WEBVTT - CORSIA’s Flight Plan for Credible Carbon Markets 0:00:00.200 --> 0:00:02.560 This is Tom Rowland's Reese and you're listening to Switched 0:00:02.560 --> 0:00:05.160 on the podcast brought to you by B and EF. 0:00:05.559 --> 0:00:09.600 Following controversies surrounding voluntary carbon credits markets, a lack of 0:00:09.640 --> 0:00:12.799 regulation and standardization has continued to prove a challenge when 0:00:12.840 --> 0:00:14.440 it comes to the use of credits as a means 0:00:14.440 --> 0:00:17.800 of decarbonization For aviation, one of the hardest to abate 0:00:17.840 --> 0:00:20.720 sectors and the only transport sector with growing oil demand. 0:00:20.880 --> 0:00:24.079 The United Nations has recently introduced the Carbon Offsetting and 0:00:24.120 --> 0:00:28.320 Reduction Scheme for International Aviation, more commonly known as CORSEA, 0:00:28.440 --> 0:00:30.920 in a bid to offer legitimacy for carbon credits to 0:00:30.920 --> 0:00:33.760 help tackle emissions at scale. With one hundred and twenty 0:00:33.800 --> 0:00:36.600 six markets currently signed up and that number set to 0:00:36.720 --> 0:00:39.520 rise to one hundred and thirty five from twenty twenty seven, 0:00:39.720 --> 0:00:43.120 CORSA boasts a truly global footprint, but with the Trump 0:00:43.120 --> 0:00:46.520 administration looking set to pull the US's involvement, the EU 0:00:46.640 --> 0:00:50.200 questioning its effectiveness and its non legally binding structure, meaning 0:00:50.240 --> 0:00:53.519 individual markets have to police themselves. Just how impactful can 0:00:53.560 --> 0:00:56.120 CORCIA really be? Today I'm joined by a member of 0:00:56.120 --> 0:00:59.920 our Environmental Markets team, Associate Leila Camphire and we discussed 0:01:00.040 --> 0:01:03.840 findings from her note aviation credits market outlook. CORSA gets 0:01:03.840 --> 0:01:06.760 its wings, which BNAF clients can find at BNF go 0:01:06.880 --> 0:01:09.720 on the Bloomberg terminal or on BNF dot com. All right, 0:01:09.800 --> 0:01:22.560 let's get to talking about CORSEA with Leila. So, Leila, 0:01:22.720 --> 0:01:23.560 welcome to the show. 0:01:23.800 --> 0:01:24.720 Thank you for having me. 0:01:25.160 --> 0:01:28.440 So I'm going to confess I've always found CORSEA to 0:01:28.520 --> 0:01:31.080 be a little bit of an intimidating topic. In all 0:01:31.080 --> 0:01:34.160 the different parts of my career where I have been 0:01:34.319 --> 0:01:38.000 adjacent to or involved in carbon markets, CORSIA has been 0:01:38.040 --> 0:01:40.679 this sort of shadow lurking in the background. And the 0:01:40.720 --> 0:01:43.840 reason I'm so intimidated by it was that everything had 0:01:43.840 --> 0:01:47.480 it seemed kind of complicated, involves lots of different nations, 0:01:47.840 --> 0:01:51.320 flights going to and from one place, so which jurisdiction 0:01:51.400 --> 0:01:53.640 does it fall into? You know, is it voluntary? Is 0:01:53.640 --> 0:01:56.240 it mandatory? But it all seemed a little bit scary 0:01:56.320 --> 0:01:59.040 to me. So I hope that today we can demystify 0:01:59.080 --> 0:02:01.960 some of this and to start with, tell us what 0:02:02.120 --> 0:02:04.520 is CORSA and how does it work well. 0:02:04.600 --> 0:02:08.440 CORSIA stands for the carbon offsetting and Reduction scheme for 0:02:08.560 --> 0:02:10.079 international aviation. 0:02:10.000 --> 0:02:10.400 Got it? 0:02:12.040 --> 0:02:14.440 And that's all you need to know. No, just kidding. 0:02:14.680 --> 0:02:18.160 So this is a un governed scheme, so it is 0:02:18.200 --> 0:02:21.320 international by nature, but it's not legally binding. You've got 0:02:21.400 --> 0:02:26.200 member states to the International Civil Aviation Organization which the 0:02:26.240 --> 0:02:30.360 scheme falls under, and this is the jurisdiction or the 0:02:30.360 --> 0:02:33.840 mandate of Corsia's the member states of KAO. The scheme 0:02:33.880 --> 0:02:39.240 aims at decarbonizing international aviation for both passenger and cargo flights. 0:02:39.639 --> 0:02:43.040 And it works in different phases and it has different 0:02:43.080 --> 0:02:47.240 ways that airlines especially can decarbonize their emissions. And it 0:02:47.360 --> 0:02:50.440 runs from twenty twenty one until twenty thirty five. 0:02:51.080 --> 0:02:54.519 And what happens after twenty thirty five, then there'll be reconvene, 0:02:54.880 --> 0:02:57.240 there'll be a new scheme of some of. 0:02:57.200 --> 0:03:00.959 Some it's still unclear. They could extend that, they could 0:03:01.040 --> 0:03:03.920 have a new scheme, they could redesign the scheme. It 0:03:04.040 --> 0:03:07.040 is still unclear. Coursia as it stands now is also 0:03:07.120 --> 0:03:10.239 not really set in stone. So at every three years, 0:03:10.280 --> 0:03:14.240 which is whenever a new compliance cycle starts, they'll sit 0:03:14.280 --> 0:03:17.120 together and maybe do some changes to the scheme. So 0:03:17.400 --> 0:03:19.079 who knows what will happen in twenty thirty five. 0:03:19.720 --> 0:03:22.000 And so just understand that the history of the scheme 0:03:22.120 --> 0:03:26.519 Cossia has been in existence as a concept before. Now 0:03:27.000 --> 0:03:29.200 has it just been all talk up until now or 0:03:29.280 --> 0:03:31.480 is this just a new phase of something that has 0:03:31.520 --> 0:03:32.400 been ongoing. 0:03:32.840 --> 0:03:35.840 No, it's not all talk. So as I mentioned earlier, 0:03:35.920 --> 0:03:39.720 it runs in three main phases, pilot phase, first phase, 0:03:39.760 --> 0:03:43.760 and second phase. The pilot and first phase are both voluntary, 0:03:43.840 --> 0:03:46.840 and the pilot phase started in twenty twenty one and 0:03:46.840 --> 0:03:49.560 it ran until twenty twenty three, so it was still running. 0:03:49.680 --> 0:03:53.200 There were still some talk around it, but it was 0:03:53.280 --> 0:03:55.960 more of a trial period, and then when we entered 0:03:56.000 --> 0:03:58.320 the first phase in twenty twenty four is when most 0:03:58.360 --> 0:04:02.440 market players, especially airline start paying attention. I think what 0:04:02.640 --> 0:04:05.280 makes Corsia a bit of a shadow that lurks like 0:04:05.360 --> 0:04:11.920 you described it is that airlines compliance deadlines actually are 0:04:12.320 --> 0:04:16.520 like thirteen months after each compliance cycle ends, So it 0:04:16.560 --> 0:04:20.400 gives us a lot of time to contemplate and pick 0:04:20.440 --> 0:04:22.680 and choose and decide what we want to do until 0:04:22.720 --> 0:04:26.040 we have to submit our upsetting obligations under Corsia. 0:04:26.760 --> 0:04:28.279 I mean, I'd love to have been in the meeting 0:04:28.279 --> 0:04:31.560 where they decided specifically it had to be thirteen months, 0:04:31.680 --> 0:04:35.359 so odd yeah, that really logical time period. So just 0:04:35.360 --> 0:04:37.960 to really clarify, we're now going from the pilot phase 0:04:38.040 --> 0:04:40.040 of COURSIA, which in twenty twenty three. We're in the 0:04:40.080 --> 0:04:43.080 first phase of CORSIA, and then the mandatory phase would 0:04:43.080 --> 0:04:43.680 be when. 0:04:43.760 --> 0:04:46.960 So the second phase is mandatory for all ico member 0:04:47.040 --> 0:04:50.440 states unless they are except and that starts in twenty 0:04:50.480 --> 0:04:53.320 twenty seven. So up until now, when we say voluntary, 0:04:53.400 --> 0:04:56.680 it means that certain states have said we'll participate and 0:04:56.720 --> 0:04:59.560 we'll see how that goes. But once they do, airlines 0:04:59.600 --> 0:05:00.760 have to comply. 0:05:01.360 --> 0:05:03.800 And so i COW, I'm sorry if you already spelled out, 0:05:03.839 --> 0:05:06.440 could you just define out ICAO and I'll be curious 0:05:06.480 --> 0:05:08.200 to know how many states are part of it? 0:05:08.680 --> 0:05:13.280 Okay, So ICOW stands for the International Civil Aviation Organization. 0:05:13.600 --> 0:05:16.760 It's the part of the yue that runs CORSEA, and 0:05:17.279 --> 0:05:21.280 member states to ICW I believe are north of one 0:05:21.360 --> 0:05:25.159 hundred and fifty. But the ones that for sure are 0:05:25.200 --> 0:05:30.039 participating in the second phase or the mandatory phase of CORSEA, 0:05:30.279 --> 0:05:33.560 are one hundred and thirty five. Because ICOW does give 0:05:33.680 --> 0:05:37.440 out exemptions to small states or island states, et cetera. 0:05:37.839 --> 0:05:41.960 Got it, So countries that have less alternative options to 0:05:42.080 --> 0:05:43.719 relying on aviation, I. 0:05:43.680 --> 0:05:46.600 Would say so. Also, to clarify, one hundred and twenty 0:05:46.600 --> 0:05:49.800 six markets volunteer to participate in CORSEA in twenty twenty four, 0:05:49.920 --> 0:05:52.480 that's the beginning of the first phase, and then three 0:05:52.520 --> 0:05:55.560 additional markets joined in twenty twenty five, So now we're 0:05:55.600 --> 0:05:58.039 up to one hundred and twenty nine for phase one, 0:05:58.240 --> 0:06:01.119 and then in phase two, which in twenty twenty seven, 0:06:01.279 --> 0:06:04.680 around one hundred and thirty five markets are expected to join. 0:06:04.920 --> 0:06:07.599 So when we get into the mandatory part of phase one, 0:06:07.800 --> 0:06:10.719 it's actually not going to be that big a difference 0:06:11.279 --> 0:06:14.000 in terms of the number of countries participating. The majority 0:06:14.040 --> 0:06:17.640 of countries that are part of AIKAO have already opted in. 0:06:18.440 --> 0:06:23.480 That is true. However, the ones that are joining in 0:06:23.600 --> 0:06:27.560 phase two are Russia and China and India and Brazil, 0:06:27.680 --> 0:06:32.200 and those are big markets that would impact the emissions 0:06:32.240 --> 0:06:35.400 covered under CRISTIAS, So those emissions would actually go up 0:06:35.400 --> 0:06:38.479 by around fifty percent in twenty twenty seven relative to 0:06:38.520 --> 0:06:39.359 twenty twenty six. 0:06:39.760 --> 0:06:43.200 Okay, wo wow, that's a pretty big difference. Okay, cool, 0:06:43.240 --> 0:06:46.160 So I think I've I've got a good understanding certainly 0:06:46.160 --> 0:06:49.840 compared to where I was five minutes ago on you 0:06:49.880 --> 0:06:52.560 know what COURSEA is and the sort of the scope 0:06:52.680 --> 0:06:56.960 and and the sort of trajectory of it. So then 0:06:57.400 --> 0:07:00.479 the next big question is is what options do the 0:07:00.520 --> 0:07:05.880 airlines actually have to reduce their emissions under this scheme. 0:07:06.279 --> 0:07:10.880 So airlines have two options. They can either use carbon credits, 0:07:10.920 --> 0:07:13.080 which is why I'm on the podcast to begin with, 0:07:13.280 --> 0:07:17.560 and those are CORSIA eligible carbon credits, or they can 0:07:17.640 --> 0:07:21.960 use CORSIA eligible fuels and those include saff or sustainable 0:07:22.000 --> 0:07:25.520 aviation fuels or lower carbon aviation fuels, and they to 0:07:25.560 --> 0:07:29.800 meet Corsia's criteria, a fuels life cycle emissions must be 0:07:29.840 --> 0:07:32.840 at least ten percent lower than those of conventional jet fuel. 0:07:33.200 --> 0:07:36.960 As for the CORSIA eligible credits, they need to also 0:07:37.040 --> 0:07:41.320 be approved by ICO, they need to meet certain eligibility criteria. 0:07:41.480 --> 0:07:44.800 But there's an additional layer of complication, which is that 0:07:44.880 --> 0:07:47.800 these credits need to be approved by their host countries 0:07:48.160 --> 0:07:52.480 such that these governments apply corresponding adjustments so they don't 0:07:52.560 --> 0:07:56.800 double count the emission reductions when they're accounting for their NDCs. 0:07:56.840 --> 0:08:01.680 For example, Got it, so the emissions reductions take place 0:08:01.760 --> 0:08:04.600 under ICO, you're saying is that can't count towards the 0:08:04.640 --> 0:08:10.560 country's DC emissions target. Correct, And so these when we're 0:08:10.560 --> 0:08:14.200 talking about eligible offsets and eligible fuels, is that all 0:08:14.200 --> 0:08:15.080 determined by ICO? 0:08:15.240 --> 0:08:19.920 Then yes, more or less. So for fuels, ICOW does 0:08:19.960 --> 0:08:22.840 provide airlines with a set of fuels that are eligible 0:08:23.080 --> 0:08:26.080 and then there's a bunch of documentation airlines need to 0:08:26.120 --> 0:08:28.440 submit to ICO for it to count. And the same 0:08:28.480 --> 0:08:33.000 goes for credits. But the thing with course eligible credits 0:08:33.320 --> 0:08:36.640 is that you don't have new credits that come from 0:08:36.720 --> 0:08:40.520 a special ICO registry that's reserved for the use of airlines. 0:08:40.679 --> 0:08:44.640 They're actually borrowed from the existing voluntary carbon market, which 0:08:44.720 --> 0:08:47.040 we know and we've discussed before, even on this podcast 0:08:47.120 --> 0:08:50.160 last year. It's a very troubled market and it's bruised. 0:08:50.679 --> 0:08:54.880 So that adds a layer of complexity to what CORSEA 0:08:55.040 --> 0:08:57.320 or ICO in general has to do to make sure 0:08:57.360 --> 0:09:01.160 that those credits are legitimate and have high environmental impact. 0:09:01.640 --> 0:09:05.080 Right. So that's part of the issue then, is that 0:09:05.360 --> 0:09:08.120 the voluntary markets at the moment have too many low 0:09:08.200 --> 0:09:11.480 quality credits, and that is why EIKAW has kind of 0:09:12.080 --> 0:09:16.640 created its own specifications, but those same high quality credits 0:09:16.679 --> 0:09:20.640 are still available to other sectors, which airlines will have 0:09:20.679 --> 0:09:23.040 to compete with those other sectors as well. 0:09:23.240 --> 0:09:24.760 Exactly, Yeah, exactly. 0:09:25.320 --> 0:09:30.440 So whenever we're looking at an emissions reduction scheme, particularly 0:09:30.480 --> 0:09:34.040 one which is as maybe complex isn't the word, but 0:09:34.400 --> 0:09:38.839 it's sort of so multilateral, let's say, between nations, the 0:09:38.960 --> 0:09:42.040 question always comes is is doesn't really have teeth? Obviously, 0:09:42.080 --> 0:09:45.600 the first phase is voluntary, although let's assume that all 0:09:45.600 --> 0:09:48.920 of the countries involved have good enough intentions that they 0:09:49.760 --> 0:09:53.120 have volunteered seriously, and then it's mandatory after twenty twenty seven. 0:09:53.360 --> 0:09:58.640 But what happens when these targets aren't met? I mean 0:09:58.679 --> 0:10:01.479 who's on the hook? Firstly? Is it the airlines specifically, 0:10:01.600 --> 0:10:03.480 or is it the countries or is it sort of 0:10:03.760 --> 0:10:05.640 the airlines are on the hook to the countries and 0:10:05.679 --> 0:10:07.640 the countries are on the hook to the scheme? Yeah, 0:10:07.640 --> 0:10:11.240 what is the What are the mechanisms that really ensure 0:10:11.280 --> 0:10:13.920 that this doesn't turn into sort of you know, I 0:10:13.960 --> 0:10:16.400 mentioned earlier all talk. How do we ensure that this 0:10:16.440 --> 0:10:17.120 isn't all talk? 0:10:17.679 --> 0:10:21.920 It's honestly down to the participating member states and governments 0:10:21.960 --> 0:10:25.600 to determine this. So this scheme, or at least the 0:10:25.720 --> 0:10:33.240 responsibility to decarbonize falls on airlines. But airlines are on 0:10:33.280 --> 0:10:36.080 the hook to the countries, like you explained, So some 0:10:36.120 --> 0:10:39.440 countries or some governments like Canada and the UK, did 0:10:39.679 --> 0:10:43.199 incorporate CORSIA into their national laws, so they have monetary 0:10:43.240 --> 0:10:47.240 penalties for airlines that fail to comply. The UK has 0:10:47.320 --> 0:10:50.040 a pretty significant one. So if I'm an airline and 0:10:50.120 --> 0:10:53.319 I'm operating my flight between the UK and another member 0:10:53.400 --> 0:10:56.480 state and I don't comply with CORSIA, then I will 0:10:56.480 --> 0:10:58.760 have to pay around two thousand pounds a day, so 0:10:58.800 --> 0:11:01.400 that will force me to go and those credits rather 0:11:01.440 --> 0:11:05.200 than pay that fine. But for other governments that don't 0:11:05.280 --> 0:11:09.080 have any penalties in place, they don't really enforce CORSIA 0:11:09.080 --> 0:11:12.880 international law. There is nothing really binding those airlines to 0:11:13.120 --> 0:11:15.920 comply unless out of the good of their hearts they 0:11:15.960 --> 0:11:18.360 want to, or if they want to avoid also reputational 0:11:18.440 --> 0:11:21.880 risk that comes with not decarbonizing, which they're already sort 0:11:21.920 --> 0:11:22.480 of under. 0:11:23.200 --> 0:11:25.480 And just one more question, and this this is not 0:11:25.520 --> 0:11:28.800 so much about enforcement. You know, whenever I, as an 0:11:28.800 --> 0:11:31.240 individual go and book a flight, I do always have 0:11:31.280 --> 0:11:34.680 the option as a consumer to buy offset credits to 0:11:34.800 --> 0:11:40.560 offset my flight. So can airlines also claim those as 0:11:40.880 --> 0:11:44.920 reduced emissions or is that sort of is the emissions 0:11:44.920 --> 0:11:46.960 that they reductions they have to make in addition to 0:11:47.000 --> 0:11:49.040 whatever offsets consumers taking. 0:11:48.840 --> 0:11:52.840 Those flights a buying, So it's a bit more complicated. 0:11:53.160 --> 0:11:55.200 So when you go as a consumer and you go 0:11:55.280 --> 0:11:57.360 buy a ticket and some offsets on top of it 0:11:57.440 --> 0:12:00.720 to offset your emissions, airlines used out more or less 0:12:00.720 --> 0:12:03.920 like a marketing strategy, and you often end up buying 0:12:04.160 --> 0:12:08.440 very cheap credits that do have questionable environmental impacts, and 0:12:08.480 --> 0:12:11.880 if they are questionable, then they are likely not eligible 0:12:11.920 --> 0:12:16.120 to be used towards CORSIA regardless. The way this works, 0:12:16.559 --> 0:12:20.280 or at least the way airlines submit their emissions or 0:12:20.280 --> 0:12:23.400 account for their emissions for CORSIA, is that they count 0:12:23.480 --> 0:12:25.480 how many emissions they have at the end of every year, 0:12:25.720 --> 0:12:30.080 and then they compare that with a preset baseline for 0:12:30.200 --> 0:12:34.680 that year, and for CORSIA, it's the twenty nineteen emission levels, 0:12:34.920 --> 0:12:37.680 and then my total emissions is an airline for that 0:12:37.800 --> 0:12:41.120 year needs to be below that twenty nineteen baseline, and 0:12:41.160 --> 0:12:44.480 the difference is what you need to reduce using credits 0:12:44.600 --> 0:12:45.960 or eligible. 0:12:45.520 --> 0:12:50.360 Fuels, so those consumer offset credits are irrelevant both to 0:12:50.559 --> 0:12:56.760 CORSA and ultimately to how many emissions are made overall. 0:12:56.920 --> 0:13:00.880 In effect, if there's such poor quality, let's move on 0:13:00.960 --> 0:13:04.760 to talking about the sort of the geopolitics of this. 0:13:05.600 --> 0:13:07.959 You know, you've talked a little bit about the challenges 0:13:08.000 --> 0:13:11.600 of you know, maybe different degrees of commitment to enforcing this. 0:13:11.840 --> 0:13:14.000 The UK and Canada have turned it into law, maybe 0:13:14.000 --> 0:13:16.040 some other countries will, I mean, is that something that 0:13:16.040 --> 0:13:18.800 we see happening? Yeah, how does this all play into 0:13:19.200 --> 0:13:22.520 the relationships between all the different countries involved? 0:13:22.640 --> 0:13:26.160 More or less, the relationships between countries don't seem to 0:13:26.200 --> 0:13:30.040 be affected as much if they're all operating under an 0:13:30.040 --> 0:13:33.080 international scheme that they've signed to do, signed up to do. 0:13:33.400 --> 0:13:36.320 When we talk about geopolitics and Christia, I think the 0:13:36.360 --> 0:13:39.920 main question that arises is will the US actually participate 0:13:40.200 --> 0:13:44.880 in Courstia given the Trump administration and their view on 0:13:45.080 --> 0:13:49.280 climate policies in general. But the relationships between countries themselves, 0:13:49.559 --> 0:13:53.720 having them governed by as scheme like Cristia actually protects 0:13:53.720 --> 0:13:56.960 them from any tension, which is a solution that we 0:13:57.000 --> 0:14:00.839 see to other compliance carbon schemes trying to expand to 0:14:00.880 --> 0:14:03.880 international aviation but could not because of these issues and 0:14:03.920 --> 0:14:04.840 these complexities. 0:14:05.559 --> 0:14:09.360 So Leila, we've kind of established a little bit about 0:14:09.400 --> 0:14:13.760 the qualitatively how CORSEA works. But you are a BNF 0:14:13.800 --> 0:14:16.480 analyst and a very fine one, indeed, which means that 0:14:16.840 --> 0:14:20.680 you presumably have somewhere a spreadsheet where you've crunched the 0:14:20.760 --> 0:14:22.840 numbers and figured out what all of this means, and 0:14:22.840 --> 0:14:25.560 you've put it into a report which BNF clients can 0:14:25.600 --> 0:14:28.480 access at BNF dot com or on the terminal via 0:14:28.480 --> 0:14:32.320 BNF Go. But you will have created a forecast, I presume, 0:14:32.600 --> 0:14:35.200 of what all of this means. So talk us through 0:14:35.240 --> 0:14:38.120 the numbers. How much demand is there going to be 0:14:38.200 --> 0:14:42.160 for either emissions reductions or offsets because of the phase 0:14:42.200 --> 0:14:43.640 of CORSEA that we're currently in. 0:14:43.880 --> 0:14:46.640 Yeah, that's what she did. Give me a lot of headaches, 0:14:46.960 --> 0:14:49.480 but it's done and it's out now and it looks beautiful. 0:14:49.720 --> 0:14:52.920 So for the report that we're talking about, there are 0:14:53.160 --> 0:14:57.360 several scenarios that we run. The base case scenario just 0:14:57.440 --> 0:15:01.800 assumes business as usual in we have a total of 0:15:01.800 --> 0:15:05.240 one hundred and twenty nine participating markets in Phase two 0:15:05.280 --> 0:15:07.440 we have one hundred and thirty five. I will just 0:15:07.560 --> 0:15:12.160 preface this and point out that Corsia credits are available 0:15:12.480 --> 0:15:16.320 to everyone and not just airlines. But our forecast and 0:15:16.400 --> 0:15:20.040 our scenarios are based completely on what airlines will have 0:15:20.160 --> 0:15:23.880 to offset or reduce emissions, and that is what drives demand, 0:15:23.920 --> 0:15:27.239 or at least the main driver of demand for Corsia credits. 0:15:27.400 --> 0:15:31.960 So in Phase one we estimate that the airlines offsetting 0:15:32.040 --> 0:15:35.920 requirements will total one hundred and fifty million tons by 0:15:36.400 --> 0:15:39.000 twenty twenty six, and then they will climb to a 0:15:39.040 --> 0:15:42.920 total of one point two three billion tons by end 0:15:42.960 --> 0:15:46.440 of phase two. Now, Phase two is three times as 0:15:46.560 --> 0:15:49.360 long as Phase one, but also, as we mentioned, it 0:15:49.480 --> 0:15:53.880 does include the major or big markets that operate a 0:15:53.920 --> 0:15:56.640 lot of the flight routes, like Brazil and Russia and 0:15:56.760 --> 0:15:58.040 China and India. 0:15:58.120 --> 0:16:01.960 So just to clarify these numbers, you're saying these accumulative, 0:16:02.960 --> 0:16:04.840 you know it is not per year, it's for the 0:16:04.960 --> 0:16:06.760 entire phase, Yes, got it. 0:16:07.280 --> 0:16:11.240 The annual demand for CHRISTI eligible credits would peak in 0:16:11.360 --> 0:16:14.080 twenty thirty five at around one hundred and sixty one 0:16:14.240 --> 0:16:15.960 million tons of CO two. 0:16:16.280 --> 0:16:18.680 And when you say it peaks, that's that's the last 0:16:18.800 --> 0:16:23.600 year of Phase two, so presumably something is coming after. 0:16:23.640 --> 0:16:25.200 So it's not like it's going to peak and go 0:16:25.320 --> 0:16:29.360 down necessarily, it's just that's the end of the runway. 0:16:29.560 --> 0:16:31.640 So it will reach one hundred and sixty one million 0:16:31.680 --> 0:16:34.600 tons of CO two in twenty thirty five. One last 0:16:34.600 --> 0:16:38.600 thing I'd like to note is that apart from passenger flights, 0:16:38.640 --> 0:16:42.320 we also account for cargo flights. Now in phase one, 0:16:42.360 --> 0:16:45.800 which is now they are very little, they account for 0:16:45.880 --> 0:16:49.200 an additional two percent of emissions that say, but once 0:16:49.240 --> 0:16:53.440 we have China and Russia in Phase two, cargo flights 0:16:53.520 --> 0:16:58.720 will account for around nine percent of total emissions, so 0:16:58.760 --> 0:17:01.520 they will also contribute with that additional demand or jump 0:17:01.520 --> 0:17:02.920 in demand that we see in phase two. 0:17:03.440 --> 0:17:07.520 I mean, I'm going to ask a really really stupid question. 0:17:07.960 --> 0:17:09.040 No stupid questions. 0:17:09.240 --> 0:17:12.720 Well, you haven't had my question yet. Is this a lot? 0:17:14.560 --> 0:17:17.280 This is actually a great question. If you compare Christia 0:17:17.400 --> 0:17:20.360 with the wider ol global carbon credits market, where it's 0:17:20.680 --> 0:17:23.679 very massy, it's oversupplied, everyone and anyone can buy a 0:17:23.680 --> 0:17:26.720 credit that's actually very little. And even if you compare 0:17:26.800 --> 0:17:31.000 that with the demand for credits from corporates that we 0:17:31.080 --> 0:17:34.160 go over. In our long term carbon credits demand outlook 0:17:34.480 --> 0:17:38.280 that my colleague Kyle published a couple months back, it's 0:17:38.320 --> 0:17:41.720 twenty two point five times higher than airlines demand for 0:17:41.880 --> 0:17:44.680 Christia in twenty thirty five. But if you look at 0:17:44.720 --> 0:17:48.320 airlines on their own, it is a lot for airlines. 0:17:48.440 --> 0:17:52.199 So since twenty fifteen, we tracked the buying activity of 0:17:52.359 --> 0:17:55.600 credits for airlines and that amounted to around thirty six 0:17:55.720 --> 0:17:59.600 million tons, and that's only twenty four percent of airlines 0:17:59.600 --> 0:18:02.040 offset requirements in Phase one alone. 0:18:02.280 --> 0:18:04.600 So this is I mean, you know, to my question, 0:18:04.720 --> 0:18:07.440 is this a lot? It's a big deal for airlines, 0:18:08.119 --> 0:18:11.400 it's not as much a big deal for carbon markets. 0:18:11.480 --> 0:18:12.760 Is that a fair framing? 0:18:13.560 --> 0:18:16.040 Not really, because it's a little more nuanced than that. 0:18:18.080 --> 0:18:20.399 It's a big deal for airlines, definitely, because it's going 0:18:20.480 --> 0:18:23.320 to be because they need to buy them, they're obliged to, 0:18:23.560 --> 0:18:24.520 and they're expensive. 0:18:24.720 --> 0:18:26.400 So I was half right, half right. 0:18:26.960 --> 0:18:29.879 But if you want to talk about whider carbon credits 0:18:30.000 --> 0:18:34.320 and markets, COURSA is the closest thing carbon credits or 0:18:34.400 --> 0:18:38.760 vulntary carbon markets have gotten to standardization or legitimacy. And 0:18:39.160 --> 0:18:41.479 because you have that, you and stamp of approval on 0:18:41.480 --> 0:18:44.840 that carbon credit. Everyone is attracted to it and wants 0:18:44.880 --> 0:18:48.200 to buy it because that helps them hedge against reputational risk. 0:18:48.440 --> 0:18:51.200 But the quantity of it, it's another issue, and that's 0:18:51.240 --> 0:18:54.080 something we go over in our supply outlook in the report. 0:18:54.560 --> 0:18:59.000 So this is a big deal for airlines. We agreed 0:18:59.040 --> 0:19:02.639 on that, and then it might not be quite as 0:19:02.680 --> 0:19:06.240 big a deal for sort of maybe the poor quality 0:19:06.920 --> 0:19:10.600 carbon offset markets, but it is a big deal for 0:19:11.119 --> 0:19:14.240 this idea of like higher quality offsets. It's something like 0:19:14.840 --> 0:19:17.280 to what you're describing is almost like it might crystallize 0:19:17.640 --> 0:19:23.200 the creation of a a sort of a higher tier 0:19:23.240 --> 0:19:25.240 of offset and solve some of these problems that the 0:19:25.240 --> 0:19:28.440 broader market has suffered from. Is that what you're saying? Yes, well, 0:19:28.480 --> 0:19:31.359 that's quite exciting because this is this quality issue has 0:19:31.400 --> 0:19:33.160 been some people I've been talking about for a long time, 0:19:33.320 --> 0:19:37.320 so I'm really happy to hear about this. So anyway, 0:19:37.359 --> 0:19:39.679 you were just about to talk about the supply of 0:19:39.840 --> 0:19:43.879 these high quality credits and of course direct emissions reductions, 0:19:43.920 --> 0:19:46.440 so I'm sure in your spreadsheet you calculated that as well. 0:19:46.520 --> 0:19:48.400 So what did the spreadsheet tell us? 0:19:48.800 --> 0:19:52.360 So the question of supply in Christia is even trickier 0:19:52.800 --> 0:19:56.119 than demand. So i COOW decides whether a credit is 0:19:56.160 --> 0:20:01.040 eligible or not, and they publish this document at the 0:20:01.080 --> 0:20:03.359 beginning of every phase telling us what we can buy 0:20:03.359 --> 0:20:05.760 and what we cannot buy for it to count towards CORSIA. 0:20:05.880 --> 0:20:08.679 But then they also add another layer and they say 0:20:08.880 --> 0:20:12.360 that credit needs to be approved by your host country 0:20:12.520 --> 0:20:15.680 and corresponding adjustments must be applied so that we don't 0:20:15.720 --> 0:20:19.679 double count, and that does enforce or reinforce the environmental 0:20:19.720 --> 0:20:22.679 impact of coursia. But then we know governments, and we 0:20:22.760 --> 0:20:25.440 know the Yuan, and we know that they're slow and bureaucratic, 0:20:25.640 --> 0:20:28.600 and because of that, right now we only have fifteen 0:20:28.640 --> 0:20:31.960 million credits that are available for airlines to use towards 0:20:32.000 --> 0:20:36.000 their offsetting obligations, and frankly, that's nothing. These fifteen million 0:20:36.040 --> 0:20:38.760 tons come from a forestry project in Guyana that the 0:20:38.800 --> 0:20:43.119 government has approved, but all the other projects and credits 0:20:43.200 --> 0:20:46.400 that are eligible for cristia are still waiting approval from 0:20:46.400 --> 0:20:49.199 their host countries, and their host countries still need to 0:20:49.240 --> 0:20:51.920 go through a bit of a process to submit their 0:20:51.960 --> 0:20:55.040 corresponding adjustments and the requirements and so on, so it 0:20:55.119 --> 0:20:58.560 might take some time, and that makes apply very very uncertain. 0:20:58.880 --> 0:21:03.120 In our outlook, we estimate that supply could reach three 0:21:03.240 --> 0:21:06.320 hundred and six million in phase one and one point 0:21:06.359 --> 0:21:09.560 five to three billion in phase two. That's also cumulative, 0:21:09.680 --> 0:21:12.840 and it surpasses offsetting requirements in each phase. But that 0:21:13.040 --> 0:21:17.560 happening is contingent on governments getting those approvals in place. 0:21:18.200 --> 0:21:19.880 I mean, this is I mean it kind of comes 0:21:19.880 --> 0:21:22.160 back to the previous point, doesn't it that this whole 0:21:22.200 --> 0:21:26.920 thing is a forcing mechanism for governments that are interested 0:21:27.280 --> 0:21:31.040 in offset markets to kind of get their act together 0:21:31.359 --> 0:21:35.359 in actually defining what good is, enforcing what good is 0:21:35.400 --> 0:21:37.720 in order to enable that to happen. Yeah. 0:21:37.880 --> 0:21:41.040 Correct, And that is a double edged toward, I would say, 0:21:41.080 --> 0:21:45.199 because on one hand, yes, you have some enforcement and 0:21:45.280 --> 0:21:48.520 some policy mechanism, but then if you leave it completely 0:21:48.640 --> 0:21:53.600 up to governments without any overarching standards between them, it 0:21:53.640 --> 0:21:55.359 could create some inconsistencies. 0:21:55.640 --> 0:21:59.480 And so final question about your spreadsheet, You've looked at demand, 0:21:59.600 --> 0:22:02.760 you've looked supply. So the inevitable question that follows is 0:22:03.080 --> 0:22:05.600 what did your spreadsheet tell us about the price. 0:22:06.119 --> 0:22:09.240 So in my spreadsheet, when I put those demand in 0:22:09.280 --> 0:22:12.679 supply balances against each other, we estimated the average price 0:22:12.760 --> 0:22:15.680 for Corsia credits in phase one to be sixteen point 0:22:15.800 --> 0:22:19.919 seven dollars briton and an average of forty nine point 0:22:19.960 --> 0:22:23.879 four dollars priton in phase two. Right now, the auctioned 0:22:24.000 --> 0:22:27.200 price of Corsia credits is around twenty one point seven 0:22:27.280 --> 0:22:31.760 dollars priton, and that actually decreases in twenty twenty six 0:22:31.840 --> 0:22:35.440 to twelve point four dollars priton because in Phase one 0:22:35.840 --> 0:22:40.160