Sliced: Letters of Authorization
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Last week, we published an in-depth “Our Take” essay – Grounded or Soaring: The Future of CORSIA in Meeting Aviation’s Climate Goals – on the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) mechanism. The paper examined the mechanics of CORSIA and its broader impact on the voluntary carbon market (VCM), as well as its role in helping the aviation industry achieve its carbon reduction goals.
Here is a quick recap:
CORSIA, a carbon offsetting scheme developed by the International Civil Aviation Organization (ICAO), aims to cap emissions from international aviation at 2019 levels by requiring airlines to offset emissions growth through verified carbon credits. Implemented in three phases, CORSIA began with voluntary participation (2021-2026) and will become mandatory in 2027 for nations with substantial aviation activity, exempting certain developing countries. Airlines must offset emissions exceeding 85% of their 2019 baseline using Eligible Emissions Units (EEUs) that meet ICAO’s strict standards.
One of the key concerns with the CORSIA mechanism is the lack of supply of carbon credits to adequately fulfill the demand from participating nations and their respective airlines.
IETA and Allied Offsets estimate that potential demand for carbon credits in 2024 and 2025 could range between 17 and 80 million annually. Abatable predicts that carbon credit demand will surpass 100 million in 2027.
As of last week, four new carbon credit standards officially made the cut to supply credits to CORSIA, bringing the total up to six. But if you think that’s the full green light and the supply problem is solved, think again – because there’s an extremely important detail.
For any carbon credit from one of the approved standards to actually qualify as an EEU, the project behind it must first secure a “Letter of Authorization.” So, while getting CORSIA approval is a good start, it’s far from the finish line.
A Letter of Authorization (LoA) is an official document issued by a carbon credit project’s host country that authorizes the transfer of emission reduction units to another country with a commitment to make a “corresponding adjustment (CA).”
The CA is a mechanism to prevent “double counting” in carbon accounting. Double counting would occur if both the host country of a carbon credit project and the purchasing entity (such as an airline or country) claimed the same emissions reduction or removal. To prevent this, the CA adjusts the host country’s carbon balance so that only the buyer can count the reduction toward its climate targets. As a result, both countries can accurately track progress toward their Nationally Determined Contributions (NDCs) under the Paris Agreement, maintaining transparency and integrity in emissions reporting.
The LoA requirement has significantly impacted the carbon market by limiting the number of eligible credits and tightening the supply. As of early 2024, only 7.1 million credits from Guyana met all LoA requirements for CORSIA. With the recent addition of the four newly approved carbon credit standards, BeZero reported an extra 6 million eligible credits, bringing the total to just over 13 million. However, given demand projections of up to 100 million credits annually by 2027, this limited supply highlights the urgency for more countries to issue LoAs efficiently if the market hopes to meet CORSIA’s growing requirements.
Although the introduction of a LoA is necessary for certifying that carbon credits used within CORSIA meet the transparency and accountability standards outlined in the Paris Agreement, obtaining a LoA is a complex process with significant challenges. A clear, standardized pathway for projects to secure a LoA does not yet exist.
Questions abound: Which country ministry oversees LoAs? Is there an official process, designated contact, or standardized documentation?
This lack of clarity slows down progress, as key infrastructure, such as registries and bureaucratic systems, remain underdeveloped, affecting the efficiency and transparency of the market.
Host countries must formally commit to a CA for their emissions to balance when granting a LoA, yet these adjustments are recorded only every two years. This gap opens the door for potential delays, reversals, or revocations, making LoAs a less secure basis for carbon credit contracts. This has raised concerns about contract stability, leading for calls to develop insurance products to safeguard against risks like revocation and double counting.
Due to these complexities, there is mounting pressure on countries to create robust systems for issuing LoAs efficiently. LoA templates, such as the one drafted by Gold Standard, have emerged to provide guidance, but significant capacity-building efforts are still needed.
For CORSIA to succeed – and, by extension, for the aviation sector to meet its climate commitments – countries must dedicate resources to streamline the LoA process, build essential infrastructure, and foster transparent market mechanisms. Market participants need to increase investment in time and resources to collaborate with host countries to develop a streamlined LoA process. This is paramount for CORSIA to meet the growing demand for compliant carbon credits and maintain market stability.
We are excited to announce that Gordian Knot Strategies has officially been certified as a Benefit Corporation for Good!
As a certified Benefit Corporation for Good, we are held to the highest standards of social and environmental performance, accountability, and transparency. This recognition reflects our ongoing commitment to driving positive change for our people, communities, and the planet.
Thank you to everyone who has supported us on this journey!
The American Forest Foundation (AFF) will hold the first auction for the Family Forest Carbon Program’s carbon credits in February 2025.
The American Forest Foundation Carbon Auction — the first of its kind for a U.S. nature-based carbon project — will offer buyers a transparent and streamlined way to secure high-quality carbon credits while supporting rural communities and family forest owners.
To read the full announcement, click here.
To view information on the auction, click here.
The Savory Foundation along with the Savory Institute, Pampa Oriental, and Cultivo are now offering nature-based carbon removal credits from their Uruguay Grasslands Regeneration Project. This groundbreaking project spans 140,000 hectares across 166 privately held properties, employing Savory’s Holistic Management framework to restore grasslands while supporting local communities and ecosystems.
The project, under Verra’s VM0032 Methodology for Sustainable Grasslands, anticipates an annual issuance of around 152,000 credits, beginning in 2026, and addresses the UN’s Sustainable Development Goals – 8: Decent Work and Economic Growth, 13: Climate Action, 15: Life of Land, and 17: Partnership for the Goals.
To learn more about this project and its impact, click here.
If you want to connect about the project, email us here.
Gordian Knot Strategies has been engaged once again to help the U.S. Endowment for Forestry and Communities screen for investment opportunities, develop program criteria, evaluate proposals, and conduct due diligence for its Impact Investing Program. A second call for the submission of impact investing opportunities is planned for the winter of 2024/2025.
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