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Speaker 1: This is Tom Rowland's Reese and you're listening to Switched

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Speaker 1: on the podcast brought to you by B and EF.

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Speaker 1: Following controversies surrounding voluntary carbon credits markets, a lack of

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Speaker 1: regulation and standardization has continued to prove a challenge when

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Speaker 1: it comes to the use of credits as a means

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Speaker 1: of decarbonization For aviation, one of the hardest to abate

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Speaker 1: sectors and the only transport sector with growing oil demand.

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Speaker 1: The United Nations has recently introduced the Carbon Offsetting and

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Speaker 1: Reduction Scheme for International Aviation, more commonly known as CORSEA,

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Speaker 1: in a bid to offer legitimacy for carbon credits to

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Speaker 1: help tackle emissions at scale. With one hundred and twenty

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Speaker 1: six markets currently signed up and that number set to

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Speaker 1: rise to one hundred and thirty five from twenty twenty seven,

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Speaker 1: CORSA boasts a truly global footprint, but with the Trump

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Speaker 1: administration looking set to pull the US's involvement, the EU

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Speaker 1: questioning its effectiveness and its non legally binding structure, meaning

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Speaker 1: individual markets have to police themselves. Just how impactful can

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Speaker 1: CORCIA really be? Today I'm joined by a member of

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Speaker 1: our Environmental Markets team, Associate Leila Camphire and we discussed

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Speaker 1: findings from her note aviation credits market outlook. CORSA gets

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Speaker 1: its wings, which BNAF clients can find at BNF go

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Speaker 1: on the Bloomberg terminal or on BNF dot com. All right,

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Speaker 1: let's get to talking about CORSEA with Leila. So, Leila,

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Speaker 1: welcome to the show.

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Speaker 2: Thank you for having me.

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Speaker 1: So I'm going to confess I've always found CORSEA to

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Speaker 1: be a little bit of an intimidating topic. In all

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Speaker 1: the different parts of my career where I have been

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Speaker 1: adjacent to or involved in carbon markets, CORSIA has been

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Speaker 1: this sort of shadow lurking in the background. And the

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Speaker 1: reason I'm so intimidated by it was that everything had

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Speaker 1: it seemed kind of complicated, involves lots of different nations,

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Speaker 1: flights going to and from one place, so which jurisdiction

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Speaker 1: does it fall into? You know, is it voluntary? Is

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Speaker 1: it mandatory? But it all seemed a little bit scary

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Speaker 1: to me. So I hope that today we can demystify

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Speaker 1: some of this and to start with, tell us what

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Speaker 1: is CORSA and how does it work well.

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Speaker 2: CORSIA stands for the carbon offsetting and Reduction scheme for

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Speaker 2: international aviation.

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Speaker 1: Got it?

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Speaker 2: And that's all you need to know. No, just kidding.

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Speaker 2: So this is a un governed scheme, so it is

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Speaker 2: international by nature, but it's not legally binding. You've got

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Speaker 2: member states to the International Civil Aviation Organization which the

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Speaker 2: scheme falls under, and this is the jurisdiction or the

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Speaker 2: mandate of Corsia's the member states of KAO. The scheme

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Speaker 2: aims at decarbonizing international aviation for both passenger and cargo flights.

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Speaker 2: And it works in different phases and it has different

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Speaker 2: ways that airlines especially can decarbonize their emissions. And it

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Speaker 2: runs from twenty twenty one until twenty thirty five.

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Speaker 1: And what happens after twenty thirty five, then there'll be reconvene,

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Speaker 1: there'll be a new scheme of some of.

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Speaker 2: Some it's still unclear. They could extend that, they could

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Speaker 2: have a new scheme, they could redesign the scheme. It

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Speaker 2: is still unclear. Coursia as it stands now is also

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Speaker 2: not really set in stone. So at every three years,

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Speaker 2: which is whenever a new compliance cycle starts, they'll sit

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Speaker 2: together and maybe do some changes to the scheme. So

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Speaker 2: who knows what will happen in twenty thirty five.

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Speaker 1: And so just understand that the history of the scheme

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Speaker 1: Cossia has been in existence as a concept before. Now

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Speaker 1: has it just been all talk up until now or

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Speaker 1: is this just a new phase of something that has

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Speaker 1: been ongoing.

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Speaker 2: No, it's not all talk. So as I mentioned earlier,

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Speaker 2: it runs in three main phases, pilot phase, first phase,

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Speaker 2: and second phase. The pilot and first phase are both voluntary,

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Speaker 2: and the pilot phase started in twenty twenty one and

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Speaker 2: it ran until twenty twenty three, so it was still running.

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Speaker 2: There were still some talk around it, but it was

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Speaker 2: more of a trial period, and then when we entered

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Speaker 2: the first phase in twenty twenty four is when most

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Speaker 2: market players, especially airline start paying attention. I think what

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Speaker 2: makes Corsia a bit of a shadow that lurks like

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Speaker 2: you described it is that airlines compliance deadlines actually are

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Speaker 2: like thirteen months after each compliance cycle ends, So it

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Speaker 2: gives us a lot of time to contemplate and pick

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Speaker 2: and choose and decide what we want to do until

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Speaker 2: we have to submit our upsetting obligations under Corsia.

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Speaker 1: I mean, I'd love to have been in the meeting

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Speaker 1: where they decided specifically it had to be thirteen months,

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Speaker 1: so odd yeah, that really logical time period. So just

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Speaker 1: to really clarify, we're now going from the pilot phase

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Speaker 1: of COURSIA, which in twenty twenty three. We're in the

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Speaker 1: first phase of CORSIA, and then the mandatory phase would

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Speaker 1: be when.

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Speaker 2: So the second phase is mandatory for all ico member

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Speaker 2: states unless they are except and that starts in twenty

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Speaker 2: twenty seven. So up until now, when we say voluntary,

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Speaker 2: it means that certain states have said we'll participate and

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Speaker 2: we'll see how that goes. But once they do, airlines

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Speaker 2: have to comply.

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Speaker 1: And so i COW, I'm sorry if you already spelled out,

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Speaker 1: could you just define out ICAO and I'll be curious

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Speaker 1: to know how many states are part of it?

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Speaker 2: Okay, So ICOW stands for the International Civil Aviation Organization.

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Speaker 2: It's the part of the yue that runs CORSEA, and

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Speaker 2: member states to ICW I believe are north of one

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Speaker 2: hundred and fifty. But the ones that for sure are

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Speaker 2: participating in the second phase or the mandatory phase of CORSEA,

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Speaker 2: are one hundred and thirty five. Because ICOW does give

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Speaker 2: out exemptions to small states or island states, et cetera.

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Speaker 1: Got it, So countries that have less alternative options to

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Speaker 1: relying on aviation, I.

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Speaker 2: Would say so. Also, to clarify, one hundred and twenty

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Speaker 2: six markets volunteer to participate in CORSEA in twenty twenty four,

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Speaker 2: that's the beginning of the first phase, and then three

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Speaker 2: additional markets joined in twenty twenty five, So now we're

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Speaker 2: up to one hundred and twenty nine for phase one,

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Speaker 2: and then in phase two, which in twenty twenty seven,

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Speaker 2: around one hundred and thirty five markets are expected to join.

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Speaker 1: So when we get into the mandatory part of phase one,

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Speaker 1: it's actually not going to be that big a difference

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Speaker 1: in terms of the number of countries participating. The majority

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Speaker 1: of countries that are part of AIKAO have already opted in.

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Speaker 2: That is true. However, the ones that are joining in

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Speaker 2: phase two are Russia and China and India and Brazil,

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Speaker 2: and those are big markets that would impact the emissions

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Speaker 2: covered under CRISTIAS, So those emissions would actually go up

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Speaker 2: by around fifty percent in twenty twenty seven relative to

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Speaker 2: twenty twenty six.

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Speaker 1: Okay, wo wow, that's a pretty big difference. Okay, cool,

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Speaker 1: So I think I've I've got a good understanding certainly

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Speaker 1: compared to where I was five minutes ago on you

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Speaker 1: know what COURSEA is and the sort of the scope

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Speaker 1: and and the sort of trajectory of it. So then

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Speaker 1: the next big question is is what options do the

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Speaker 1: airlines actually have to reduce their emissions under this scheme.

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Speaker 2: So airlines have two options. They can either use carbon credits,

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Speaker 2: which is why I'm on the podcast to begin with,

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Speaker 2: and those are CORSIA eligible carbon credits, or they can

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Speaker 2: use CORSIA eligible fuels and those include saff or sustainable

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Speaker 2: aviation fuels or lower carbon aviation fuels, and they to

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Speaker 2: meet Corsia's criteria, a fuels life cycle emissions must be

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Speaker 2: at least ten percent lower than those of conventional jet fuel.

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Speaker 2: As for the CORSIA eligible credits, they need to also

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Speaker 2: be approved by ICO, they need to meet certain eligibility criteria.

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Speaker 2: But there's an additional layer of complication, which is that

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Speaker 2: these credits need to be approved by their host countries

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Speaker 2: such that these governments apply corresponding adjustments so they don't

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Speaker 2: double count the emission reductions when they're accounting for their NDCs.

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Speaker 1: For example, Got it, so the emissions reductions take place

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Speaker 1: under ICO, you're saying is that can't count towards the

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Speaker 1: country's DC emissions target. Correct, And so these when we're

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Speaker 1: talking about eligible offsets and eligible fuels, is that all

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Speaker 1: determined by ICO?

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Speaker 2: Then yes, more or less. So for fuels, ICOW does

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Speaker 2: provide airlines with a set of fuels that are eligible

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Speaker 2: and then there's a bunch of documentation airlines need to

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Speaker 2: submit to ICO for it to count. And the same

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Speaker 2: goes for credits. But the thing with course eligible credits

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Speaker 2: is that you don't have new credits that come from

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Speaker 2: a special ICO registry that's reserved for the use of airlines.

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Speaker 2: They're actually borrowed from the existing voluntary carbon market, which

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Speaker 2: we know and we've discussed before, even on this podcast

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Speaker 2: last year. It's a very troubled market and it's bruised.

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Speaker 2: So that adds a layer of complexity to what CORSEA

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Speaker 2: or ICO in general has to do to make sure

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Speaker 2: that those credits are legitimate and have high environmental impact.

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Speaker 1: Right. So that's part of the issue then, is that

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Speaker 1: the voluntary markets at the moment have too many low

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Speaker 1: quality credits, and that is why EIKAW has kind of

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Speaker 1: created its own specifications, but those same high quality credits

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Speaker 1: are still available to other sectors, which airlines will have

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Speaker 1: to compete with those other sectors as well.

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Speaker 2: Exactly, Yeah, exactly.

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Speaker 1: So whenever we're looking at an emissions reduction scheme, particularly

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Speaker 1: one which is as maybe complex isn't the word, but

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Speaker 1: it's sort of so multilateral, let's say, between nations, the

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Speaker 1: question always comes is is doesn't really have teeth? Obviously,

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Speaker 1: the first phase is voluntary, although let's assume that all

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Speaker 1: of the countries involved have good enough intentions that they

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Speaker 1: have volunteered seriously, and then it's mandatory after twenty twenty seven.

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Speaker 1: But what happens when these targets aren't met? I mean

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Speaker 1: who's on the hook? Firstly? Is it the airlines specifically,

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Speaker 1: or is it the countries or is it sort of

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Speaker 1: the airlines are on the hook to the countries and

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Speaker 1: the countries are on the hook to the scheme? Yeah,

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Speaker 1: what is the What are the mechanisms that really ensure

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Speaker 1: that this doesn't turn into sort of you know, I

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Speaker 1: mentioned earlier all talk. How do we ensure that this

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Speaker 1: isn't all talk?

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Speaker 2: It's honestly down to the participating member states and governments

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Speaker 2: to determine this. So this scheme, or at least the

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Speaker 2: responsibility to decarbonize falls on airlines. But airlines are on

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Speaker 2: the hook to the countries, like you explained, So some

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Speaker 2: countries or some governments like Canada and the UK, did

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Speaker 2: incorporate CORSIA into their national laws, so they have monetary

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Speaker 2: penalties for airlines that fail to comply. The UK has

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Speaker 2: a pretty significant one. So if I'm an airline and

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Speaker 2: I'm operating my flight between the UK and another member

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Speaker 2: state and I don't comply with CORSIA, then I will

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Speaker 2: have to pay around two thousand pounds a day, so

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Speaker 2: that will force me to go and those credits rather

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Speaker 2: than pay that fine. But for other governments that don't

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Speaker 2: have any penalties in place, they don't really enforce CORSIA

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Speaker 2: international law. There is nothing really binding those airlines to

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Speaker 2: comply unless out of the good of their hearts they

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Speaker 2: want to, or if they want to avoid also reputational

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Speaker 2: risk that comes with not decarbonizing, which they're already sort

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Speaker 2: of under.

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Speaker 1: And just one more question, and this this is not

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Speaker 1: so much about enforcement. You know, whenever I, as an

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Speaker 1: individual go and book a flight, I do always have

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Speaker 1: the option as a consumer to buy offset credits to

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Speaker 1: offset my flight. So can airlines also claim those as

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Speaker 1: reduced emissions or is that sort of is the emissions

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Speaker 1: that they reductions they have to make in addition to

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Speaker 1: whatever offsets consumers taking.

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Speaker 2: Those flights a buying, So it's a bit more complicated.

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Speaker 2: So when you go as a consumer and you go

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Speaker 2: buy a ticket and some offsets on top of it

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Speaker 2: to offset your emissions, airlines used out more or less

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Speaker 2: like a marketing strategy, and you often end up buying

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Speaker 2: very cheap credits that do have questionable environmental impacts, and

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Speaker 2: if they are questionable, then they are likely not eligible

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Speaker 2: to be used towards CORSIA regardless. The way this works,

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Speaker 2: or at least the way airlines submit their emissions or

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Speaker 2: account for their emissions for CORSIA, is that they count

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Speaker 2: how many emissions they have at the end of every year,

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Speaker 2: and then they compare that with a preset baseline for

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Speaker 2: that year, and for CORSIA, it's the twenty nineteen emission levels,

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Speaker 2: and then my total emissions is an airline for that

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Speaker 2: year needs to be below that twenty nineteen baseline, and

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Speaker 2: the difference is what you need to reduce using credits

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Speaker 2: or eligible.

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Speaker 1: Fuels, so those consumer offset credits are irrelevant both to

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Speaker 1: CORSA and ultimately to how many emissions are made overall.

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Speaker 1: In effect, if there's such poor quality, let's move on

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Speaker 1: to talking about the sort of the geopolitics of this.

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Speaker 1: You know, you've talked a little bit about the challenges

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Speaker 1: of you know, maybe different degrees of commitment to enforcing this.

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Speaker 1: The UK and Canada have turned it into law, maybe

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Speaker 1: some other countries will, I mean, is that something that

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Speaker 1: we see happening? Yeah, how does this all play into

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Speaker 1: the relationships between all the different countries involved?

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Speaker 2: More or less, the relationships between countries don't seem to

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Speaker 2: be affected as much if they're all operating under an

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Speaker 2: international scheme that they've signed to do, signed up to do.

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Speaker 2: When we talk about geopolitics and Christia, I think the

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Speaker 2: main question that arises is will the US actually participate

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Speaker 2: in Courstia given the Trump administration and their view on

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Speaker 2: climate policies in general. But the relationships between countries themselves,

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Speaker 2: having them governed by as scheme like Cristia actually protects

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Speaker 2: them from any tension, which is a solution that we

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Speaker 2: see to other compliance carbon schemes trying to expand to

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Speaker 2: international aviation but could not because of these issues and

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Speaker 2: these complexities.

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Speaker 1: So Leila, we've kind of established a little bit about

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Speaker 1: the qualitatively how CORSEA works. But you are a BNF

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Speaker 1: analyst and a very fine one, indeed, which means that

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Speaker 1: you presumably have somewhere a spreadsheet where you've crunched the

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Speaker 1: numbers and figured out what all of this means, and

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Speaker 1: you've put it into a report which BNF clients can

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Speaker 1: access at BNF dot com or on the terminal via

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Speaker 1: BNF Go. But you will have created a forecast, I presume,

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Speaker 1: of what all of this means. So talk us through

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Speaker 1: the numbers. How much demand is there going to be

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Speaker 1: for either emissions reductions or offsets because of the phase

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Speaker 1: of CORSEA that we're currently in.

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Speaker 2: Yeah, that's what she did. Give me a lot of headaches,

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Speaker 2: but it's done and it's out now and it looks beautiful.

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Speaker 2: So for the report that we're talking about, there are

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Speaker 2: several scenarios that we run. The base case scenario just

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Speaker 2: assumes business as usual in we have a total of

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Speaker 2: one hundred and twenty nine participating markets in Phase two

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Speaker 2: we have one hundred and thirty five. I will just

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Speaker 2: preface this and point out that Corsia credits are available

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Speaker 2: to everyone and not just airlines. But our forecast and

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Speaker 2: our scenarios are based completely on what airlines will have

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Speaker 2: to offset or reduce emissions, and that is what drives demand,

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Speaker 2: or at least the main driver of demand for Corsia credits.

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Speaker 2: So in Phase one we estimate that the airlines offsetting

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Speaker 2: requirements will total one hundred and fifty million tons by

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Speaker 2: twenty twenty six, and then they will climb to a

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Speaker 2: total of one point two three billion tons by end

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Speaker 2: of phase two. Now, Phase two is three times as

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Speaker 2: long as Phase one, but also, as we mentioned, it

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Speaker 2: does include the major or big markets that operate a

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Speaker 2: lot of the flight routes, like Brazil and Russia and

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Speaker 2: China and India.

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Speaker 1: So just to clarify these numbers, you're saying these accumulative,

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Speaker 1: you know it is not per year, it's for the

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Speaker 1: entire phase, Yes, got it.

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Speaker 2: The annual demand for CHRISTI eligible credits would peak in

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Speaker 2: twenty thirty five at around one hundred and sixty one

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Speaker 2: million tons of CO two.

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Speaker 1: And when you say it peaks, that's that's the last

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Speaker 1: year of Phase two, so presumably something is coming after.

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Speaker 1: So it's not like it's going to peak and go

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Speaker 1: down necessarily, it's just that's the end of the runway.

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Speaker 2: So it will reach one hundred and sixty one million

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Speaker 2: tons of CO two in twenty thirty five. One last

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Speaker 2: thing I'd like to note is that apart from passenger flights,

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Speaker 2: we also account for cargo flights. Now in phase one,

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Speaker 2: which is now they are very little, they account for

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Speaker 2: an additional two percent of emissions that say, but once

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Speaker 2: we have China and Russia in Phase two, cargo flights

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Speaker 2: will account for around nine percent of total emissions, so

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Speaker 2: they will also contribute with that additional demand or jump

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Speaker 2: in demand that we see in phase two.

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Speaker 1: I mean, I'm going to ask a really really stupid question.

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Speaker 2: No stupid questions.

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Speaker 1: Well, you haven't had my question yet. Is this a lot?

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Speaker 2: This is actually a great question. If you compare Christia

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Speaker 2: with the wider ol global carbon credits market, where it's

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Speaker 2: very massy, it's oversupplied, everyone and anyone can buy a

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Speaker 2: credit that's actually very little. And even if you compare

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Speaker 2: that with the demand for credits from corporates that we

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Speaker 2: go over. In our long term carbon credits demand outlook

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Speaker 2: that my colleague Kyle published a couple months back, it's

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Speaker 2: twenty two point five times higher than airlines demand for

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Speaker 2: Christia in twenty thirty five. But if you look at

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Speaker 2: airlines on their own, it is a lot for airlines.

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Speaker 2: So since twenty fifteen, we tracked the buying activity of

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Speaker 2: credits for airlines and that amounted to around thirty six

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Speaker 2: million tons, and that's only twenty four percent of airlines

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Speaker 2: offset requirements in Phase one alone.

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Speaker 1: So this is I mean, you know, to my question,

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Speaker 1: is this a lot? It's a big deal for airlines,

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Speaker 1: it's not as much a big deal for carbon markets.

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Speaker 1: Is that a fair framing?

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Speaker 2: Not really, because it's a little more nuanced than that.

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Speaker 2: It's a big deal for airlines, definitely, because it's going

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Speaker 2: to be because they need to buy them, they're obliged to,

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Speaker 2: and they're expensive.

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Speaker 1: So I was half right, half right.

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Speaker 2: But if you want to talk about whider carbon credits

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Speaker 2: and markets, COURSA is the closest thing carbon credits or

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Speaker 2: vulntary carbon markets have gotten to standardization or legitimacy. And

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Speaker 2: because you have that, you and stamp of approval on

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Speaker 2: that carbon credit. Everyone is attracted to it and wants

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Speaker 2: to buy it because that helps them hedge against reputational risk.

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Speaker 2: But the quantity of it, it's another issue, and that's

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Speaker 2: something we go over in our supply outlook in the report.

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Speaker 1: So this is a big deal for airlines. We agreed

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Speaker 1: on that, and then it might not be quite as

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Speaker 1: big a deal for sort of maybe the poor quality

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Speaker 1: carbon offset markets, but it is a big deal for

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Speaker 1: this idea of like higher quality offsets. It's something like

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Speaker 1: to what you're describing is almost like it might crystallize

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Speaker 1: the creation of a a sort of a higher tier

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Speaker 1: of offset and solve some of these problems that the

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Speaker 1: broader market has suffered from. Is that what you're saying? Yes, well,

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Speaker 1: that's quite exciting because this is this quality issue has

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Speaker 1: been some people I've been talking about for a long time,

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Speaker 1: so I'm really happy to hear about this. So anyway,

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Speaker 1: you were just about to talk about the supply of

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Speaker 1: these high quality credits and of course direct emissions reductions,

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Speaker 1: so I'm sure in your spreadsheet you calculated that as well.

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Speaker 1: So what did the spreadsheet tell us?

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Speaker 2: So the question of supply in Christia is even trickier

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Speaker 2: than demand. So i COOW decides whether a credit is

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Speaker 2: eligible or not, and they publish this document at the

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Speaker 2: beginning of every phase telling us what we can buy

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Speaker 2: and what we cannot buy for it to count towards CORSIA.

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Speaker 2: But then they also add another layer and they say

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Speaker 2: that credit needs to be approved by your host country

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Speaker 2: and corresponding adjustments must be applied so that we don't

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Speaker 2: double count, and that does enforce or reinforce the environmental

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Speaker 2: impact of coursia. But then we know governments, and we

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Speaker 2: know the Yuan, and we know that they're slow and bureaucratic,

364
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Speaker 2: and because of that, right now we only have fifteen

365
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Speaker 2: million credits that are available for airlines to use towards

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Speaker 2: their offsetting obligations, and frankly, that's nothing. These fifteen million

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Speaker 2: tons come from a forestry project in Guyana that the

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Speaker 2: government has approved, but all the other projects and credits

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Speaker 2: that are eligible for cristia are still waiting approval from

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Speaker 2: their host countries, and their host countries still need to

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Speaker 2: go through a bit of a process to submit their

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Speaker 2: corresponding adjustments and the requirements and so on, so it

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Speaker 2: might take some time, and that makes apply very very uncertain.

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Speaker 2: In our outlook, we estimate that supply could reach three

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Speaker 2: hundred and six million in phase one and one point

376
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Speaker 2: five to three billion in phase two. That's also cumulative,

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Speaker 2: and it surpasses offsetting requirements in each phase. But that

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Speaker 2: happening is contingent on governments getting those approvals in place.

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Speaker 1: I mean, this is I mean it kind of comes

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Speaker 1: back to the previous point, doesn't it that this whole

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Speaker 1: thing is a forcing mechanism for governments that are interested

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Speaker 1: in offset markets to kind of get their act together

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Speaker 1: in actually defining what good is, enforcing what good is

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Speaker 1: in order to enable that to happen. Yeah.

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Speaker 2: Correct, And that is a double edged toward, I would say,

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Speaker 2: because on one hand, yes, you have some enforcement and

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Speaker 2: some policy mechanism, but then if you leave it completely

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Speaker 2: up to governments without any overarching standards between them, it

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Speaker 2: could create some inconsistencies.

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Speaker 1: And so final question about your spreadsheet, You've looked at demand,

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Speaker 1: you've looked supply. So the inevitable question that follows is

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Speaker 1: what did your spreadsheet tell us about the price.

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Speaker 2: So in my spreadsheet, when I put those demand in

394
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Speaker 2: supply balances against each other, we estimated the average price

395
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Speaker 2: for Corsia credits in phase one to be sixteen point

396
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Speaker 2: seven dollars briton and an average of forty nine point

397
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Speaker 2: four dollars priton in phase two. Right now, the auctioned

398
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Speaker 2: price of Corsia credits is around twenty one point seven

399
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Speaker 2: dollars priton, and that actually decreases in twenty twenty six

400
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Speaker 2: to twelve point four dollars priton because in Phase one

401
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Speaker 2: demand is so little, it's comfortably below available supply if

402
00:22:40,240 --> 00:22:44,040
Speaker 2: like we said, governments approve those credits. But then as

403
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Speaker 2: soon as we enter phase two, which is in twenty

404
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Speaker 2: twenty seven, I mentioned that offsetting requirements jump by around

405
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Speaker 2: fifty percent, and suddenly you have that spike in demand

406
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Speaker 2: and you're sort of scrambling to get enough credits to

407
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Speaker 2: cover that, and more expensive credits come in and they

408
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Speaker 2: set the price at ninety six point five dollars per

409
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Speaker 2: toon in twenty twenty seven, and that's the peak price.

410
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Speaker 2: The year after the market is still slightly oversupplied and

411
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Speaker 2: prices fault around forty dollars peron.

412
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Speaker 1: Okay, so these are you know, maybe these prices in

413
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Speaker 1: the early phases of the scheme are you know, in

414
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Speaker 1: terms of the big picture of carbon markets, that's quite cheap,

415
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Speaker 1: but it gets to being pretty meaningful by the end

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Speaker 1: of the scheme.

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Speaker 2: Yeah, they do so, even frankly, even at the beginning

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Speaker 2: of the scheme. I know that twelve and sixteen dollars

419
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Speaker 2: perton might sound cheap, but if you compare that to

420
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Speaker 2: the wider voluntary carbon market prices, these are pretty decent

421
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Speaker 2: because low integrity credits or low quality credits that are

422
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Speaker 2: flooding the market right now trade at below three dollars perton.

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Speaker 1: So the current voluntary phase you mentioned, there's four major

424
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Speaker 1: markets that run involved India, China, Brazil, Russia, and they're

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Speaker 1: going to be joining in the next phase. But given

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Speaker 1: the current state of global politics, and in particularly US politics,

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Speaker 1: it's not to me outside the realms of possibilities that

428
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Speaker 1: the US might not be willing to participate, just given

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Speaker 1: the political narratives we've seen recently. Is this something that

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Speaker 1: people are talking about as a realistic possibility.

431
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Speaker 2: Yes, definitely. The US leaving seems more and more of

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Speaker 2: like a reality to Christia. Now, like we mentioned before,

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Speaker 2: Cristia is actually not legally binding and there are no

434
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Speaker 2: consequences for any government to leave, and the US has

435
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Speaker 2: the option to do so, and we did model that.

436
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Speaker 2: So if the US drops out of the aviation decarbonization scheme,

437
00:24:38,720 --> 00:24:42,080
Speaker 2: it could reduce demand for Christia credits by three million

438
00:24:42,119 --> 00:24:45,040
Speaker 2: tons in phase one that's two percent of the base

439
00:24:45,119 --> 00:24:48,360
Speaker 2: case demand, and one hundred and eighty four million tons

440
00:24:48,359 --> 00:24:50,960
Speaker 2: in phase two or fifteen percent of the base case.

441
00:24:51,240 --> 00:24:54,919
Speaker 2: And in that scenario, because you have less demand and

442
00:24:55,040 --> 00:25:00,719
Speaker 2: the market is still oversupplied, credit prices don't there are

443
00:25:00,760 --> 00:25:03,760
Speaker 2: no dramatic peaks and price it reaches an all time

444
00:25:03,840 --> 00:25:06,320
Speaker 2: law of twelve dollars per ton in twenty twenty six,

445
00:25:06,600 --> 00:25:09,679
Speaker 2: and then they will gradually rise and peak at forty

446
00:25:09,720 --> 00:25:13,000
Speaker 2: four point four dollars perton in twenty thirty.

447
00:25:13,320 --> 00:25:18,400
Speaker 1: And so if the US pulls out, would international flights

448
00:25:18,600 --> 00:25:21,159
Speaker 1: coming in and out of the US two countries that

449
00:25:21,200 --> 00:25:24,760
Speaker 1: are participating in CORSEA, they would still be subject to

450
00:25:24,880 --> 00:25:27,200
Speaker 1: CORSEA right No, So.

451
00:25:27,119 --> 00:25:31,040
Speaker 2: For a route to be covered under CORSA, both of

452
00:25:31,080 --> 00:25:36,320
Speaker 2: its departing and arrival markets need to be member states

453
00:25:36,640 --> 00:25:39,080
Speaker 2: or at least ones that are participating in CORSEA. So

454
00:25:39,119 --> 00:25:43,320
Speaker 2: if the US drops out, all international flights coming out

455
00:25:43,400 --> 00:25:47,080
Speaker 2: or into the US won't count, and that actually alleviates

456
00:25:47,119 --> 00:25:50,479
Speaker 2: a lot of the responsibility from US based airlines, seeing

457
00:25:50,520 --> 00:25:53,600
Speaker 2: that ninety nine percent of their emissions come from flights

458
00:25:53,600 --> 00:25:55,760
Speaker 2: that operate either in or out of the US.

459
00:25:56,000 --> 00:25:59,240
Speaker 1: Wow. Okay, so that would be a major impact, although

460
00:25:59,520 --> 00:26:02,159
Speaker 1: in the prices of the scheme you still see some

461
00:26:02,200 --> 00:26:05,040
Speaker 1: pretty robust pricing, but just in terms of the total

462
00:26:05,080 --> 00:26:09,440
Speaker 1: emissions coverage, that would be a pretty major And I suppose,

463
00:26:09,640 --> 00:26:13,320
Speaker 1: as with all carbon schemes, if the US pulls out,

464
00:26:13,440 --> 00:26:16,040
Speaker 1: they'll it'll leave a lot of other countries asking themselves, well,

465
00:26:16,080 --> 00:26:19,160
Speaker 1: why should we stay in if the US is pulling out?

466
00:26:19,280 --> 00:26:22,200
Speaker 1: Which kind of leads me on to something else which

467
00:26:22,359 --> 00:26:26,240
Speaker 1: is touched on in your note, is the EU potentially

468
00:26:26,440 --> 00:26:29,159
Speaker 1: dropping out? Is that tell us a little bit more

469
00:26:29,200 --> 00:26:29,640
Speaker 1: about that.

470
00:26:29,920 --> 00:26:32,439
Speaker 2: It's pretty ironic, isn't it That the US and the

471
00:26:32,560 --> 00:26:35,800
Speaker 2: U might pull out, but for completely different reasons. So

472
00:26:36,080 --> 00:26:39,600
Speaker 2: the US could drop out because they don't like decarbonization,

473
00:26:39,920 --> 00:26:43,040
Speaker 2: but the EU might drop out because it loves decarbonization

474
00:26:43,200 --> 00:26:47,640
Speaker 2: and CRISIA might not be as effective. So the EU

475
00:26:47,760 --> 00:26:51,840
Speaker 2: will decide on whether CORSA is effective or not. In

476
00:26:51,920 --> 00:26:55,000
Speaker 2: twenty twenty six, If it is not, then the EU

477
00:26:55,119 --> 00:26:58,560
Speaker 2: ETS or the Compliance Carbon Scheme for the U would

478
00:26:58,600 --> 00:27:02,640
Speaker 2: expand its Monday took cover international aviation emissions. But as

479
00:27:02,640 --> 00:27:06,920
Speaker 2: it stands now, CORSA actually could be ineffective, seeing that

480
00:27:07,080 --> 00:27:12,760
Speaker 2: even if airlines comply, their emissions for intra EU flights

481
00:27:12,840 --> 00:27:16,320
Speaker 2: would still surpass the cap that is set by the

482
00:27:16,359 --> 00:27:20,040
Speaker 2: EUTS or aviation. The EU is known to be more

483
00:27:20,080 --> 00:27:23,680
Speaker 2: stringent when it comes to de carbonization policies, and Corsia

484
00:27:23,880 --> 00:27:27,640
Speaker 2: can be deemed ineffective by the EU. They will decide

485
00:27:27,640 --> 00:27:31,760
Speaker 2: on that in twenty twenty six. If Corsia's design remains unchanged,

486
00:27:31,920 --> 00:27:35,200
Speaker 2: the EU is likely to deem the scheme ineffective because

487
00:27:35,320 --> 00:27:40,000
Speaker 2: emissions from EU departing flights would still surpass the annual

488
00:27:40,080 --> 00:27:43,399
Speaker 2: emissions cap set by the EU ETS, which is the

489
00:27:43,760 --> 00:27:46,720
Speaker 2: compliance carbon scheme in the EU for aviation.

490
00:27:47,160 --> 00:27:49,920
Speaker 1: Got it, so for their own rules they need something

491
00:27:50,000 --> 00:27:52,600
Speaker 1: more stringent than CORSEA, and that's the sort of the

492
00:27:52,640 --> 00:27:55,360
Speaker 1: problem that they face at the moment. There's so much

493
00:27:55,400 --> 00:27:58,000
Speaker 1: interesting stuff we've discussed today, but one of the really

494
00:27:58,040 --> 00:28:01,959
Speaker 1: interesting things about this was this idea that CORSA beyond

495
00:28:02,080 --> 00:28:05,399
Speaker 1: aviation can have this impact of being a force for

496
00:28:06,280 --> 00:28:09,720
Speaker 1: bringing integrity to voluntary carbon markets, which has always been

497
00:28:09,880 --> 00:28:12,720
Speaker 1: the challenge there. The last sort of two questions we

498
00:28:12,760 --> 00:28:14,199
Speaker 1: discussed is, you know, what could be the impact of

499
00:28:14,200 --> 00:28:15,760
Speaker 1: the US dropping out? What could be the impact of

500
00:28:15,760 --> 00:28:18,720
Speaker 1: the EU dropping out, albeit for very different reasons. If

501
00:28:18,760 --> 00:28:22,359
Speaker 1: that happens, Would that diminish the power of CORSEA to

502
00:28:22,400 --> 00:28:23,640
Speaker 1: have that broad impact?

503
00:28:24,240 --> 00:28:28,239
Speaker 2: Yes, because the effectiveness of Coursia relies entirely on the

504
00:28:28,240 --> 00:28:31,119
Speaker 2: fact that airlines and governments will comply by the scheme,

505
00:28:31,440 --> 00:28:34,480
Speaker 2: and it would have like that would have a ripple

506
00:28:34,520 --> 00:28:38,360
Speaker 2: effect on other crabin markets. So when we look at

507
00:28:38,440 --> 00:28:41,560
Speaker 2: CORSA and whether it is necessary or not, there are

508
00:28:41,760 --> 00:28:46,480
Speaker 2: two lenses. One is decribinizing the aviation sector, which is

509
00:28:46,520 --> 00:28:49,840
Speaker 2: hard to abate, and this is something compliance schemes have

510
00:28:49,920 --> 00:28:54,360
Speaker 2: failed to do because it's a big and international problem

511
00:28:54,440 --> 00:28:57,600
Speaker 2: and you can step on other jurisdiction's feet when you're

512
00:28:57,640 --> 00:29:00,800
Speaker 2: trying to decribinize aviation. And the other one that you've

513
00:29:00,800 --> 00:29:04,440
Speaker 2: talked about is legitimizing the voluntary carbon market. Now that

514
00:29:04,600 --> 00:29:10,280
Speaker 2: markets has been on a journey of hardship and media scrutiny,

515
00:29:10,480 --> 00:29:14,040
Speaker 2: and COURSIA does provide a way out where it finally

516
00:29:14,120 --> 00:29:18,160
Speaker 2: legitimizes the use of carbon credits. It tells everyone that actually,

517
00:29:18,200 --> 00:29:21,320
Speaker 2: carbon credits are a real way for you to decarbonize

518
00:29:21,360 --> 00:29:25,480
Speaker 2: your emissions and meet your targets. So if the scheme fails,

519
00:29:25,600 --> 00:29:29,600
Speaker 2: that's just another pain point, another obstacle that the VCM

520
00:29:29,680 --> 00:29:30,840
Speaker 2: has to overcome.

521
00:29:31,680 --> 00:29:34,160
Speaker 1: Wow, I can hear the pain in your voice when

522
00:29:34,240 --> 00:29:37,720
Speaker 1: you say that, Leila, Thank you so much for joining

523
00:29:37,800 --> 00:29:38,360
Speaker 1: us today.

524
00:29:38,480 --> 00:29:39,560
Speaker 2: Thank you for having me.

525
00:29:48,400 --> 00:29:51,520
Speaker 1: Today's episode of Switched On was produced by Cam Gray

526
00:29:51,720 --> 00:29:55,400
Speaker 1: with production assistance from Kamala Shelling. Bloomberg NEF is a

527
00:29:55,440 --> 00:29:58,560
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528
00:29:58,680 --> 00:30:01,360
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529
00:30:01,400 --> 00:30:05,320
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00:30:05,320 --> 00:30:06,680
Speaker 1: investment or other strategy.

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00:30:06,680 --> 00:30:10,120
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00:30:10,160 --> 00:30:13,280
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00:30:13,520 --> 00:30:16,720
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00:30:16,840 --> 00:30:19,880
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