Carbon Market Fears Rise as ICAO Advisers Face Scrutiny Over CORSIA Rules

A looming decision by the International Civil Aviation Organization (ICAO) on the future of its global aviation carbon scheme is fuelling fears of market disruption, as criticism mounts over recommendations by its technical advisers that could restrict credit supply and destabilise a system central to climate finance in developing economies.

The decision, expected from ICAO’s Council, will determine the volume and type of carbon credits eligible under CORSIA, the aviation sector’s emissions offsetting framework.

The programme was designed to create steady demand for carbon credits, channelling investment into emissions reduction projects worldwide.

However, the CORSIA Technical Advisory Body (TAB), which assesses the eligibility of those credits, is facing intensifying criticism from market participants and government observers.

Critics accuse the panel of opaque decision-making, inconsistent application of criteria and failure to adhere to established procedures.

Those concerns carry significant implications. Analysts warn that a tighter pool of eligible credits could drive up prices and compliance costs for airlines, while undermining confidence in a system that depends on predictable rules and sufficient market liquidity.

“If the market becomes too constrained or uncertain, you risk eroding both supply and demand at the same time,” said a carbon market adviser, who requested anonymity due to the sensitivity of the issue.

 

The potential fallout is particularly significant for Africa, where countries have increasingly turned to carbon markets as a source of climate finance and economic development.

Across the continent, governments and private developers have invested in projects ranging from reforestation to clean energy and household technologies, underpinned by expectations of growing demand from compliance markets such as CORSIA.

In Kenya, which has positioned itself as a regional hub for carbon market activity, the exposure is especially acute.

The country hosts a wide range of projects spanning clean cooking, land use and renewable energy, many built on expectations of sustained international demand.

A contraction or disruption in that demand could translate into substantial economic losses, with industry estimates suggesting millions of dollars in anticipated carbon revenue could be wiped out, leaving vulnerable communities without jobs, investment and income.

Recent private sector developments have underscored those risks. KOKO Networks, a Kenyan clean cooking enterprise that integrated carbon finance into its business model, faced financial distress after expected revenues at scale failed to materialise.

While its challenges were not solely tied to CORSIA, the case has been widely cited as an example of the fragility of carbon-dependent investments.

If ICAO fails to expand the supply of eligible credits, airlines could invoke force majeure, potentially triggering a broader collapse of the mechanism, market participants warn.

Critics say that without greater transparency and procedural discipline, the advisory body’s approach risks compounding that fragility.

If adopted without revision, they warn, the current trajectory could erode confidence to the point where CORSIA struggles to function as intended.

For policymakers, the stakes extend beyond aviation.

Carbon markets are increasingly viewed not only as environmental tools but also as financial systems capable of supporting infrastructure, jobs and development.

The ICAO Council’s decision will therefore help determine whether CORSIA can provide the stable demand needed to sustain those investments, or whether uncertainty will limit its impact at a critical moment for global climate finance.

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