Carbon offsetting (aviation)
Carbon offsetting is a market-based mechanism whereby CO2 emissions in one place are compensated by a reduction in emissions elsewhere. These emissions reductions are financed by the sale of carbon offsets or credits by emissions-reducing entities to entities wishing to offset their emissions. Emissions reduction units – usually equal to 1 tonne (t) of CO2 or CO2 equivalent – are traded on compliance or voluntary markets. Compliance markets supply parties under regulated schemes (e.g. the Kyoto Protocol) with units following specific rules and standards, such as the Clean Development Mechanism (CDM).
Individuals and companies can also choose to buy carbon offsets on voluntary markets. Units sold on these markets by vendors such as Atmosfair can be verified by programmes, such as the Verified Carbon Standard (VCS) or the Gold Standard. Each programme has its own criteria, rules and verification processes, but external verification is not mandatory on the voluntary market. Emissions reduction projects are diverse and range from forestry and waste management to renewable energy and energy efficiency projects.
The international aviation sector is the first industry to implement a global voluntary carbon offsetting scheme under the International Civil Aviation Organization’s (ICAO) Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). Due to enter its pilot phase in 2021 with 82 countries, it aims to achieve the sector’s aspirational goal of carbon-neutral growth from 2020. Under CORSIA, airlines operating flights between participating countries will offset excess emissions above the 2020 baseline through the purchase of CORSIA Eligible Emissions Units (EEUs). Airlines using CORSIA eligible fuels (CEF) – fuels with lower CO2 life-cycle emissions than jet fuel – will be eligible for reduced offsetting requirements. Although the scheme is voluntary, ICAO has defined eligibility criteria for offsets – as in a compliance scheme – so airlines will have to buy offsets from one of six offsetting programmes. Outside the scope of CORSIA, airlines such as Delta Airlines and EasyJet have already started offsetting emissions from both international and domestic flights as part of their environmental strategy.
The ITF estimates that a cumulated 630 million tonnes (Mt) of CO2 will need to be offset by 2030 for international aviation to achieve carbon-neutral growth from 2020, with 115 Mt CO2 being offset in 2030. Between 2021 and 2030, 70 Mt CO2 per year on average would be offset. This represents 13% of international aviation emissions in 2019 (527 Mt CO2). Although domestic aviation emissions accounted for 320 Mt CO2 in 2019 – 37% of total aviation emissions – CORSIA covers international aviation only.
However, carbon offsetting does not lead to actual direct emissions reductions within the international air transport sector. If offset prices remain low, they could fail to incentivise in‑sector emissions reductions and investment in cleaner technology.
It is unclear to what extent the ICAO will be able to enforce CORSIA. The scheme is being implemented through Standards and Recommended Practices (SARPs), which have to be implemented in national law to become binding.
Carbon offsets currently cost between USD 1.6/t CO2-e (US dollars) (CDM) and USD 4.6/t CO2e (Gold Standard) on average for the five most common standards accounting for 91% of transaction volumes.
Under CORSIA, according to the International Council on Clean Transportation (ICCT) (2017), the cost of offsetting for airlines will represent 0.4% of fuel costs in 2025, 1.1% in 2030 and 2.4% in 2035. Fuel costs account for around a quarter of airlines’ operating expenses.
Based on projected carbon offset unit prices of USD 6 to USD 12 (low assumption) and USD 20 to USD 40 (high assumption), the ICAO projects that the cost to airlines would range from around 0.4% to 1.4% of total ICAO forecast revenues from international aviation in 2035.
Although carbon offsets do not directly reduce emissions within the air transport sector, adequately priced carbon credits may incentivise airlines to reduce their carbon emissions in the long term. Even when carbon is underpriced, carbon markets – such as the European Union Emissions Trading System (EU ETS) – can have a positive effective by signalling political commitment to carbon regulation.
Under effective programme design rules and robust sustainability criteria, carbon offsetting projects can also in principle contribute to other United Nations Sustainable Development Goals (SDGs), such as alleviating poverty and preserving biodiversity.
CDM and other emissions reductions programmes’ projects have also been found to have negative environmental and social impacts locally. For example, afforestation projects have been shown to deprive local communities of natural resources, worsening existing hunger and poverty issues.
Finally, the absence of international rules governing Paris Agreement market-based mechanisms could lead to the double counting of emissions reductions, as parties at the 25th Conference of the Parties (COP25) failed to reach an agreement on the application of two new co‑operative offsetting mechanisms set to replace the CDM. Given that countries set their own emissions reduction targets under the Paris Agreement, offsetting can create incentives to set weak nationally determined contributions (NDCs) and sell the surplus as offsets in case of overachievement, thus hampering climate ambition.
Current carbon offset prices are far below the OECD’s low-end estimate of carbon costs today: EUR 30 (euros) per tonne of CO2. Cheap carbon offsets are unlikely to provide an incentive for the sector to invest in decarbonisation and reduce its CO2 emissions.
Offsetting projects with insufficient safeguards can be ineffective and even counterproductive. The ICAO has set out criteria to qualify offsets as likely to be effective. These include “additionality”, meaning the emissions reduction project would not have happened without the offsetting programme revenues, permanence of greenhouse gas emissions reductions and avoidance of carbon leakage.
Issues regarding additionality and emissions reduction uncertainty have been highlighted in reports on the effectiveness of the CDM: 73% of potential 2013‑20 certified emissions reductions (CERs) were found to have a low likelihood of being additional and not overestimated . Forestry projects also raise permanence and leakage issues: illegal logging and fires can be difficult to prevent, and afforestation projects may inadvertently incentivise the felling of existing forests to replant new ones, with severe impacts on biodiversity.
CDM and other emissions reductions programmes’ projects have also been found to have negative environmental and social impacts locally. For example, afforestation projects have been shown to deprive local communities of natural resources, worsening existing hunger and poverty issues.
Finally, the absence of international rules governing Paris Agreement market-based mechanisms could lead to the double counting of emissions reductions, as parties at the 25th Conference of the Parties (COP25) failed to reach an agreement on the application of two new co‑operative offsetting mechanisms set to replace the CDM. Given that countries set their own emissions reduction targets under the Paris Agreement, offsetting can create incentives to set weak nationally determined contributions (NDCs) and sell the surplus as offsets in case of overachievement, thus hampering climate ambition.
ITF (2021) Transport Climate Action Directory – Carbon offsetting (aviation)
https://www.itf-oecd.org/policy/carbon-offsetting-aviation
ITF (2016) Reducing CO2 emissions from International Aviation - Policy options to 2050. https://www.itf-oecd.org/sites/default/files/cop-pdf-01.pdf
ITF (2021), “Decarbonising Air Transport: Acting Now for the Future”, International Transport Forum Policy Papers, No. 94, OECD Publishing, Paris.
Bayer, P. and M. Aklin (2020) The European Union Emissions Trading System reduced CO2 emissions despite low prices. https://www.pnas.org/content/pnas/117/16/8804.full.pdf
Cames, M. et al. (2016) How additional is the Clean Development Mechanism? Analysis of the application of current tools and proposed alternatives, Öko-Institut e.V., infras . https://ec.europa.eu/clima/sites/clima/files/ets/docs/clean_dev_mechanism_en.pdf
Carbon Brief (2019) COP25: Key outcomes agreed at the UN climate talks in Madrid . https://www.carbonbrief.org/cop25-key-outcomes-agreed-at-the-un-climate-talks-in-madrid
Carbon Market Watch (2018) The Clean Development Mechanism: Local Impacts of a Global System. https://carbonmarketwatch.org/wp/wp-content/uploads/2018/10/CMW-THECLEAN-DEVELOPMENT-MECHANISM-LOCAL-IMPACTS-OF-A-GLOBAL-SYSTEM-FINAL-SPREADWEB.pdf
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