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Carbon Offsetting for Aviation During COVID-19

The COVID-19 outbreak makes it challenging to predict the activity level in the sector, and as a result, World Kinect Energy Services is observing that market players are cautious and waiting for further clarifications.

The COVID-19 outbreak makes it challenging to predict the activity level in the sector, and as a result, World Kinect is observing that market players are cautious and waiting for further clarifications. Fears of a second round of lockdowns across Europe because of mass gatherings and protests against racism is increasing the likelihood of new coronavirus outbreaks across Europe. Governments warn of the threat of the second wave of cases amid local spikes in infections. 

Currently, the carbon offset price direction is flat but we are seeing some indications that some market players would like to secure volume at the current price level. However, as a result of the eligibility criteria’s only allowing carbon offsets from vintage 2016 or later, we are seeing carbon offset prices split into two segments. CORSIA eligible credits are currently priced substantially higher regardless of technology and location compared to non-CORSIA eligible credits.

Five Scenarios for Aviation Rebound

The Environmental Defense Fund (EDF), a non-profit organization, has developed five different scenarios concerning how quickly the activity within the aviation sector will rebound back to 2019 levels.

The activity level in the aviation sector will impact the number of carbon offsets each airline would need to purchase for compliance purposes within the CORSIA scheme.

First Scenario

The first scenario is describing a V-shaped recovery, which would result in the activity and emissions in the aviation sector rebound fully by 2021 and a return to a business-as-usual trajectory by 2021. 

Second Scenario

The second scenario is describing a modified V-shape in which activity and emissions would rebound to 2013 levels, rather than 2019 levels, in 2021.

The lower flight activity would subsequently dampen year-on-year long-term growth and hence the demand for carbon offsets. 

Third Scenario

The third scenario is describing a U-shaped recovery in which the aviation activity and emissions, would rebound slowly to 2019 levels in 2024, followed by slightly dampened long-term growth. 

Fourth Scenario

The fourth scenario is describing an L-shaped situation where activity and emissions in the sector fall and do not rebound, levelling off with minimal growth between 2021 and 2035.

This scenario would limit the demand for carbon offsets within the CORSIA scheme to zero with the current baseline calculation based on 2019 data. 

Fifth Scenario

The fifth scenario is describing an uptick recovery in which the activity and emissions rise quickly from 2021 and overshoot pre-COVID 19 predictions.

In this scenario, the demand for carbon credits to offset post-2020 emission growth would be much larger than baseline predictions developed by market players. 

Baseline Calculation to Only Include 2019 Data

In the CORSIA scheme, the baseline calculations are of key importance to determine the number of carbon offsets an airline would need to purchase when the scheme is entering into force from 2021. Originally, as established in 2018, the baseline for monitoring aviation emissions was calculated as the average international aviation carbon dioxide (CO2) emissions in 2019 and 2020. 

The International Air Transport Association (IATA) has estimated that the baseline would be about 30 per cent more strict than originally anticipated before the COVID-19 crisis, meaning that the airlines would need to purchase 30 per cent more carbon credits to offset their emissions. IATA announced early that the International Civil Aviation Organization (ICAO) should change the baseline from an average of 2019 and 2020 emissions and instead use a 2019-only baseline. The European Commission recommended European states to support the proposal by the airline industry to change the CORSIA baseline to take into account the expected sharp decline in carbon emissions in 2020 due to the COVID-19 outbreak. 

In a letter to ICAO Council sent May 25, environmental NGOs Environmental Defense Fund (EDF), WWF and Carbon Market Watch, Gold Standard, Climate Action Reserve, atmosfair, and other market stakeholders, urged the Council not to modify the baseline calculation to only be based on 2019 emissions. According to their estimates, a 2019 baseline would eliminate all offsetting requirements for the duration of the pilot phase and potentially several years after, resulting in a postponement of the start of CORSIA by three to five years regardless of post-COVID-19 crisis recovery scenarios.
 

As of June 30th, the new decision by the Council was in place using only 2019 emission levels as the baseline. The US, Latin America and most European nations are supporting the change of the emissions baseline in response to the coronavirus pandemic. 

Changing the baseline to 2019 could result in total offsetting requirements in the pilot phase becoming zero or close to zero until 2023, meaning there will be little or no demand for offsets. The change of the baseline to include only 2019 emissions would also affect the first and second phase of the scheme. Estimates indicated that in a V-shaped recovery scenario offset demand will be 9 per cent lower and in a U-shaped recovery scenario the offset demand would be reduced by as much as 32 per cent throughout the entire period until 2035.

sustainability

About Sustainable Aviation Fuel (SAF)

An aircraft operator’s offsetting requirements under CORSIA can be reduced using sustainable alternative fuels. For MRV purposes, the sustainable alternative fuel needs to have a default emission value for each feedstock/production pathway.

Eligible Offset Program Within CORSIA

ICAO has received eight applications from emissions unit programs in the second round of assessments by its Technical Advisory Body (TAB). The programmes include:

  • Architecture for REDD+ Transactions (ART)
  • BioCarbon Fund Initiative for Sustainable Forest Landscapes (ISFL)
  • CERCARBONO
  • Compte CO2
  • Joint Crediting Mechanism between Japan and Mongolia
  • Olkaria IV Geothermal Project
  • Perform, Achieve and Trade Scheme
  • Regional Greenhouse Gas Initiative

Carbon offset programs already approved within the CORSIA scheme includes:

  • American Carbon Registry
  • China Greenhouse Gas (GHG) Voluntary Emission Reduction Program
  • Clean Development Mechanism (CDM)
  • Climate Action Reserve
  • The Gold Standard
  • Verified Carbon Standard

The TAB’s assessment and recommendations are expected for consideration by the ICAO Council during its session in November. The third round of new applications is planned to begin in January 2021.

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