Airlines unlikely to require significant amounts of CORSIA offsets for six years, finds Refinitiv analysis
Mon 28 Sept 2020 – Only an unlikely very quick aviation sector recovery from the Covid-19 pandemic in the next three years would create any demand for carbon offsets from airlines in the 2021-2023 pilot phase of ICAO’s CORSIA carbon offsetting scheme, finds a report by market analysts Refinitiv. This follows the ICAO Council decision in late June to amend CORSIA’s baseline to protect the sector from an “inappropriate” financial burden during the recovery. If the Council decides in 2022 to continue with the amended baseline through to the scheme’s conclusion in 2035, offset demand will be close to the level it would have been without the pandemic but only in a very quick recovery scenario. Meanwhile, a study carried out for Brussels-based NGO Transport & Environment concluded the demand for CORSIA offsets will likely be 50% lower than originally expected for the period 2021-2030 as a result of the baseline change.
The Refinitiv analysis updates a previous report it published in June that forecasted demand for CORSIA carbon offsets under various recovery scenarios for the international aviation sector, based on ICAO estimates for seat capacity. In the face of an even worse outcome for the sector caused by the pandemic – international aviation seat capacity decreased by 92% in the second quarter this year – ICAO has updated its recovery scenarios and Refinitiv’s latest study adjusts forecast demand for offsets accordingly. It looks at demand under different post-pandemic scenarios and considers two possibilities for the period 2024 to 2035 – one in which the amended 2019-only baseline continues and one in which the original 2019/2020 average baseline applies – under shaped potential recovery pathways (V, U, L) in line with ICAO’s models.
Assuming the international aviation sector experiences a moderate (U-shaped) recovery, airlines’ collective annual emissions will not exceed those of 2019 until roughly the start of CORSIA’s mandatory phase in 2027 (see below). Therefore carriers will not need to buy significant amounts of offsets for at least six years if the baseline remains as it is now, finds Refinitiv.
Recovery scenarios for international aviation emissions
A relatively quick recovery (V-shaped scenario) makes for some offset demand in the pilot phase (43 Mt over 2021-2030), whereas a long-term stagnation in international air travel (L-shaped) would mean no demand for offsets through the entire timeframe CORSIA is in force (2021-2035). In the moderate U-shaped scenario, airlines would have a cumulative demand for offsets of 558 Mt over the scheme’s lifetime.
The ICAO Council is expected to revisit the baseline change in 2022 but should the decision be to revert back to the original 2019/2020 baseline from 2024 – after the conclusion of the pilot phase – then even the L-shaped scenario features demand for offsets, around 380 Mt cumulatively through 2035. Demand in the U-shaped scenario would be 1.7 billion tonnes over the total scheme and the demand under the V-shaped scenario would be even 40% higher than business-as-usual because of the lower baseline, to reach almost 3 billion tonnes cumulatively by the end of 2035.
Refinitiv analysed the potential outcome if the baseline had not been changed for the pilot phase. It found that applying the same U, L and V scenarios to the original baseline over the pilot phase showed that the need to buy offsets would not be much different under the L-shaped stagnation scenario at all, with no requirement by airlines to buy offsets. Even the moderate U-shaped recovery during this period, airlines would only have to buy 60 Mt, compared to 82 Mt if the pandemic had not happened. Only in the V-shaped scenario, would the need for offsets be higher with the original baseline than if the pandemic had not occurred (217 Mt).
Quoting analysis in March by Ecosystem Marketplace, existing offset supply for CORSIA is around 386 million eligible emission units, with another 183 million units in the development pipeline for the pilot phase, more than enough to satisfy even the highest demand scenario, says Refinitiv.
The study carried by Transport Analysis and Knowledge Systems (TAKS) on behalf of T&E estimated that under a U-shaped scenario there will be no offset obligations under CORSIA for the first four years of the scheme (2021-2024). It therefore calls for effective regulation of European aviation emissions through the retention of the EU Emissions Trading System (EU ETS) as it would result in earlier reductions of emissions compared to CORSIA, which it argues is important from a climate perspective.
The study updates a previous study carried out in 2019 with CE Delft. It compared two policy scenarios in which the EU ETS was retained for aviation over the period 2021-2030 with one applying CORSIA for European outbound flights and the other for intra-EEA flights as well as outbound. The new study assumes over the period 2021-2024 international aviation gradually recovers and in 2024 aviation emissions are back to the level of 2019. For the period after 2024, the study assumes the annual growth in aviation emissions is in line with the long-term ICAO forecast of 2018.
TAKS has reduced the demand for EU Allowances (EUAs) over the 2021-2030 period from the earlier study and is now computed to 348.9 Mt, down from 418.9 Mt. The reduction in demand will especially take place in the coming years as a result of the effect of Covid-19, it says.
Total costs for European aviation using both scenarios over the 10-year period range between €11.2 billion and €24.1 billion, depending on prices of EU ETS allowances (EUAs and EUAAs) and CORSIA offsets for intra-EEA and outbound flights. T&E estimates CORSIA would add up to 17 euro cents, on average, to the ticket price for long-haul trips outbound from Europe and argues the EU should improve its own carbon market as the EU ETS was a much more effective way of reducing aviation emissions.