Market-based measures (MBMs) are part of ICAO’s comprehensive mitigation strategy to address greenhouse gas (GHG) emissions from international aviation. This work started in 1995. Reflecting on past considerations is essential to understanding how the international aviation sector, under ICAO’s leadership, arrived at a global MBM scheme for international aviation in the form of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).
The origins of ICAO consideration on Market-Based Measures (MBMs) for international aviation, 1995-2007
ICAO first considered environmental levies (taxes and charges) in 1995, related to noise and other environmental issues. In 1996 the ICAO Council adopted a Council Resolution on Environmental Charges and Taxes, which made a conceptual distinction between a charge and a tax: “A charge is a levy that is designed and applied specifically to recover the costs of providing facilities and services for civil aviation, and a tax is a levy that is designed to raise national or local government revenues which are generally not applied to civil aviation in their entirety or on a cost-specific basis.”
The ICAO Council strongly recommended that any levies be in the form of charges rather than taxes and that the funds collected should be applied in the first instance to mitigating the environmental impact of aircraft engine emissions, and recalled the non-discriminatory principle outlined in Article 15 of the Chicago Convention.
Concurrently, the ICAO Committee on Aviation Environmental Protection (CAEP) began its work on environmental levies to study “whether charges could be an effective means of reducing adverse environmental consequences of aircraft engine emissions.” CAEP evaluated four types of levies: a fuel levy, a ticket levy, a route levy and an airport levy, and presented its findings to the 32nd ICAO Assembly in 1998. This ICAO Assembly considered MBMs and subsequently requested the Council, through CAEP, to study policy options to address GHG emissions from civil aviation.
Between the 32nd and the 33rd ICAO Assembly (2001), CAEP evaluated the potential role that MBMs could play in addressing CO2 emissions from international aviation, focusing on three options: emission-related levies, voluntary measures, and emissions trading system (ETS).
The 33rd ICAO Assembly concluded with a call for the continuation of work to develop proposals related to MBMs and emphasised that emission-related levies were to respect the 1996 Council Resolution. States were also urged to refrain from unilateral action to introduce emission-related levies.
Between 2001 and 2004, CAEP further analysed MBM options and concluded with diverging views over emission levies. Notably, developing countries viewed that a CO2 charge could increase operational costs and impose financial pressure on their air carriers, detrimentally impacting their long-term growth and economic and social development. With the lack of consensus at the CAEP level, decision-making on the next steps for emission levies escalated to the ICAO Council and Assembly.
The 35th ICAO Assembly in 2004 recognized that ICAO was not ready for the implementation of GHG emissions charges internationally and urged Member States to refrain from unilateral implementation of GHG emissions charges prior to the Assembly that would follow in 2007, where additional guidance and studies were expected. The Assembly also endorsed the consideration of an open ETS for international aviation, whereby aircraft operators have access to out-of-sector carbon credits.
In September 2005, the ICAO Council convened the Special Group on the Legal Aspects of Emissions Charges to assess the compatibility of emissions charges with the Chicago Convention and the possibility of exempting operators from certain States from such charges. The conclusions of the Group were divided.
The 36th ICAO Assembly in 2007 recognized the urgent and critical need to address emissions from international aviation, emphasized ICAO’s leadership role in this area, and agreed on the technical and operational aspects of mitigation measures to address international aviation emissions.
Accommodating the differing views of States regarding a MBM was challenging. To bridge the different views, the Assembly decided to establish a high-level Group on International Aviation and Climate Change (GIACC) to develop the Programme of Action on International Aviation and Climate Change. Notably, Assembly Resolution A36-22 was the first to introduce carbon offset mechanisms as an MBM option for international aviation. As work on MBMs continued, the Assembly once again urged States to refrain from the unilateral implementation of emissions charges.
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ICAO’s decision to develop a global MBM for addressing sectoral CO2 emissions, 2008-2016
The aviation industry faced significant uncertainties from 2009 to 2012 due to a fragmented approach towards addressing international aviation emissions. Several States and regions proceeded with unilateral MBMs, despite repeated calls from the ICAO Assembly urging States against implementing unilateral MBMs. This patchwork of MBMs encountered strong resistance from other States and the industry given that it was seen as unilateral, duplicative, and market-distorting.
ICAO, with Member States, continued to advance efforts to address international aviation emissions holistically. The GIACC, formed in January 2008 with 15 senior government officials representing all ICAO regions, deliberated for two years on the Programme of Action on International Aviation and Climate Change, with technical support from CAEP.
The GIACC MBM Working Group also considered CAEP’s previous analysis, which ruled out levies and taxes as revenue-generating without clear environmental benefits and recommended an open emissions trading system (ETS) as a cost-effective MBM option for addressing environmental impact.
By June 2009, the GIACC published its report which served the basis for ICAO’s global aspirational goals, basket of CO2 reduction measures and State Action Plans. ICAO also organized the High-level Meeting on International Aviation and Climate Change (HLM-ENV) in October 2009 to review the Programme of Action. The Declaration by the HLM-ENV called for ICAO to develop a framework for MBMs.
During the 37th ICAO Assembly in 2010, ICAO and Member States achieved an important global agreement to address international aviation emissions. Assembly Resolution A37-19 made international aviation the first sector to establish global aspirational goals of 2 per cent annual fuel efficiency improvements, and stabilize CO2 emissions at 2020 levels (or called “carbon neutral growth from 2020 – CNG2020 goal”).
The Assembly also agreed on the guiding principles for MBMs and decided to explore a global scheme for international aviation. Importantly, the Assembly affirmed that multilateral collaborative actions by all States through a global sectoral approach under ICAO would be the most appropriate mechanism to effectively address international aviation emissions.
Analysis of the feasibility of global MBM options was advanced in 2011. This included an assessment carried out by the ICAO Secretariat with consultancy support, at the request of the ICAO Council. The study identified very significant differences in additional aircraft operating costs to achieve CO2 targets through levies compared to ETS or offsetting.
The results were presented to the ICAO Council in early 2012. An ICAO Council Ad-hoc Group was established to identify and evaluate options for a global MBM scheme. Levy-based options were dismissed, as the Group believed they would suppress demand without incentivizing fuel efficiency improvements, involve unresolved legal issues, would not facilitate access to carbon markets, increase the economic burden, and fail to align with MBM guiding principles. The Group recommended four options to the ICAO Council in March 2012 based on a carbon offsetting mechanism and ETS.
The Council subsequently requested that a High-level Group on International Aviation and Climate Change (HGCC) be established to develop policy recommendations regarding the elements for the 38th ICAO Assembly Resolution. Further assessment of the feasibility of the options for a global MBM scheme continued in 2013 resulted in the publication of ICAO Document 10018, Report of the Assessment of Market-based Measures which shows that three options were technically feasible and could contribute to achieving ICAO’s environmental goals.
The recommendations on the MBM options were reported to the 38th Session of the ICAO Assembly in 2013 and contributed to an historic agreement by ICAO Member States to develop a global MBM for international aviation to be implemented from 2020, for decision by the 39th ICAO Assembly in 2016. The agreement reflected the strong support of Member States for a global solution for the international aviation industry.
In March 2014, the ICAO Council established the Environment Advisory Group (EAG) to oversee the work on the global MBM and make recommendations to the Council. Although the ICAO Council had eliminated the global fuel levy option in 2012, the EAG still considered the possibility of developing a global fuel levy.
Several EAG members expressed concern over the levy option, in terms of consistencies with past agreements and decisions by the Organization, the uncertainty for a levy to achieve an intended environmental benefit, unresolved legal issues, the political feasibility of collecting levies in an internationally consistent manner, and the practical challenge of distributing the collected revenue in a fair and transparent manner. There was no momentum to revisit the global levy proposal.
A series of ICAO Global Aviation Dialogues (GLADs) were also organized across all regions in 2015 and 2016 to share information regarding the global MBM options and for ICAO to receive inputs. Participants in the GLADs provided valuable feedback on key considerations for the global MBM, emphasizing the importance of administrative simplicity, opposition to using aviation as a revenue source, ensuring environmental integrity, and maintaining cost-effectiveness.
By January 2016, the ICAO Council established a High-level Group on a Global MBM Scheme to facilitate the convergence of views on a proposal for a global MBM by the 39th ICAO Assembly in September 2016. The ICAO Council started to discuss a proposal in the form of draft Assembly Resolution text for the global MBM, on the basis of creating a global offsetting scheme for international aviation to achieve the CNG2020 goal.
Through the dedicated efforts of ICAO and its Member States as well as the aviation industry, an unprecedented and coordinated effort to advance aviation environmental protection took shape. This process contributed to the groundbreaking agreement on the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) at the 39th ICAO Assembly.
CORSIA is the first MBM scheme adopted by any industry sector to address CO2 emissions from international activity. It was designed to complement the basket of mitigation measures that the air transport community is already pursuing to reduce CO2 emissions from international aviation, which includes technical and operational improvements and sustainable aviation fuels.
Notably, the ICAO Assembly also determined that “CORSIA is the only global market-based measure applying to CO2 emissions from international aviation so as to avoid a possible patchwork of duplicative State or regional MBMs, thus ensuring that international aviation CO2 emissions should be accounted for only once”.
During the 41st ICAO Assembly in 2022, Member States further adopted a collective long-term global aspirational goal (LTAG) of net-zero carbon emissions by 2050. In 2023, ICAO also adopted a comprehensive ICAO Global Framework for Sustainable Aviation Fuels (SAF), Lower Carbon Aviation Fuels (LCAF) and other Aviation Cleaner Energies , which included a Vision for reducing CO₂ emissions in international aviation by 5 per cent by 2030 using through SAF and cleaner energies.
The ICAO LTAG technical analysis showed that access to financial resources is crucial for developing and deploying SAF and other cleaner aviation energies, as scaling up these fuels to support the LTAG will require an estimated USD 3.2 trillion in cumulative investments by 2050.
Developments in other UN agencies and international organizations
While ICAO and its Member States made strides in addressing the climate change challenges, developments outside the sector related to climate financing raised some important concerns but also presented opportunities for cross-sector collaborations.
At the 15th session of the Conference of the Parties (COP15) to the UNFCCC in Copenhagen (2009), developed countries committed to mobilizing USD 100 billion annually by 2020 to address the needs of developing countries. The Secretary-General of the United Nations subsequently established the High-level Advisory Group on Climate Change Financing (AGF) in 2010, where ICAO actively contributed to sharing the achievements of the sector and its concerns over potential emissions-related levies on international aviation.
The AGF report proposed that aviation could generate up to USD 6 billion annually through measures like fuel levies or ETS. It also recognized that further work on carbon-related instruments should be carried out in ICAO. In 2011, a World Bank/IMF report again suggested that a carbon charge on aviation could raise substantial climate finance, without acknowledging ICAO’s ongoing efforts in climate action and the AGF’s conclusions.
By COP21 in Paris (2015), the Paris Agreement set a goal for developed countries to mobilize USD 100 billion annually by 2020, with no reference to the aviation sector. In 2024, COP29 in Baku further adopted the New Collective Quantified Goal on Climate Finance (NCQG), aiming to triple finance to developing countries to at least USD 300 billion per year by 2035.
ICAO continues to closely monitor these international discussions and negotiations on climate finance issues and remains ready to share the aviation sector’s views and contributions in this area.
Moving forward: Reflections on ICAO’s journey to CORSIA and the importance of ICAO’s leadership to effectively address international aviation emissions
Over the past three decades, significant efforts have gone into developing a global MBM to address international aviation emissions under ICAO. Numerous MBM options were thoroughly examined by expert groups and high-level State representatives, with detailed technical and policy analysis and extensive consultation, leading to the hard-fought landmark agreement on CORSIA by the ICAO Assembly in 2016.
Some key advantages of CORSIA and its design features including the following:
- Cost-effective option allowing for a clear emissions reduction based on the ICAO global aspirational goal for the international aviation sector.
- Fair distribution of requirements since airlines only need to offset emissions above the sector’s baseline, rather than face blanket charges/taxes.
- Incentivizes emissions reduction within the sector, in particular using sustainable fuels to reduce an airline’s offsetting requirements.
- Administrative simplicity as emissions and offsets are tracked and reported through a central registry.
- Phased implementation accommodates the special circumstances and respective capabilities of States, while minimizing market distortion through the equal treatment of airlines on the same international air routes; and
- Also accounts for the concerns of developing countries and emerging economies with the provisions for new entrants, and calculation of offsetting requirements through the sector’s growth factor.
It is crucial to understand that the transboundary nature of international aviation operations requires a globally harmonized MBM in the form of CORSIA to effectively and feasibly address international aviation emissions, while accommodating the special circumstances and respective capabilities of States. Moreover, it is important to recall that the purpose of an MBM scheme is to address aviation emissions that cannot be reduced through in-sector measures, rather than to generate revenue for other purposes.
The recent revival of proposals on aviation emissions levies by certain UN bodies and other organizations are deeply concerning since they risk undermining the significant achievements and extensive efforts made to develop a global MBM for international aviation that was agreed by the ICAO Assembly and will hinder the implementation of the basket of measures including SAFs.
As the specialized UN agency for international aviation, ICAO has worked tirelessly to develop a global solution to address international aviation emissions, with the strong support of its Member States and the aviation industry. We urge all stakeholders to recognize the history and significance of the global MBM scheme for international aviation and to continue supporting the implementation of CORSIA as the only global MBM scheme for international aviation, ensuring the sustainable development of the sector and effective mitigation of aviation emissions.
For further details on the evolution of MBMs, please refer to the ICAO CORSIA website.
