Recent milestone decisions in Article 6 and CORSIA markets have been eagerly awaited and welcomed by carbon market participants. Coupled with tightening global compliance, they represent a significant opportunity for project developers and provide all market participants, including investors and corporate buyers with greater confidence to make decisions – a critical factor to stimulating supply. We discuss the latest developments and present a blueprint to leverage the opportunity.
For carbon market participants around the world, all eyes are on the Article 6 and CORSIA emerging markets in 2025.
Article 6 decisions made at COP29 in November, and Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) credit eligibility decisions made in December signalled a welcome inflection point for the global carbon market.
At COP29, key rules around Article 6 carbon markets were finalised, which will facilitate scaled up collaborative decarbonisation from governments and the private sector.
In the CORSIA scheme, the main decision-making body approved four additional carbon crediting standards for use within the aviation sector’s compliance scheme’s current phase (Phase 1, 2024-2026).
These Article 6 and CORSIA developments have been eagerly awaited and welcomed, and for the former, mark the end of almost a decade of negotiations.
We outlined in a recent article how the carbon markets paradigm has shifted. These new decisions mean that this paradigm shift will continue at pace, as global compliance markets take off armed with the learnings and expertise from the voluntary carbon market (VCM).
Critically for carbon market participants, three important stakeholder groups now have greater clarity on how to move forward with engaging in Article 6 and CORSIA markets. Project developers, investors and corporate buyers can all make decisions with greater confidence – which is critical to stimulating supply.
Leading project proponents have taken note of the scale of the challenge and opportunity and are moving quickly to participate. This includes engaging the market to seek upfront project investment and long-term offtake agreements. Armed with greater clarity, project developers can now better align with these globally agreed frameworks and meet the significant and growing demand from compliance carbon markets around the world
In this article we:
Article 6 of the Paris Agreement is the framework that enables countries to collaborate in reaching their national climate targets. Article 6.2 and Article 6.4 govern the way this collaboration is conducted using market-based mechanisms.
Article 6.2 enables a decentralised market mechanism where countries can work together to achieve their emissions reduction targets and sustainable development goals. This often involves bilateral and bespoke agreements between two countries to trade carbon credits, usually facilitated via a project developer, in-country project partners, and advisory service providers.
Parties to an Article 6.2-related agreement must provide their authorisation at certain steps in the process (see summary table below).
Carbon credits generated under 6.2 are known as ‘Internationally Traded Mitigation Outcomes’ (ITMOs). These credits must be authorised and correspondingly adjusted by the host country government, in order to be used by another party.
Article 6.4 enables a centralised market mechanism that countries can use to trade carbon credits. The UNFCCC Secretariat will manage the Article 6.4 project registry and provide oversight of the mechanism, known as the Paris Agreement Crediting Mechanism (PACM). The PACM is to replace the Clean Development Mechanism (CDM). Only UNFCCC-approved project methodologies are eligible to be used for projects under this mechanism.
Carbon credits generated under 6.4 are called Article 6.4 Emission Reductions (‘6.4 ERs’). It is important to note that 6.4 ERs are not correspondingly adjusted by default. When they are, they will also be called ITMOs.
Note: Corresponding adjustment technically refers to a reconciling action where the host country discounts the abatement from its national accounts, so that the units are not counted by more than one party.
As the name suggests, the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) governs how the aviation industry should decarbonise. There are currently a total of 129 countries participating in this scheme. All international civil aviation flights between these participating countries are covered.
Airlines must report on the emissions from those flights and achieve an 85% emissions reduction target by 2035 from a 2019 baseline. From now until 2033 this baseline is calculated based on the whole sector's emissions. From 2033, it will be calculated based on the sector emissions (85%) and the individual airline’s emissions (15%).
Covered airlines are incentivised to invest in reducing their emissions directly, including through using sustainable aviation fuels (SAF), which we outline in this article. Where they can’t reduce directly, they can purchase eligible carbon credits to reduce their net emissions.
To illustrate the magnitude of this upcoming demand, according to MSCI, the First Phase of this scheme implementation (2024-2026) will demand up to 137 million tonnes of CO2e (including offsets and direct abatement) and the Second Phase (2027-2035) will demand up to 1,299 million tonnes of CO2e.
In 2024, 12 international voluntary crediting registries, including the largest ones (Verra, Gold Standard, ACR and CAR), issued a total of 305 million carbon credits, just a fraction of what will be needed under CORSIA. This is why the scheme updates are expected to have such significant impact towards global supply.
Key decisions pertaining to Article 6 made at COP 29 were in relation to the Paris Agreement Crediting Mechanism (PACM) eligible methodologies and the provisions around obtaining a host party’s authorisation of Article 6 activities and trades.
The concept of authorisation by a host country to allow carbon credits to be transferred to another country or company is a centrepiece of the Article 6 framework. As such, it was a key focus of the COP 29 negotiations.
Table 1 below summarises the key decisions made through that process.
Regarding CORSIA, the key decision made in December 2024 by the International Civil Aviation Organisation (ICAO) Technical Advisory Board (TAB) was to approve four more carbon crediting schemes for eligibility towards CORSIA use.
Gold Standard, Verra, Climate Action Reserve, Global Carbon Council, ART Trees, and the American Carbon Registry are now broadly eligible. There are specifications around excluded units. Units must also be from 2021-2026 vintages for Phase 1.
However, for a carbon credit to be used in the CORSIA scheme, it must be correspondingly adjusted in the relevant host party’s national emissions accounts.
This means that the process for seeking authorisation (all three components) from the host party and assurance that the corresponding adjustment will occur is critical to the success of both the Article 6 market and CORSIA carbon credit market.
The decisions made around Article 6 and CORSIA are independent of each other and significant in their own rights.
However, they are also interrelated for a critical reason: for a unit to be used towards an airline’s CORSIA obligations, the unit must first be correspondingly adjusted by the host country government.
The significance of a corresponding adjustment is that it ensures that the units have not been counted by both the country of origin in their national emissions inventory, as well as by a corporate or another government that has purchased the units for their own use.
In this sense, a unit that has been correspondingly adjusted (i.e., an ITMO) is anticipated to have more value in the carbon credit market than a ‘standard’ voluntary carbon market (VCM) credit.
For this reason, many project developers that have previously engaged in pure-play VCM activities are now seeking to position themselves to operate in Article 6 and CORSIA markets.
However, the biggest barrier to market entry and factor currently limiting supply is the process to obtain authorisation and corresponding adjustments from the host government. Understanding the frameworks, processes and risks around obtaining authorisation is therefore critical for project developers wanting to engage in these new markets.
The latest developments in Article 6 and CORSIA markets, coupled with tightening global compliance, represent a significant opportunity for project developers.
For developers to take advantage of the opportunity, they must understand how to derive maximum value from their projects. This requires a deep understanding of how to position projects so that the credits are be eligible to be sold into these emerging compliance markets.
CORE Markets can assist project developers to do so. Our blueprint involves supporting developers to:
The CORE Markets Advisory team works with leading project developers, investors and corporates around the world. Our unparalleled access to buyers across APAC, and expertise in executing bespoke contracting structures means the team is well placed to support market participant to access these new and exciting global markets.
Get in touch today to see how we can help.
Leveraging the opportunity in emerging carbon markets: A blueprint for Article 6 and CORSIA
Recent milestone decisions in Article 6 and CORSIA markets have been eagerly awaited and welcomed by carbon market participants. Coupled with tightening global compliance, they represent a significant opportunity for project developers and provide all market participants, including investors and corporate buyers with greater confidence to make decisions – a critical factor to stimulating supply. We discuss the latest developments and present a blueprint to leverage the opportunity.
Recent milestone decisions in Article 6 and CORSIA markets have been eagerly awaited and welcomed by carbon market participants. Coupled with tightening global compliance, they represent a significant opportunity for project developers and provide all market participants, including investors and corporate buyers with greater confidence to make decisions – a critical factor to stimulating supply. We discuss the latest developments and present a blueprint to leverage the opportunity.
