Cost impacts of ICAO’s Global Market-Based Mechanism

Briefing paper

Introducing a Global Market-Based Mechanism (GMBM) for aviation with a requirement to offset emissions above the 2020 baseline would induce additional costs for purchasing offset units. These costs were estimated with the AERO Modelling System. Over the period of 2021 to 2035 and without Route-Based Differentiation (RBD) of the offset requirement, these costs amount to US$ 1.4, 11.3 and 1.7 billion for operators in Africa, Asia, and Latin America / Caribbean, respectively; with RBD the costs amount to US$ 1.0, 9.2 and 1.4 billion, respectively. Differentiation of the offset requirement would thus reduce these costs by 32 %, 19 % or 20 %, respectively.

These costs can be compared with revenues from selling offset units. Based on the project pipeline of the Clean Development Mechanism (CDM), the GMBM-induced supply of offset units can be allocated among the developing country regions. The offset supply from Africa, Asia and Latin America / Caribbean amounts to 0.1, 2.6 and 0.4 billion Certified Emission Reductions (CERs), respectively. With RBD the induced supply is 2.9, 4.6 or 1.8 times higher than the regional demand for offset units, which indicates that Africa, Asia and Latin America / Caribbean are likely to net-profit from the introduction of the GMBM for international aviation.

With RBD the costs for purchasing offsets per offset potentially generated in Africa, Asia or Latin America / the Caribbean amount to 12.00, 3.48 and 3.45 US$/t, respectively. If the revenues from offset sales exceed this threshold, Africa, Asia and Latin America / Caribbean would net-benefit from ICAO’s GMBM.

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