RESEARCH INSIGHTS

MSCI ESG RESEARCH LLC

CORSIA: Costs and

Implications for the
Airline Industry
November 2024

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 CORSIA: COSTS AND IMPLICATIONS FOR THE AIRLINE INDUSTRY
NOVEMBER 2024

Contents

Executive summary ..................................................................................................... 3

1 What is CORSIA?................................................................................................... 4
1.1 Origins ........................................................................................................................... 4
1.2 The pilot phase and beyond ........................................................................................ 5
2 Outlook for credit demand under CORSIA ............................................................. 6
2.1 CORSIA demand model ............................................................................................... 6
2.2 Demand scenarios ....................................................................................................... 7
3 Outlook for credit supply under CORSIA ................................................................ 8
3.1 Credit eligibility ............................................................................................................. 8
3.2 Corresponding adjustments ....................................................................................... 8
3.3 Current state of supply ................................................................................................ 9
3.4 Supply projections methodology ................................................................................ 9
3.5 Projected supply scenarios ....................................................................................... 10
4 Scenarios for CORSIA-eligible carbon credit prices............................................. 12
4.1 Supply-demand gap under CORSIA .......................................................................... 12
4.2 Price-projection methodology ................................................................................... 12
4.3 Price scenarios........................................................................................................... 13
5 How will CORSIA impact airlines? ....................................................................... 15
5.1 Phase I (2024 to 2026) .............................................................................................. 15
5.2 Phase II (2027 to 2035) ............................................................................................. 15
5.3 Financial impact of CORSIA Phase I ........................................................................ 16
5.4 A closer look at three airlines ................................................................................... 17
6 Conclusion.......................................................................................................... 21
Appendix: CORSIA explained ..................................................................................... 22

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 CORSIA: COSTS AND IMPLICATIONS FOR THE AIRLINE INDUSTRY
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Executive summary
International aviation is a material contributor to global emissions, with the sector accounting for
around 3% of global annual CO2 emissions.1 As such airlines are under pressure from a number of
stakeholders, including investors, passengers and regulators, to reduce emissions.
To make these emission reductions, airlines will need to both improve the fuel efficiency of their
aircraft and reduce the carbon intensity of aviation fuels. Through the Carbon Offsetting and
Reduction Scheme for International Aviation (CORSIA), international carriers will also be required to
offset the part of their emissions that exceed 85% of 2019 emission levels.
This report analyzes the potential demand and supply for credits under CORSIA, and how much the
scheme could cost — in higher ticket prices or lower profits for the airlines. The analysis uses
projected credit demand and cost scenarios that are available for over 400 airlines on the MSCI
Carbon Markets platform. The key insights are:

• Airlines could generate cumulative demand for CORSIA-eligible carbon credits equivalent to 106-
137 million tonnes of CO2 equivalent (MtCO2e) during Phase I (2024 to 2026) of CORSIA.
Demand during Phase II of the scheme (2027 to 2035) could amount to 502-1,299 MtCO2e.

• This demand could exceed the supply of eligible credits. In a conservative scenario, cumulative
supply could be as low as 94 MtCO2e during Phase I and 900 MtCO2e during Phase II. The need
to use credits with a corresponding adjustment is expected to be the main limiting factor on
supply.

• Modeling by MSCI Carbon Markets suggests that CORSIA credits could command prices in the
USD 18-51 range per tCO2e during Phase I and USD 27-91 during the latter stages of Phase II
(2033 to 2035).

• At these prices, the costs to international airlines would be modest. Total costs during Phase I
would be USD 1.9-7.0 billion and USD 13-109 billion in Phase II. These would represent a cost of
less than USD 2 per ticket in Phase I and up to USD 5 in Phase II.

• The net impact on airlines would depend on how much of the cost would be passed through to
customers. If all these costs were passed on, the average international ticket price would
increase by 0.5-1.0% in Phase I, but if all the cost of CORSIA compliance were to be absorbed by
the airlines, Phase I could reduce operating profits by up to 4%. The impact on each individual
airline would, however, vary considerably based on company-specific flight paths and operating
models.

1 “CO2 emissions in aviation in the Net Zero Scenario, 2000-2030,” IEA, July 2023.

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1 What is CORSIA?
1.1 Origins
Aviation is an important contributor to global emissions, accounting for just over 1 gigaton of CO2
(GtCO2), or 3%, of global energy-related emissions in 2019, according to the International Energy
Agency (IEA).2 Around 61% of these emissions were from international air transport and 39% from
domestic flights.
Domestic aviation emissions are managed within the scope of the Paris Agreement. Emissions from
international travel (aviation and maritime), however, fall outside this scope. International aviation
emissions are therefore reported and addressed separately by the International Civil Aviation
Organization (ICAO).
Reducing emissions from aviation is challenging. Reductions can be achieved via improving aircraft
technology, enhanced operations and/or adoption of more sustainable fuels. Each of these takes
time to adopt, however, and the extent of emission reductions they can eventually deliver remains
uncertain.
In 2016, ICAO launched CORSIA. Its job was to address emissions from international air transport
and to act as a stop-gap measure giving time for the other levers of decarbonization to become
viable and established in the industry.
The aim of CORSIA is to offset, via carbon credits, any growth in emissions from international
aviation above their baseline level. The baseline is currently set at 85% of 2019 emissions. Credits
are sourced from the voluntary carbon market but must meet ICAO’s own minimum quality
requirements. Importantly, the credits must be “correspondingly adjusted,” which is a mechanism to
ensure emission reductions/removals are not double counted under the Paris Agreement.
CORSIA’s implementation includes a now-completed pilot phase (2021 to 2023), followed by a
voluntary first phase (2024 to 2026) and a mandatory second phase (2027 to 2035). Phase I
currently has 126 participating countries, while 193 countries will be covered when it becomes
mandatory from 2027.3 The scheme adopts a route-based approach, so only flights where both the
departing and arriving country participate are covered by CORSIA.
More details on the background to CORSIA are provided in the appendix.

2 “CO2 emissions in aviation in the Net Zero Scenario, 2000-2030,” IEA, July 2023.
3“International Revenue Tonne Kilometre (RTK) Rankings 2018,” ICAO. RTK data for 2018 will be used for the purposes of
determining the participation of countries in the second phase of CORSIA.

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Exhibit 1: Net CO2 emissions from international aviation (MtCO2)

Aircraft Technology
1000 Operational Efficiency
Sustainable Aviation Fuel
CORSIA

Including CORSIA
Eligible Fuels (CEFs)

600
Until end of 2023,
baseline was 2019
international aviation From 2024 onwards, baseline is 85% of 2019 emissions
emissions.

2021 2025 2030 2035

Data as of November 2024. Source: MSCI Carbon Markets, adapted from ICAO’s initiatives to address climate change

1.2 The pilot phase and beyond

During the initial pilot phase, a total of 115 countries decided to voluntarily participate. However, due
to the major downturn and prolonged recovery of international aviation following the COVID-19
pandemic, emissions stayed below the 2019 baseline. As a result, ICAO confirmed that there would
be no requirement for airlines to purchase credits as part of the pilot phase.4
This is expected to change significantly during Phase I due to:
• The post-COVID-19 recovery in international aviation,
• A reduction in the baseline to 85% of 2019 levels, and
• Limited reductions in emissions from the sector due to a limited adoption of SAFs and
constrained availability of next-generation aircraft because of technical and certification issues
limiting deliveries.

4 “CORSIA Annual Sectoral Growth Factor (SGF) Report 2024,” ICAO, October 2024.

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2 Outlook for credit demand under CORSIA

2.1 CORSIA demand model
The MSCI Carbon Markets global CORSIA forecast uses a bottom-up methodology that creates
decarbonization pathways for the individual airlines. These are based on reported emissions,
regional growth factors and the willingness and ability to adopt in-sector decarbonization levers.

Exhibit 2: MSCI Carbon Markets demand model

Source: MSCI Carbon Markets, November 2024

For Phase I, the model uses the published list of currently participating countries. For Phase II, it
builds in scenarios to account for geopolitical and policy factors that could drive participation. These
are (i) high participation: all ICAO members participate in CORSIA (excluding currently exempt
countries), (ii) medium participation: all ICAO members participate except for China and Russia, and
(iii) low participation: the U.S. joins China and Russia as a nonparticipating member of CORSIA.
Emission projections are made for individual airlines out to 2050, based on their country-by-country
flight paths. Projections are initially produced for a no-action scenario based on current historic
emissions and expected future regional passenger growth rates (around 3-4% per year).
In-sector decarbonization is then netted from each airline using regional adoption rates and split
across three main levers: technology, operations and SAF. These decarbonization actions are
applied to the no-action emissions projections for each airline to create projected net emissions for
each scenario. Total CORSIA-eligible emissions are then equal to the sum of all individual airline
emissions projections.
The CORSIA sector emissions growth factor (SGF) is calculated using the net emissions growth
above the baseline for each year of the scheme, using the methodology specified by ICAO. The SGF
is then multiplied by each airline’s CORSIA-eligible emissions to calculate their individual offsetting

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 CORSIA: COSTS AND IMPLICATIONS FOR THE AIRLINE INDUSTRY
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requirement per year. The global total offsetting requirement in each three-year compliance period is
then equal to the sum of each individual airline’s demand for those three years.

2.2 Demand scenarios

In our high-demand scenario, we assume international aviation traffic grows quickly (+4% per year),
but in-sector decarbonization is relatively slow (emission reductions related to SAF stand at just 11%
by 2050, and technical and operational improvements reduce business-as-usual 2050 emissions by
21%). As a result, cumulative demand for credits is projected to be around 137 MtCO2e in Phase I
and 1,299 MtCO2e in Phase II.
In our medium-demand scenario, we assume passenger growth is lower, but in-sector
decarbonization increases through greater use of SAF and increased fleet-renewal efforts. As a
result, cumulative demand is projected to be around 123 MtCO2e in Phase I and 1,006 MtCO2e in
Phase II.
In our low-demand scenario, we assume the world enters a period of low growth and low climate
action with poor geopolitical co-operation. As a result, the U.S., China and Russia do not participate
in Phase II and international passenger growth is at very low levels. Additionally, in-sector
decarbonization remains slow as SAF uptake remains limited and airlines continue to operate
existing aircraft for longer, resulting in only some demand materializing, at around 106 MtCO2e in
Phase I and 502 MtCO2e in Phase II.

Exhibit 3: CORSIA offsetting requirements by phase (MtCO2e)

1,400 1,299

1,200
1,006
1,000

800

600 502

400

200 106 123 137

0
Low Medium High Low Medium High
Phase I (2024 - 2026) Phase II (2027 - 2035)

Data as of November 2024. Source: MSCI Carbon Markets

At an individual airline level, modeled demand is heavily skewed to a small number of airlines, with
the 10 largest projected to account for 40% of cumulative CORSIA demand up to 2035, according to
our analysis.
Regionally, the greatest demand, on a cumulative basis through 2035, in all three scenarios is
projected to come from European airlines, despite intra-European Economic Area (EEA) flights not
falling under the scope of CORSIA because they are covered by the EU Emissions Trading Scheme
(ETS). If this exclusion is expanded to encompass all international flights that start or end within the
EEA, then global cumulative credit demand to 2050 could fall by 25-50%.

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3 Outlook for credit supply under CORSIA

3.1 Credit eligibility
ICAO has set out specific requirements for credits that can be used toward offsetting obligations
under CORSIA.5 Known as eligible emissions units, they must meet the following criteria for Phase I:
• Be registered to an approved registry that has passed an assessment by ICAO’s Technical
Advisory Board;
• Be from a project with a crediting-period start date after Jan. 1, 2016;
• Be issued with a vintage year between 2021 and 2026;6 and
• Have a corresponding adjustment applied to avoid double counting the emissions reduction
against a country’s nationally determined contributions (NDC).

3.2 Corresponding adjustments

An important aspect of CORSIA is how it relates to corresponding adjustments, whose purpose is to
ensure that the same tonne of CO2e is not counted toward two different greenhouse-gas emissions-
reduction targets, also known as “double claiming.”
Carbon credits used within Phase I or II must have a corresponding adjustment applied. That means
the carbon-selling country (also known as the host country) must authorize a project to sell credits
to an airline to use against their CORSIA targets by issuing a Letter of Authorization (LoA). This, in
theory, ensures that the host country will adjust their progress toward achieving their NDCs to reflect
the transfer of that emissions reduction or removal to the respective airline. This process requires
the country to have an operational national carbon registry or an agreement with one of the voluntary
carbon market registries, such as Gold Standard or Verra, to act as their national carbon registry. The
host country and the airline will use a corresponding adjustment to demonstrate that they have
complied with this criterion.
Many countries, however, do not yet have the infrastructure or institutions in place to authorize and
track corresponding adjustments. Questions also remain over whether countries could ever revoke
such authorizations. Due to these complicating factors, there is considerable uncertainty over the
near-term supply for credits with corresponding adjustments.
MSCI Carbon Markets has completed an assessment of 40 countries to see how ready they are to
issue corresponding adjustments, categorizing them from high to very low. The methodology uses
eight criteria covering legal, institutional and procedural aspects, including transparent approval
procedures, accounting and reporting. These 40 countries represent more than 90% of carbon credit
issuances since the start of 2016.

5 “CORSIA Emissions Unit Eligibility Criteria,” ICAO, March 2019.

6 The vintage is the year in which the verified emissions that a carbon credit represents occurred.

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3.3 Current state of supply

In March 2023, ICAO granted full eligibility for Phase I to the carbon credit standards ACR and ART
TREES. In late October 2024, it also granted eligibility to four additional standards: Verra, Gold
Standard, Climate Action Reserve (CAR) and the Global Carbon Council (GCC). Four smaller
registries are also conditionally eligible, but yet to be confirmed by ICAO as fully eligible.
As of the end of October 2024, there was a surplus of some 230 MtCO2e of credits from Phase I-
eligible registries, sourced from over 1,400 projects.7 This supply of credits is a marked increase on
the roughly 50 MtCO2e of credits (from around 175 projects) that were eligible prior to ICAO’s recent
decision to extend eligibility to four additional standards.
However, only 7 MtCO2e of these issued credits currently meet all eligibility requirements for use in
Phase I; these were all issued in Q1 2024 by the Guyanese Jurisdictional REDD+ project registered
with ART TREES. The main reason the remaining credits are not yet fully eligible is that they have not
been issued with an LoA by their respective host-country governments.
Near-term supply is expected to remain constrained due to the lack of LoAs to enable credits to be
correspondingly adjusted. For this to expand rapidly, governments need to agree and negotiate how
corresponding adjustments will be implemented. Very few countries have yet put all the regulations
and infrastructure in place for corresponding adjustments to be effective. Given the time and steps
involved, many countries are unlikely to be ready until the late 2020s or even later. Of the 40
countries that MSCI Carbon Markets has assessed, only two currently rank high in their
preparedness.

3.4 Supply projections methodology

The MSCI Carbon Markets CORSIA-eligible credit issuance model methodology builds on our
approach to projecting supply in the wider carbon credit market, which includes adjustments for
registration, crediting period and actual issuance drop-offs based on the recent record of similar
projects in the market.

Our overall market-issuance projection is made CORSIA-specific by applying the registry eligibility,
vintage year and earliest crediting-period requirements as specified by ICAO. Finally, the requirement
for a corresponding adjustment is included based on our in-house country-by-country assessment of
readiness to issue such credits by a project’s host-country government. A discount is applied to the
projected issuance of projects from each country based on that country’s readiness to
correspondingly adjust credits, to give an estimate of the potential supply of credits that are eligible
for use within the CORSIA scheme.

In the projections used in our price forecasts, potential supply is also included from projects that are
not yet in registry pipelines based on the number of CORSIA-eligible projects and issuances entering
the market over the last three years. A reduction factor of 30% is applied to these projects to
account for the likelihood they could apply a corresponding adjustment.

7This assumes no methodological restrictions or exclusions are placed on the four newly approved carbon credit registries by ICAO.
At the time of writing, ICAO had not confirmed whether any such restrictions would be applied. Such restrictions were previously
applied during the pilot phase of CORSIA.

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Exhibit 4: CORSIA-specific issuance projection

Source: MSCI Carbon Markets, November 2024

3.5 Projected supply scenarios

Relatively few countries appear ready to immediately offer corresponding adjustments — around
90% of potential supply is projected to come from countries with an MSCI Carbon Markets readiness
score of “low” or “very low.” As a result, the projected supply of CORSIA-eligible credits falls
materially when applying assumptions on the likely availability of corresponding adjustments.
In a high-availability scenario, cumulative supply is projected to be around 139 Mt during Phase I and
1,142 Mt during Phase II, while in a more conservative, low-availability scenario, it is projected to be
around 94 Mt during Phase I and 900 Mt during Phase II.
Supply could be higher if CORSIA expands the number of projects that are eligible for use within the
scheme, or governments make corresponding-adjusted credits more widely and/or quickly available.
Supply could, however, also be even more constrained if CORSIA tightens its eligibility criteria
further, or if, as expected, new integrity initiatives within the market tighten overall supply (which our
modeling suggests could lead to a reduction in projected CORSIA-eligible supply of 2-30%).

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Exhibit 5: Projected cumulative supply of CORSIA-eligible credits (MtCO2e)

1,200 1,142

1,000
900

800

600

400

200 139
94

0
Tight Loose Tight Loose
Phase I (2024 - 2026) Phase II (2027 - 2035)

Data as of November 2024. Source: MSCI Carbon Markets

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4 Scenarios for CORSIA-eligible carbon credit prices

4.1 Supply-demand gap under CORSIA
By comparing our projections for credit supply and demand, we estimate the potential supply-
demand gap. During Phase I, we project a potential supply deficit in all three of our scenarios
involving tight supply, ranging from 12-43 Mt. In our scenarios involving loose supply, however, a
supply surplus is projected, ranging from 2-33 Mt. The supply deficit would be a lot larger if airlines
did not have until January 2028 to offset their Phase I emissions, allowing them to use eligible
credits issued in 2027.
During Phase II, a potential supply deficit is projected in the high-demand scenario as well as in the
medium-demand scenario, with low readiness for corresponding adjustments. A supply surplus is
projected in the medium-demand scenario with high availability of corresponding adjustments, as
well as under both low-demand scenarios.

Exhibit 6: Gap between supply and demand under different scenarios (MtCO2e)

Data as of November 2024. Source: MSCI Carbon Markets

4.2 Price-projection methodology

The methodology used by MSCI Carbon Markets for price projections under CORSIA starts by
identifying potential sources of eligible credit demand, namely, from international aviation. CORSIA-
eligible credits can also, however, be used by companies other than airlines, so potential demand
from other sources is also included. This could come from voluntary corporate activity (for example,
by companies that see CORSIA eligibility as a mark of quality) as well as potentially from compliance
markets or sovereign governments seeking to use correspondingly adjusted credits (for example, to
contribute to their NDC).
On the supply side, our CORSIA-specific issuance projection is combined with our project-
development cost models to create a marginal-abatement-cost curve for each issuance scenario.
This provides a projected supply volume for different market prices.
The annual clearing price for CORSIA-eligible credits is then calculated based on the aggregation of
all sources of supply with cumulative global demand. Two scenarios on the demand side (high and
low) and two on the supply side (loose and tight) are modeled.

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Finally, a premium for a correspondingly adjusted credit is applied to calculate the final projected
price of a CORSIA-eligible credit. The corresponding adjustment premium is based on the difference
between the volume-weighted global average prices in the MSCI Carbon Markets carbon credit
forecast and Article 6 price forecast.

Exhibit 7: Price-projection methodology for CORSIA-eligible carbon credits

Source: MSCI Carbon Markets, November 2024

4.3 Price scenarios

Cumulative demand for CORSIA-eligible credits is projected to be 600-1,800 MtCO2e up to 2035. The
source of demand for these credits is primarily international aviation (up to around 90%) but can
also include some demand from sovereigns or corporates for use within a compliance scheme or for
a voluntary climate commitment.
Cumulative supply for CORSIA-eligible credits is projected to be 1,000-1,300 MtCO2e up to 2035.
Supply of 250-300 Mt could be delivered at a cost of up to USD 50-60/tCO2e by the fourth
compliance period (2033 to 2035).
As a result, the overall CORSIA-eligible credit price is projected by MSCI Carbon Markets to range
from:
• USD 18-51/tCO2e in Phase I, and
• USD 27-91/tCO2e in compliance period 4 (at 2024 prices)
These projected price ranges are inclusive of the corresponding-adjustment premium and represent
potential demand-supply dynamics for CORSIA-eligible credits over time.
Subsequently, if these demand and price projections are realized, the CORSIA credit market could be
worth USD 2-8 billion during Phase I, rising to USD 5-66 billion by the fourth compliance period.

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Exhibit 8: Projected CORSIA prices for two of four modeled scenarios: “High demand, tight supply”
and “Low demand, loose supply” (USD per tCO2e)
100
91
90
High demand,
80 Tight supply

70
Additional
60 scenarios and
51 drivers of price
50 range available
to subscribers
40

30 Low demand,
Loose supply
20 27

18
10

0
Compliance Period 1 Compliance Period 2 Compliance Period 3 Compliance Period 4
(2027-2029) (2030-2032) (2033-2035)
Phase I (2024-2026) Phase II (2027 - 2035)

Data as of November 2024. Source: MSCI Carbon Markets

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5 How will CORSIA impact airlines?

The costs associated with aviation decarbonization, and specifically CORSIA, will need to be covered
by the airlines, either by raising additional revenue to pass all or some of the costs directly to
passengers via higher ticket prices or by absorbing all or some of the costs against profits. In this
section we provide a case study of the potential impact on the airline industry as a whole before we
assess the potential impact on three individual airlines.

5.1 Phase I (2024 to 2026)

Airlines could need to offset between 106 and 137 MtCO2e of emissions using carbon credits during
Phase I, which equals 3-4% of global aviation emissions over the period. If our demand and price
scenarios are realized, CORSIA could collectively cost airlines USD 1.9-7.0 billion during Phase I.
Based on MSCI modeling, Phase I costs, if fully passed on to passengers, could increase a global
average ticket price by up to USD 2 or 1% or, if fully absorbed, could reduce operating profits for the
industry as a whole by up to 4%. The potential profit impact for certain individual airlines, however,
may be more material depending on their route scheduling and operating practices.

5.2 Phase II (2027 to 2035)

During Phase II, airlines could be required to offset an additional 502-1,300 MtCO2e. This would take
cumulative offsetting requirements to 607-1,436 MtCO2e for the duration of CORSIA, which is
currently planned to end in 2035.
Phase II could cost USD 13-109 billion. These costs would represent up to an additional cost of USD
2 on the average price of a ticket in compliance period 2, rising to USD 5 on average by compliance
period 4.9 Taking both phases together, CORSIA could cost airlines somewhere in the range of USD
15-116 billion through 2035.
Most of the cost and burden is projected to be carried by the 10 top airlines — accounting for
approximately 40% of cumulative CORSIA demand. Offsetting requirements/demand is heavily
skewed toward airlines in developed markets. Looking ahead to 2035, European airlines are
estimated to account for 25-32% of cumulative demand and spend, although this could change
significantly if the EU Commission expands the scope of the EU ETS to include flights arriving or
departing within the EU (and thereby excluding such flights from CORSIA).
The next two largest regions are the Middle East and APAC, each accounting for approximately 20%
of cumulative demand and spend, partly reflecting the longer average flight distance and, hence,
larger emissions in these regions. North America is a large aviation market, but most flight
emissions come from domestic aviation, which is outside the scope of CORSIA.

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Exhibit 9: Projected CORSIA spend for airlines during Phases I and II (USD billion)
120
109

100

80

60

38
40

20 13
7
2 3
0
Low Medium High Low Medium High
Phase I (2024 - 2026) Phase II (2027 - 2035)

Data as of November 2024. Source: MSCI Carbon Markets

5.3 Financial impact of CORSIA Phase I

The International Air Transport Association (IATA) forecasts industry expenses to be USD 936 billion
in 2024 and, assuming no change during Phase I, they would total just over USD 2.8 trillion.8 If so,
CORSIA may increase airline operating costs by 0.1-0.25% during this period.
IATA forecasts that revenues will be USD 996 billion in 2024.8 Assuming no growth in annual
revenues during the rest of Phase I, airlines would need to raise revenues just 0.2% to cover the
projected cost of procuring credits for CORSIA.
Airlines could choose to pass CORSIA-related costs entirely to passengers, which could result in
passengers paying an additional USD 0.3-2.0 per ticket, raising the global average ticket price by up
to 1%.9 This estimate does not include cargo or freight, which would likely share some of the cost
burden. The actual impact on individual passengers could therefore potentially be smaller.
Alternatively, airlines could absorb the entire additional cost into operating profits. IATA forecasts
industry operating profit to be USD 60 billion in 2024. If we assume this does not change through
Phase I, the total projected cost of procuring credits for CORSIA could reduce this forecast by 1-4%.
In practice, airlines will likely apply a mix of these two extremes. Taken together, the estimated
impact of both options when using MSCI price scenarios could be considered low enough for the
CORSIA scheme to remain politically palatable, thereby avoiding country withdrawals or
nonenforcement.

8 “Global Outlook for Air Transport: Deep Change,” IATA, June 2024.
9 Based on IATA forecast passenger numbers of 4.9 billion for 2024. This results in average revenue per passenger of USD 199,
assuming no growth in passenger numbers in the remaining years of Phase I. For Phase II we assume passenger numbers grow
with a CAGR of 3.8% to 2035. Total global aviation capacity (international and domestic), when measured by available seat
kilometers, is split approximately 60/40. However, due to the increased distance of international flights, it is assumed only 50% of
the forecast passenger numbers over that period are international passengers. Cost of CORSIA only applied to passengers traveling
internationally. This represents a global average across all passengers. Actual cost per ticket would depend on the airline route
operated and passenger class of travel.

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Businesses and investors in the aviation sector should note, however, that the impact at an
individual-airline level might be more material. Several airlines, including Germany’s Lufthansa and
the U.K.’s Virgin Atlantic, have already started to introduce environmental surcharges to cover the
cost of aviation decarbonization, including the cost of complying with CORSIA.

5.4 A closer look at three airlines

Subscribers to MSCI Carbon Markets can review the projected individual cost scenarios of
complying with CORSIA for over 400 airlines. The potential impact on each airline differs depending
on its operating model and country-by-country flight paths. Below, we highlight the potential impact
CORSIA could have on three different airlines: the European low-cost carrier, EasyJet; the North
American full-service carrier, Air Canada; and the Middle Eastern full-service carrier, Emirates.
EasyJet. EasyJet plc is notable for being one of the largest budget carriers in Europe, having flown
over 82 million passengers in 2023.10 It is made up of three constituent airlines, EasyJet, EasyJet
Europe and EasyJet Switzerland. The analysis presented here includes all three entities.
The group operates domestic and international scheduled services on over 1,000 routes across
more than 35 countries. It predominantly operates short-haul city and leisure routes across Europe
and North Africa. It has a fleet of over 350 Airbus A320 family aircraft with an average age of 9.9
years, lower than the industry average of 14.6 years, and is in the middle of a fleet-renewal cycle to
replace their older aircraft with the A320 NEO family.10, 11, 12 Currently 25% of its fleet is made up of
these NEO aircraft, which are approximately 15% more fuel efficient than its previous generation of
aircraft.12 Its aircraft are configured in dense, all-economy seating layouts allowing the airline to
have lower than average emissions per revenue passenger kilometer (RPK).
As most of EasyJet’s flying occurs in Europe, much of it is under the scope of the EU ETS, limiting its
exposure to CORSIA. As a result, EasyJet’s Scope 1 emissions in 2022 were approximately 7.5
MtCO2e with 60% eligible under Phase I and 35% eligible under the EU ETS.13, 14 Most of its CORSIA-
eligible emissions arise from routes departing from, or arriving in, the U.K.
Air Canada. Air Canada is the Canadian flag-carrier and largest airline based in that country and
operates as a full-service airline. It has a low-cost subsidiary called Air Canada Rouge which focuses
on leisure routes, which we include in the analysis for this airline.
Air Canada has a substantial network of routes within Canada, so is out of scope of CORSIA,
although it also operates short- and mid-haul routes across North America and long-haul
international routes, with major markets being Europe and the Far East.
The airline operates a fleet of over 240 aircraft with an average age of 12.8 years.15 It has already
undergone a substantial fleet renewal, adding many next-generation aircraft, such as Boeing 787s
and 737 MAXs and Airbus A220s, which now make up 46% of its current fleet.15 Based on reported

10 EasyJet Annual Report, 2023.

11 “Slow aircraft deliveries delay renewal benefits to airlines,” IATA, May 10, 2024.
12 “EasyJet Group Fleet,” Airfleets aviation, accessed Nov. 15, 2024.
13
“CORSIA Central Registry,” ICAO, December 2023.
14 “Publication of 2022 emissions data from aviation,” European Commission, March 2024.
15 Air Canada Annual Report, 2023.

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 CORSIA: COSTS AND IMPLICATIONS FOR THE AIRLINE INDUSTRY
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2022 emissions numbers, approximately 65% are eligible under Phase I, mainly arising from routes
to the U.S. and Europe.
Emirates. Emirates, headquartered in Dubai, has grown to be one of the largest airlines in the world
owing to a geographical location that allows it to connect passengers traveling between Europe and
Asia.
The airline is notable for configuring its fleet of aircraft in premium-class-heavy layouts with an
emphasis on first and business-class travel. This strategy, in turn, increases its emissions per RPK
compared to many other airlines.
Its fleet of over 250 aircraft has an average age of 10.1 years and is composed entirely of Boeing
777 and Airbus A380 aircraft, two previous-generation long-haul aircraft.16 The airline is the largest
operator of the Airbus A380, known for its popularity among passengers for comfort, but having
poor efficiency due to its four-engine configuration. Currently none of the Emirates fleet is next-
generation aircraft, meaning the airline has a lot of potential to reduce emissions as it upgrades its
fleet. Emirates has ordered over 200 Boeing 777X next-generation aircraft to replace its older fleet,
but due to Boeing’s production and certification issues, this transition has been delayed. The carrier
has recently switched some orders to the already in-service Boeing 787 and Airbus A350. It expects
these to enter the airline’s fleet in 2025.
Emirates operates very few short-haul flights and does not have any domestic routes. This means
more of the airline’s emissions are eligible under CORSIA, increasing its exposure to the scheme
relative to EasyJet and Air Canada. Based on 2022 data, 17 Mt out of the 27 Mt (approximately 63%)
of its Scope 1 emissions will be CORSIA-eligible during Phase I. That proportion is likely to increase
significantly in Phase II, however, as India and China participate.

1. Offsetting requirements and projected spend in Phase I

The MSCI Carbon Markets CORSIA model projects that EasyJet could have an offsetting
requirement of 1.6-2.1 MtCO2e during Phase I. Applying our CORSIA price scenarios, this estimate
could amount to a total spend of USD 29-106 million during the three-year period.

16 Emirates Annual Report, 2024.

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Exhibit 10: Projected Phase I spend by airline for low and high scenarios (USD millions)

500 466
450
400
350
300
250
200 168
150 127
106
100
46
50 29

0
Low High Low High Low High
Emirates Easyjet Air Canada

Data as of November 2024. Source: MSCI Carbon Markets

Air Canada has a projected offsetting requirement of 2.5-3.3 MtCO2e, which could amount to a
spend of USD 46-168 million over the course of Phase I. Emirates is the largest of the three airlines
in terms of its projected offsetting requirement, with a projected Phase I demand of 7.0-9.1 MtCO2e,
suggesting a cost of USD 127-466 million. For each of these airlines, our projections amount to
offsetting 7-11% of their emissions over the next three years.

2. Financial impact of CORSIA Phase I

As outlined earlier, airlines can either pass any CORSIA-related costs to their passengers or absorb
such costs into their operating profits. On a per-passenger basis, the potential costs we have
described would be an additional cost per ticket of:
• 12 to 42 cents at EasyJet, on an average ticket price of USD 116;
• 34 to 125 cents at Air Canada, on an average ticket of USD 351; and
• 80 to 300 cents at Emirates, on an average ticket of USD 624.17
These estimates assume the entire cost is covered by passengers. In practice, airlines carrying
freight either in dedicated aircraft or in the belly of passenger aircraft could also absorb some of the
additional cost.
Our projections represent an increase in passenger ticket prices of 0.1-0.5% for Phase I across these
airlines, well below the 11% average premium that passengers were willing to pay to offset carbon
emissions, according to a recent survey.18

17Average revenue per passenger is used as a proxy for average ticket price. Some revenue is earned from non-passenger or cargo
operations which are not accounted for in these figures. It is assumed all the cost is passed onto passengers and not spread to
cargo operations and thus this represents the maximum likely increase. This also only includes the cost of procuring CORSIA credits
and not of the administration of the scheme or monitoring, reporting and verification responsibilities.
18 “2024 Passenger IT Insights,” SITA, 2024.

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Indeed, this level of expenditure may be small enough that airlines could offset the increased
compliance costs through cost savings elsewhere, which would need to be the equivalent of just 0.1-
0.5% of operational costs.
If these options are not possible, airlines’ profit margins would then need to absorb the costs. If all
the related costs were absorbed by each airline’s operating profit, we could expect it to decrease by:
• EasyJet — between 1.6% and 5.7%
• Air Canada — between 0.9% and 3.4%
• Emirates — between 0.8% and 2.9%
Airlines with a larger operating profit margin may be able to absorb the costs more easily; this is the
case for Emirates, which has the lowest modeled impact of the three airlines and the highest margin
at 17%. EasyJet has the largest modeled impact on its operating profit, nearly double that of
Emirates, due to its much smaller margin of 6%.

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6 Conclusion
Airlines could have to offset 106-137 MtCO2e during Phase I (2024 to 2026) of CORSIA, with an
additional offsetting requirement of 502-1,299 MtCO2e during Phase II (2027 to 2035).
Airlines have reportedly engaged well with CORSIA on the monitoring, reporting and verification of
emissions. MSCI Carbon Markets data shows, however, that just 61 airlines have retired any credits
to date, well shy of the over 400 airlines that would be required to do so under CORSIA. The
retirement deadline of January 2028 for Phase I may seem far off, but many airlines could start
considering soon their procurement strategies for credits to avoid a potential crunch around that
date.
While the recent approval of four major registries helps to unlock substantially more supply, the lack
of available supply of carbon credits remains a concern. The main constraint is now the availability
of LoAs to enable these credits to be correspondingly adjusted as required by CORSIA. Very few
governments have all the necessary legal framework and infrastructure in place to do so.
Based on MSCI Carbon Markets’ modeling, CORSIA credits could command prices in the USD 18-51
range per tCO2e during Phase I and USD 27-91 per tCO2e during the latter stages of Phase II (2033
to 2035).
Based on these projected price scenarios, CORSIA may increase airline operating costs by 0.1-0.25%
during Phase I. If fully passed on to passengers, this could increase the global average ticket price
by up to 1% (or USD 2 per ticket) or, if fully absorbed, could reduce airline industry operating profit by
up to 4%. The uncertainties are higher for Phase II, but the financial impact could be larger
representing costs of up to USD 5 per ticket.
In summary, airlines face a challenging transition to reduce and mitigate their emissions. Carbon
credits and CORSIA can play an important role in supporting airlines in mitigating their climate
impact, while more-efficient technologies, operational practices and fuels are further developed.
MSCI Carbon Markets’ modeling suggests that the costs of complying with CORSIA, while unlikely to
be overwhelming, could be material for airlines and their investors and, hence, are likely to come
under increasing focus in the years ahead.

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Appendix: CORSIA explained

Aviation and global CO2 emissions
Aviation is an important contributor to economic activity and to employment, supporting an
estimated 88 million jobs worldwide in 2019.19 It is, however, also an important contributor to global
emissions, contributing just over 1 GtCO2, or 3%, of global energy-related emissions in 2019.20
Around 61% of these emissions were from international air transport and 39% from domestic flights.
Around 24% of global commercial-aviation emissions came from domestic and international flights
leaving U.S. airports, with 19% from the equivalent in the EU, 13% from those taking off from airports
in China, 4% from U.K. airport departures and around 3% each from those originating in Japan,
Germany and India.

Exhibit A1: CO2 emissions from commercial aviation by countries/regions in 2018

Source: The International Council on Clean Transportation, 2018

Although planes have become steadily more efficient over time, with emissions per passenger
kilometer having fallen by more than 80% in the last 50 years, overall emissions have continued to
rise.21 In the absence of additional measures to reduce aviation’s carbon footprint, emissions from
the sector are generally expected to continue growing by 3-4% per year.22

19 “Aviation Benefits Beyond Borders,” Air Transport Action Group, September 2020.
20 “CO2 emissions in aviation in the Net Zero Scenario, 2000-2030,” IEA, July 2023.
21D.S. Lee, D.W. Fahey, A. Skowron, et al., “The contribution of global aviation to anthropogenic climate forcing for 2000 to 2018,”
Atmospheric Environment 244, January 2021.
22 “Aircraft Engine Emissions,” ICAO, 2022.

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Levers airlines can use to decarbonize

An overwhelming majority of airline emissions are the direct emissions from aircraft. Reducing these
emissions, which encompass both passenger and cargo flights, is the industry’s real challenge.
There are essentially four ways of doing this:
• Aircraft technology improvements. Upgrading existing planes or switching from old aircraft
to newer models can lead to major improvements in fuel efficiency, approximately 15%
between generations.23 Next-generation jet engines contribute most of this benefit. New
models may also be able to offer improved aerodynamics, be made of lighter materials and
even make use of disruptive electric or hydrogen-propulsion technologies. ICAO estimates
that this category of emissions-reduction effort could do 21% of the work in eliminating
aviation emissions by 2050 (see Exhibit A2).

• Operations and infrastructure. This category includes improving traffic flow in the air,
reducing landing delays and holding patterns, route optimization and airport-layout
optimization to cut the length of taxiing and distance to aircraft gates. ICAO estimates that
this category of emissions-reduction effort could make a 4-11% contribution to cutting
aviation emissions to net-zero by 2050.

• The use of SAFs. This encompasses renewable jet fuel, such as biofuels made from crops or
nonfood plants, fuels made from green and municipal waste, and fuels manufactured
synthetically via a process that captures carbon directly from the air. IATA states that “Nine
biofuel production pathways are certified to produce SAF, which perform at operationally
equivalent levels to Jet A1 fuel.”24

ICAO estimates that the use of SAFs could be the predominant approach for cutting aviation
emissions, making up to a 55% contribution to achieving net-zero emissions by 2050 in its
most ambitious scenario.25 Major challenges remain, however, including ensuring an
adequate supply of suitable feedstocks, reducing costs in the manufacturing of SAFs and
providing the infrastructure to enable it to be transported to airports around the world.

• Market-based measures. These include government levies on the use of non-SAFs, the
inclusion of aviation in ETS and airlines offsetting their emissions via the purchase of carbon
credits. Market-based options could, in theory, achieve lower emissions with greater cost
efficiency and more flexibility than the other three approaches, but might potentially bring
extra complexity to the aviation sector. ICAO estimates that market-based measures could
do 13% of the job of cutting aviation emissions to net-zero by 2050.

23 “Fuel Efficiency Comparison Between Old Generation and New Generation Aircraft,” Cirium, Aug. 23, 2023.
24 “Net zero 2050: sustainable aviation fuels,” IATA, May 2024.
25 “Long term global aspirational goal (LTAG) for international aviation,” ICAO, March 2022.

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Although the four approaches outlined are theoretically available, they cannot necessarily be
implemented quickly. For instance, uptake of SAFs has been low to date (just 0.2% of all aviation
fuel24) despite being available for over a decade. Technology solutions both short- and long-term
seem to be facing their own issues. In the short term, Boeing’s woes with producing and certifying
aircraft are forcing airlines to operate older-generation planes for longer. In the long term, electric
propulsion is unlikely to contribute much to decarbonizing aviation, and Airbus is almost the only
aircraft manufacturer working on hydrogen, which is unlikely to become an option until the late
2030s at best. Both these technologies are also likely to be unsuitable for long-haul flying.
No “silver bullet” exists for decarbonizing aviation, so progress will be sporadic and market-based
measures are likely to be essential if the trajectory toward net-zero is to be credible over the decades
ahead.

Exhibit A2: ICAO’s long-term aspiration goal (LTAG) scenarios

Source: ICAO, March 2022

The Paris Agreement

The Paris Agreement of December 2015 is a legally binding international treaty on climate change
that was adopted by 196 countries at the UN Climate Change Conference, COP21, in Paris. It aims to
hold “the increase in the global average temperature to well below 2 degrees Celsius above pre-
industrial levels” and pursue efforts to “limit the increase to 1.5 degrees.”
The Agreement works on a five-year cycle of increasingly ambitious climate action by countries.
They must submit their climate action plans, known as NDCs, each cycle. Each successive NDC is
meant to reflect a higher level of ambition than the one before.

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Emissions reductions/removals can be traded by states and/or nonstates under Article 6 of the
Paris Agreement. State-to-state trades will require a corresponding adjustment to be made to NDCs
to prevent any double counting of emissions reductions/removals.
Domestic aviation emissions are within the scope of the Paris Agreement and should be
incorporated into countries’ NDCs. However, emissions from international travel (aviation and
maritime) fall outside the scope of the Agreement. They are therefore reported and addressed
separately by ICAO and the International Maritime Organization.

The advent of CORSIA

In 2016, in response to the Paris Agreement and to supplement its goals, ICAO launched CORSIA. Its
job was to address emissions from international air transport, because they are not covered by the
Paris Agreement, and to act as a stop-gap measure giving time for the other levers of
decarbonization to become viable and established in the industry.
The aim of CORSIA is to offset, via carbon credits, any growth in international aviation emissions
above their baseline level. At the time CORSIA launched, the goal was set at the average of 2019
emissions, but from 2024, it will be 85% of 2019 emissions.
To achieve this aim, while being compatible with NDCs and to avoid double -counting, carbon credits
used within CORSIA from Phase I onwards (2024) will need to apply a corresponding adjustment and
be authorized under Article 6.
The basic concept behind the scheme is that airlines that are able to stabilize and/or reduce their
emissions, such as via the use of sustainable aviation fuels, will reduce their obligation to purchase
credits under CORSIA. However, those airlines that rapidly increase their emissions will face a cost
of an increasing carbon credit obligation.

Exhibit A3: Airlines required to offset their emissions above a baseline level

20XX Offsetting
Requirement

Baseline CO2 20XX CO2

emissions emissions
(Set at 85% of 2019 emissions from 2024
onwards)

Source: MSCI Carbon Markets, adapted from the ICAO’s FAQs on CORSIA

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Governance and implementation

At the request of the 39th ICAO Assembly in 2016, the organization’s council asked the Committee
on Aviation Environmental Protection to develop standards, recommended practices and guidance
to implement CORSIA. The ICAO Council is responsible for administering CORSIA at the international
policy level. National governments, however, are responsible for implementing CORSIA regulation
and ensuring compliance from carriers registered in their jurisdictions.
CORSIA is being run in a series of phases, with a review conducted every three years to assess its
implementation and impact on international aviation. The idea behind this phased implementation is
to allow ICAO to decide if any adjustment is needed to improve effectiveness.
CORSIA’s implementation includes a now-completed pilot phase (2021 to 2023), followed by a
voluntary Phase I (2024 to 2026) and a mandatory Phase II (2027 to 2035). Phase I has 126
countries participating and 193 countries will be required to participate when the scheme becomes
mandatory.26
The baseline for Phases I and II has been set at 85% of 2019 emissions. Within each phase,
reporting and offsetting will work on three-year compliance cycles.

Exhibit A4: Breakdown of CORSIA phases

Pilot phase Phase I Phase II

2036 onwards
Compliance Compliance Compliance Compliance
period 1 period 2 period 3 period 4
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Voluntary stage Mandatory stage Based on current

policy, CORSIA
ends in 2035.
115 volunteered 126 countries All 193 ICAO member countries required to participate Note in MSCI’s
countries volunteered (unless exempt) long-term market
forecasting it is
assumed that CORSIA
is extended through to
2050.

Baseline =
Baseline = 85% of 2019 emissions
100% of
(ICAO set to review baseline in 2025)
2019 emissions

Source: MSCI Carbon Markets, adapted from ATAG’s CORSIA explained

26A small number of countries are exempt, for example, those categorized as the least-developed countries, small-island developing
states and landlocked developing states.

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Participation by countries and airlines

Major countries’ participation is critical for effective implementation of CORSIA. The scheme adopts
a route-based approach, focusing on individual flight routes rather than the country of an airline’s
headquarters. If both the departure and arrival countries participate in CORSIA, any airline operating
a flight between those countries will be subject to CORSIA offsetting requirements, even if it is
headquartered in a third country that is not participating in CORSIA (see Exhibit A5).
Flights that start and end in an EU state are covered by the EU ETS and are therefore excluded from
CORSIA. The EU has said, in future, it may also consider incorporating flights that fly between an EU
and non-EU state into the EU ETS, in which case those flights could also be excluded from CORSIA.
Of the top 36 countries for international air traffic in 2018, 30 are already participating in CORSIA.27
Together, these nations account for 71% of international aviation traffic. The six countries that do
not yet participate in CORSIA are China, India, Russia, Brazil, Vietnam and Ethiopia. These countries
account for 19% of global aviation traffic, and all are required to participate in Phase II.

Exhibit A5: Airlines subject to CORSIA offsetting requirements

CORSIA participating states
Nonparticipating states

Route subject to CORSIA

Route not subject to CORSIA

State A State B State C State D

Source: MSCI Carbon Markets, adapted from ICAO’s FAQs on CORSIA

Collection, clarification and verification of emissions

The calculation, collection and verification of emissions are implemented through CORSIA’s
monitoring, reporting and verification system. An airline monitors its actual use of fuel to calculate
its CO2 emissions and report third-party-verified annual emissions data and canceled credits to its
government. The government authority is then responsible for reporting the aggregate data to ICAO
through CORSIA’s central registry system.
The CORSIA CO2 Estimation and Reporting Tool (CERT) is a simplified method designed by ICAO to
estimate CO2 emissions. The tool is available free of charge on the ICAO CORSIA webpage. All
airlines can use the CERT for a preliminary CO2 assessment.

27“International Revenue Tonne Kilometre (RTK) Rankings 2018,” ICAO. RTK data for 2018 will be used for the purposes of
determining the participation of countries in Phase II of CORSIA.

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 CORSIA: COSTS AND IMPLICATIONS FOR THE AIRLINE INDUSTRY
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An airline with annual emissions from international flights of less than 500 ktCO2 during the period
2019-2020 is eligible to use the CERT to estimate and report its CO2 emissions. Verification of
emissions data is still needed when CERT is used.
However, the approximately 150 airlines whose annual emissions from international flights are more
than 500 ktCO2 are not eligible to report the CO2 emissions estimated by CERT. Instead, they need
to monitor actual fuel use and calculate the CO2 emissions by using fuel conversion factors, for
example, 3.16 kg CO2/kg of fuel for the commonly used Jet-A1 fuel.

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