I’m impressed by Google Gemini’s grasp of aviation carbon markets.

Am I wrong to be impressed? Mathew@carrzee.net

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Gemini unchecked:

Here is that breakdown of why the CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) carbon market is experiencing such low baseline prices right now.
To put it simply, there is a massive structural disconnect. While high-integrity, fully approved Phase 1 credits that have secured strict host-country political approval are actually fetching a premium, the broader benchmark futures and standard “Aviation Industry Offset” credits have taken a major hit, recently sliding to a near two-year low of around $11 per tonne.
The drop in these baseline prices comes down to three major factors:

1. The EU Regulatory “Wildcard” and Demand Shocks

A major driver of the recent price tumble is political uncertainty out of Europe. Recent meetings among EU leaders have raised serious doubts about how long the EU will rely on the UN’s global CORSIA framework.
The European Union has been actively expanding its own, much tougher compliance market—the EU ETS (Emissions Trading System). While CORSIA relies on buying offset credits from international projects (like reforestation or carbon capture), the EU ETS forces airlines to buy strict, high-cost compliance allowances (which trade around €75 per tonne). If the EU moves toward wider unilateral enforcement of its own system for international flights departing the region, it threatens to massively cannibalize the expected compliance demand for CORSIA credits. Traders have reacted to this regulatory uncertainty by offloading benchmark futures contracts.

2. The Macro “Two-Tier” Market Split

There is a massive distinction in the market between a theoretically eligible credit and a genuinely usable credit.

• The Oversupplied Baseline: The broader Voluntary Carbon Market (VCM) is flooded with older-vintage credits (from 2019–2021) that meet the basic technological criteria of registries like Verra or Gold Standard. Because these are abundant, their baseline prices remain incredibly depressed—often dragging down the spot prices of broad aviation-linked futures indices that track them.
• The Authorized Premium: For a credit to actually be used by an airline for Phase 1 (2024–2026) compliance, it must have a Letter of Authorization (LoA) and a Corresponding Adjustment under Article 6 of the Paris Agreement. This means the host country (like Guyana or Thailand) explicitly agrees not to count that carbon reduction toward its own national climate goals. Because host countries have been incredibly slow to issue these political authorizations, truly eligible credits are scarce and expensive (some trading near €19–€20+), even while un-authorized “eligible” baseline futures are tumbling.

3. Airlines Playing the “Wait and See” Game

Airlines are required to retire their Phase 1 compliance credits by January 2028. Because that deadline is still a couple of years away, many procurement teams are hesitant to lock in capital now. They are adopting a cautious stance due to:

• High interest rates making it expensive to hold inventory early.
• Rapidly evolving eligibility lists from ICAO (the UN aviation body), which just expanded to eight approved carbon programs, changing supply dynamics.
• The emerging use of political risk insurance to unlock credits before host countries finalize paperwork, which is providing a temporary, alternative bridge for supply.
  Ultimately, standard CORSIA benchmark prices are low because the market is factoring in a potential drop-off in European demand, alongside a glut of un-authorized voluntary credits.
• However, procurement experts expect a sharp squeeze and a price rebound later in the compliance window as the final 2028 deadline approaches and the bottleneck for certified host-country authorizations tightens.