• The EU will drop additional carbon credit quality criteria for CORSIA Phase 1, after eligible supply fell far short of projected airline demand.
• IATA estimates Phase 1 demand at 170 million to 236 million tonnes of CO2 equivalent, against roughly 40 million tonnes of labeled or pending supply.
• Stricter European requirements return in Phase 2 from 2027, potentially creating a higher-cost carbon credit market for EEA airlines.

The European Commission is easing carbon credit requirements for airlines covered by the first phase of CORSIA, responding to a severe shortage of eligible units.

The change removes additional European quality criteria for Phase 1 of the Carbon Offsetting and Reduction Scheme for International Aviation. The measures will instead apply from Phase 2, covering 2027 through 2035.

Minutes from a recent Climate Change Committee meeting show the Commission treated the amendment as a targeted regulatory adjustment. Other provisions remain unchanged.

The move offers immediate relief for European airlines facing a widening gap between carbon credit supply and compliance demand.

Eligible supply falls far below airline demand

The International Air Transport Association estimates global Phase 1 demand at between 170 million and 236 million tonnes of CO2 equivalent.

Eligible or pending-authorisation supply is estimated at only about 40 million tonnes.

That imbalance became more acute under the additional criteria proposed by the EU.

High forest cover, low deforestation projects, known as HFLD projects, would have been excluded. These projects account for a large share of current supply.

Guyana alone could provide around 25 million Phase 1 credits. That compares with roughly 34 million currently available worldwide.

European rules would also have changed calculations for the non-renewable biomass fraction used in improved cookstove projects. That adjustment could have disqualified another significant category of credits.

Without the policy reversal, airlines operating within the European Economic Area faced a sharply constrained compliance market ahead of their CORSIA deadlines.

Brussels pushes tougher standards to 2027

The Commission has retained its enhanced requirements for Phase 2.

From 2027, HFLD projects and improved cookstove credits could remain excluded or face substantial restrictions.

Eligible units would also need to follow methodologies aligned with higher integrity requirements. Host countries would be expected to apply corresponding adjustments under the Paris Agreement framework.

For European policymakers, the compromise protects near-term implementation while preserving a stricter long-term approach to carbon market integrity.

It also reduces the risk that an immediate supply shortage could weaken political support for CORSIA itself.

Member states have been encouraged to view the change as continued European backing for the international aviation framework ahead of an expected vote later this year.

RELATED ARTICLE: EU Proposes Sweeping Carbon Market Easing

Credit premiums reflect regulatory uncertainty

Markets had already begun pricing the proposed European restrictions.

Credits considered compliant with the earlier EU proposal traded at premiums of roughly $5 to $6 per tonne of CO2 equivalent above non-eligible units.

An Uzbekistan leak detection and repair project emerged as one prominent option, trading just below $14 per tonne.

Such projects avoid some of the permanence risks associated with forestry credits because their climate benefit does not depend on maintaining stored carbon stocks.

The Phase 1 reversal should widen available supply and reduce pressure on airlines to secure specialist credits.

Standard CORSIA units are currently estimated at around $15 to $22 per tonne, according to market sources.

However, regulatory certainty remains crucial. Some market participants expect European airlines to delay purchases until eligibility rules are formally enacted.

Others believe an official proposal linked to the EU Emissions Trading System revision could be enough to unlock demand.

Phase 2 could create a two-tier carbon market

The larger question now shifts to 2027.

Europe’s stricter requirements could effectively create two CORSIA markets. Non-European airlines may retain access to a broader pool of credits, while EEA carriers face narrower eligibility rules.

That could produce a material cost differential.

EU ETS allowance prices are estimated at roughly $70 to $85 per tonne of CO2 equivalent. If Phase 2 credit supply remains constrained, eligible CORSIA units could move closer to those levels.

Market activity is already sensitive to tightening supply. Asian tenders covering about 700,000 tonnes during the week of July 6 helped support prices.

For airline executives and investors, the Commission’s decision resolves an immediate compliance risk but leaves a larger strategic issue unresolved.

Europe is effectively trading short-term flexibility for stricter future integrity standards.

The outcome will matter beyond aviation. How Brussels manages CORSIA Phase 2 could influence carbon credit pricing, Article 6 implementation and the broader debate over how governments balance market liquidity with environmental credibility.