ANALYSIS: Carbon standards unhappy with ICAO over Corsia approval process

11 Apr 2024

Quantum Commodity Intelligence – One of the stumbling blocks in the failed negotiations late last year over operationalisation of the Paris Agreement's Article 6 carbon trading mechanism now seems to have spilled over into another UN-backed greenhouse gas trading scheme, the International Civil Aviation Organization's (ICAO's) Corsia programme.

Last month, ICAO's Technical Advisory Body (TAB) only conditionally approved three major standards – US-based Verra, Climate Action Reserve (CAR) and Switzerland-based Gold Standard (GS) – for phase one of its Carbon Offsetting and Reduction Scheme for International Aviation (Corsia) scheme.

Conditional approval means the three standards are several months away from being able to supply carbon credits to the scheme, which is used by airlines around the world, thus constraining supply significantly.

Two standards approved

Right now, only ACR and the Architecture for REDD+ Transactions (ART), both US-based, are eligible for the first phase of the scheme, with an issuance of vintage 2021 ART credits by Guyana currently the only supply available to buyers.

The timeline to get full approval from the TAB by the next 'window' in November is largely dependent on responses filed by standards by next week, including a complex 'political liability' issue related to the avoidance of double counting carbon credits.

The standards said TAB has in effect asked project developers that use GS and Verra's Verified Carbon Standard (VCS) to be liable for replacing credits if a host country reneges on a commitment to avoid double counting by applying a so-called corresponding adjustment (CA) under Article 6 of the Paris Agreement on climate change.

A CA is in effect an accounting procedure to set aside an emissions reduction from a host country's domestic action under its national carbon emissions reduction plans required under Paris.

Under the rules of Corsia, credits also need to be correspondingly adjusted. There has long been concern among some countries, and ICAO itself, that fast-developing nations might remove CAs at a later date to use the reduction for their own purposes.

The question of whether CAs could be revoked by host countries was also discussed as part of the Article 6 negotiations at the UN Framework Convention on Climate Change (UNFCCC) meeting (COP28) in Dubai late last year. The issue was one of several that could not be resolved and led to no agreement on either strand of Article 6 being concluded at COP28.

Both GS and Verra have criticised ICAO, the UN's aviation body, in recent weeks. "While we respect ICAO's right to decide which programmes meet its eligible emissions unit criteria, we regret that the assessment process did not allow for a more open dialogue with applying crediting programmes over the past year, and indeed the year prior to that," GS said in a statement.

"This could have allowed us to clarify processes or to introduce earlier changes to address outstanding conditions, and therefore provided certainty for project developers, governments and airline operators," the statement continued, referring to various requirements set out by the TAB, including those outlined by the ICAO-administered body in March.

New conditions

TAB said GS will need to update security procedures in its registry, clarify its compensation procedures in case of reversals – when carbon projects release carbon dioxide back into the atmosphere due to a natural catastrophe – and develop procedures to prevent double-claiming related to CAs.

But both GS and Verra have said in respective statements that political liability conditions set by ICAO are new conditions. "[These conditions] expect a higher burden to be placed on project proponents in such a scenario," GS said.

It added: "At the same time, we also hope that governments take seriously the political risk associated with the application of corresponding adjustments as things stand, and take active efforts through the UNFCCC, ICAO, and national frameworks to establish safeguards and instil confidence that governments will abide by their commitments.

"We hope that further transparency and efficiency may be introduced into the process going forward and are seeking to engage with representatives of the Technical Advisory Body towards this end."

Verra described the CA double counting conditions as "challenging". Andrew Howard, senior director of climate policy and strategy at Verra, said "in its latest communication with us, ICAO set new conditions to be met before credits from the VCS Program can be fully eligible for Corsia's First Phase. These conditions add to requirements set in March last year and to which we responded in August."

UNFCCC accountability

He added that in effect ICAO is asking projects to "backstop countries' targets", that is to be liable by providing new credits at their own cost, "creates unreasonable political risk. Countries should instead be held accountable under the UNFCCC for backing out on earlier authorisations, and ICAO should be in a position to bring such cases there," he said.

The controversy has also impacted the traded market. "We are looking forward to final validation; I do not see how Corsia can do without the Verified Carbon Standard and GS. In the meantime, all deals are on hold," a market source told Quantum. Market players meanwhile reported higher offer levels for Corsia-eligible credits amid thin trading activity as market players adopted a cautious approach due to the lack of clarity.

The standards – referred to as 'supplier programmes' by ICAO – have until April 15 to respond to the issues raised by TAB. The paperwork filed by April 15 will then be considered by the TAB at a meeting in September before the next effective decision is made in November.

If supplier programmes do not get the green light in November, they would have to respond once again to ICAO's stipulations and requests for further clarification, meaning a wait of another several months until March 2025 – and even then, there is no guarantee of getting full approval.

The prospect of not having credits from Gold Standard and Verra anytime soon would mean that airlines covered by Corsia would lack the diverse range of credits that the 'big two' supplier programmes can provide.

However, buyers in the Corsia market will be able to draw upon the 7.1 million credits from Guyana's sovereign REDD scheme recently certified by ART Trees, which since last year has full authorisation from ICAO to supply the market.

Moreover, airlines covered by the 2024-26 first phase of Corsia have until early 2028 to fully comply, meaning there is no immediate urgency to buy and are in effect operating a wait-and-see approach until many of the issues delaying supply from other programmes are sorted out.

But getting agreement among various UN institutions – including UNFCCC and ICAO – and various developing countries on how to find a workable solution to the CA liability issue is far from a straightforward task, say lawyers who follow Corsia closely.

Other standards

A fourth standard, Brazil-based Social Carbon has been invited to "re-apply" for approval at a later stage, according to a document seen by Quantum. Last year, ICAO "conditionally" approved five other standards for phase one of Corsia, which runs from 2024 to 2026.

The programmes are BioCarbon Fund Initiative for Sustainable Forest Landscapes, Cercarbono, Forest Carbon Partnership Facility, Global Carbon Council and Premium Thailand Voluntary Emission Reduction Program. They will each have to undergo further reforms in order to be eligible for Corsia, widely seen as a major source of carbon credits demand over the next few years.

Under Corsia, airlines have to buy carbon credits equivalent to the growth in their emissions between a baseline, set at 85% of 2019 emissions, and the current year. China and India have both opted out of the first phase, but will join from 2027.