By Ibrahim Sarwar
The aviation industry faces a dilemma. The technologies that could radically reduce carbon emissions, such as sustainable aviation fuels (SAFs), hydrogen or electric propulsion, are not yet scalable across all routes.
To bridge this gap, the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) has emerged as a critical lever. For it to reach its potential, supply constraints must be addressed, risks will need to be effectively managed, and financing unleashed at scale.
Supply constraints in CORSIA-approved credits
Today’s supply of CORSIA-eligible credits is far below what airlines will need. As of mid-2025, only about 15.8 million credits have been issued, all from Guyana’s jurisdictional REDD+ programme. This is tiny compared with projected demand. Estimates for Phase I (2024-2026) range from 106 to 137 million tonnes CO₂e. Phase II (2027-2035) could see cumulative demand rise to between 502 and 1,299 million tonnes CO₂e, depending on travel growth, SAF uptake and state participation.
The shortfall reflects a narrow set of ICAO-approved programmes, strict rules on additionality, permanence and monitoring, and the need for host country authorisations under Article 6 of the Paris Agreement. These safeguards build trust but restrict the pipeline of credits which will ultimately lead to price increases as the fight for CORSIA credits begins. It is sometimes a surprise to those in the market that these credits are not restricted to airlines, anyone who wants to buy a high-quality credit can do so by looking for the CORSIA label.
Similar to what we have seen in the CDR market buyers will inevitably need to act earlier in order to secure supply and benefit from lower prices. This then reinvigorates pre-purchases and debt capital into R&A (reduction and avoidance) credits after a tumultuous few years that have tempered demand. CDR is driving the idea of the Carbon Market 2.0 and is it now time with the convergence of methodology robustness, financial maturity with mechanisms like insurance and demand drivers such as CORSIA for high quality R&A credits to do the same.
The opportunity of methodology updates
Standards and registries are exploring methodology updates that broaden project types, improve monitoring and streamline host country authorisations. The goal is not to weaken quality but to unlock high-quality supply that meets CORSIA’s rules.
This matters because reductions and avoidance credits have faced a period of negative publicity, with doubts about permanence, additionality and social benefits. Demand has dipped while removals gained attention. Yet both are needed to meet climate goals. With CORSIA raising the bar for verification, reductions and avoidance projects are regaining credibility and attracting renewed interest.
As airlines enter the market, demand for these credits is rising. Stronger standards are making them more investible and creating the basis for long-term growth.
Financing challenges and the role of political risk
For developers, eligibility alone is not enough. Securing capital, whether through pre-purchases, debt or equity, is difficult when buyers and funders see risk. The most pressing is political risk, which arises if host governments revoke Letters of Authorisation or fail to apply corresponding adjustments. Credits can then be cancelled or stranded, leaving developers, investors and airlines exposed.
This is where insurance becomes essential. New frameworks from Verra and Gold Standard enable private products that specifically cover host country policy failure, protecting against double-claiming or cancellation. Unlike traditional project insurance, these products focus on political and regulatory risk, the barriers that make financiers hesitant to back CORSIA projects.
Insurance as a market enabler
This innovation is already taking hold. Verra has set criteria for insurance products, including cover that remains valid until at least two years after a host country’s Biennial Transparency Report deadline.
Gold Standard has also partnered with Howden to assess and approve insurance policies for GS-VERs in Phase I (2024-2026). This allows developers to use an “Approved Insurance Policy” route when host country adjustments are not yet secured.
By embedding insurance in this way, CORSIA can attract financing at scale. Pre-purchase commitments and loans can be made with confidence that credits will remain valid. That reduces risk premiums, draws in institutional capital and strengthens the business case for reductions and avoidance projects.
Benefits for airlines, policymakers and the wider market
For airlines, the advantages are clear, including a predictable supply of credits, a lower risk of cancellation and a better visibility on long-term costs. This allows more confident planning and greater credibility with regulators, investors and passengers.
For policymakers, CORSIA is more than a compliance mechanism. It is driving market quality by aligning voluntary reductions with quasi-compliance standards. The frameworks being developed, from methodology updates to Article 6 processes and insurance, are shaping aviation offsets and could soon influence other hard-to-abate sectors, such as shipping and heavy industry.
A blueprint for broader climate action
If aviation is to remain on track for net zero by 2050, every lever must be pulled, from emerging technology, SAF, efficiency and offsetting where emissions cannot yet be avoided. CORSIA, supported by updated methodologies, strict eligibility and political risk insurance, can ensure that reductions and avoidance credits regain credibility.
In doing so, the sector can meet its obligations and lead, showing how quasi-compliance markets raise standards, unlock investment and shift carbon finance toward genuine impact.
The opportunity now is to scale quickly and prove this model can work beyond aviation.
Ibrahim Sarwar is Co-founder and COO of early-stage carbon insurance business Artio.
Any opinions expressed in this commentary reflect the views of the authors and not of Carbon Pulse.