Article 6 of the Paris Agreement provides the framework for countries and companies to generate, authorise and trade carbon credits internationally. The intention is to establish UN-endorsed rules for carbon accounting and carbon project quality, thereby ensuring clarity and integrity in both voluntary and compliance carbon markets.
This article summarises some key elements of Article 6, which will impact entities engaging with carbon credits for both voluntary and regulatory purposes.
Article 6.2 outlines rules for transferring carbon credits, known as Internationally Transferred Mitigation Outcomes (ITMOs), between countries. The core principle behind ITMOs is the concept of “corresponding adjustments”, this is essentially an accounting exercise to avoid emission reductions or removals being counted multiple times.
Projects generating these credits may be developed under bilateral agreements between countries or established independently before receiving authorization from the host country. When a country authorises ITMOs, it adds the associated emissions reductions or removals to the emission balance of its Nationally Determined Contribution (NDC). Meanwhile, the acquiring party lowers its emission balance accordingly. While companies buying ITMOs do not make these adjustments themselves, host countries must apply them to ensure that ITMO transfers maintain accurate international emissions accounting.
For carbon credits to become ITMOs, the project host country must “authorize” the credits to be used for specific purposes by issuing a Letter of Authorization (LOA). These purposes typically include:
Authorization does not inherently reflect differences in carbon credit quality. Both authorized and non-authorized credits can represent valid emission reductions. However, authorization significantly affects credits’ eligibility for international or regulatory use.
Countries retain discretion regarding authorization. Some may prefer to claim emissions reductions for their own climate goals rather than authorize international transfer. Furthermore, the process and criteria for authorization vary widely among countries, with some, like Kenya, already implementing detailed frameworks, while many others have yet to establish clear guidelines.
To authorize credits, the host country must issue a Letter of Authorization (LoA). Among other details, an LoA must specify that the country will apply corresponding adjustments, and the purposes for which the credits are authorized.
The general procedure for obtaining and using ITMOs includes:
Article 6.4 establishes the Paris Agreement Crediting Mechanism (PACM), a UN-supervised registry for carbon credits. The PACM will host credits from projects developed under new UN methodologies, as well as projects transitioning from the former Clean Development Mechanism (CDM).
As of March 2025, while new methodologies under the PACM are still under development, the UN has started approving the first projects transitioning from CDM. Credits from these transitioning projects will be among the first available on the PACM registry.
Corresponding adjustments for PACM credits are permitted but not mandatory. PACM credits may be utilised more broadly, including for compliance schemes such as CORSIA. Non-authorized credits, although still valid, face limitations regarding their use.
After negotiations on Article 6 were completed at COP29, countries and project developers have clear rules for how to generate ITMOs. As supply grows, organizations across all sectors will seek correspondingly adjusted and PACM credits due to their alignment with UN requirements.
EcoAct’s Carbon Market specialists can guide you through the complexities of the VCM, including Article 6 rules, UN negotiations, and the evolution of influential frameworks such as the Integrity Council for the Voluntary Carbon Market (ICVCM).
We help build robust carbon credit portfolios based on regulatory and voluntary offsetting requirements, budget constraints, and project preferences. Additionally, we can assess the financial case for engaging in different spot market procurement models or developing carbon projects of your own.
Get in touch with EcoAct experts to navigate the complexities of Article 6 and ensure your company is in touch with the latest guidance on voluntary and regulatory offsetting.
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