A severe supply crunch is setting the stage for a massive market squeeze, creating major compliance risks for airlines and premium opportunities for savvy project developers.
With just 19 months remaining until the January 31, 2028 deadline to retire carbon credits for CORSIA Phase 1, the international aviation carbon market is caught in a profound holding pattern. According to a comprehensive market report released by carbon ratings agency Sylvera, a structural disconnect between apparent supply and actual compliance-eligible credits is creating massive commercial exposure and unique premium opportunities for carbon project developers, investors, and traders alike.
The core of the issue lies in a steep imbalance. While the International Civil Aviation Organization (ICAO) requires airlines to offset emissions exceeding 85% of their 2019 baseline, today only 38 million issued credits actually qualify as Eligible Emissions Units (EEUs). This sits against a projected base-case demand of roughly 163 million credits for the 2024–2026 compliance period. In other words, current eligible supply covers a mere 23% of what the aviation sector will ultimately need to buy and retire.
For carbon credit developers, this multi-million-tonne supply gap might sound like an unalloyed commercial win. However, the report highlights that the bottleneck isn’t a lack of raw carbon projects, but rather the administrative and political hurdles required to clear international eligibility gates.
To transform a standard voluntary carbon market credit into a CORSIA-compliant EEU, projects must clear two primary sovereign hurdles: securing a host-country Letter of Authorization (LoA) and ensuring a Corresponding Adjustment (CA) is applied under Article 6 of the Paris Agreement to avoid double-counting.
Sylvera’s analysis of the global project pipeline illustrates just how narrow this pipeline becomes in practice. By January 2028, the absolute pool of potentially eligible carbon credits issued worldwide could reach 640 million units. Yet, when that figure is filtered down to host countries realistically capable of delivering LoAs and CAs, the realistic supply collapses to 104 million. Narrow the scope even further to credits where all administrative requirements are already fully met, and the market is left with just 48 million units.
This reality forces developers to look closely at host-country readiness. Sylvera tracks country-level risk across 14 distinct capacity indicators, revealing that a mere 21% of assessed host nations currently demonstrate “high confidence” for delivering both LoAs and CAs. Meanwhile, the vast majority (62%) sit on a regulatory watch-list where policy gaps, institutional delays, or reporting uncertainties remain unresolved. Another 17% are deemed low-probability jurisdictions with little to no groundwork in place.
The report points to Kenya as a stark reminder of this delivery risk. Despite the Kenyan government being vocally pro-market and backing a project by KOKO Networks alongside the World Bank’s Multilateral Investment Guarantee Agency (MIGA), the highly anticipated LoA ultimately failed to materialize. For developers, the lesson is clear: political willingness on paper does not automatically guarantee delivery on the ground.
One of the most critical structural insights for market participants is a sharp divergence in how risk is distributed between airlines and credit sellers. Under ICAO’s current rules, certain major standards, specifically Verra and the Gold Standard, allow credits to achieve CORSIA eligibility without a completed CA, provided that qualifying insurance is obtained to cover the risk of the host country failing to adjust its books.
To date, roughly 7.8 million of the 38 million available EEUs have achieved eligibility via this insurance mechanism, utilizing policies approved by carbon insurance providers like Oka, CFC Underwriting, and Artio.
While this mechanism effectively de-risks airlines, it does not offer a clean exit for carbon project developers, investors, or traders. If a host country’s CA ultimately fails to materialize, the developer or transaction counterparty bears the strict contractual obligation to compensate the insurer or buyer with an equivalent volume of replacement credits. Consequently, a host country’s actual progress toward Article 6 accounting is a direct commercial liability for developers. As the 2028 deadline inches closer, credits originating from the 21% of high-confidence sovereign jurisdictions are expected to command a substantial financial premium.
While supply remains structurally constrained, the demand side of the equation is being reshaped by geopolitical and regulatory swing factors. Chief among these is the ongoing US-Iran conflict, which has suppressed international flight paths across affected corridors. Sylvera estimates that higher jet fuel prices and reduced flight activity stemming from the war could shave between 4% and 9% off total CP1 demand, potentially pulling the ceiling down from 163 million to 149 million units depending on whether the conflict escalates further into the second half of 2026.
Simultaneously, major regulatory developments in the European Union and the United States add layers of complexity. An upcoming European Commission review in July 2026 will decide whether flights departing the European Economic Area (EEA) will be fully pulled into the EU Emissions Trading System (ETS) rather than offsetting via CORSIA, a move that could slice global CORSIA demand by 24%. Conversely, if the EU remains within the scheme, a draft concept note reviewed by Sylvera suggests the EC might impose additional strict eligibility criteria that would instantly disqualify roughly 93.5% of the currently available CP1 credit supply. Meanwhile, in the US, the current administration’s decision not to mandate compliance means participation remains effectively voluntary for American carriers, leaving an 18% chunk of global demand highly sensitive to political shifts.
Even though demand remains unpredictable, dwindling liquidity means the market’s structural dynamics are still heavily tipped toward a supply squeeze. Sylvera’s modeling across more than 50 different market scenarios suggests that if a late buying rush collides with persistent LoA and CA bottlenecks near the deadline, prices could spike to a ceiling of $53 per credit for Phase 1 compliance. Under more muted demand or rapid supply expansion scenarios, projected prices hover in a median range of $33 down to a lower bound of $15 per unit.
💡 For project developers and carbon market investors, the take-home message of mid-2026 is one of tactical positioning. The current quietness of the spot market masks significant latent risks. Success will not belong simply to those who hold the largest volume of credits, but to those who have carefully managed sovereign risk and secured clear pathways to definitive Article 6 authorization.
💡 For carbon credit buyers, the report delivers a clear, numbers-backed warning: headline supply figures are highly misleading. While there appears to be an abundance of carbon credits on paper, the volume of units that will successfully clear the strict regulatory hurdles to become CORSIA EEUs is structurally scarce. Only 38 million issued credits currently qualify as EEUs, covering a mere 23% of the projected 163 million base-case demand for Phase 1. By January 2028, the global pool of potentially eligible credits is projected to technically reach 640 million, and when filtered down to host countries realistically capable of delivering LoAs and CAs, that supply pool plummets to 104 million. If you isolate only the credits where every single regulatory requirement is fully met, just 48 million units remain. A major reason for this restriction is host-country unreadiness; only 21% of the countries evaluated demonstrate “high confidence” in their ability to issue LoAs and recognize CAs at scale.
💡 At Invert, we are actively prioritizing projects designed from day one to align with strict compliance schemes like CORSIA and Article 6. By structuring our pipeline to intentionally clear rigorous sovereign hurdles, securing host-country Letters of Authorization (LoAs) and robust pathways to Corresponding Adjustments (CAs). We are entering a time in compliance markets where buyers could face multi-million-dollar statutory fines or the loss of their license to operate, and many organizations are working hard now to establish a reliable, secure stream of audit-ready, bulletproof compliance units. If you’re an organization subject to compliance mandates, we can help! Let’s chat.
