Article 6, CORSIA, compliance markets, and country-level carbon analysis

Article 6.2 enables countries to trade carbon credits through bilateral or multilateral agreements. These credits, referred to as Internationally Transferred Mitigation Outcomes (ITMOs), are tracked and reported under a robust accounting framework to avoid double counting.

Article 6.2 offers flexibility and direct negotiation opportunities between countries, often leading to faster project approvals. It’s an avenue for businesses to engage in high-quality projects aligned with national climate policies and corporate sustainability goals.

Article 6.2 enables countries to trade carbon credits through bilateral or multilateral agreements. These credits, referred to as Internationally Transferred Mitigation Outcomes (ITMOs), are tracked and reported under a robust accounting framework to avoid double counting.

Article 6.2 offers flexibility and direct negotiation opportunities between countries, often leading to faster project approvals. It’s an avenue for businesses to engage in high-quality projects aligned with national climate policies and corporate sustainability goals.

Article 6.4 establishes a centralized market mechanism, overseen by the United Nations, to promote sustainable development and emissions reductions. It aims to replace the Clean Development Mechanism (CDM) from the Kyoto Protocol.

Projects under Article 6.4 are likely to benefit from high standards of transparency and robust methodologies. For commercial entities, it provides opportunities to participate in a regulated, globally recognized carbon market.

Unlike the bilateral nature of Article 6.2, Article 6.4 is a multilateral, standardized mechanism governed by a supervisory body under the UNFCCC. It ensures more stringent oversight and global consistency.

Supply/Demand dynamics among A6.2 mechanisms

Policymakers are assessing the complex landscape of international carbon credit transactions, to determine the source of credit generation approaches (supply), aligning them to demand centers and deciding whether to apply corresponding adjustments for any credits depending on use cases.

CORSIA stands for the Carbon Offsetting and Reduction Scheme for International Aviation. It is a global scheme designed to address CO2 emissions from international aviation. CORSIA is the first global market-based measure for any sector.

CORSIA aims to reduce emissions from international aviation in a harmonized way that minimizes market distortion. It achieves this by offsetting the CO2 emissions that cannot be reduced through technological advancements, operational improvements, and sustainable aviation fuels.

The supply of EEUs for the First phase in its early stages remained very limited. As of October 2024, only 7 million fully authorised First phase credits are available, originating from an ART project in Guyana.

Millions of credits from other registries are eligible under ICAO’s criteria but have not received LoAs from their host countries, making them ineligible for the First phase. The limited supply raises concerns about whether CORSIA will function effectively as a market instrument.