By Alex Ledsom
Excerpt: Airline carbon credits are scarce, driving up costs that’ll most likely translate to higher ticket prices. But what are carbon offsets and credits? How do they work? And how will they hit your wallet?
The aviation industry is facing a critical challenge: a shortage of airline carbon credits and there’s a very high probability that it’ll result in more expensive airfares. But what is a carbon offset? And how does this translate to carbon credits? And how does that impact consumers? Here’s everything you need to know.
What Are Carbon Offsets?
There’s too much carbon dioxide in the atmosphere—one of the main drivers causing climate change. The ideal scenario would be to stop certain activities to reduce the amount of carbon dioxide released, but an alternative is to implement projects that remove or decrease it, elsewhere, and this could be in the form of carbon offsetting.
At an individual level, if you need to fly, say, a heavily carbon-producing activity, you could offset your carbon footprint by using renewable energy. At a company level, you might fund a project that plants trees that absorb carbon dioxide in order to balance out the emissions produced by your company.
It becomes much more difficult, however, to offset carbon when you’re operating at an international level. And this is where the notion of carbon credits comes in.
What Are Carbon Credits?
To offset the carbon dioxide released by airplanes as they burn fuel, airlines purchase carbon credits—one carbon credit usually represents one tonne of carbon dioxide.
The money from carbon credits is allocated to projects that remove carbon dioxide from the air or stop new carbon dioxide from being released. Examples might be reforestation projects, as well as those that utilize wind and solar power.
The theory is that these projects cancel out the pollution caused by flying, although detractors argue that there are concerns about how effective some of these projects are at truly offsetting emissions created by flying.
But essentially, buying carbon credits allows an airline to continue with an activity that emits a lot of carbon dioxide by buying the right to do so on a financial carbon market.
Airline Carbon Offsets Through CORSIA
There are a few ways that airlines can offset their carbon emissions, but a principal one is the Carbon Offsetting and Reduction Scheme for International Aviation, a global initiative organized by the United Nations body, the International Civil Aviation Organization (ICAO) to offset the carbon produced by airplanes flying internationally.
The project is divided into phases. From 2024 to 2026, 150 countries are part of the scheme, including most of the EU, the U.K., Japan, Australia, and the US, and this covers 64% of all emissions from the aviation sector.
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Under the scheme, airlines must report annually on the emissions they produce, and they have to purchase credits to offset anything above 85% of their 2019 levels.
As of 2027, the program will become mandatory for most countries that have international aviation, traveling between other countries within the program. This will include Brazil, China, Russia, and India.
The exception will be least-developed countries (LDCs), small island-developing states (SIDS), and land-locked developing countries (LLDCs). Domestic flights are not covered as these fall under national climate policies.
The problem is, there’s a very big supply and demand gap.
The Airline Carbon Credits Demand And Supply Gap
In a press release issued by the International Air Transport Association (IATA)—the body that represents 350 airlines that make up 80% of global air traffic—it forecasts that airlines will need between 146 and 236 million eligible emissions units—the credits purchased by airlines—for the first phase of CORSIA, which runs from 2024 to 2026.
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Why Are There Not Enough Carbon Credits For Airlines?
Why haven’t countries issued more credits? Well, that’s complicated too. Once a country decides to grant carbon credits to be used in schemes like CORSIA, it’s best to have insurance so that airlines will feel safe to use it. The World Bank is introducing a multilateral investment guarantee agency that will provide this insurance, although no projects exist using it yet.
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More Expensive Carbon Credits Might Make For More Expensive Tickets
There’s no current real-world data showing a direct correlation between the price of carbon credits for offsetting and airline ticket prices. This is because the schemes are still ramping up and in the process of becoming mandatory.
However, there is an understanding that as credits become more expensive or harder to find, the cost for airlines will rise.
