Supply Bottlenecks in the Article 6 Era and the Survival Conditions for Carbon Projects
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The demand base of the carbon market is shifting. Implementation of NDCs under the Paris Agreement is gaining momentum, and the Carbon Offsetting and Reduction Scheme for International Aviation(CORSIA) will enter its second phase in 2027. Also, companies are increasingly seeking credits with clear provenance and demonstrated mitigation impact that meet international use requirements, rather than simply the cheapest credits available.
Yet the supply of high-quality credits that the market needs is not growing as quickly as expected. Around the world there are abundant opportunities to reduce greenhouse gas emissions, but potential emission reductions do not automatically become tradable carbon credits. Beyond project design and the measurement and verification of emission reductions, projects must also secure host country authorization and, where required, undergo corresponding adjustments before the mitigation outcomes can be transferred internationally.
The supply shortage of the Article 6 era is not a problem of too few mitigation projects. It stems, to a greater extent, from the fact that the institutional and financial architecture needed to convert mitigation potential into credits that can actually be authorized, issued, and transferred has not yet fully matured.
A Carbon Credit Is Not Complete at Issuance Alone
Under the former Clean Development Mechanism(CDM), the core process of a project was to register it under an internationally approved methodology and have its emission reductions verified for credit issuance. Under the Paris Agreement's Article 6 framework, the host country's judgment and responsibility have been substantially strengthened.
Using mitigation outcomes toward another country's NDC under Article 6.2, or applying Article 6.4 emission reductions for international mitigation purposes, requires host country authorization. Corresponding adjustments must also be made so that the same mitigation outcome is not double-counted by both the selling and purchasing countries. By contrast, Article 6.4 emission reductions that the host country has not authorized for international use can instead be used domestically — for example as Mitigation Contribution Units (MCUs) — toward the host country's own mitigation or voluntary contributions.
As a result, mitigation outcomes generated by the same project can differ in market accessibility and value depending on whether they have received government authorization and what purpose they are used for. The competitiveness of a carbon credit is no longer determined by methodology and verification results alone, but by how well it aligns with the host country's NDC strategy, authorization policy, registry, and reporting system.
What the market now needs to confirm is no longer simply "has the credit been issued." It must also ask: "for what purpose was it authorized," "is a corresponding adjustment assured," and "when can it be transferred."
The Paradox of Rising Integrity and Falling Bankability
Strengthening environmental integrity and transparency is essential to restoring trust in the carbon market. Conservative baselines, rigorous additionality demonstration, and enhanced monitoring and verification all help prevent over-crediting and improve the credibility of mitigation outcomes.
However, these tightened standards translate into new costs and risks on the ground. When existing projects transition to Article 6.4 and apply the latest methodologies and more conservative crediting parameters, expected issuance volumes can fall sharply. Upgrading monitoring equipment and data management systems, and providing additional evidence of environmental and social impacts, also add cost. On top of this come registration and verification fees, host country charges, mitigation outcome-sharing requirements, and the cost of corresponding adjustments.
The problem is that credit prices do not necessarily compensate for these added costs and risks. As expected volumes shrink and costs rise, the timing of government authorization and the final transferable volume remain difficult to pin down. Project developers and investors commit capital at the outset, while returns only materialize years later, once credits are issued and sold.
The result is a paradox: the more the market demands high quality, the harder it becomes to develop projects that can meet that bar. If integrity standards are raised without also establishing an economic structure that allows projects to remain viable, the very supply of high-quality credits the market is seeking may shrink further.
Developing Countries Are Not Simply Suppliers
It is also important not to treat delays in host country authorization as a mere administrative issue. Under the Paris Agreement regime, mitigation outcomes are also a significant national asset for developing countries. Once a corresponding adjustment is applied to mitigation outcomes transferred abroad, the host country can no longer count that volume toward its own NDC.
Host country governments must therefore decide which sectors' and projects' mitigation outcomes to transfer internationally, and how much to retain for their own NDC achievement. They must also weigh whether the investment, technology, jobs, and social benefits gained by authorizing international transfer sufficiently outweigh the national burden created by the corresponding adjustment.
This means international mitigation projects cannot remain transactions aimed simply at securing cheap emission reductions. They must be cooperative projects that generate development benefits — such as energy access, health, employment, and ecosystem restoration — in the host country, build local technology and capacity, and share revenue fairly. Only then can host countries approve the international transfer of mitigation outcomes as part of their own climate and development strategy.
A market that regards developing countries merely as credit suppliers is not sustainable. The cooperative approach envisioned under Article 6 can only be realized when purchasing countries and host countries recognize a shared interest.
Four Conditions for Sustaining High-Quality Supply
First, a predictable authorization system is needed. Host countries should clearly define the scope of eligible projects, evaluation criteria, processing timelines, fees, mitigation outcome-sharing ratios, and corresponding adjustment procedures, so that investors can assess the likelihood and cost of authorization before committing to a project.
Second, financing structures that share upfront risk are needed. Payment models that disburse funds only after credits are issued make it difficult to scale projects with high initial capital requirements. Long-term offtake agreements, pre-purchase arrangements, price floors, guarantees, and blended finance can help governments, buyers, and investors share risk more effectively.
Third, the intended end-use market should be determined from the earliest stage of project development. Article 6.2, Article 6.4, CORSIA, and the voluntary carbon market each have different authorization, methodology, vintage, labeling, and use requirements. Rather than developing a project first and searching for buyers afterward, methodology, authorization, and monitoring structures should be designed from the feasibility study stage with the expected buyer and intended use already in mind.
Fourth, the value retained by the host country must be made explicit. This includes reserving a portion of mitigation outcomes for the host country's own NDC, sharing project revenue with local communities, and pairing the project with technology transfer and capacity building. A value proposition that includes social and economic benefits alongside carbon revenue is essential to securing both government authorization and community support.
Integrity and Bankability Must Advance Together
The carbon market has moved beyond an era in which a large volume of mitigation outcomes alone was sufficient for recognition. Conservative crediting, transparent data, environmental and social safeguards, and safeguards against double counting between countries are now baseline requirements for any credit. Yet if projects that meet these higher standards cannot survive commercially, the carbon market will fail to deliver an adequate supply of mitigation outcomes.
The next challenge for the carbon market in the Article 6 era is not simply to raise standards further. It is to complete the supply ecosystem — so that projects meeting these standards can be developed, authorized by governments, verified and issued, and transferred to the markets that need them.
Integrity and bankability are not competing values. Projects without integrity lose market trust; standards without bankability fail to generate real mitigation. Only when both conditions are met can the mitigation potential of developing countries be converted into mitigation outcomes that the international community can trust and use. This is the core condition for carbon projects to survive — and for the carbon market to function as a genuine instrument of climate action — in the Article 6 era.
