Article 6 Of The Paris Agreement Decoded: A Guide For Non-aficionados Of Carbon Markets

The European Union's recent provisional agreement to cut emissions by 90% by 2040, allowing Member States to use international carbon credits for up to 5% of their emissions, is sparking renewed interest in carbon credits, and paving the way for greater engagement with the Paris Agreement framework.

Meanwhile, across the Atlantic, the Trump administration has moved in the opposite direction, announcing several weeks ago its intention to withdraw from the United Nations Framework Convention on Climate Change (UNFCCC). The convention underpins the international climate regime, including the 1997 Kyoto Protocol and the 2015 Paris Agreement, and provides the institutional framework for the Conference of the Parties (COP).

As 2026 gets under way, the international climate landscape is shifting, with growing attention on the mechanisms of the Paris Agreement that are now moving from design to operational implementation. More specifically, the promising p 6 of the Paris Agreement establishes the framework for international carbon credit trading. Under this p, countries that reduce emissions beyond their nationally determined contributions (NDCs) may convert the surplus reductions into tradable carbon credits, which can be transferred to other countries seeking to meet their own targets. The mechanism is intended to lower global abatement costs while encouraging voluntary international co-operation.

After a decade of technical and political negotiations at successive COPs, p 6 is finally set to become fully operational, drawing growing interest from both investors and prospective host countries for carbon projects.

Law-wise, the documentation for carbon transactions under p 6 is currently ad hoc and tailored to each transaction, as no market standard documentation exists that addresses all specific features of p 6. As a result, to legally secure their transactions, the parties are conducting more negotiations and are increasingly seeking legal advice from external counsel to guide them through the various legal implications of long-term projects, including all life-cycle events that could arise in carbon markets. These include changes in legislation, force majeure, representations and warranties, events of default, and termination events.

Given the complexity of the Paris Agreement's technical architecture, this p outlines the main aspects of carbon market trading mechanisms established under p 6.

Unpacking core principles of the Paris Agreement

Market mechanisms under p 6 of the Paris Agreement

p 6 of the Paris Agreement is often wrongly described as a single mechanism. In practice, it encompasses two distinct transaction modalities for carbon credits:

• p 6.2 (Cooperative Approaches) – It establishes a decentralised mechanism in which countries enter into bilateral or multilateral agreements to exchange carbon credits. Participating parties are free to design carbon-credit standards adapted to their national circumstances, provided they still meet the minimum requirements set out by the p 6.2 framework. To embed integrity safeguards within the system, participating parties must comply with reporting requirements to the UNFCCC Secretariat. As of 15 December 2025, 108 bilateral agreements between 64 different countries have been signed under p 6.2.
• p 6.4 (Paris Agreement Crediting Mechanism, PACM) – It establishes a centralised UN carbon marketplace and registry in which participating parties (either countries or private sector entities) can trade carbon credits, known as p 6.4 Emission Reductions, (A6.4ERs). The PACM, overseen by the Supervisory Body (SBM), aims to create an international carbon market, similar to the private standards found in the voluntary market, but following registration processes, standards and methodologies approved by the UN. The PACM is the successor to the Clean Development Mechanism (CDM) established under the Kyoto Protocol. Accordingly, the first activities registered under p 6.4 are those transitioning from the CDM. As of 15 January 2026, over 1,000 projects are in the pipeline to transition from the CDM to p 6.4.

Together, p 6.2 and p 6.4 of the Paris Agreement provide market-based approaches through which countries can collaborate to achieve their climate goals. The choice between these mechanisms will depend on the preferences and criteria of the participating parties and entities, including transaction costs.

Key concepts underpinning p 6 of the Paris Agreement

The ecosystem surrounding p 6 is based on various concepts created specifically to address the intrinsic challenges of carbon credits, namely transparency, accountability, and credibility, as well as clearly defined international responsibilities. p 6 put in place different notions that are essential to a full understanding of its framework.

• Nationally Determined Contributions (NDCs) – As set out in p 2, the Paris Agreement seeks to limit the rise in global average temperature to well below 2°C above pre-industrial levels. To that end, the Paris Agreement is built around the system of NDCs, under which each Party voluntarily defines its GHG emissions reduction targets, and the policies intended to deliver them. The NDCs must be updated and submitted to the UNFCCC Secretariat every five years.
• Transparency – p 13 of the Paris Agreement establishes a so-called "Enhanced Transparency Framework" (ETF) which sets out reporting requirements for countries. In short, countries must provide information on their progress towards their NDCs, and support provided or received in the areas of finance, technology transfer, and capacity-building. This information is subject to a technical expert review.
• Internationally Transferred Mitigation Outcomes (ITMOs) – Generally speaking, an ITMO refers to carbon credits that are internationally transferred under p 6. ITMOs can be used by parties towards their NDCs or other international mitigation purposes. This concept is closely linked to the one of "first transfer" which occurs when a host country officially authorises an emission reduction to be transferred out of its account as an ITMO. This first transfer triggers the requirement for a corresponding adjustment to ensure there is no double counting.
• Corresponding Adjustments – In theory, the principle is straightforward: countries must apply a "corresponding adjustment" to ensure that GHG emissions reductions are not counted by both the transferring and the acquiring parties. In practice, however, the accounting system is more complex. It requires signatories to the Paris Agreement to clearly define their NDCs, and to establish an effective recording system, under which the host country transferring ITMOs deducts the relevant volume from its own NDC balance, while the acquiring country applies an equivalent addition to its own NDC emissions target.
• Authorisation – Last but not least, authorisation is a central legal instrument under the Paris Agreement empowering host parties in the implementation of p 6 mechanisms. This concept has been the subject of extensive debate at successive COPs, culminating at COP29 in Baku in 2024, with the setting up of three distinct forms of authorisations. Host parties are required to formally authorize (i) the Cooperative Approach, typically materialized through bilateral agreement or policy decision (in the context of p 6.2), (ii) the transfer and use of ITMOs (or authorised A6.4ERs in the context of p 6.4), thereby acting as a watchdog against double counting and ensuring the accuracy of NDC accounting; and (iii) the participation of entities in the carbon market, allowing host parties to retain a degree of oversight over private sector involvement.

The evolving landscape: where we stand now

After the adoption of the p 6 rulebook at COP26 in 2021, the recent COP30 in Belém in 2025 marked a shift from negotiating the rules and framework to operationalisation of p 6. This transition has begun to deliver the first outcomes of the early implementation, while also exposing the challenges that remain in building an effective and attractive UN carbon market.

Firstly, COP30 drew up an initial assessment of the first cycle of technical reviews conducted by the p 6 Technical Expert Review Teams, which highlighted inconsistencies between the reporting requirements of p 6.2 and the implementation practices of various countries to date. In response, parties asked the UNFCCC Secretariat to provide targeted capacity-building support in areas where gaps and inconsistencies were identified.

Secondly, in addition to the implementation gaps identified in p 6 mechanisms, several core challenges must still be overcome to unlock the full potential of p 6.

On the sell side, host countries are developing domestic p 6 frameworks to regulate carbon markets activities, exercise greater control over credit issuance and attract investment by providing regulatory certainty. A central challenge for host countries is to calibrate regulation that is sufficiently robust to guarantee credits quality and support pricing, without becoming too restrictive to discourage the development of projects. Exporting countries must also be cautious not to oversell carbon credits, as this could undermine their own NDCs.

On the buy side, investors also seek clarity on regulatory framework and pricing and are increasingly pursuing authorisation for corresponding adjustments from host countries in order to secure a credit price premium. Mirroring the risks faced by exporting countries, acquiring countries must also be careful to not over-rely on credits and thereby transfer their climate responsibilities to other countries.

Momentum is building in carbon markets as a new development phase is shaping. The future holds great promise, with carbon credit supply projected to rise from 243 million tons in 2024 to 2.6 billion tons in 2030 and 4.8 billion tons in 2050, reflecting renewed confidence in the market. This trend may place even greater emphasis on p 6, which is increasingly seen as a sine qua non for achieving the goals of the Paris Agreement. As the carbon markets are set to boom, legal documentation is becoming more sophisticated, and particular attention must be given to ensuring that the negotiated framework adequately addresses the specific needs and objectives of all parties.

References

1. European Council "2040 climate target: Council and Parliament agree on a 90% emissions reduction" (December 10, 2025)
2. The White House "Withdrawing the United States from International Organizations, Conventions, and Treaties that are Contrary to the Interests of the United "States", (January 7, 2026)
3. Decision 2/CMA.3 "Guidance on cooperative approaches referred to in p 6, paragraph 2" (2021) and Decision 4/CMA.6 "Matters relating to cooperative approaches under p 6.2" (2024)
4. UNEPCCC, p 6 Pipeline
5. UNFCCC, "Recommendations relating to the areas for improvement identified during the technical expert review of the Party's initial report" (May 21, 2025)
6. Bloomberg NEF, "Long-Term Carbon Credit Supply Outlook 2025" (August 26, 2025)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.