Airlines unlikely to have any CORSIA offsetting obligations for at least three years if baseline rule changed, finds EDF analysis
Fri 15 May 2020 – Under most post-Covid recovery scenarios for the airline industry, it is unlikely airlines will have any obligations to purchase and surrender emissions units for at least the duration of CORSIA’s three-year pilot phase starting next January if a rule change to the scheme’s baseline is made, finds an analysis by the Environmental Defense Fund (EDF). Aeroplane operators covered by CORSIA will be required to offset emissions above a baseline calculated on the average emissions from international flights for 2019 and 2020. However, the dramatic fall in global air traffic expected this year will significantly lower the baseline and result in a much higher offsetting obligation over CORSIA’s 15-year duration, says IATA. It is calling on the ICAO Council at its session next month to change the rule so that only 2019 emissions are used as the baseline. EDF argues that such a decision should wait until the next Assembly in 2022.
For the analysis, EDF extrapolated ICAO data to estimate global emissions from international aviation in 2019 were around 555 million tonnes of CO2. Participation during the voluntary pilot phase (2021-23) and phase 1 (2024-26) will cover roughly 60% of sectoral emissions above 2020 levels, it estimates, rising to around 80% over the scheme’s full lifetime (2021-35). Again using the most recent ICAO trends forecast, EDF has calculated that a scenario with an expected pre-Covid 2019-20 baseline would have resulted in a requirement for 78 million tonnes of CO2 to be offset during the pilot phase and 2,360 million tonnes over the full lifetime.
EDF Lead Senior Economist Pedro Piris-Cabezas has modelled five possible scenarios for the airline industry’s post-Covid recovery based on three parameters: how deep the emissions fall in 2020 (high, severe and extreme impact), how long it takes for the industry to rebound and the level of the recovery growth rate.
The five scenarios cover:
A V-shaped recovery in which emissions rebound fully by 2021 and a return to a business-as-usual trajectory;
A modified V-shape in which emissions rebound to 2013, rather than 2019, levels in 2021 and subsequent dampened year-on-year long-term growth;
A U-shaped recovery in which emissions rebound slowly to 2019 levels in 2024 followed by dampened long-term growth;
An L-shaped situation where emissions fall and do not rebound, levelling off with minimal growth between 2021 and 2035; and
An uptick recovery in which emissions rise quickly from 2021 and overshoot pre-Covid predictions.
Another factor modelled is the impact of a choice States can make in calculating their operators’ offsetting requirements during the pilot phase, which EDF calls the Pilot Phase Flexibility Mechanism (PPFM).
In a scenario 1 (S1) V-shaped recovery and with the 2019-2020 baseline still in place, the offsetting requirement, or demand, ranges from 158 MtCO2 to 437 MtCO2 for the pilot phase, compared with the 78 MtCO2 pre-Covid forecast. However, employing the PPFM can reduce the offset obligation for airlines to 123-157 MtCO2. If there was a full recovery by 2021, offset demand would likely increase by 15% to 92 MtCO2 with a 2019-only baseline.
In the second scenario (S2) the offset obligation would vanish until 2024 with a 2019-only baseline. The U-shaped recovery (S3), which many are now seeing as the most likely outcome, would see the pilot phase offset obligation greatly reduced, even with the 2019-20 baseline being kept. If the baseline was changed to 2019 only, the obligation would disappear until 2025 or 2026, depending on the impact of the pandemic on the sector.
In the unlikely event the recovery in 2021 outstrips pre-Covid projections (S5), the offset obligation would see a big increase on the pre-Covid forecast of 78 MtCO2 during the pilot phase with a 2019-20 baseline. A 2019-only baseline would dampen the increase to 139 MtCO2.
EDF believes that with a 2019-20 baseline, the supply of offsets will be sufficient for the pilot phase under all scenarios.
“We conclude from the analysis that changing the baseline to 2019 would cause the offset obligations in the pilot phase to vanish in most scenarios,” EDF International Counsel Annie Petsonk told reporters on Wednesday. “The supply of offsets already approved by the ICAO Council is ample and the use of the PPFM, should a country decide to use it, would help modulate airlines’ need for offsets during the pilot phase.
“At this time, changes to the pilot phase offset obligations largely depend on the extent and timing of aviation’s recovery and so in our view it would be premature for Council to change the baseline now. Such a fundamental change to the structure of CORSIA could cause investors to question the commitment to decarbonise aviation and undermine the sector’s overall efforts to reduce emissions.
“CORSIA was designed to have some offset obligations every year as part of putting a price on carbon and helping airlines realise their carbon goals. To have no pilot phase obligations, perhaps extending for even longer, we think risks discouraging investments in new aviation technologies and low-carbon fuels – not to mention stranding investments that have already been made in offset projects and programmes.”
The IATA appeal to the ICAO Council argues the Assembly’s CORSIA resolution provides a safeguard to protect the sector in the event of an “inappropriate economic burden” caused by CORSIA and gives authority to the Council to address this.
However, Petsonk questions whether the 36-member Council has the authority to make a fundamental change to the resolution without referring it to the 193 Member States, which are next due to meet at the Assembly in 2022. CORSIA provides for a three-year assessment starting in 2022 and with airlines not required to finalise the purchase and cancellation of offsets for the pilot phase until early 2025, she said there was plenty of time to analyse the impact of Covid-19 on the sector, and the next Assembly was when to consider a baseline change.
“To make the change in haste, and by Council members rather than the full Assembly, risks sending a signal that a small group of governments can change the fundamental rules of a carbon market without any warning to investors,” she said.