We have been closely following the developments of Article 6 of the Paris Agreement and CORSIA. Kita’s Carbon Political Risk Cover can be applied to CORSIA transactions to offer greater protection and security against traditional political risks and Host Country changes. With Phase 1 of CORSIA underway, read on to understand more about what this means for your engagement with this mechanism.

CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) is a global market-based measure established by the International Civil Aviation Organization (ICAO) to reduce carbon emissions from international aviation. It aims to offset the environmental impact of the aviation sector by requiring airlines to purchase carbon credits to cover any emissions above a set baseline related to 2019/2020 emissions.

126 countries have committed to participating in Phase 1, which will require airlines and aircraft operators in those jurisdictions to buy carbon credits from a specific selection of approved providers. There are currently six carbon credit programmes fully approved for Phase 1 (2024-2026) of CORSIA including American Carbon Registry, Architecture for REDD+ Transactions, Climate Action Reserve, Global Carbon Council, Gold Standard, and Verra’s Verified Carbon Standard. However, it’s highly important to understand all the exclusions as there are many. Phase 1 demand is estimated at between 65M-200M credits over the period 2024-2026 (according to data from MCSI, IETA/Allied Offsets and others).

Table above: CORSIA Phase 1 Eligibility - Methodology inclusion by programme. Table originally created by IETA, it summarises eligibility criteria and restrictions. For full eligibility information click here. The dash symbol (-) indicates that ICAO has not made an explicit reference to this category in that programme’s scope of eligibility.

The exclusion of CCS and engineered removals is mostly due to the Technical Advisory Body (TAB) having insufficient time to review methodologies under these project categories. It is expected they will be reviewed sometime in 2025.

Bonus Tip: If you’re looking for projects with CORSIA approval and CCP approval, you’ll want to target ART TREES Crediting Level, Verra’s JNR Scenarios 2a and 3, or Verra’s VM0048 where <7k credits per year are issued.

What about the conditionally approved standards?

There were five carbon credit programmes conditionally approved for Phase 1 (2024-2026) of CORSIA including the BioCarbon Fund, Cercarbono, Forest Carbon Partnership Facility, Isometric, and the Premium Thailand Voluntary Emission Reduction Program. Conditional approval means a programme must complete certain actions set by the TAB to get full approval. It does NOT mean credits get a conditional label. Full approval can be achieved outside of the normal TAB review cycle, but it is linked to the International Civil Aviation Organization (ICAO) council sessions, of which around three are held per year.

How this works with Article 6 of the Paris Agreement.

The Paris Agreement Crediting Mechanism (PACM), the formal name of Article 6.4, is not yet approved for use towards CORSIA compliance. This is simply because PACM is not yet operational. That means credits issued by PACM, referred to as A6.4ERs, won't be usable under CORSIA even if the host country authorises them. This is for two reasons:

PACM still needs to be reviewed by TAB. TAB has a rule that it won’t review programmes until they are operational. When PACM becomes operational is to be seen, but the Supervisory Body certainly has the mandate to do it as soon as possible.

The Clean Development Mechanism (CDM) isn't approved for CORSIA Phase 1. This matters because CDM projects will transition to PACM, creating the first batches of A6.4ERs. But without CDM Phase 1 approval or PACM approval, they won't make the cut.

This is not a bad thing, more a statement of fact. PACM should be operational next year (optimistic chatter suggests that CDM transitioned credits may begin trading in March 2025 with PACM methodologies operational around August 2025). TAB has plenty of incentive to fully approve PACM for Phase 1 as soon as possible. The bigger question will be TAB timelines. In 2025, TAB will start reviewing carbon programmes for the compliance period of 2027 to 2029 (part of Phase 2) in addition to more Phase 1 approvals. It's not yet clear how their time will be split between more Phase 1 assessments and new Phase 2 assessments. Kita is optimistic though. Also, this shouldn't dampen host countries' willingness to authorise A6.4ERs for CORSIA, since Phase 1 approval can be applied retrospectively.

Bonus Tip: CORSIA explicitly uses the term ‘attestation’ instead of ‘authorisation’ to allow countries that are not part of the Paris Agreement to engage. This typically relates to any situation where a letter of authorisation is likely to be required. An example of where this language choice could prove relevant: if the USA leaves the Paris Agreement under the Trump administration, they can still approve credits for use under CORSIA, by providing the attestation.

How can Kita help protect against risks related to CORSIA Phase 1?

Kita’s Carbon Political Risk Cover provides protection for cross-border investments against political and Host Country Risks, including those relevant to frameworks like CORSIA Phase 1. National-level or government-led decisions may impact the ability of project participants to produce, transfer, receive, or claim carbon credits from a particular project or country. Kita’s Carbon Political Risk Cover mitigates such uncertainties by providing financial protection against defined political risks, supporting investor confidence and acting as a safeguard against eligible losses.

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