By Tinashe Makichi
NAIROBI, Kenya, April 22 – A quiet contradiction is emerging at the core of the global aviation carbon market. Under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), airlines must buy eligible carbon credits approved by host countries through Letters of Authorization and corresponding adjustments.
However, an increasing number of credits are now being sold through insurance-backed arrangements before these approvals are secured.
The reasoning is simple: supply is limited, and regulatory processes are slow, so insurance helps bridge the gap.
But this approach risks revealing a deeper structural flaw—one that goes beyond financial engineering to the system’s design itself.
A supply issue rooted in sovereignty
The shortage of approved credits is often blamed on administrative delays, but it actually reflects a more fundamental problem: many host countries are hesitant to grant approvals. This reluctance is understandable. In many cases, governments were not significantly involved in developing the projects now seeking approval under Article 6 of the Paris Agreement. Granting adjustments today might hinder their ability to meet national climate goals, empower local communities, and participate in the financial benefits of carbon projects. As a result, countries tend to proceed cautiously—or not at all.
When compliance is penalized
Meanwhile, some jurisdictions are attempting to create more sovereign-aligned, robust systems. Zimbabwe has established a framework where carbon credits pass through a national registry, allowing the government to issue Letters of Authorization and apply adjustments at transfer. This aligns with the intent of Article 6. However, procedural constraints within CORSIA complicate this. International Civil Aviation Organization (ICAO) rules, shaped by its Technical Advisory Body (TAB), require eligible credits to be transferred via approved registries such as Gold Standard or Verra. Direct transfers from national registries are not recognized. This creates a paradox: a more sovereign approach aligned with Article 6 is incompatible with the compliance system it aims to serve.
A case illustrating the tension
In one example, credits issued by Gold Standard were transferred to Zimbabwe’s national registry, where they counted towards the country’s climate targets and received approval and adjustments. Later, these credits were transferred back to a standard registry for trading. Despite completing what seemed to be the full compliance process, they are no longer considered eligible under CORSIA due to TAB guidance. This highlights that compliance depends not only on substance but also on procedural adherence.
Insurance as a partial solution
Given these issues, insurance-backed credit sales have gained popularity. These allow developers to monetize credits before approval, with insurance covering the risk of nonapproval. However, this protection is often asymmetric: developers are shielded, but airlines— ultimately responsible for compliance—may remain exposed if credits are invalidated. This raises questions about whether the model reduces risk or simply shifts it.
Maintaining momentum despite constraints
Despite these tensions, institutions like the TAB, Sylvera, Verra, and Gold Standard continue to support the system. A key reason is to maintain market liquidity. A long-term shortage of approved credits could undermine CORSIA’s credibility. Mechanisms that preserve liquidity, even imperfect ones, help avoid this. Yet, prioritizing continuity might also allow unresolved inconsistencies that could destabilize the system over time.
A system under pressure
CORSIA is a major advance in global climate governance, but its current path suggests a market evolving faster than its institutions. Countries remain cautious about approvals, fully authorized pathways are sometimes blocked procedurally, and credits without approval are entering the market via insurance. This results in a system where form and substance are increasingly disconnected. If these issues persist, the challenge will go beyond supply— credibility will be at stake.