Article 6: Opportunities for the private sector

Introduction

At COP29, the rules required to operationalise the Paris Agreement’s Article 6 carbon trading mechanisms were finalised, marking a significant milestone in global climate efforts (our publications of COP29 outcomes are available here and here). This development coincided with the warmest year on record, based on six international datasets and confirmed by the World Meteorological Organisation,¹ highlighting the urgency of climate action.

As Parties to the Paris Agreement strive to meet their Nationally Determined Contributions (NDCs), engaging in Article 6 carbon markets has become more crucial than ever. Article 6 enables both governments and the private sector to collaborate through market-based mechanisms to achieve climate targets.

The private sector forms a large part of the delivery apparatus of Article 6, as private sector entities are typically responsible for developing and operating carbon projects and producing carbon credits. Such carbon projects and carbon credits have the ability to access both the Article 6.2 and Article 6.4 frameworks. For private sector entities to effectively engage in these market-based approaches, a clear understanding of Article 6 is essential.

In this guide, we focus on how the private sector can participate in the Article 6.2 and 6.4 carbon markets.

Part 1 covers the key concepts that private sector entities need to understand to participate successfully in Article 6.

In Part 2 and Part 3, we provide further detail on how the private sector can engage in Article 6.2 and 6.4 as a project proponent.

Part 1: Article 6 Key Concepts

What is Article 6?

Article 6 of the Paris Agreement allows Parties to voluntarily collaborate to achieve their NDCs and higher ambition targets. Article 6 provides three avenues (Article 6.2, Article 6.4 and Article 6.8) by which Parties can do so.

What is Article 6.2?

Article 6.2 allows Parties to enter into bilateral and/or multilateral agreements (known as cooperative approaches) whereby emission mitigation taking place in one country (Host Country) can be used by another country (Buyer Country) towards its NDC or to address gaps in meeting other climate goals.

Carbon credits generated by these emission reduction and removal activities are referred to as mitigation outcomes. However, there are different terms for mitigation outcomes, depending on the purpose for which they are used.

What is an Internationally Transferred Mitigation Outcome (ITMO)?

An ITMO refers to a mitigation outcome (with each ITMO representing the removal or reduction of one tonne of carbon dioxide equivalent (tCO2e)) that has been transferred from the Host Country to a Buyer Country. It is necessary for an emission reduction or removal to become an ITMO in order to be used towards NDCs or Other International Mitigation Purposes (OIMP).

What is an OIMP?

An OIMP is the collective term for ITMOs transferred and used for purposes other than achieving a county’s NDC. OIMPs can be used for other international schemes such as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) or the Voluntary Carbon Market (VCM). However, ITMOs must be authorised by the Host Country before they can be used for any of these purposes.

What is the effect of an authorisation?

An authorisation triggers a commitment by the Host Country to apply a corresponding adjustment.

What is a corresponding adjustment?

A corresponding adjustment is the accounting adjustment undertaken by the Host Country transferring the ITMO to ensure that that country’s greenhouse gas emissions inventories reflect a transfer, and double counting does not occur.

For example, where ITMOs are used towards a country’s NDC, a corresponding adjustment ensures that Country A, which exports an ITMO to Country B, does not count the emissions reductions towards its own NDC; only Country B counts the emissions reductions towards it NDC.

How does an authorisation work?

There are three elements of authorisation, being:

1. Authorisation of a cooperative approach
2. Authorisation of the ITMOs
3. Authorisation of participating entities

These three elements can be consolidated into one process. A letter of authorisation (LoA) is the key tool for streamlining the authorisation process for the approval, transfer and use of ITMOs.

A LoA must contain the following information:²

1. Date of authorisation.
2. Details of the authority designated by the Host Country to issue authorisations under Article 6.
3. Details of the authority’s representative, including authority contact information (such as mailing address, phone number and email address).
4. Details of the crediting program under which the project is listed or registered, or under which issuance is expected to occur (such as Verra, Gold Standard or Cercarbono).
5. Project identification details, including location.
6. Authorised use(s) of the mitigation outcomes (i.e. use towards NDCs or for OIMPs).
7. First transfer condition(s), if the ITMOs are intended or can be used for OIMPs; and
8. Commitment by the Host Country to apply corresponding adjustments.

Currently, the UNFCCC Secretariat is working to develop and publish an optional standardised template authorisation document that Host Countries may use to provide the required information. Other organisations such as the Multilateral Investment Guarantee Agency (MIGA) have developed templates in the meantime.³

Are authorisations publicly available?

All authorisations will be made publicly available on the UNFCCC’s Centralized Accounting and Reporting Platform (CARP).

What is a first transfer?

A first transfer refers to the initial transfer of an ITMO from the Host Country to a Buyer Country. It is the first instance in which a mitigation outcome is officially moved or exchanged between the two parties.

It is important to know when first transfer is deemed to take place in relation to an ITMO, because this is the trigger for the relevant countries to carry out a corresponding adjustment. If first transfer takes place at the point of use or cancellation (see below), a Host Country must track the ITMOs until this point so that it carries out the corresponding adjustment at the correct time. 

Where ITMOs are authorised for use towards an NDC, the first transfer takes place on the first international transfer of the ITMOs.

Where ITMOs are authorised for CORSIA or the VCM (i.e. OIMPs) the Host Country can define the first transfer as taking place:

1. At the time of authorisation
2. At the time of issuance
3. At the time of use or cancellation of the mitigation outcome

The timing of first transfer of ITMOs for OIMPs must be clearly documented in the LoA.

What happens if a Host Country changes its mind about trading ITMOs?

Host Countries may change the purpose for which an ITMO can be used for (for example, from being used to achieve an NDC to use towards an OIMP) after the first transfer of the ITMO. However, the purpose can only be changed if the initial authorisation of the use of that ITMO specified the circumstances in which such a change to the purpose could take place and the process that should be employed to manage it.⁴ This ensures predictability and certainty for the acquiring party and seeks to avoid double counting.

Are any Article 6.2 rules still outstanding after COP29, and when will these be agreed upon?

While many aspects of Article 6.2 have been finalised, there are a number of items that are still outstanding after COP29. The operationalisation of Article 6.2 in large part depends on countries developing their own frameworks to participate. In practice, this requires countries to define institutional arrangements to authorise ITMOs, establish processes to comply with reporting requirements, and ensure that Article 6 strategies are aligned with broader national climate targets. Once these frameworks for participation are established, it will be incumbent on each country to decide on what sectors they wish to trade from, in addition to the quantity of, and cost attached to, units to be transferred.

What is Article 6.4?

Article 6.4 is a centralised carbon market mechanism overseen by the United Nations. The Article 6.4 United Nations Supervisory Body (Supervisory Body) manages the Article 6.4 project registry and provides oversight of the mechanism also known as the Paris Agreement Crediting Mechanism (PACM).

In part, the PACM operates as a transition mechanism for clean development mechanism (CDM) projects which were registered under the Kyoto Protocol.

What are credits generated under PACM projects called and do these credits require authorisation?

The terms for PACM credits are Article 6.4 Emission Reductions (A6.4ERs) or Mitigation Outcome Units (MCUs), depending on their use.

An A6.4ER is an offset credit issued for each tonne of carbon dioxide equivalent that is abated or sequestered under a PACM project. A6.ERs can be authorised for use towards a country’s NDC, or for OIMPs.

Importantly, PACM credits can also be used domestically or for the VCM. These units are called MCUs. MCUs are generated under PACM projects but are not authorised for use toward achievement of NDCs or OIMPs, and therefore do not require corresponding adjustments. However, at any point before an MCU is transferred out of the PACM registry, a Host Country may authorise or ‘upgrade’ the MCU to an authorised A6.4ER which can be used towards NDCs or OIMPs (e.g. CORSIA).

Who will manage the PACM registry?

The Article 6.4 registry (the ‘Mechanism Registry’) will be managed by the Supervisory Body. The Mechanism Registry will allow for the retrieval and viewing of data and information relating to holdings and action history of authorised A6.4ERs. It will also enable the transfer of authorised A6.4ERs to the international registry (being the Article 6.2 registry).

The draft Article 6.4 Mechanism Registry guidelines, which were released on 23 January 2025,⁵ set out key components and procedural steps and requirements relating to the functioning and use of the Mechanism Registry.

The draft Article 6.4 Mechanism Registry guidelines also set out the draft fee structure for the Mechanism Registry and, amongst other things, provide that:

• The Mechanism Registry will feature various account types including holding accounts, pending accounts, and accounts for voluntary cancellations.
• Both private and public entities, as well as Host Countries, can open accounts with proper authorisation. Each holding account must be managed in accordance with established guidelines.
• Clear procedures will be provided for the issuance, distribution, and transfer of A6.4ERs.
• Each emissions reduction will receive a unique identifier to ensure traceability and accountability across the registry.

What types of PACM projects can be undertaken?

PACM projects will operate under specific PACM methods. Currently, the only methods that have been accepted under Article 6.4 are adaptations from the CDM. This means that there are no approved methodologies for projects that are not transitioning from CDM projects.

New projects cannot be registered until methodologies have been approved. However, additional guidance has been provided to the Supervisory Body in continuing work on the standards for PACM methodologies and removal activities.

Who will validate and verify PACM projects?

The designated operational entity (being an independent auditor appointed by the Supervisory Body) will select a competent team to undertake validation or verification of PACM projects in accordance with the ‘Article 6.4 accreditation standard’.

What is the standard for the development and assessment of PACM methodologies?

The standard for the development and assessment of PACM methodologies (Method Standard)⁶, which entered into force on 9 October 2024, provides principles and requirements for the development and assessment of general PACM methods. The Method Standard imposes various requirements on PACM methods, including that such methods must:⁷

• Utilise science-based calculations, grounded in the latest information and in accordance with Intergovernmental Panel on Climate Change (IPCC) guidelines.
• Ensure regulatory, financial, and environmental additionality, while avoiding activities that conflict with the goals of the Paris Agreement.
• Set baseline levels that increase over time to drive greater ambition in activities.
• Maintain transparency about the data sources used in calculations.
• Ensure that results are realistic, conservative, and credible.
• Account for uncertainties in emission factors, activity data, and other estimation parameters, in line with IPCC guidelines.
• Address leakage risks by either preventing them or applying credit discounts, and ensure all leakage sources are addressed upon project registration.

It is expected that there will be some overlap with existing VCM methodologies already in operation.

What is the standard for activities involving removals under the PACM?

The standard for removal methodologies (Removals Standard) provides for additional criteria that removal based methods must meet.⁸ Removal activities involve removing greenhouse gases (often carbon dioxide) and storing them in geological, terrestrial or ocean reservoirs, or in products.

Under the Removals Standard, activities involving removals will need to meet a range of monitoring, reporting and post-crediting reporting requirements, including:

• Project participants will need to submit a monitoring plan when registering their project,⁹ which will be reviewed and updated: at the start of each crediting period; according to national requirements; when additional risk factors are identified; and at the request of the Supervisory Body.¹⁰
• For each removals activity, the project developer will need to conduct a risk assessment, and prepare a risk mitigation plan.¹¹ From the percentage-based risk rating (see below), a proportion of A6.4ERs will be transferred to the “Reversal Risk Buffer Pool Account”,¹² from where they may be cancelled to remediate reversals (both avoidable and unavoidable).
• Upon renewal of a crediting period, there will be a mandatory transition to the most current version of the methodology.
• Risk assessments will be conducted every five years to provide participants with a percentage-based risk rating for both avoidable and unavoidable reversals.

What is the Article 6.4 Sustainable Development Tool (Sustainable Development Tool)?

The Sustainable Development Tool is an additional ‘safeguard’ that was adopted by the Supervisory Body. It was developed by the Supervisory Body to create robust social and environmental safeguards for PACM activities and to enable project participants (including developers) to establish possible risks and the likely impacts of proposed activities.¹³

The objective of the Sustainable Development Tool is to ensure that PACM projects uphold the principle of “do no harm”; foster sustainable development; and contribute to the Sustainable Development Goals (SDGs).¹⁴ Broadly, the tool is divided into three key sections: environmental and social safeguard, sustainable development impacts and validation and verification.

Part 2: Undertaking a carbon project under Article 6.2

The following section provides an overview of some of the considerations that are relevant to undertaking a project under Article 6.2.

Identify demand

As provided in our ‘COP29 outcomes’ publication (available here), according to the International Emissions Trading Association reports, as of 21 November 2024, there have already been 51 cooperative approaches (including both signed bilaterial agreements and memoranda of understanding) and 29 letters of authorisation issued.

Currently, Norway, Singapore and Switzerland are preparing to engage in cooperate approaches and purchase ITMOs from Host Countries. Norway, for example, is set to invest more than USD 740 million in purchasing ITMOs from Zambia, Benin, Senegal and Jordan.

As countries continue to publish their NDCs ahead of this month's deadline, the private sector should continue to review countries’ submissions to understand which ones are seeking to achieve their targets with contributions from international credits.

Developing a carbon project(s)

Our previous publication ‘Creating carbon offset units on the voluntary market’ (available here) considers the initial steps that must be undertaken by a private sector organisation to develop and register a carbon project in accordance with one of the voluntary market standards.

Like carbon projects on the voluntary market, project proponents must determine whether there is an applicable methodology under a scheme or standard that can be used to develop a project (e.g. a methodology under Verra or the Gold Standard).

In addition, the relevant scheme or standard must be capable of certifying that the carbon units generated under the project can be used as ITMOs. For example, Verra provides certification labels (known as ‘Article 6 Labels’) to carbon units that have been authorised for use as ITMOs by Host Countries under Article 6.

Project location

Participation in cooperative approaches is constrained to countries that choose to engage in cooperative activities.

For a country to voluntarily engage in cooperative approaches under Article 6.2, it must fulfil certain participation requirements, including that the country must:¹⁵

• Be a Party to the Paris Agreement (project proponents must ensure that proposed projects are to be located in countries that are party to the Paris Agreement).
• Have prepared and communicated an NDC (for the relevant period).
• Have arrangements in place for authorising the use of ITMOs towards achievements of NDCs (project proponents should note that certain countries who are parties to the Paris Agreement, including Australia and Portugal, have indicated that they do not intend to authorise the export of carbon credits).

Project proponents should, in selecting project locations, consider countries that meet the above criteria, noting that some countries are more advanced in their relevant regulatory frameworks than others.

Host Country Authorisation

Before an ITMO can be transferred to the Buyer Country, authorisation must be provided (by way of a LoA), from the Host Country to the project proponent. The process for achieving Host Country authorisation will vary from country to country.

In certain countries, project proponents may need to request an authorisation from the applicable government body. For example, Kenya has developed a template form by which project developers can request the relevant Designated National Authority (DNA) (the Host Country bodies that govern participation by that country in Article 6) to approve an LoA.¹⁶

To the extent an authorisation process has not already been developed in the Host Country (and provided the country has not indicated that it does not intend to authorise the export of carbon credits), project proponents may need to work closely with the Host Country governments to establish authorisation processes. Project proponents, until the UNFCCC has developed a precedent LOA,¹⁷ can use existing templates, such as:

• the LoA developed by the World Bank Group;¹⁸or
• the Article 6 Letter of Authorisation Template developed by Verra (and downloadable on its website),¹⁹

to assist in approaching a Host Country to request an authorisation.

Project developers should note that once a project has been registered there will be ongoing reporting requirements (on both the project proponent and the Host Country). This will require project proponents to work closely with governments.

Initiatives seeking to streamline cooperation between governments and project proponents have already begun. The Government of Singapore, in collaboration with Independent Crediting Programs, Verra and the Gold Standard, has announced it will develop an Article 6.2 Crediting Protocol.²⁰ This protocol seeks to simplify carbon credit transactions for both governments and the private sector. We expect guidance similar to this will continue to be developed by governments and independent carbon crediting initiatives.

Part 3: Undertaking a carbon project under Article 6.4

The following section provides an overview of some of the considerations that are relevant to undertaking a project under Article 6.4.

Identify demand

Similar to Article 6.2 projects, project proponents should continue to review countries NDC submissions to understand which ones are seeking to achieve their targets with contributions from international credits. However, since MCUs can be used domestically, the private sector should also evaluate which countries may be interested in purchasing MCUs or whether there are other demand sources (such as airlines participating in CORSIA).

Development of carbon project(s)

Project proponents seeking to transfer afforestation and reforestation projects registered under the CDM to the PACM, can do so by requesting a transfer no later than 31 December 2025. The request must also be approved by the Host Country DNA and this approval provided to the Supervisory Body by the same deadline of 31 December 2025.

As mentioned above, given that the Supervisory Body still needs to develop and approve PACM methodologies, project proponents are currently not able to formally register projects. However, there is an option of pre--registering a PACM project (see further below).

It is anticipated that project proponents will start to gain clarity on which methodologies can be used to develop a project in the PACM during the course of 2025. The current work program for the Supervisory Body indicates that work will be undertaken on methodologies involving grid connected electricity from renewable sources, thermal energy production, flaring or use of landfill gas, and energy efficiency measures in thermal applications of non-renewable biomass.

Whilst the Supervisory Body will develop new methodologies (referred to as the top down process), project proponents also have the ability to propose methodologies to the Supervisory Body.²¹ The process for submitting a new methodology for approval under PACM is set out on the UNFCCC website.²²

Project location

Similar to Article 6.2, for a country to voluntarily engage in activities under Article 6.4, it must fulfil certain participation requirements, including that the country must:²³

• Be a Party to the Paris Agreement (project proponents must ensure that proposed projects are located in countries that are party to the Paris Agreement).
• Have prepared and communicated an NDC (for the relevant period).
• Have designated a DNA for PACM and communicated that designation to the secretariat.
• Have indicated publicly to the Supervisory Body how its participation in PACM contributes to sustainable development, while acknowledging that the consideration of sustainable development is a national prerogative.
• Have indicated to the Supervisory Body the types of PACM activities it would consider approving and how such types of activity (and any associated emission reductions and removals) would contribute to the achievement of its NDC, long-term low greenhouse gas emission development strategy and long-terms goals of the Paris Agreement (to the extent the last two are applicable).

Currently, it is expected that Article 6.4 projects will be primarily located in developing countries (including South East Asia, East Asia, Africa and South America), and support sustainable development in those nations. Therefore, it is recommended that project proponents seek to understand the type of methodologies that may be suitable in these geographies and start developing relationships in the identified countries.

Pre-registration process

Before proposed PACM projects can be registered, project proponents must undertake a pre-registration process.

As part of this process project proponents must demonstrate that PACM benefits were considered necessary in their decision to implement the project. This is achieved by notifying the secretariat of the intention to seek registration of the proposed PACM project, known as prior consideration notification.²⁴ As at 2 January 2025, 760 prior consideration notifications had been submitted.²⁵ Currently, renewable energy projects represent the most common category, with more than 300 projects being notified.²⁶

Following:

• the publication of the prior consideration notification on the UNFCCC website; and
• the applicable PACM methodology being available,

a project proponent then has one year (from whichever of these events occurred later) to submit a project design document (PDD) using the valid version of the applicable PDD form.²⁷ Once this is published on the UNFCCC website, a Host Country may approve the PACM project to be registered. As there are not yet any approved methodologies, and project proponents cannot submit their PDD without an approved methodology, it is not currently possible to register PACM projects.

Host Country Authorisation 

A Host Country must provide a statement to the Supervisory Body specifying whether it authorises A6.4ERs for use towards either NDCs or OIMPs. The secretariat must, upon receipt of the response from the Host Country, inform the project proponent of the response and publish it on the UNFCCC website.

MCUs (being PACM credits that are generated by PACM projects but used domestically or for the VCM) do not require authorisation. However, a MCU can be authorised by a Host Country at a later date, provided the MCU has not been transferred out of the Mechanism Registry.

Conclusion

Article 6 creates significant opportunities for participation in international carbon markets, particularly for the private sector. By engaging now, companies can start to position themselves as leaders in this emerging market and potentially secure a competitive advantage in relation to the generation and trade of carbon credits.

Consideration should also be given to whether it would be preferable to pursue Article 6.2 or PACM (or both). There are likely to be pros and cons to both. For example, there are shorter term opportunities to participate in Article 6.2, given that existing VCM standards (such as Verra, Gold Standard) can be used for project registration and credit generation, while participation in PACM will not be feasible until methodologies have been developed and approved by the Supervisory Body (with the exception of transitioning CDM projects).

However, longer term, A6.4ERs may be viewed as having higher integrity or status than ITMOs, given they will have been subject to oversight by the UNFCCC. This may, in theory, provide the basis for a price premium for these types of credits. This is to be traded off against a potentially longer gestation period before credit issuance.

How can we help?

The Norton Rose Fulbright carbon markets team has extensive experience advising stakeholders – including project developers, carbon credit purchasers, advisors and intermediaries – in compliance and in mandatory carbon market schemes around the world. We have been closely following the operationalisation of the Article 6 Rulebook and we are well placed to work with you in capitalising on the opportunities presented by Article 6.

We have recent experience of advising clients on securing appropriate LoAs for a variety of carbon projects, as well as a deep understanding of the contractual arrangements required to support the development and operation of Article 6 projects.

If you have questions in relation to this guide, do not hesitate to contact a member of Norton Rose Fulbright’s climate change and carbon markets team.

Useful resources

If you wish to monitor the progress of Article 6, we recommend the following resources.

• UNFCCC webpage, “Article 6 – Cooperative Implementation”, accessible online here.
• UNFCC webpage, “Paris Agreement Crediting Mechanism”, accessible online here. The PACM website includes, among other things, a complete list of all projects that have applied under the Article 6.4 Mechanism, accessible online here.
• Details of the pipeline of projects under the Article 6 carbon trading mechanisms, can be found at the following run database (which is regularly updated): UNEP, “Article 6 Pipeline”, accessible online here.
• IETA webpage, “Visualising Article 6 Implementation”, accessible online here.
• Carbon Pulse has also launched an Article 6 portal which tracks international carbon market developments under the Paris Agreement. The portal is accessible online here (free access can be obtained by registering to the resources portal).