First global airline emissions scheme faces challenges as credits run short
The aviation sector is heading toward a compliance crunch. Airlines worldwide must soon surrender millions of eligible carbon credits under a global offsetting system. Yet the market appears to hold only a fraction of what carriers will need.
The problem centers on CORSIA, the Carbon Offsetting and Reduction Scheme for International Aviation. Introduced by the International Civil Aviation Organization, CORSIA requires airlines to offset growth in international flight emissions above a set baseline. The first mandatory compliance deadline arrives in January 2028. Airlines must by then acquire and cancel approved carbon units covering emissions from 2024 through 2026.
Around 130 countries have joined the scheme. The total obligation could reach 200 million metric tonnes of carbon dioxide equivalent. However, recent industry data suggests available supply may cover no more than a quarter of projected demand. Consequently, airlines face uncertain costs, tighter competition for scarce credits, and growing questions about whether the system can deliver credible climate outcomes.
Airlines must offset international emissions growth from 2024
CORSIA does not require airlines to offset every tonne they emit. Instead, the system targets emissions growth above a defined baseline. Airlines calculate their obligation based on international routes flown and reported emissions increases. They then purchase and retire CORSIA Eligible Emissions Units to compensate for that growth.
The first mandatory phase runs from 2024 through 2026. Airlines operating under participating states must retire the required credits by January 31, 2028, or face penalties. This compliance period marks the first time the global aviation industry operates under a unified, compulsory carbon offsetting framework.
The scheme aims to prevent a fragmented patchwork of national rules for international flights. Previously, individual countries applied different measures. CORSIA establishes a single international standard administered by ICAO. That consistency matters for airlines managing cross-border operations and regulatory obligations across multiple jurisdictions.
Demand estimates vary slightly depending on methodology. However, most industry assessments converge on a similar scale. Standard Chartered has told Reuters the first phase could generate demand for credits covering up to 200 million metric tonnes. IATA, the airline industry trade association, estimates carriers will need to purchase more than 200 million CORSIA-eligible units by the January 2028 deadline. An ICAO-related assessment presented in 2026 put the central scenario at approximately 213 million tonnes.
Eligible supply may cover only one quarter of airline requirements
The mismatch between demand and supply has become increasingly clear. Reuters reported that ICAO data, combined with estimates from more than two dozen industry participants and analysts, indicated available credits might cover no more than one quarter of the requirement for the first phase. Furthermore, only 11 countries appeared positioned to supply CORSIA-eligible credits.
IATA reported in August 2026 that approximately 72 million units were associated with host-country Letters of Authorization. That figure left a potential shortfall of roughly 150 million units against projected demand. A separate ICAO-linked presentation estimated that about 38 million tonnes of eligible units were available as of June 2026, compared with projected demand of approximately 213 million tonnes.
These figures reflect different definitions of availability. Some estimates include units moving through verification and registry processes. Stricter counts cover only credits fully issued, verified, and formally labeled as eligible for CORSIA. Nevertheless, the practical conclusion remains consistent across assessments. The market needs a rapid expansion of supply before airlines reach the 2028 deadline.
The scarcity stems from CORSIA's eligibility criteria. Not every carbon credit qualifies for airline compliance. Eligible units must satisfy ICAO requirements concerning the crediting program, monitoring, verification, host-country authorization, and avoidance of double counting. Hannah Hauman of trading company Trafigura told Reuters that only about 5 percent of historic carbon-credit inventories were eligible for mandatory schemes such as CORSIA.
Host-country authorization creates a persistent bottleneck
A particularly important constraint involves host-country authorization. Governments must confirm that emissions reductions represented by a credit can be transferred for international use. Moreover, those reductions cannot also be counted toward the country's own climate target under the Paris Agreement. This process prevents double counting but also introduces administrative delay.
Many governments are still developing the systems needed to issue Letters of Authorization. The process requires coordination between national climate ministries, registry administrators, and project developers. In some cases, countries must first establish legal frameworks for international carbon transfers. Therefore, eligible credits can take months or years to reach the market, even when underlying projects have already generated verified emissions reductions.
IATA said stakeholders formed a Supporting Alliance for CORSIA EEU Supply in June 2026. The alliance aims to increase availability to 225 million to 250 million units by spring 2027. IATA also noted that more units were beginning to enter the market, including credits from Guyana, Nigeria, and Rwanda. However, the timeline for expanding supply remains tight relative to the January 2028 deadline.
Most airlines have not disclosed how many credits they hold
Airlines themselves have been slow to secure credits. A Reuters review of filings and sustainability reports from 10 major airline groups found that most did not disclose how many CORSIA credits they expected to need or how many they had already acquired.
The airlines that did comment described a cautious market. United Airlines said the availability of eligible offsets was constrained. American Airlines cited uncertainty about both supply and price. Singapore Airlines said it had begun securing eligible units but did not disclose the volume. Air France-KLM said it had not yet purchased credits.
This delay may reflect the fact that airlines do not yet know the precise cost of compliance. Many carriers have expected additional supply to emerge as project developers and governments complete authorization processes. However, waiting also creates risk. If many carriers enter the market simultaneously, competition could intensify just as the deadline approaches.
The lack of disclosure also limits market transparency. Investors, regulators, and the public cannot easily assess whether airlines are managing their CORSIA obligations effectively. Similarly, carbon-market developers face uncertainty about the scale and timing of airline demand. This opacity complicates price discovery and may discourage new project finance.
Compliance costs could reach billions as credit prices rise
Reuters reported that CORSIA-eligible credits were trading at approximately $12 to $13 per tonne at the time of its report. Analysts expect prices to increase if supply remains restricted and airlines begin buying at scale.
Roland Berger estimated that compliance could cost the airline industry between $3.6 billion and $9 billion, assuming credit prices of $20 to $50 per tonne. That would amount to roughly 5 percent to 12 percent of projected industry profits for 2026, according to the consultancy's estimate.
The final financial impact will depend on several factors. These include the number of credits each airline must retire, the share of credits supplied by new projects, and whether governments authorize additional eligible units. Other variables include how quickly registries and verification bodies process credits, the proportion of airlines that buy early rather than wait, and whether ICAO or participating states adjust implementation arrangements.
For individual airlines, the cost may be manageable relative to fuel and labor expenses. At the industry level, however, a sudden increase in credit prices could become material. This is particularly true while carriers continue to face volatile fuel costs, fleet constraints, and uneven profitability. Airlines operating in competitive markets may struggle to pass compliance costs on to passengers through higher fares.
What UK businesses operating aircraft need to understand now
- CORSIA's first mandatory compliance period covers emissions from 2024 through 2026, with a retirement deadline of January 31, 2028.
- Airlines could need more than 200 million eligible carbon units to meet their obligations, while current supply estimates suggest only 25 to 38 percent of that volume is available.
- Only credits meeting ICAO's eligibility criteria can be used, and those credits require host-country Letters of Authorization to prevent double counting.
- Industry estimates suggest compliance could cost airlines between $3.6 billion and $9 billion if credit prices rise to $20 to $50 per tonne.
- Most major airlines have not publicly disclosed how many credits they hold or expect to purchase, creating uncertainty about market demand and procurement strategies.
- Governments in only 11 countries currently appear positioned to supply eligible credits, placing pressure on host-country authorization processes.
- The next compliance phase, covering 2027 through 2029, could generate even larger demand, with ICAO estimates ranging from 880 million to 1.35 billion tonnes for the period through 2035.
Offsetting shortages raise broader questions about environmental credibility
CORSIA is not simply a procurement exercise. The shortage raises fundamental questions about whether the scheme can produce emissions reductions that are both measurable and environmentally credible.
A carbon credit represents a reduction or removal of emissions from a project elsewhere. Common project types include renewable energy, avoided deforestation, and methane reduction. If the underlying reduction would have happened without carbon-market finance, the credit may not represent an additional climate benefit. Concerns over additionality, permanence, and double counting have affected voluntary carbon markets for years.
CORSIA's eligibility rules are designed to address these concerns by limiting the programs and units that airlines can use. However, those safeguards also reduce supply. The result is a trade-off between environmental integrity and market liquidity. Weaker rules could produce more credits but undermine confidence. Strict rules can leave airlines scrambling for a limited pool of units.
The Environmental Defense Fund described the coming deadline as CORSIA's first real test. The organization noted that available supply represented only a fraction of what airlines might require for the first phase. If ICAO and participating governments cannot expand supply without compromising credit quality or creating double counting, the scheme risks losing credibility with regulators, investors, and the public.
What this means for broader climate policy and procurement practices
The CORSIA shortfall has implications beyond aviation. Many UK businesses face growing pressure to demonstrate credible carbon reductions. Public sector suppliers must often meet net-zero targets to qualify for tenders under PPN 06/21. Private sector firms encounter similar expectations from investors, lenders, and corporate customers.
Carbon offsetting is frequently presented as a straightforward solution. However, CORSIA illustrates the practical difficulties. Eligible credits are scarce. Prices are volatile. Administrative processes are slow. Environmental safeguards limit supply. These constraints apply across sectors, not just aviation.
Businesses relying on offsets to meet climate commitments should therefore assess whether sufficient eligible credits will be available when needed. Procurement strategies that assume abundant, low-cost offsets may prove unrealistic. Similarly, businesses should evaluate whether the projects they support deliver credible emissions reductions that align with their stated climate goals.
The CORSIA experience also highlights the importance of host-country authorization. Governments must confirm that emissions reductions can be transferred internationally without double counting. This requirement mirrors the cooperative approaches outlined in Article 6 of the Paris Agreement. UK businesses purchasing offsets from international projects should verify that host countries have issued appropriate authorizations. Credits lacking such authorization may not withstand regulatory scrutiny or stakeholder challenge.
For businesses managing carbon reporting and PPN 06/21 compliance, the lesson is clear. Offsetting cannot substitute for direct emissions reductions. Credible net-zero strategies prioritize efficiency improvements, renewable energy adoption, and supply chain engagement. Offsets should serve as a residual measure for emissions that cannot yet be eliminated, not as the primary tool for achieving climate targets.
Airlines and project developers must act before the deadline
Several developments will determine whether the shortfall narrows before January 2028. First, governments must approve additional units for international use. New host-country authorizations are essential to expanding supply. Second, eligible projects need to move through monitoring, auditing, and registry processes more quickly. Verification bottlenecks currently delay the issuance of credits that have already been generated.
Third, carriers must decide whether to secure credits early or risk higher prices later. Airlines that wait may face intense competition as the deadline approaches. Fourth, airlines and market participants need to report obligations, purchases, and available inventories more consistently. Improved disclosure would support better price discovery and market functioning.
Finally, ICAO may need to address administrative bottlenecks while preserving the scheme's environmental safeguards. The organization faces a delicate balancing act. Loosening eligibility criteria could increase supply but undermine the scheme's credibility. Maintaining strict rules preserves environmental integrity but exacerbates scarcity.
IATA has already begun facilitating procurement. Its 2026 procurement event offered more than 2.5 million eligible units, including credits from Guyana, Nigeria, and Rwanda. That volume is small relative to the estimated first-phase requirement. Nevertheless, it illustrates the type of market infrastructure that will be needed on a much larger scale.
For UK airlines and aviation service providers, the practical steps are straightforward. Calculate your expected CORSIA obligation based on international routes and emissions growth. Assess current credit prices and availability. Develop a procurement strategy that balances cost, supply risk, and compliance certainty. Monitor ICAO guidance and host-country authorization processes. Ensure that purchased credits meet eligibility criteria and carry valid Letters of Authorization.
Businesses supporting UK aviation, including suppliers, investors, and professional advisors, should also prepare for the compliance period. Airlines managing tight margins may seek to renegotiate contracts or adjust operational plans to minimize CORSIA liabilities. Investors evaluating airline credit risk should factor in potential compliance costs. Professional advisors should ensure that clients understand both the regulatory requirements and the market dynamics shaping credit availability.
For firms exploring sustainable procurement practices more broadly, CORSIA offers a case study in the challenges of scaling carbon markets. The scheme demonstrates that regulatory demand alone does not guarantee adequate supply. Market infrastructure, government authorization systems, and environmental safeguards must all function effectively. Businesses relying on carbon markets for compliance should therefore assess supply chains, authorization processes, and credit quality with the same rigor they apply to other procurement decisions.
Where to find authoritative guidance on CORSIA and carbon markets
The International Civil Aviation Organization publishes detailed guidance on CORSIA implementation, including eligibility criteria, reporting requirements, and approved crediting programs. Airlines and aviation service providers can access this information through ICAO's CORSIA web portal.
The UK Civil Aviation Authority provides sector-specific guidance for UK-registered airlines. This includes obligations under CORSIA, reporting deadlines, and enforcement arrangements. The CAA's guidance is available on the Civil Aviation Authority website.
IATA offers resources for member airlines, including procurement events, market updates, and technical guidance on CORSIA compliance. Airlines can access these resources through IATA's CORSIA support page.
For broader context on carbon markets and offsetting credibility, the UK government's guidance on carbon units and international carbon markets provides useful background. This is available through GOV.UK publications on international carbon markets.
Businesses seeking support with carbon reporting, compliance obligations, or net-zero strategy development can explore SBS compliance services for ESG and carbon reporting. We work with UK SMEs to navigate regulatory requirements, assess offsetting options, and develop credible, evidence-based climate strategies.