This article first appeared in Forum, The Edge Malaysia Weekly on March 9, 2026 - March 15, 2026

On Oct 31, 2025, the aviation industry’s Carbon Offsetting and Reduction Scheme for International Aviation (Corsia) hit a critical milestone. For the first time since its adoption in 2016, sectoral emissions officially exceeded the baseline, triggering the first real wave of compliance obligations for airlines in 130 countries. This creates a prospective demand for at least 200 million tonnes of high-integrity credits by the end of the scheme’s first phase. At today’s average prices, this compliance represents a US$4 billion (RM15.8 billion) market, a figure that could triple by the compliance fulfilment deadline at the end of 2027.

For a world grappling with a chronic climate finance gap, Corsia should be a game changer, particularly for developing nations seeking to fund their adaptation and transition strategies. Yet, despite this imminent, real-world demand from a major global industry, carbon markets remain slow to respond, leaving a sizeable gap between prospective demand and actual supply.

This article examines the impact of Corsia on the Asean aviation sector and its carbon markets. It seeks to answer a pivotal question: Will the region emerge as a net supplier of high-integrity credits or will it watch climate finance flow out of its borders and its balance sheets?

Outside of Europe and North America, Southeast Asia stands out as the most ambitious region in adopting international aviation climate targets. As at January 2026, seven Asean states have signed up to Corsia in its voluntary phase, leaving only Brunei, Laos, Myanmar and Timor Leste exempt due to their minimal contribution to global emissions. This level surpasses that of Africa and Latin America (with half the number of countries in the respective regions having signed up), and stands in stark contrast to major economies such as Brazil, China, India and Russia, which remain outside the scheme until 2027.

However, ambition has yet to translate into readiness. Based on projected emissions for the first Corsia compliance phase (2024-2026), Asean carriers are expected to account for an estimated 8%-10% of global offsetting requirements, roughly 16 million tonnes to 20 million tonnes of CO2. The problem? Only a handful of projects in the region are currently capable of supplying credits that meet Corsia’s stringent criteria.

While airlines are not required to buy credits domestically, the case for doing so is overwhelming. For developing countries that need international climate financing to meet environmental goals, it makes sense that they should first tap this ready source of financing before looking further afield.

Doing so would retain climate finance in the country to inject much needed liquidity into moribund carbon markets. If carbon project developers and host governments fail to act, net climate finance outflow from the region at a midpoint price of US$30 per tonne could exceed half a billion dollars by the end of 2027. For Malaysia alone, the projected outflow may surpass US$80 million — a not insignificant amount of capital that could instead be channelled towards incentivising domestic project development and invigorating its carbon exchange.

The availability of home-grown Corsia credits would also help lower transaction costs and mitigate risks faced by airlines at a time when the industry is still struggling to recover its pre-pandemic health. According to aviation analyst Brendan Sobie, Southeast Asia has been the slowest region to recover following the Covid-19 pandemic, with the industry facing a “rather bleak” short-term outlook for traffic growth. Adding a multi-million dollar compliance bill for foreign credits — on top of existing financial pressures — is a burden the industry can ill afford as it struggles to meet long-term projections of tripling its market by 2045.

To understand why supply has failed to meet demand, one must look at the origins of Corsia. It is the first global market-based measure designed for a single industry sector to address its carbon emissions. Developed by the International Civil Aviation Organization (ICAO), the scheme aims to achieve carbon neutral growth for international flights by requiring airlines to offset emissions exceeding a set baseline (currently at 85% of 2019 levels) by purchasing carbon credits or using sustainable aviation fuels (SAF). Crucially, it operates as a complement to the United Nations Framework Convention on Climate Change Paris Agreement by seeking to address cross-border emissions that fall outside nationally determined contributions (NDCs).

Although both systems originate from the UN climate agenda, they are governed by different bodies and operate in accordance with their respective rules, criteria and timelines. Corsia Eligible Emissions Units (CEEUs) are a subset of high-integrity carbon credits issued by one of only eight international programmes and adhere to specific exclusions. These technical specifications, which are tightened over each Corsia phase, have ruled out eligibility of millions of carbon credits generated in Southeast Asia.

The impact has been severe. To illustrate, during the Corsia pilot phase (2021-2023), out of more than 1,000 projects issuing credits in Indonesia, only four met the technical criteria, supplying over 800,000 tonnes of eligible credits. After the tightening of eligibility conditions in Corsia’s first phase (2024-2026), none qualified.

Furthermore, to avoid double-counting with NDCs, Corsia credits require formal host country authorisation and corresponding adjustments to national carbon inventories to reflect any transfer of credits between domestic and international compliance ledgers. While developing countries are expected to be the net suppliers of carbon credits in the long term, most are still building the domestic mechanisms needed to authorise international trades. As a result, even the tiny pool of technically eligible credits lacks government approval to be sold for Corsia offsetting.

With the Corsia compliance deadline looming, raising supply to meet demand requires urgent, coordinated action. For Asean governments, this means elevating international climate commitments from being viewed as mainly a statement of political expression to a strategic economic lever.

First, Corsia eligibility requirements should be widely disseminated to carbon market operators. Project developers need to understand the specific criteria and, crucially, the premium attached to meeting high-integrity standards. Corsia-eligible credit prices start at US$18 and are projected to reach as high as US$63 per tonne. This premium includes corresponding adjustment fees payable to host governments, which may be used to strategically target new investments in the carbon sector. By contrast, the annual average MSCI Global Carbon Credit Price Index in 2025 registered just US$3.5 per tonne.

Second, silos must be broken down. In Asean, Paris Agreement commitments typically reside with environmental ministries while Corsia falls under transport. These portfolios are often viewed in isolation, leaving Corsia requirements out of long-term national climate transition planning. To capitalise on this opportunity, governments must create inter-ministerial task forces to ensure alignment.

Third, if climate financing is not to flow out by 2027, countries must expedite the development and publication of transparent authorisation processes for Article 6 trades. Project developers need certainty and a clear timeline to seek authorisation. Without it, bankable projects will miss a critical deadline. The next compliance window — the second phase of Corsia — will not close until the end of 2030. Waiting until then means ceding three years of potential investment and economic activity.

Finally, every country should conduct a cost-benefit analysis to understand the full picture. On one hand, there is the risk of climate finance leakage. On the other, there is a clear opportunity to develop and grow a new economic sector. Corsia compliance should not be viewed narrowly as a sector-specific issue but should be integrated into national economic development planning. This means shaping trade and investment policies that anticipate the future cost of carbon and actively courting the investment it can attract.

Countries like Guyana, the first issuer of Corsia-eligible credits globally, have used this market as the very foundation of their low-carbon development strategy, creating new knowledge-economy jobs in the process. While a national strategy of this nature may not fit a country like Malaysia, it remains a viable state-level economic strategy and offers an alternative path forward for smaller Asean nations like Timor Leste.

The Corsia compliance clock is ticking. The question for Asean is no longer whether it will participate in global climate action but whether it will lead it, and reap its economic rewards.

Yap Mun Ching is chief sustainability officer of AirAsia. She chairs Malaysia’s Corsia Task Force and is a technical expert of the ICAO Committee for Aviation Environmental Protection Working Group on Corsia. Yap also co-hosts Positive Altitude, AirAsia’s podcast on aviation sustainability.

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