Considering the global nature of GHG emissions, mitigation actions can be implemented anywhere in the world. While climate change policies are often perceived as a zero-sum game, in practice everyone benefits from action, regardless of where it takes place. Against this backdrop, Article 6 of the Paris Agreement promotes global cooperation to drive emission reductions beyond what Parties could achieve through independent action alone.
In general terms, carbon credits are units measured in tonnes of CO2eq that can convey a claim to avoided greenhouse gas emissions (GHG) or enhanced GHG removals occurring elsewhere in the world. They represent a reduction of GHG emissions that were originally linked to human activities and can be traded between public or private entities worldwide. Article 6 of the Agreement foresees three different voluntary approaches for transferring or trading emissions between states and private entities, while also promoting sustainable development through carbon market and non-market approaches.
The carbon market approach is described in Article 6.2. It allows the transfer of international mitigation outcomes (Internationally Transferred Mitigation Outcomes, ITMOs) to support the achievement of NDCs’ objectives. ITMOs may derive, for example, from credits of cap-and-trade systems such as the EU Emissions Trading System (EU ETS), from voluntary carbon market standards, or from self-designed approaches, provided they are authorised by the host Party. International cooperation can occur bilaterally or multilaterally, with limited obligations towards the UNFCCC. Monitoring and reporting requirements in this decentralised governance structure can be designed by countries and are relatively light. They include provisions to prevent locking in or increasing existing emissions, as well as methodological tools to ensure transparency, accuracy, completeness, comparability and consistency in emission accounting and contributions to the Paris Agreement goals. Article 6.2 also requires a “corresponding adjustment”, introduced at COP26 in Glasgow. This ensures that the host country deducts transferred emissions from its NDC to prevent double counting. Under this framework, credits can also be purchased by companies. Several States, including Japan, Switzerland and South Korea, have already signed bilateral agreements under Article 6.2.
Article 6.4 establishes an alternative approach that foresees mechanisms to contribute to the mitigation of greenhouse gas emissions and support sustainable development, entailing the possibility for a State or a private company to contribute to mitigation activities in host countries and thus generate so-called carbon credits. The main difference with Article 6.2 is that the Paris Agreement Crediting Mechanism (PACM) is established at the UNFCCC level and is supervised by a body designated by the CMA. This Supervisory Body guarantees the correct functioning of the mechanism, providing a common framework for core principles and scientific guidance by setting up methodologies and MRV processes. This mechanism builds on, but also seeks to improve, the Clean Development Mechanism of the Kyoto Protocol, allowing for some of the old credits to be transferred. Finally, PACM addresses the issue of credit permanence through a safeguard mechanism, the so-called “buffer pool” approach. Under this approach, developers must set aside a reserve of non-tradable credits to compensate for possible reversals if emissions are later reintroduced into the atmosphere.
Comparing the two approaches highlights important differences when it comes to governance, particularly regarding monitoring and enforcement measures. Article 6.2 relies on bilateral commitments with limited central oversight, which introduces a degree of risk due to a potential lack of transparency. In terms of permanence, NGOs report a lack of minimum standards, absence of long-term monitoring and no clear mechanisms for addressing reversals. In addition, the quantity of information that must be reported is relatively vague, and there is no enforcement mechanism in the event of non-compliance. Nevertheless, it requires corresponding adjustments and is subject to the Technical Expert Review (TER) by the UNFCCC. Its flexibility could, in principle, encourage a “race to the top” if Parties choose credits with high-quality standards. On the contrary, the PACM under Article 6.4 addresses issues of transparency, additionality and double counting more robustly, although concerns remain. For example, regarding the permanence of credits, the “buffer pool” does not necessarily match the original quantity of credits, and monitoring may be halted if the risk of reversal is deemed negligible. Both approaches allow a share of proceeds to support adaptation. Under Article 6.4, a portion of revenues is also directed to the Adaptation Fund and to financing the functioning of the Supervisory Body.
Finally, Article 6.8 provides for non-market approaches allowing the implementation of NDCs through mitigation and adaptation actions, capacity-building and finance.
Carbon credits generated under Article 6.2 or Article 6.4 can stem from nature-based or engineered-based projects. Nature-based solutions encompass projects that restore, protect or manage ecosystems while delivering positive co-benefits for society and human well-being. These generally fall into two main types of activities: carbon removals or emission reductions. Removal projects include natural carbon sinks or engineered solutions such as Direct Air Capture with Carbon Storage (DACCS) or Bioenergy with Carbon Capture and Storage (BECCS). Reduction projects decrease emissions relative to a baseline, for example by avoiding deforestation in logging areas or by scaling up renewable energy deployment.
Prices for carbon credit projects remain highly variable. In 2023, low prices of $5.8-6.5/tCO2e were observed for such projects, with further declines in 2024 and 2025 – except for forestry removal projects, which rose to about $15/tCO2eq. In contrast, prices for engineered removals are significantly higher, at around $300/tCO2e for BECCS and $600/tCO2eq for DACCS, reflecting their early stage development and experimental nature. This price disparity also makes it difficult to produce accurate estimates of future prices or assess whether investments in these projects will lead to consistent emission removals. By contrast, nature-based solutions and BECCS markets are expected to grow more rapidly.
In terms of market size, World Bank estimates suggest that independent crediting mechanisms currently cover around 1 billion tonnes of CO2eq. This number is expected to increase as Article 6 mechanisms are implemented more widely. According to the recent estimates by the EU Commission, the EU could purchase credits for around 143 million metric tons of GHG emissions between 2036 and 2040 – equivalent to the current emissions of the Netherlands.
Photo by UNclimatechange
