This blog post originally appeared on trove-research.com. MSCI acquired Trove Research — now known as MSCI Carbon Markets — in November 2023.
On Sept. 26, 2023, EasyJet Plc announced a pivot in its sustainability strategy to end the purchasing of carbon credits and focus on technology solutions to achieve net-zero emissions by 2050. Although the company’s emissions targets are unchanged — a 35% cut in carbon emissions per passenger kilometer by 2035 — the decision to stop buying carbon credits has raised concerns in the voluntary carbon market as airlines have been some of the largest buyers of credits.
Between November 2019 and August 2022, the company retired a total of 8.5 million credits, making it the sixth-largest retiree of credits in the last five years. In 2021, EasyJet retired 2.1 million carbon credits — representing 1.3% of the market — including those from projects to reduce deforestation in Ethiopia as well as wind farms in India and Turkey. (Delta Air Lines Inc. has been the largest user of carbon credits, retiring over 50 million credits since 2018.)
Does EasyJet’s decision suggest airlines are cooling on carbon credits as a means of achieving their climate aims? In the short term, the answer is perhaps, but several factors are at play in the company’s decision. In the medium-to-longer term, we could certainly see this decision being reversed.
Reasons for a rethink
Firstly, EasyJet, like many other airlines, has been under financial pressure for a number of years, hit first by COVID-19 in 2020 and then the oil-price rise since the Russian invasion of Ukraine in February 2022. EasyJet made losses of around EUR 1 billion in both 2020 and 2021 (following a EUR 400 million profit in 2019) and its shares have fallen 54% in the last 12 months. In this economic climate, all expenditures have been under the spotlight. At a carbon-credit price of GBP 5-10/tonne of carbon dioxide (tCO2), ending the purchase of carbon credits would save the company GBP 10-20 million per year.
Secondly, if the company were to continue buying carbon credits within a limited budget, there is a risk that it would seek out the cheapest possible sources. This could bring with it reputational risks, as cheaper credits tend to be of lower “environmental integrity.” Cheaper credits tend to be from older projects — potentially from activities taking place over 10 years ago — or from projects with dubious additionality claims.
Thirdly, EasyJet did not say when it announced its net-zero strategy in 2019 that it would go on buying voluntary credits forever. Its statement declared: “Carbon offsetting is only an interim measure while new technologies are developed." EasyJet’s new plan has a longer-term trajectory to net-zero involving a move to “zero-emission aircraft” using sustainable aviation fuels made from biomass, and potentially hydrogen, as fuel. The company’s overall 78% reduction in emissions intensity by 2050 would be topped up by carbon removals (capturing and storing CO2 from the atmosphere), to reach net-zero. However, the commitments to clean technologies in most recent plans are, in effect, little different to those in 2019, implying that the decision on carbon credits is mostly driven by the need to save costs.
Questions over clean-aviation technologies
The focus on clean-aviation technologies to achieve long-term climate targets, while laudable, struggles under economic logic. The cost of reducing CO2 emissions using sustainable aviation fuels is currently 50-100 times that of using carbon credits — USD 450-500/tCO2 saved compared to carbon credits at USD 5-10/tCO2. Put another way, for the same expenditure, EasyJet could achieve at least 50 times the climate benefit using carbon credits. Admittedly, carbon-credit prices may rise as demand grows, and sustainable-fuel costs may come down as techniques improve and the biofuel industry achieves greater scale, but the gap is unlikely to be fully closed.
This economic rationale underpins the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which requires international flights to use carbon credits to offset any increase in emissions from 85% of 2019 levels. The same principle applies to the inclusion of intra-EU flights in the EU emissions-trading scheme, where airlines are able to buy credits from the wider market covering sectors such as power generation, steel mills and oil refining.
EasyJet’s focus on hydrogen-fueled planes and direct air capture of CO2 for the period 2035 to 2050 is betting on highly speculative technologies. Hydrogen as an aviation fuel has much to prove — on the pace of possible cost reductions and on safety for air travel. And direct air capture is hugely costly, estimated at USD 400-1,000/tCO2e captured and stored, with limited prospects for swift cost reductions below USD 200/tCO2e.
Transparency benefits
A final concern over the reliance of the bet on clean-aviation fuels is the lack of transparency in the company’s impact. Corporate investments in technology are rarely disclosed, which makes it difficult for stakeholders to track corporate efforts to control emissions and compare them with other companies. Carbon credits have a very clear process of transaction and retirements.
If EasyJet, and the rest of the aviation industry, is to make a serious attempt to reduce its carbon footprint, a solution that enables airlines to invest in projects outside the sector is going to be essential. For the foreseeable future therefore, it looks like carbon credits will be the instrument of choice, even with their imperfections and flaws.