Clearing the Sky with Green Aircraft Financing and Leasing in the United Arab Emirates
Transport & Insurance Focus
In 2023, the UAE rolled out its General Policy for Sustainable Aviation Fuel (SAF), aiming to reduce emissions and make the aviation sector more sustainable.
Law Update: Issue 376 – Transport & Insurance
Bushra Abu TayehSenior Counsel,Transport & Insurance
Ameen Kim Associate, Transport & Insurance
The United Arab Emirates (UAE) is charting a bold course toward sustainable aviation with initiatives, especially through its General Policy for Sustainable Aviation Fuel, setting a clear direction for reducing emissions in one of the world’s busiest aviation hubs. As ICAO’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) requirements push airlines to mitigate their environmental impact, the integration of green financing and leasing strategies has become more crucial than ever. By embedding terms that prioritize Sustainable Aviation Fuel (SAF) usage and compliance with international standards, lease agreements can serve as powerful drivers of sustainability. This article will discuss the trend of green leasing, highlighting how innovative provisions can help airlines and lessors meet both regulatory and environmental goals.
In 2023, the UAE rolled out its General Policy for Sustainable Aviation Fuel (SAF), aiming to reduce emissions and make the aviation sector more sustainable. The policy sets a clear target: to produce 700 million litres of SAF annually by 2030, with the aim to help the country meet its broader goal of achieving climate neutrality in aviation by 2050.
This initiative comes in response to ICAO's CORSIA, which urges airlines to offset their emissions and adopt greener practices.[1]
Under ICAO's CORSIA, since 2019, air operators with emissions exceeding 10,000 tonnes of CO2 are required to report their international flight emissions annually. These airlines are required to track fuel use for each flight and verify emissions data through third-party audits before submitting it to the state. CORSIA offsetting requirements require airlines to compensate for the increase in their carbon emissions from international flights by purchasing CORSIA Eligible Emissions Units (CEEUs). These units represent verified projects that reduce or remove carbon emissions from the atmosphere, such as reforestation or renewable energy projects.
The first phase of CORSIA (2024-2026) is voluntary, with 126 participating states, including the UAE. CORSIA will become mandatory for all international flights of all states from 2027, with the exception of flights to and from Least Developed Countries (LDCs), Small Island Developing States (SIDS), Landlocked Developing Countries (LLDCs) and states that represented less than 0.5% of global international Revenue Tonne Kilometers (RTK) in 2018[2].
This is a significant duty imposed upon UAE operators, whereby official data reports that UAE national carriers currently serve more than 600 international destinations, including passenger, joint and cargo routes.[3]
Under ICAO's CORSIA, since 2019, air operators with emissions exceeding 10,000 tonnes of CO2 are required to report their international flight emissions annually.
Incorporating CORSIA compliance into aircraft lease agreements for air operators in the UAE requires careful consideration of the CORSIA credit purchase system, where airlines offset their emissions by purchasing and retiring (so that the credits cannot be reused) CORSIA CEEUs. To address this in lease agreements, lessors can include clauses that hold lessees responsible for purchasing and retiring CEEUs corresponding to the emissions generated by the aircraft during the lease term.
Lessees can comply with sustainability targets by selecting and leasing fuel-efficient aircraft models with improved engineering technologies, such as the lines of the Airbus A350 or Boeing 787, which are designed to reduce CO2 emissions and improve fuel efficiency. These next-generation models feature advanced aerodynamics and lighter materials, which may assist lessees meet CORSIA standards and other environmental goals.
Parties to the lease agreement can also agree to provisions that encourage or mandate the use of Sustainable Aviation Fuels (SAF) or other green alternatives to reduce emissions, with potential adjustments made to the CEEU requirements based on the type of fuel used (reducing the need to purchase as many CORSIA CEEUs).
In accordance with ICAO’s mandatory annual reporting standards, lessees of eligible aircrafts should be required to regularly report emissions data through submission of an emissions monitoring plan that should be submitted to the relevant authorities, primarily the UAE General Civil Aviation Authority (GCAA).
To manage the financial aspects, the lease financing agreement may outline how the costs associated with emissions offsetting are handled, either by allocating the responsibility to the lessee or sharing the burden between the lessor and lessee through a green surcharge, which may be included in the agreement to cover the costs associated with meeting sustainability or environmental standards. Additionally, there are a number of options for green financing, which can include green loans and bonds, which are designed to fund projects that reduce carbon footprints. Sustainability-linked loans (SLLs) can provide financial incentives, such as lower interest rates, for companies that meet predefined sustainability targets, like reducing CO2 emissions from aircraft operations.
Incorporating the above provisions will help ensure that both lessors and lessees operate their aircraft in alliance with global and local global sustainability goals, which will soon demand compulsory and uniform compliance.
As the UAE races to set the benchmark for sustainable aviation, innovative financing and leasing models are crucial to meeting both national and international environmental standards. Adherence to the ICAO CORSIA plan through strategic aircraft lease financing agreements not only supports aircraft operators to meet their target with the encroaching inevitable global aviation compliance requirements by 2027, but also correctly pivots the government of the UAE to environmentally responsible aviation practices that will clearing the skies for a greener future in the region, demonstrating that economic growth and environmental stewardship go hand in hand.
Al Tamimi & Co.’s Aviation team has extensive experience in advising airlines and aviation companies in aircraft leasing, finance, sale and purchase transactions in matters of UAE law. In addition, we have rights of audience before the courts across in Bahrain, Egypt, Iraq, Jordan, Kuwait, Morocco, Oman, Qatar, Saudi Arabia, and UAE, as well as local insights have enabled us to represent clients in complex local and multi-jurisdictional claims, defences, and commercial transactions. For further information on this sector or for any inquiries for assistance, please contact our team (https://www.tamimi.com/client-services/sectors/transport-logistics/).
[1]https://www.uaelegislation.gov.ae/en/policy/details/lsy-s-laa-m-lokod-ltyr-n-lmstd-m-fy-ldol#:~:text=Achieving%20the%20goal%20of%20providing,jobs%20across%20the%20value%20chain.
[2] https://www.iata.org/en/iata-repository/pressroom/fact-sheets/fact-sheet-corsia/
[3] https://www.wam.ae/en/article/1432hpr-uae-national-carriers-fly-606-destinations-travel
For further information,please contact Bushra Abu Tayeh and Ameen Kim.
Published in April 2025
