ICAO’s CORSIA and the Case for the Open Source Carbon Market

Last October, the International Civil Aviation Organisation (ICAO) agreed on the principles of an offsetting scheme to curb emissions from aviation, called the Carbon Offsetting and Reduction Scheme for International Aviation, or CORSIA. CORSIA requires carriers from countries that signed up to the measure to offset any growth in their emissions starting in 2021 by purchasing qualifying carbon offset credits. As a big potential new market, the scheme presents a potent test case for the future of carbon markets, with the key to their success tied to how the CORSIA is structured.

An Open Source Approach

Most economic experts agree that markets with clear carbon pricing provide the most cost-effective way to achieve meaningful emission reductions, especially if flexibility mechanisms such as emissions trading and carbon offsets are allowed. How to structure those markets, on the other hand, is often up for debate and interpretation. For instance, the UNFCCC Paris Agreement provides for carbon markets in Article 6, but lists a few different approaches for the trading of emission reductions that could work with or against each other, depending on how they are designed. Article 6.2 of the Paris Agreement, on the one hand, establishes the concept of Internationally Transferred Mitigation Outcomes (ITMOs) and leaves open the question of how these units are to be defined, measured and monitored because these rules will be set by the countries engaging in ITMO trading. Article 6.4, on the other hand, will create a centralized, top-down mechanism to define, measure and monitor emission reductions that can then be traded.

ICAO’s CORSIA blends important elements of both. Importantly, the CORSIA will take a more decentralized approach, allowing different carbon reduction certifications to serve the market, essentially creating an “open source” paradigm. At the same time, and taking a page from the more centralized approach, the CORSIA will ensure quality by requiring all certification frameworks to hew to specified criteria that will ensure that the reductions are real. This blended approach could be the key to structuring the crediting mechanisms of the future.

One Size Never Fits All

We’ve already learned through trial and error that no one unifying program or scheme can deliver the emission reductions we need to keep us at, let alone below, 2oC. The existing carbon market provides a great example of the benefit of diverse solutions. For instance, carbon offset project developers know that if one is working on cookstoves, one goes to the Gold Standard for certification. For agriculture and forestry projects, which are arguably the Earth’s last best chance to stop catastrophic climate change, the Verified Carbon Standard (VCS) leads the field. And the Clean Development Mechanism (CDM) led the way to figuring out how Programmes of Activities (POAs) can work, thereby allowing for small project activities to aggregate for easier access to the market. In short, each certification provider offers expertise that expands the market, allowing more project types to enter the space.

The multi-actor model of the current voluntary carbon market also benefits compliance schemes. Establishing a brand new crediting framework is costly, time-consuming, and can require the rapid acquisition of expertise. Similar to other compliance markets relying on existing infrastructure from voluntary market players, like California’s cap and trade system or South Africa’s tax and offset mechanism under development, CORSIA also taps into what is already working. By relying on existing GHG crediting programmes, rather than reinventing the wheel, the CORSIA benefits from the experience and expertise of current providers.

Innovation through Competition

Utilizing a variety of existing platforms creates a true open market, which in turn unleashes the benefits markets bring. Markets are competitive and competition, we see time and time again, breeds innovation and reduced costs. Opening up the CORSIA to certification programs that meet the quality criteria means that airlines will have more and better options for purchasing offset credits. An open market also incentivizes streamlining the methods and procedures for carbon accounting and certification, which can result in reduced transaction costs, thereby ensuring the scale needed for long-term viability.

Balancing this open source approach are centralized requirements for participation that work to keep quality consistent across the market. For example, in order to participate in the CORSIA, certifying bodies will need to demonstrate that their programmes ensure both environmental integrity and widely-accepted requirements on safeguards. These requirements serve as the check that strikes the balance between freely traded emissions units a la Article 6.2 and a centralized, top-down approach as in Article 6.4.

As the scheme gets under way, there will also need to be strong oversight of the GHG crediting programs participating in the scheme to ensure they continue to meet the established criteria. In addition, requirements to avoid double counting of emission reductions, which will be critical in maintaining environmental integrity, have yet to be determined by the CORSIA or indeed, any international scheme.

Organic Evolution

The blended approach model currently being piloted has big potential benefits for ICAO and the carbon market writ large. Indeed, ICAO’s CORSIA could set an important precedent for the future of carbon markets, including setting out an example of how key articles of the Paris Agreement could actually function. The CORSIA could show that we are better served creating the crediting mechanisms of the future organically, by setting a minimum level of quality, recognizing different approaches and building on the expertise that already exists in the market, thereby unleashing forces of innovation through competition.