Quantum Commodity Intelligence – The UN climate talks in Baku, Azerbaijan, late last year adopted texts to fully enable the Paris Agreement’s international carbon markets under Article 6. Work still remains to be done, not least on fine tuning the rules and methodologies for the Article 6.4 project-based mechanism, but the move has given much greater visibility on how credits are to be created and traded.
However, just like UN carbon mechanisms in the past, Article 6 brings with it a range of terminology and jargon unique to these markets. Here Quantum attempts to provide some clarity on the meaning of some of these terms.
Article 6
Article 6 allows for voluntary cooperation between countries to help meet Paris Agreement climate change goals outlined in national climate plans known as Nationally Determined Contributions (NDCs), and permits the transfer of ‘mitigation outcomes’ from one country to another.
A mitigation outcome is a unit denominated as CO2 within the NDC that represents a greenhouse gas emission, reduction or removal activity — basically a carbon credit. There are three tools that can be used under Article 6, two market-based (Articles 6.2 and 6.4) and one non-market-based (Article 6.8).
Article 6.2 establishes a market in which countries, or groups of countries, can trade carbon credits known as Internationally Transferred Mitigation Outcomes (ITMOs) through bilateral or multilateral agreements, which are often referred to in UN documents as ‘cooperative approaches’.
Article 6.4, which is also known as the Paris Agreement Crediting Mechanism (PACM), is a project-based mechanism that is often seen as the successor to the Kyoto Protocol’s Clean Development Mechanism (CDM).
Under PACM companies can develop projects that generate carbon credits known as A6.4ERs (Article 6.4 emissions reductions) for trading with other companies or organisations in buyer countries.
The mechanism is supervised by an expert panel called the Article 6.4 Supervisory Body (SBM), which is under the authority of the countries that are parties to the Paris Agreement, known as CMA.
Article 6.8 aims to promote mitigation and adaptation to climate change but without the transfer of carbon credits. This could involve cooperation at the country level and public- private initiatives to support mitigation, adaptation, capacity building and technology transfer.
Article 6.4 Supervisory Body
The SBM is a 12-member panel — and 12 alternates — comprised of experts from countries that are parties to the Paris Agreement tasked with developing and supervising the requirements and processes needed for PACM. This includes developing and/or approving methodologies, registering projects, accrediting third-party verification bodies, and managing the Article 6.4 Registry. It holds a week-long meeting several times a year, usually at the headquarters of the UN’s climate arm in Bonn, although some meetings are held elsewhere.
Two “expert panels” support the SBM — the Methodological Expert Panel (MEP) and the Accreditation Expert Panel (AEP).
The 12-member MEP helps the SBM with the development of methodologies for the PACM. It also provides guidelines and clarifications concerning the requirements for developing projects under Article 6.4.
Specifically, the MEP examines “draft recommendations regarding the development, revision or withdrawal of methodologies, methodological tools, methodological standards, guidelines, and clarifications” for the SBM. It also considers draft recommendations for methods and provides advice and recommendations to the SBM on priority areas that require further guidance.
The seven-member AEP supports the process that approves designated operational entities (DOEs), which validate and verify projects and programmes under the PACM. The AEP supports the SBM by looking at assessments of DOEs to see that they are in line with accreditation requirements for the mechanism.
The AEP also provides advice and recommendations to the SBM on the accreditation requirements for DOEs and ways to improve the approval process.
Corresponding adjustments
Corresponding adjustments (CAs) are a carbon accounting procedure that countries hosting Article 6 projects agree to implement if ITMOS and/or A6.4ERs are transferred to a registry in another country to meet the latter’s climate goals, or for ‘other international mitigation purposes’ than an NDC, such as the Corsia aviation decarbonisation scheme administered by the UN’s aviation agency the Internation Civil Aviation Organization.
The CA is to ensure that the mitigation outcome is not ‘double counted’ by both countries towards their climate goals.
Authorisation
Authorisation applies to both Articles 6.2 and 6.4 and is the backbone for the trading of carbon credits under the mechanisms. Agreements at COP29 for Article 6.2 noted authorisation should cover the ‘cooperative approach’ between the countries involved, the ITMO and all the entities that are involved. An authorisation is viewed as a commitment by the parties involved to make a corresponding adjustment.
Authorisation could be covered by a single document, potentially such as a letter of authorisation (see below) covering all aspects, or could be separate “sequential” authorisations covering the necessary criteria, according to the text approved in Baku.
The same text lists the criteria that must be covered by authorisation, such as the quantity and vintage of ITMOs, names of the participating entities, and a unique identifier for the cooperative approach. It also outlines a process for the potential change to an authorisation.
Under Article 6.4, parties hosting a PACM project authorise A6.4ER by submitting the authorisation to the SBM. If an A6.4ER is not authorised when it is created, the ER is referred to as a ‘mitigation contribution’. The mitigation contribution can be authorised at a later date to be an A6.4ER.
Letter of Approval
Letters of Approval (LoAs) are government-issued indications, but not guarantees, to developers that ‘corresponding adjustment’ accounting procedures will be implemented for carbon credits from an Article 6 project.
LoA can also mean Letter of Authorisation in some countries, meaning fundamentally the same thing, although a letter of authorisation could be interpreted as a step further than just ‘approval’ to cover the authorisation process for the transfer of carbon credits under Article 6 (see ‘authorisation’).
Some countries also provide documentation that ‘endorses’ or has ‘no objection’ to a project, depending on how a host country’s Article 6 regulations are worded. Letter of Intent is also used, often in the context of two countries intending to cooperate under Article 6.
Designated National Authority
Designated National Authorities (DNAs) are the national authority within a country that is tasked with overseeing Article 6 in that nation.
This role covers a range of activities, including approval of projects and authorisation of the transfer of carbon credits. Currently 98 countries have submitted information on their DNAs to the UN Framework Convention on Climate Change.
Designated Operational Entity
A Designated Operational Entity is an accredited company or organisation that will carry out third-party independent audits to validate and verify projects under Article 6. At the first SBM meeting of 2025, Carbon Check (India) became the first DOE to be granted this approval, across a range of sectors for an initial five-year period.
Nationally Determined Contribution
A Nationally Determined Contribution (NDC) outlines the measures and goal of each country that is party to the Paris Agreement to cut greenhouse gas emissions and adapt to the impacts of climate change in line with the agreement’s overall targets.
The first NDCs had to be submitted by 2020 and then every five years, although parties can update NDCs at any time.
First transfer
First transfer triggers the need to apply a corresponding adjustment and is, as the name suggests, the initial transfer of ITMOs from a host country to a buyer country for use to meet an NDC. When an ITMO is to be used for another international mitigation purpose, first transfer can be either the authorisation of the ITMO, the issuance of the ITMO or the use or cancellation.
