CORSIA and Article 6 at a glance: what PACM is and why this is not an automatic green light
CORSIA eligibility does not work “by credit label.” It works by a combination of programme, vintage, and conditions. In practice, ICAO publishes the list of CORSIA Eligible Emissions Units (EEU) and decides which emissions unit programmes are accepted, with what limits and for which periods. The technical filter runs through the Technical Advisory Body (TAB) and the Emissions Unit Eligibility Criteria (EUC), but the final decision and the terms of use remain with the ICAO Council.
PACM, the Paris Agreement Crediting Mechanism under Article 6.4, is a UNFCCC mechanism that is “new” compared with the CDM. It has its own rules and dedicated governance. Market debate also focuses on the “transition” of activities and credits from the CDM into 6.4, but that pipeline does not automatically match what CORSIA considers usable for aviation-sector compliance.
The key point is simple: even if a unit is issued under a UN framework, CORSIA accepts it only if it falls within an ICAO-approved perimeter and meets EUC and additional conditions, including aspects of international accounting. The typical B2B question “If I buy 6.4, can I use it for aviation?” therefore has an operational answer: it depends, and you need eligibility mapping before committing budget.
For an Italian buyer and for anyone developing or tokenising, this translates into a portfolio rule: separate “high-integrity” credits for voluntary uses from credits that may be compliance-grade for CORSIA. If you buy “PACM-only” without CORSIA requirements, the risk is ending up with credits that are blocked for the intended use—i.e., stranded credits.
ICAO is cautious for a practical reason. The obstacle is not the “UN label.” It is the integrity tests that determine whether a unit is acceptable at scale for aviation compliance, where regulatory and reputational risk is higher.
Integrity bottlenecks that slow wholesale acceptance: additionality, baselines, permanence, and leakage
Additionality is the first point a CORSIA buyer truly looks at. If the project does not demonstrate that the reduction or removal would not have happened without credit revenues, the risk of “paying for something that would have happened anyway” becomes central. This is where additionality tests such as common practice, investment analysis, and regulatory surplus come into play. For wholesale buyers, the question is not theoretical: it is “what evidence do I have ex ante, and what happens ex post if signs of over-crediting emerge?” The role of the EUC and TAB is also to filter programmes and rules that manage these risks credibly.
The baseline is the second point, because it determines how many credits are issued. Overly permissive baselines increase volumes, but reduce credibility and raise the risk of repricing when the market or auditors tighten the rules. Concepts such as baseline setting, dynamic baseline, crediting period, and conservativeness become operational: for developers, this means more pressure on data quality, monitoring, sampling, and uncertainty management.
Permanence matters most when talking about removals, especially AFOLU and forestry. Aviation buyers fear reversal risk, i.e., tonnes returning to the atmosphere. This is why tools such as buffer pools or tonne-year approaches come into play, and above all a contractual question: who covers the loss if there is a reversal? If you tokenise, it is not enough to “put a token into circulation.” You need clear metadata on buffers, reversals, vintage, and recourse rules; otherwise, the token becomes an opaque container.
Leakage is the fourth bottleneck, often underestimated in commercial materials. If a project reduces deforestation in one area but shifts it elsewhere, the net effect may be far lower than claimed. For an Italian buyer the practical question is “how do I see this in the file?” and the expected answer is: leakage assessment, territorial monitoring, and, where applicable, robust evidence such as remote sensing—not just project statements.
Wholesale buyers therefore ask for more than a programme name. They ask for project documentation, methodology applicability, issuance and verification track record, and, when available, independent ratings. And they ask for invalidation clauses, because the risk is not only environmental: it is also legal and financial-statement related.
Even when project integrity is high, CORSIA has a second layer that can block everything: avoiding double counting. This is where host-country authorisations and corresponding adjustments come in—the core of Article 6.
Double counting and corresponding adjustments: where aviation credibility is decided
Double counting is the risk that multiple parties claim the same reduction. In the Article 6 context, the response is accounting between countries and corresponding adjustments (CA). For CORSIA use, especially for mitigation from 1/1/2021 onward, this becomes operational: without a clear authorisation and adjustment framework, a credit may remain “voluntary” but not become an EEU that is actually usable for the obligation.
Host country authorization often takes the form of a Letter of Authorization (LoA). For a buyer, the LoA is not a “nice to have” attachment. It is part of the compliance package. In due diligence, the typical document checklist includes: LoA, scope (sector and gas), explicit authorisation for CORSIA use, commitment to CA, and reporting or implementation timelines.
For Italian developers and structurers, the consequence is design-related. “CA readiness” must be built from the start: country selection, dialogue with authorities, and contracts (ERPAs) that manage authorization risk and host country policy risk. If you wait for the LoA downstream, you risk discovering too late that the country does not issue authorisations, or that it issues them with conditions that change economics and timelines.
The most common B2B risk is this: a technically sound project, but a country that does not issue an LoA or changes policy. The result is stranding and repricing. If you then tokenise and communicate “CORSIA-eligible” before having an LoA and a verifiable CA pathway, you expose yourself to a governance and disclosure problem, as well as commercial disputes.
For an Italian reader there is also a regulatory coexistence issue. In Europe, CORSIA implementation coexists with the EU ETS for other scopes; for Italy, this means aviation supply-chain actors must manage reporting and compliance under different schemes depending on routes and EU rules, without confusing the use cases for credits.
When eligibility also depends on LoA and CA, the market tends to split. Two pools form, with different prices and liquidity: eligible and non-eligible.
Market effects: prices, liquidity, and fragmentation risk between eligible and non-eligible credits
Liquidity concentrates where there is certainty of use. In CORSIA Phase 1 (2024-2026), the market looks at compliance-grade instruments and at price-discovery moments such as organised procurement, including structured purchasing events in the sector. These moments act as a signal: they show what is truly required in terms of specifications and documentation, not just “the project story.”
Uncertainty about demand is a strategy driver. Some market analyses report variable estimates of needs in the first phase, with a cited range of around 107–161 Mt for 2024-2026. The difference between scenarios matters because it changes the choice between front-loading and wait-and-see, and it also changes how much eligibility premium the market is willing to pay.
Price embeds an eligibility premium and repricing risk. Market valuations and commentary on CORSIA-eligible credits have highlighted supply-and-demand dynamics that are not always aligned in the short term, with the possibility that “eligible” supply expands or contracts depending on ICAO decisions and countries’ ability to manage authorisations and CA. The operational point is that ICAO can update lists and terms, and that day the portfolio can change value.
Fragmentation creates basis risk. Two credits that are similar by type or sector can price differently if one has LoA and CA and sits within ICAO scope, and the other does not. For Italian buyers this must be decided upfront in internal policy: what do I buy for CORSIA compliance, what do I buy for voluntary claims, what do I hold as strategic inventory.
Supply channelling also depends on TAB cycles. ICAO manages eligibility through approved programmes and assessment and re-assessment cycles, including TAB 2025 work for the 2027-2029 period. This creates a real risk: a programme or methodology can face an “eligibility cliff,” and anyone who bought without contractual protections remains exposed.
With this context, the natural question is: what checks should you run before buying, to avoid ending up with unusable credits or missing LoA and CA?
What to do in practice: a due diligence checklist for buying credits with potential CORSIA eligibility
Eligibility screening should be done before negotiating price. Check the ICAO CORSIA eligible emissions units list, the programme’s eligibility scope, the terms of eligibility, and vintage restrictions. The useful output is an internal table “Programme → Period → Scope → Restrictions → Risks,” updated whenever ICAO updates its decisions.
The Article 6 package is a document bundle, not a commercial promise. Request the Letter of Authorization and evidence of, or commitments on, the corresponding adjustment, with conditions and timelines. In the contract, include conditions precedent and termination rights if LoA or CA do not arrive by a defined date, because the main risk is timing, not only willingness.
A deep dive on integrity and MRV reduces ex-post surprises. Assess additionality, baseline conservativeness, monitoring plan, verifier, uncertainty management, and measures for reversals and leakage. For portfolio managers, a dual scoring works well: “integrity” separate from “eligibility.” For tokenisers, these elements must be mapped into metadata and disclosure, avoiding claims that run ahead of the documentation.
Delivery and registry mechanics are often where operations break. Check issuance schedule, serial numbers, registry account controls, retirement or cancellation process, transfer of title, and absence of encumbrances. If there is “wrapped” tokenisation, the correspondence between token and registry unit must be verifiable, and the chain of custody must withstand audits and KYC/AML checks.
Price terms must cover eligibility risk. Include representations & warranties on eligibility, but above all concrete remedies: indemnities, make-good, clauses on invalidation or cancellation, and price adjustment if status changes in TAB re-assessment. The useful stress test here is simple: “what happens if the programme loses eligibility in the next cycle?”
The final strategy is portfolio-based. With ICAO re-assessment, PACM evolution, and EU policy, how do you build a 2026-2030 portfolio that can withstand regulatory changes, LoA and CA risk, and volatility?
2026-2030 scenarios: how rules, airline demand, and credit-portfolio strategies may evolve
CORSIA rules remain in motion through 2027-2029. TAB re-assessment work and periodic reviews can change admitted programmes, conditions, and practices. This means “eligible today” is not automatically “eligible tomorrow,” and risk management must be continuous, not a one-off check.
Airline demand tends to become more institutional. Organised procurement and more sophisticated purchasing— including mixes of forward contracts and choices between SAF and offsets—raise the bar for sellers. For developers, the consequence is concrete: you need volumes, industrialised MRV, and LoA and CA prepared in advance, not at the edge of delivery.
The PACM pipeline also carries timing risk. The Article 6.4 transition and the mechanism’s milestones can slip, as indicated by sector analyses that cite deadline extensions. If PACM supply and CORSIA compliance windows are not synchronised, you can end up with “good” credits that are too late for the intended use, or with incomplete documentation when it is needed.
For Italian buyers, a prudent strategy is a three-bucket approach. Bucket 1: CORSIA-ready, with LoA and CA, an eligible programme, and delivery compatible with 2026-2030. Bucket 2: optionality—high-integrity projects but with LoA and CA not guaranteed—bought at a discount and with strong clauses. Bucket 3: non-CORSIA, intended for voluntary claims or other schemes. Useful KPIs remain few but clear: percentage of volumes covered by LoA, concentration by host country, and expected average issuance duration.
Tokenisation can help only if it delivers proof, not marketing. In 2026-2030, tokens make sense if they support an audit trail: serial number, registry status, verifiable off-chain attestations on LoA and CA, and consistent disclosure. If instead the token anticipates “CORSIA-eligible” claims without documentary foundations, it increases dispute and mispricing risk.
There is only one operational takeaway. In 2026-2030, the winners will be those who treat CORSIA as a compliance supply chain, not as a “UN credit,” and who integrate Article 6 accounting, integrity, contracting, and MRV data into procurement from the outset.
