Implications of ICAO Global Market-Based Measure or CORSIA

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Date produced: 09/11/2016

How does the Global Market Based Measure (GMBM) complement emission reduction initiatives and ambition under the Paris Agreement?

Summary:

Article 6 of the Paris Agreement established an initiative to facilitate trade between states and promote carbon pricing on a global scale. Although countries’ Nationally Determined Contributions do not include international aviation emissions, these account for almost two thirds of total aviation emissions and the International Civil Aviation Organisation (ICAO) feels that it is appropriate to address this alongside other current targets. As such, the ICAO adopted the Global Market-Based Measure named the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). This scheme is designed to complement the mechanism brought in by the Paris Agreement by providing a market in which emissions allowances and offsetting credits can be traded to encourage emissions-reducing investments outside of the international aviation sector and limit emissions within the sector to 2020 levels.

Additionally, the underlining ambition of the Paris Agreement is to limit the global temperature increase to well below 2 degrees Celsius and by setting targets to reduce emissions at a sector-wide level on a global scale, the CORSIA aims to inspire the international aviation sector to plays its part in achieving this goal.

Advice:

Ahead of the 38th Assembly of the International Civil Aviation Organisation (ICAO) in 2013, the Intergovernmental Panel on Climate Change (IPCC) announced that the aviation sector is responsible for around 2% of global carbon dioxide emissions. Just under two thirds of those emissions are produced by the international aviation sector, yet the United Nations Framework Convention on Climate Change (UNFCCC) has so far only focused on emissions by domestic flights. Indeed, when nations were asked to set targets for reducing emissions under the Paris Agreement in 2015, so-called Nationally Determined Contributions (NDCs), international aviation was beyond the scope of those targets. Nevertheless, the ICAO has been proactive in its efforts to reduce emissions in the aviation sector as a whole and, at the 39th Assembly in 2016, passed Regulation A39-3 which outlines a basket of measures (including aircraft technologies, operational improvements, and sustainable alternative fuels) designed to limit the sector’s contribution to climate change. One of the most important measures is the Global Market Based Measure (GMBM) named the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).

The CORSIA is based on the principle of a single international solution to climate change which centres on a carbon pricing model. Carbon pricing is a charge levied on operators who exceed emissions targets, and is championed as the most effective way to tackle the challenges of climate change. Under a GMBM, allowances and credits used to offset emissions, and thus avoid the carbon pricing charge, can be traded between operators at a price regulated by natural market forces. There are already various established ways of earning credits, such as through the Clean Development Mechanism initiated by the Kyoto Protocol which rewards economically advanced countries for making clean energy investments in Least Developed Countries. The CORSIA works hand-in-hand with such existing schemes, so that operators can earn tradable credits from emissions-reducing investments outside the international aviation sector, which they can either sell or use to offset any emissions which are above the designated level. In this way, the ICAO envisages the CORSIA as an extension of the Paris Agreement, promoting carbon pricing and marrying domestic and international aviation to tackle growing emissions in harmonised and interrelating schemes.

Much of the detail of the CORSIA has not changed since the final draft was presented at the High-Level Meeting on a Global Market-Based Measure in May 2016 and the key points are set out below.

  • The CORSIA’s target is to achieve ‘carbon-neutral growth’ from 2020 onwards. This means that sectoral growth must not come at the expense of increasing emissions. The carbon pricing policy will apply to any emissions over the 2020 level and operators exceeding this level will be required to offset their additional emissions or face a fine.
  • The scheme will be introduced in a pilot phase in 2021 and the first phase will come into force in 2024. Both of the stages are voluntary but many major economies such as the UK, US, and China have already signed up to the scheme and are encouraging other countries with high emissions to do the same.
  • The second phase will be introduced from 2027 and will apply to all countries whose Revenue-Tonne Kilometres (RTKs) exceed 0.5% of total RTKs. One major amendment in the final version of the Regulation is that Least Developed Countries (LDCs), Small Island Developing States (SIDSs), and Landlocked Developing Countries (LLDCs) are exempt from the scheme regardless of their share of total RTKs.
  • Although the scheme’s application is determined by reference to a country’s share of RTKs, it is the operators and not the countries themselves who will be responsible for their emissions.
  • Flights will only be covered by the CORSIA if both the departure and arrival countries are participating in the scheme. To give operators certainty, countries must notify the ICAO of their voluntary participation by 30 June; they will then be included from 1 January the following year.
  • The number of offsetting credits that will be required by an operator in each year is calculated using both the ‘sectoral rate’ and the ‘individual rate’. The ‘sectoral rate’ is the global average increase in emissions across the entire international aviation sector, whilst the ‘individual rate’ is the increase in emissions of an individual operator. The level will be set using 100% ‘sectoral rate’ until 2029, before giving more weight to the ‘individual rate’; at least 20% from 2030 to 2032, and at least 70 percent from 2032 to 2035 when a full scheme review will be held.
  • The CORSIA confirms that emissions units generated from mechanisms established under the UNFCCC and the Paris Agreement are eligible for use in the CORSIA.

As stated above, one of the most important changes for the LDC Group is the replacement of the qualified exemption (by reference to share of total international RTKs) in the draft version of the Regulation with a complete exemption for Least Developed Countries unless they volunteer to participate in the scheme. This applies in the trial, first, and second phases. There are, however, benefits to participating for LDCs.

  • Firstly, since both the departure and arrival country must be participating for the flight to be included in the scheme, signing up will ensure that incoming flights are encouraged to use cleaner fuel and technology, creating a positive effect for LDC’s air quality even if they are not directly affected through their operators.
  • Secondly, the wider the network of participating countries, the higher the demand for emissions units; this means that a) LDCs can benefit from a higher price when selling their unused allowances, and b) a greater incentive for more developed countries to invest in LDCs in order to earn credits.

Ultimately, the CORSIA constitutes the most significant climate change policy since the Paris Agreement by presenting a clear effort from the international community to limit greenhouse gas emissions at a sector-wide level on the global stage. Given that the Regulation is entirely focused on the international aviation sector it will not feed directly into countries meeting their NDCs, but it should contribute significantly to meeting the target of limiting the increase in global temperature to well below 2 degree Celsius, which is the ultimate aim of the Paris Agreement.