenth year since launch, the industry’s Airport Carbon Accreditation programme now has 264 airports in over 70 countries certified at one of its four levels, reports trade body Airports Council International (ACI). Initially launched in Europe in 2009, the independently managed programme has expanded to become the global standard for airports worldwide to address their carbon footprint. It has been live in Asia-Pacific since late 2010 and 18 of the 54 airports accredited in the region were presented with their annual certificates during the recent ACI Asia-Pacific & World Annual General Assembly held in Hong Kong. The highest level of the programme aims to ensure the carbon neutrality of airport operations and ACI has released a guidance document on carbon offsetting. During the Assembly, Green Airports Recognition 2019 awards were presented to nine Asia-Pacific airports for outstanding environmental achievement.
“The global airport industry is committed to reducing its carbon emissions and the Airport Carbon Accreditation programme was launched to empower airport operators with a detailed, multi-step path to carbon neutrality. We are delighted that the programme quickly gathered global momentum, which is a reflection of how airport operators think local and global,” commented ACI World Director General Angela Gittens.
To reduce their carbon emissions, airport operators need to consider the full extent of the emissions sources under their direct control, with investment in, for example, energy efficient lighting, heating, switching to hybrid or electric ground vehicles, onsite renewables, energy management tools and employee behavioural change. At the two highest levels of the programme, operators must engage with other stakeholders on the airport site, says ACI, with initiatives such as Airport Collaborative Decision Making (A-CDM), support to lowering airline-associated carbon emissions through Continuous Descent Operations and Time-Based Separation, and offering cleaner transport solutions to passengers travelling to and from the airport.
“Running an airport is a complex business and airport operators are one piece of this puzzle with many stakeholders on the airport site,” said Gittens. “Working relationships need to be fostered and maintained and airport operators are addressing their direct carbon emissions, but also engaging partners to address theirs.”
Carbon neutral airports have to provide evidence of undertaking all the actions required by the programme – mapping their emissions, reducing them and engaging others on the site – before investing in carbon offsets. ACI reports that the 44 airports certified as carbon neutral during the year to May 2018 (programme year 9) offset 672,000 tonnes of CO2 in residual emissions. The number of carbon neutral airports in the programme has since risen to 49 worldwide.
The newly-published offsetting guidance document is aimed at helping airports select high quality offsets. The document is based on an offsetting study for airports carried out by Ecofys and completed last year. It included the identification of key offsetting quality criteria and the assessment of offset programmes against them. Based on the assessment, a proposed list of eligible offset programmes was established and offset project types were attributed different degrees of confidence in their compliance with the quality criteria. The study was reviewed and the guidance document agreed by the Airport Carbon Accreditation Task Force and Advisory Board. Offset programmes approved include the UN’s Clean Development Mechanism, Verified Carbon Standard, Gold Standard, Climate Action Reserve and American Carbon Registry.
Airport Carbon Accreditation is administered by consultancy WSP and overseen by its Advisory Board that includes representatives from the UNFCCC, ICAO, the European Commission, ECAC, Eurocontrol and Manchester Metropolitan University.
“In terms of pure scale, climate change is a daunting challenge – people’s reactions range from intense anxiety to jaded cynicism. The best response is to try to do something about it – starting by taking responsibility for what you control, for what you deal with,” said Niclas Svenningsen, who heads UNFCCC’s Climate Neutral Now initiative.
“For this reason, I congratulate ACI on a decade of Airport Carbon Accreditation. It is an inspiring example of an industry that proactively sought to make a positive change and now with 264 airports on board it is succeeding in doing that. I invite people to find out more about their local airport’s involvement and ambitions – mobility is a fundamental part of life, so let’s try to make it as efficient and ecological as possible.”
The Green Airports Recognition was established by ACI Asia-Pacific to promote environmental best practice in the region and recognise members that are minimising their environmental impacts. Understanding that airports have different priorities in their development programmes, each year a new theme of environmental recognition is chosen, which this year was airport infrastructure.
Recognition in the over 45 million passengers per year category went to New Delhi Indira Gandhi International (platinum), Mumbai Chhatrapati Shivaji Maharaj International (gold) and Hong Kong International (silver). The 10-45 million pax/yr category recognitions went to Taipei Taoyuan International (platinum), Sydney (gold) and Hyderabad Rajiv Gandhi International (silver). Adelaide (platinum), Abu Dhabi Al Bateen Executive (gold) and Fiji’s Nadi International (silver) were recognised in the under 10 million pax/yr category.
During the ACI Assembly, senior representatives from the Royal Schiphol Group, Kenya Airports Authority and Galapagos Airport committed to combatting wildlife trafficking by signing the United for Wildlife Transport Taskforce Buckingham Palace Declaration. The agreement sets out tangible steps that can be taken to close the routes exploited by traffickers of the illegal wildlife trade as they attempt to move their products from rare and vulnerable ecosystems to market.
The issue was also feature at a forum at the Assembly to help airports identify opportunities to develop a framework of action against wildlife trafficking. ACI is one of several industry partners, which also includes IATA, working with the USAID ROUTES Partnership to engage and support industry, provide training and raise awareness.
“Species are being hunted to extinction through the illegal killing and trading of wild animals. We seek to build a broad international coalition to be truly effective in combatting these deplorable practices,” said Angela Gittens. “Airports play a key role in this fight and we encourage more airports and more of our partners to collaborate with us in this important work.”
The Assembly also passed a resolution that calls for increased engagement with ICAO on policy development, capacity building and environmental protection.
“The resolution identifies target areas for advocacy, including safety, security, efficiency and environmental protection, in particular the need for aviation to develop more ambitious greenhouse gas emission reduction goals to meet the objectives of the Paris Agreement,” stated Gittens.
All Finland’s airports to be carbon neutral this year as Finavia brings forward climate programme goal
Mon 8 Apr 2019 – Finnish airport operator Finavia now expects all of its airports to be carbon neutral in 2019, one year earlier than previously planned. Helsinki Airport was certified as carbon neutral in 2017 under the industry’s four-stage Airport Carbon Accreditation (ACA) programme and airports in Lapland are set to be similarly certified shortly. Carbon neutrality requires offsetting of CO2 emissions an airport cannot manage operationally and emissions at other Finavia airports that have not yet been certified at the highest ACA level will still be offset. A second installation of solar panels is currently being fitted to the roof of the airport terminal and is increasing installation in other areas of the airport to be newly built.
“It is important for air traffic operators to develop their operations to reduce emissions. We want to set an example and be a leader in our field,” said Henri Hansson, Technical Director at Finavia, explaining why the operator was bringing forward its carbon neutrality programme.
“Our entire electricity consumption last year consisted of certified wind power acquired from the Nordic electricity markets. Ten Finavia airports use pellets for carbon-neutral heating. We also employ solutions such as geothermal heating and energy-efficient LED lights.”
The production of renewable energy was one of the most important factors in Helsinki Airport achieving its certified carbon neutral status, said Finavia. The first solar panels were installed on the terminal roof in 2017, producing 126 kWp of power and the second installation is expected to produce 330 kWp. The next phase will see solar panels installed on the wall of the airport’s new parking complex in 2020 and the power generated will be targeted at charging electric cars, said Hansson. When all sections are finally in use, total solar power production will be approximately 750 kWp to become of the top 10 largest solar plants in Finland and the largest of any Nordic airport. Around 1% of all electricity used at the airport will then be powered by solar.
Direct carbon emissions of Finavia’s operations mainly arise from the fuel consumption of its own vehicles. “At Helsinki and at our airports in Lapland, we have begun using renewable diesel fuel produced from waste and residues,” said Hansson.
Neste’s MY Renewable Diesel product has been in use at Helsinki for over a year, for example in apron buses, and during the period was expected to have resulted in GHG emissions savings of 610 tonnes. The Finnish fuel producer said diesel engines can switch to using its fuels without requiring any modifications and can withstand temperatures as low as -34 degrees C.
“Using Neste’s renewable diesel as our vehicle fuel is a key part of our climate programme,” said Mikko Viinikainen, VP Sustainability & Environment at Finavia, which will use the fuel in its vehicles at Rovaniemi, Kuusamo, Ivalo and Kittilä. “It is excellently suited to our purposes as it helps reduce our GHG emissions by as much as 90% compared to the emissions from conventional fossil diesel.”
To achieve carbon neutrality, Finavia buys offsets from the international carbon markets through its partner NEFCO, a financial institution established by the Nordic countries to provide financing for environmental and climate projects.
“The emissions offsets are acquired from a Gold Standard certified project that improves the energy efficiency of small households in Ghana through the use of efficient stoves that reduce the cutting down of local forests to obtain firewood,” said Hansson.
Finavia said its climate programme objectives have also played a part in the construction of new facilities. Current expansion at Helsinki and new premises are being developed in line with criteria laid out in the BREEAM environmental certification framework, and the south wing, which opened in 2017, has already been certified with an ‘Excellent’ rating.
Looking further ahead, the operator said managing aviation emissions was “absolutely essential” for the industry to continue providing air travel. “Finavia wants Finns to be able fly even a hundred years from now,” said Hansson.
Following the example of Norwegian airport operator Avinor (see article), Hansson said Finavia would be financing the purchase and test of Finland’s first fully electric aircraft. “We believe that electric aircraft will be a realistic option for short-haul flights within a couple of decades,” he said.
European emissions from airlines jump 5 per cent in 2018 as Ryanair joins list of top 10 EU emitters
Thu 4 Apr 2019 – Emissions from airlines covered by the EU Emissions Trading System (EU ETS) rose by 4.9% in 2018 while all other European industrial and power sectors fell last year. For the first time, an airline – Ryanair – joined the top 10 European CO2 emitters, a list previously reserved for coal power plant polluters. The Irish-based low-cost carrier recorded 9.9 million tonnes in 2018, a 6.9% increase on the previous year and 49% over the past five years, according to analysis by Sandbag of EU ETS data released by the European Commission. CO2 emissions from intra-EEA flights covered by the EU ETS have risen by 26% since 2012, while other sectors have fallen. Some EU governments are pressing for harmonised EU-wide taxes on airline tickets or kerosene to stem the growth.
Emissions logged by nearly 500 aircraft operators in the EU ETS registry totalled 67.56 million tonnes (MT) in 2018, up from 64.39 MT in 2017 (+4.9%). These operators were entitled to free allowances totalling 31.20 MT, so were required to purchase and surrender allowances covering the remaining 36.36 MT. At a price of €20/tonne ($22.50/T) – the current price is around €23/tonne today – compliance with the EU ETS could have cost the sector up to €727 million ($816 million) in 2018, estimates climate change think tank Sandbag.
The top two emitters, unsurprisingly, were Europe’s leading low-cost carriers, Ryanair and easyJet, with verified emissions of 9.88 MT and 6.32 MT respectively. They were followed by Lufthansa, British Airways and Norwegian.
Ryanair becomes the first emitter that is not a coal power plant to be on the list of Europe’s top 10 polluters. Emissions generated from lignite and hard coal power plants decreased by 3% and 9% respectively last year. Since 2012, says Sandbag, emissions from hard coal power plants have fallen by 40%, whereas in the same timeframe, aviation emissions have increased by 26%.
Ryanair’s 6.9% growth in emissions in 2018, however, was surpassed by eight other European airlines, with low-cost rivals Norwegian (+8.3%), Vueling (+8.6%), easyJet (+11.0%), Wizz Air (+11.1%) and Jet2.com (+20.0%) recording faster growth. National airlines TAP, Finnair and Lufthansa also outpaced the Irish carrier. Ryanair last year pledged to lower its CO2 emissions per passenger/km by 9% by 2030 and be 31% lower than the average of the four other biggest European airlines (see article). The airline claims it is disproportionately penalised by the EU ETS compared to legacy carriers with routes outside the scope of the scheme and is supporting its replacement with the ICAO CORSIA carbon offsetting scheme.
Transport & Environment (T&E) said emissions from flights within Europe accounted for only 40% of European aviation’s “runaway emissions” and aviation regulators had consistently underestimated the extent of emissions growth in their planning forecasts. The European Aviation Safety Agency (EASA) had anticipated a 3.3% increase in carbon emissions on intra-European flights last year but the EU ETS data had shown a 4.9% increase, or 1.1 MT of CO2 more than expected, pointed out the Brussels-based campaign group.
“Airlines’ emissions are booming and not just on cheap flights,” commented Andrew Murphy, Aviation Manager at T&E. “National carriers and low-cost airlines all benefit from paying no fuel tax and VAT while the rest of us must pay our way. Governments and the EU need to wake up, starting with a tax on kerosene and clean fuel mandates that force airlines to switch to zero-emission jet fuel.”
A spokesperson for trade association Airlines for Europe (A4E) responded in a statement: “A4E airlines take their environmental responsibility very seriously and are continuously investing in ways to make their operations more sustainable. Since 2014, EU airlines’ own technical and operational measures have saved some 20 million tonnes of CO2 emissions – the equivalent to 100 days of flying.
“We oppose ‘green’ taxes for the simple fact that they harm the economy and are an ineffective way to pursue environmental goals. These types of taxes drive up the cost of travel in Europe, which negatively affects connectivity – ultimately to the detriment of passengers. At the same time, there is little evidence that aviation taxes actually help the environment.
“This is why A4E is demanding the completion of the Single European Sky (SES) and the restructuring of European airspace based on traffic flows rather than state boundaries. The Single Sky would allow flights to take more direct, efficient routings within the EU, reducing fuel consumption per flight by 10% and eliminating excess CO2 emissions. The European Commission has been trying to achieve the SES since the 1980s but has been halted by Member States’ lack of political will.
“Aviation today is cheaper, safer, more efficient and less polluting than ever before. The industry has long recognised its environmental footprint and is working hard to make flying more sustainable. It’s time EU politicians followed suit.”
ICAO releases list of Technical Advisory Board members that will recommend eligible offsets for CORSIA
Thu 28 Mar 2019 – ICAO has released the list of members appointed to the Technical Advisory Body (TAB) that will assess emissions units programmes for eligibility under the UN agency’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). The TAB, which will provide recommendations on eligibility to ICAO’s governing 36-State Council for decision, is made up of 19 members that the Council has agreed meet the required technical expertise and balanced geographical representation. Around 40 candidates had been nominated for membership by 34 countries. Among the members are two former chairmen of the UNFCCC’s CDM Executive Board and others with experience of carbon markets and UN negotiations. An early task of the TAB will be to discuss and provide recommendations on the vintage of eligible units.
The two former chairmen of the CDM Executive Board are Peer Stiansen of Norway and José Domingos Miguez of Brazil. The CDM Executive Board supervises the Kyoto Protocol’s clean development mechanism and the registration of projects and issuance of CDM CERs (Certified Emission Reductions).
Both Stiansen and Miguez have also represented their countries in UN climate change negotiations, as have Ulrika Raab (Sweden), Dimitar Nikov (France), Molly Peters-Stanley (United States) and Rajani Ranjan Rashmi (India). Others on the TAB are climate change or carbon market specialists from governments, research and academia.
Members are expected to serve a minimum of three years in accordance with each CORSIA compliance cycle and a Chairperson and Vice-Chairperson will be appointed who will hold their posts on a renewable one-year basis. It is possible that up to four new members could be added over time to the body if felt necessary by the Council.
Early consideration of the emissions unit vintage issue by the TAB is likely although this may require analysis and input from ICAO’s environmental technical committee CAEP. It is understood the Council may hold an informal briefing on the implications of introducing a possible vintage and a timeframe during the preliminary Committee phase of the next 217th Session in late April or early May. Council members are divided on whether an early decision should be made or whether to wait while further assessments of offset programmes are undertaken.
The full list of TAB members is now posted on the ICAO CORSIA website.
ANALYSIS: CORSIA creates compliance complexities for aircraft owners and lessors, as well as operators
Fri 5 Apr 2019 – The airline industry has generally welcomed the International Civil Aviation Organization’s (ICAO) new CORSIA carbon offsetting scheme for international aviation, which went into effect on 1 January 2019. However, CORSIA’s Standards and Recommended Practices (SARPs) impose an immediate compliance obligation on international airlines and raises a number of potential and unforeseen credit, political and reputational risks, not only for operators but also for aircraft owners and lessors, write Jordan Labkon and Barry Moss. Owners and financiers will need to monitor the evolving landscape of CORSIA requirements and the consequences of non-compliance, as well as consider implementation of appropriate measures.
ICAO has yet to determine the types of carbon offset units that will be eligible under the scheme and whether grandfathering of existing offsets will be permissible. Any restriction concerning the type or vintage of eligible offsets may increase the cost of compliance and thus create an economic burden for many operators under CORSIA. The expected bottom-line impact of CORSIA compliance for airlines has attracted the attention of international credit rating agencies such as Moody’s, which has stated that “[g]rowing carbon offset costs have the potential to become significant relative to operating profit … carbon costs have the potential to lower operating income by between 4% and 15% by 2025, and by between 7% and 35% by 2030, all else being equal.”
CORSIA compliance will present aircraft owners with several commercial and legal risks and challenges. One such challenge is to identify who will be responsible for compliance under the scheme where the operator of a flight has not been identified. The first line of inquiry is the ICAO designator (ICAO CORSIA SARPs paragraph 1.1.3), followed by the aircraft registration mark and holder of an Aircraft Operator Certificate (AOC). If the ICAO designator and AOC holder cannot be readily established, CORSIA compliance will then fall to the aircraft owner identified in the aircraft registration documentation (paragraph 1.1.4).
Should an operator fail to submit an emissions monitoring plan and annual emissions reports, its CORSIA Contracting State may not be able to identify the operator of an aircraft’s international flight activity or, consequently, the party responsible for its emissions from such activity. Therefore, in such circumstances, CORSIA compliance obligations would automatically be attributed to the aircraft owner. Any such risk may become compounded for aircraft lessors and investors in asset-backed finance portfolio transactions.
ICAO lacks legal authority to enforce the CORSIA SARPs. This creates a risk that local governments and regulators may hold an aircraft owner responsible for CORSIA non-compliance. Each individual Contracting State is responsible for transcribing CORSIA into its domestic law. While it remains unclear how (if at all) and when each Contracting State will do so, States could pass laws allowing relevant government entities to impose a lien on – and seize and potentially sell – an aircraft pending cancellation of sufficient emissions offsets for the operator’s entire fleet, notwithstanding the rights of the aircraft owner or mortgagee.
Such a law could be similar to the Eurocontrol fleet lien and applicable regulations in certain jurisdictions under the European Union’s Emissions Trading System (EU ETS). In addition, legal and financial consequences may arise should an operator fail to cancel a sufficient quantity of eligible emissions offset units to cover its existing obligations following an insolvency declaration.
Furthermore, current lease and loan documentation practices need to be reconsidered in light of the differences between compliance under the EU ETS and CORSIA. The EU ETS is subject to an annual reporting and emissions allowance surrender cycle. In contrast, while CORSIA will have an annual emissions reporting cycle, cancellation of emissions unit offsets, effective 2020, will be subject to a three-year compliance cycle. The first CORSIA emissions credits are scheduled to be cancelled on January 31, 2025.
This longer cycle is likely to cause aircraft owners to accumulate much greater credit risk exposure. Requiring an operator, as a condition precedent under a lease or loan agreement, to deliver a CORSIA ‘Letter of Authority’ permitting the relevant regulator to disclose the operator’s emissions obligations as a means for a lessor or mortgagee to monitor this credit exposure will likely have little if any effect. It is presently unknown to what extent, if any, Contracting State regulators will honour such letters of authority, as CORSIA allows aircraft operators to request regulators to keep commercially sensitive emissions data confidential (paragraphs 126.96.36.199/7).
Moreover, until the three-year compliance cycle expires, the CORSIA regulator will not be able to confirm the level of an operator’s compliance and financial liability, by which time the damage (and potential exposure for the lessor or mortgagee) may be irreversible. Also, the price of eligible emissions units under CORSIA (measuring the cost of compliance) will not be known until the time of purchase by the operator, unless an operator hedges its CORSIA exposure through a forward contract with a carbon broker.
Should the EU decide to transcribe CORSIA as an annex to the EU ETS, then the existing enforcement measures for non-compliance, which is a statutory penalty of 100 euros ($112) per tonne of CO2, plus additional local fees, penalties and the rights of aircraft seizure, detention and sale.
Meanwhile, the uncertainties surrounding CORSIA could create challenges in disclosing climate change-related risks, trends or factors in publicly listed leasing and finance company annual financial reports and offering memoranda for securitisation transactions that require a credit rating. At least 40 countries, including all EU Member States, have mandatory emissions reporting programmes, according to the World Resources Institute. Credit risk arising from CORSIA should be a factor in future rating agency modelling.
While there is considerable momentum for commencing and implementing CORSIA as a global system for reducing aviation emissions, the scheme still presents many uncertainties and potential risks, but few clear solutions. It is important that aircraft owners and financiers understand the basic functions of the scheme, monitor the evolving landscape of requirements and the consequences of non-compliance, and consider implementation of risk mitigation measures in lease and loan documentation.
Jordan Labkon (firstname.lastname@example.org) is a Shareholder at law firm Vedder Price and Barry Moss (email@example.com) is CEO, Avocet Risk Management. This article is an extract from a paper published in The Air & Space Lawyer, Vol. 32, No. 1, Spring 2019 and is reproduced with the kind permission of the American Bar Association.
ANALYSIS: CORSIA offset supply – the importance of vintage in determining aviation scheme’s cost and environmental integrity
Wed 3 Apr 2019 – The ICAO Council has now adopted long-awaited eligibility standards that set guidelines for what types of units airlines can use to offset their emissions growth under CORSIA. There are currently about two billion carbon offsets in circulation produced by the UN’s Clean Development Mechanism (CDM). A large proportion of that volume has already been used for compliance purposes by governments and also companies under the EU ETS. If the remaining units – and those to be generated by CDM projects in the future – are allowed under the scheme, their volume would far surpass demand for offsets by air carriers. On the flipside, restricting the amount of CDM units eligible under CORSIA to only those with high environmental integrity would severely limit offset supply. This analysis by Refinitiv highlights a few possible offset unit supply scenarios, each reflecting potential restrictions to CDM unit eligibility on the basis of the adopted offset criteria.
ICAO’s CORSIA carbon offsetting scheme caps international aviation emissions at their 2020 level and air carriers can use it to offset emissions they do not manage reduce through technical and operational measures. Specifically, air carriers will use CORSIA to offset emissions that surpass the established baseline of average emissions in 2019 and 2020. Offsetting consists of paying for emissions mitigation elsewhere in the world, an attractive option for aviation operators as it allows them to cut emissions at a lower price.
The scheme begins in 2021 on a voluntary basis, with carriers having to offset emissions from countries participating from that year. Participation is mandatory as of 2027, meaning the offsetting requirement applies to emissions from most major routes in the world as of that year. Although this timeline has been set since 2016, ICAO did not weigh in on what type of offsets might be allowed until more recently. In late 2018 and early this year, the ICAO Council elaborated CORSIA’s details by outlining eligibility requirements for offset project standards and offset types. Known as Emissions Unit Criteria (EUC), these guidelines form the basis for offset eligibility. A new ICAO sub-entity operationalised at the March Council meeting – the Technical Advisory Body (TAB) – will now apply the EUC to project standards and offset types interested in supplying units to aircraft operators under CORSIA.
The CDM is one of those standards. The programme was set up as part of the Kyoto Protocol, under which countries and companies could purchase reductions from CDM projects (called CERs) to offset their emissions to reach targets under the treaty. The first CERs were issued in 2005. Since then and up till now, the CDM has produced a huge amount of carbon units (nearly 2 billion tonnes), which companies and countries in Europe and elsewhere purchased for compliance in emission trading systems. While the CDM spawned emission reduction activities in developing countries and investment in mitigation, many of the CDM projects lack environmental integrity and are not vulnerable to the risk of discontinuing GHG abatement. The mechanism has been disfavoured in retrospect, which has drastically decreased demand for CERs, whose prices have in turn tumbled from €6/tonne back in 2012 to 20 Euro cents ($0.22). The lack of demand accumulated a large surplus of CERs.
CDM project developers consider CORSIA a potential new source of demand for their credits. But given the controversy over the environmental integrity of CERs, ICAO is likely to be cautious about their eligibility under CORSIA. Observers have lobbied for an outright ban on the eligibility of CERS from at least the most dubious CDM project types or those from projects that have been ongoing for many years. Allowing the entire existing CER surplus into the scheme would result in very low prices, and thus little incentive for airlines to achieve real emissions reductions.
According to a recent assessment by Carbon Market Watch, the CDM fails to meet three of the 11 eligibility criteria set by the EUC (the full list of EUC criteria can be found here):
- a safeguard system (ability to identify negative environmental and social impacts while implementing the project);
- sustainable development criteria (which should be publicly disclosed for each project); and
- avoidance of double counting, issuance and claiming (should be adjusted to the corresponding rule adopted under the Paris Accord).
Consequently, the body in charge of the CDM may have to adjust the mechanism’s methodologies to correspond with all the EUC requirements. It is worth noting that none of the offset programmes reviewed by Carbon Market Watch met the criteria, meaning the lack of particular required characteristics is not just CDM-related but rather a general problem by that group’s assessment. Some of the criteria are impossible to meet at this stage, such as the requirement avoiding double counting, given that corresponding regulations under the Paris accord have not yet been finalised.
In this context, we provide our view on the potential CER use restrictions and correlating supply for CORSIA. We also look at these different supply scenarios with our baseline demand estimation, to highlight the role of the CDM in the overall CORSIA market balance.
Who is in, who is out?
We accessed the existing CDM project portfolio (source: UNFCCC, Refinitiv CDM databases), starting from projects at validation stage and up to those that were issued CERs (prior to registration, CDM projects have to pass a validation stage). We disregarded projects that got stuck at validation and did not move to further stages, as these projects are likely dead – even if they are operating, they likely lack so-called ‘vulnerability’ since they managed to survive without CER revenue.
Furthermore, we disregarded projects that stopped issuing CERs after the first Kyoto Protocol’s commitment period. A large number of project owners simply stopped requesting CER issuance given the extremely low CER prices. If these projects are still operating without issuance and sale of CERs, they are not dependent on CER-related income and thus not vulnerable to the risk of discontinuing GHG abatement. We consider ICAO may disregard such projects with a low vulnerability component.
Our CDM project database indicates that overall CDM project performance is close to 80% – out of planned annual volume, close to 80% is usually issued. We assume it takes up to two years from generation to issuance of a credit, based on the UNFCCC projects’ issuances statistics.
The table below explains our high, medium and low supply scenario based on other criteria: accepted vintage year and project type. The discussion about restricting CER eligibility by vintage (i.e. by when the unit was issued, with earlier vintages being too old to be considered eligible) has centred around the cut-off dates 2013, 2016 and 2020. The latter would be the most strict, with only CERs issued after 2020 being eligible. As for restrictions by project type, stakeholders have generally considered large projects like hydropower or industrial gas reduction activities most objectionable – they have produced the largest number of dubious CERs, which we eliminate from potential circulation under CORSIA.
CERs supply scenarios:
In our high volume scenario, we assume all the credits generated from 2013 on are eligible, without any project type restrictions. We choose 2013 as the first year after the Kyoto period ended. Some ICAO member states prefer to allow offset units from as far back as possible – the Kyoto commitment period or right after the Kyoto era. We attribute a low probability to this scenario, since it would mean CORSIA becomes oversupplied with a variety of carbon units lacking environmental integrity. That would put the scheme’s efficiency under question.
In our medium volume scenario, we limit eligible project types by eliminating the most contentious ones (HFC, large hydropower and adipic acid projects). Since these account for the lion’s share of issued CERs, this reduces supply significantly. Furthermore, we limit vintage year to 2016 and later.
Our low volume scenario restricts potential supply even more by setting the vintage eligibility cut-off at 2020 (this cut-off year was proposed by some ICAO parties). We consider that both medium and low scenarios are equally likely. The time limit may be the hardest point to agree on in the negotiations. If the cut-off date is set shortly before the start of CORSIA (2021) it would eliminate most existing units. The inflow of new projects was low over the past years, as was the number of crediting period renewals. Most projects entered the CDM pipeline back in Kyoto times, and as just a few of them renewed their crediting periods, the share of projects still generating carbon units after 2020 is rather low.
In our lowest volume scenario, we eliminate CER supply from projects in countries that have not declared they will participate in CORSIA from the pilot phase (China, India and Brazil). This scenario is rather speculative, since ICAO may still allow offset units from projects in these countries (or some of them) as a means to support socially disadvantaged groups or implement mitigation measures in cities with high air pollution, such as for example India. We attribute a low probability to this scenario.
The graph below shows projections of volume in four different supply scenarios. From 2021, our demand curve takes into account only those countries that have so far committed to take part in CORSIA from that year. From 2027 onwards, we assume that all countries (in particular large emitters) corresponding to CORSIA’s requirements will participate. How does this compare to likely supply?
Baseline demand/supply scenarios:
As can be seen from the graph above, the high volume scenario will provide twice the amount needed to meet demand all the way up to 2035, the default expiry date of CORSIA. The medium scenario almost coincides with the estimated demand (2 billion units). And finally, both low scenarios are far from meeting the demand. Cutting eligible vintage years to 2020 would result in only about 500 Mt CERs by 2035, which is one-fourth of the same supply scenario, allowing vintages from 2016. Excluding the largest CER providers from the list leaves us with only 243 Mt of CER supply by the end of 2035. Given how much vintage restrictions can influence CER supply, it is not surprising that ICAO stakeholders have flagged them as a key controversial offset eligibility consideration.
Increased demand incentivises supply
The CORSIA market balance cannot be assessed with certitude until after the detailed eligibility criteria have been set. It is hoped that by the end of 2019 we may know more about what kind of projects and programmes will be able to supply credits to CORSIA. As more clarity arises, the more active the market may get.
We assume airline operators that fly routes between countries joining CORSIA in 2021 will show interest in pre-compliance offset purchases to hedge against future offset price increases. Such increased demand in turn usually incentivises increased supply. With current low CER prices, many project owners have temporarily suspended their projects’ development or CERs issuance, since income from CER sales was hardly enough to cover the project and transaction cost. With real demand materialising in future, both these so-called ‘dormant’ and new projects may enter the CDM cycle and issue credits, so increasing supply.
All this may not result in a dramatic increase in CER trading during CORSIA’s pilot phase (2021-2023), as the first compliance deadline is not until April 2025. However, market activity can be expected to increase in the run-up to CORSIA’s mandatory phase in 2027. Any news that countries (especially the largest ones: China, India and Brazil) currently not slated to participate in CORSIA’s voluntary phase but deciding to do so earlier than 2027 will spur market activity considerably.
It is still unknown if the Paris Agreement (PA) would accept CERs or remodeled CDM projects. At the moment, only a handful of countries have said they are willing to use foreign carbon units to comply with their post-2020 emission reduction objectives. With more clarity on the PA and its eligible units, more countries may be willing to rely on offsets, including CERs. If that happens, the governments of these countries may become a source of demand for offsets as well, presenting competition for air carriers over eligible international offset units. The scale of such competition will matter most if both ICAO and the UN parties apply the strictest rules defining eligible offsets.
The author of this article, Maria Kolos, is a carbon market analyst with Refinitiv, formerly the Financial & Risk Business of Thomson Reuters.