Article 6, LoA, and Carbon Credits: (truly) understanding the intergovernmental framework before acting

Raphael Der Agopian
Jun 13
6 min read

Since COP26, the climate lexicon has expanded with a new wave of acronyms: Article 6.2, Article 6.4, ITMOs, LoA, corresponding adjustments… Yet behind this apparent complexity lies a fundamental structure: these mechanisms do not cover all carbon credits, and were not designed for all actors.

I. A primarily intergovernmental mechanism

Article 4 of the Paris Agreement establishes the obligation for each country to define and regularly update a Nationally Determined Contribution (NDC), i.e., a national pathway for reducing greenhouse gas emissions.

These NDCs rely on technological, political, or sectoral levers that each country chooses independently. However, not all mitigation options are necessarily included: for example, in Indonesia, certain nature-based solutions like mangroves are not always accounted for in the NDC, which limits their value within UN mechanisms.

NDCs are generally split into two parts:

An unconditional component, which the country commits to achieving on its own; and
A conditional component, which depends on international support (financial, technical, or institutional). These conditional reductions can be made available to other countries through regulated transfers.

This is the context in which Article 6 was created, allowing for voluntary international cooperation to help countries meet (or exceed) their national climate goals.

Two mechanisms are derived from it:

Article 6.2, a decentralized mechanism based on bilateral or multilateral agreements between states;
Article 6.4, a centralized mechanism supervised by a UN body, successor to the Clean Development Mechanism (CDM).

Both allow a host country to transfer part of the emission reductions it achieved beyond its unconditional target to another country through internationally recognized carbon credits.

To do so, the host country must apply a corresponding adjustment, an accounting correction to its national greenhouse gas inventory that deducts the transferred reductions, allowing the acquiring country to claim them without double counting.

This adjustment is mandatory for any credit transferred under Article 6.

This framework is particularly critical for regulatory international initiatives: mechanisms like CORSIA (aviation sector) or Singapore’s carbon tax scheme explicitly require that credits come from mechanisms aligned with Article 6 requirements.

However, both mechanisms apply only to credits that contribute to a country’s NDC, meaning that they target international, state-level commitments. They are not required for all carbon projects. In particular, private companies aiming to offset emissions as part of a Net Zero strategy do not need to operate under Article 6 for their offsets to be legitimate.

II. Article 6.2 vs Article 6.4: Two mechanisms, two logics

	Article 6.2	Article 6.4 (PACM)
Type	Bilateral/multilateral cooperation	Centralized UN mechanism
Supervision	States	United Nations (Supervisory Body)
Credits issued	ITMOs	A6.4ERs (if authorized) or MCUs (non-transferred)
CA required?	Yes, for every ITMO	Yes, for exported A6.4ERs only
Methodologies	Flexible (VCS, national, etc.)	Fixed by the UN
Typical use	Bilateral agreements (e.g., Switzerland)	Public registry, compliance-like carbon market

All exported Article 6.4 credits become ITMOs: a 6.4 project automatically falls under the scope of Article 6.2 upon transfer. The reverse is not true: a 6.2 project can exist without any link to the 6.4 framework.

For a country to authorize projects and transfer carbon credits under Article 6, it must meet a high level of readiness, covering legal, technical, and accounting aspects. Requirements include:

A legal framework for Article 6: law or decree specifying rules, competent authorities, and LoA issuance conditions
A detailed NDC distinguishing unconditional and conditional reductions
A GHG inventory aligned with IPCC guidelines
A national system for tracking credits and adjustments
A registry (national or linked to the UN system)
Reports to the UNFCCC (Initial Report and Biennial Transparency Report)
International agreements (Article 6.2) or UN authorization (Article 6.4)

III. What approvals are needed to develop a project?

Contrary to popular belief, it is not necessary to activate Article 6 or obtain formal state authorization to develop a carbon project. A project can be implemented and even issue verified credits in the voluntary market without engaging in intergovernmental cooperation.

Only in certain specific cases, such as when credits are transferred to another country or used in international compliance frameworks like CORSIA, are formal authorizations required. These are mainly two documents issued by the host country, indicating increasing levels of commitment:

A Non-Objection Letter (NOL) is a non-binding document, often used during early project stages. It indicates that the government does not oppose the project. While not a formal approval, it can facilitate discussions with financiers or standards bodies.
A Letter of Authorization (LoA) is a formal, binding approval that confirms the project’s alignment with the national NDC and makes it eligible for international accounting. The LoA is mandatory for any Article 6 project whether under 6.2 or 6.4, and becomes a legal prerequisite for any transfer of credits to another state or to a company within a regulatory framework like CORSIA or Singapore’s tax scheme.

However, while an LoA is always required under Article 6, a corresponding adjustment is not automatically triggered. A country may issue an LoA without committing to a CA, especially when the project:

Remains in the voluntary market
Or is intended for domestic or non-transferable use (e.g., MCU under 6.4)

Thus, an LoA can hold standalone value, beyond Article 6 mechanisms. It reinforces a project’s legitimacy, provides national recognition, and can lay the groundwork for future transition into Article 6 frameworks—without immediately triggering transfers or accounting obligations.

Document	Role	Legal Status
NOL (Non-Objection)	Informal letter expressing no government objection	Non-binding
LoA (Authorization)	Formal approval allowing credit transfer (Art. 6 or enhanced VCM)	Legally binding
CA (Adjustment)	GHG inventory correction for transferred credits	Mandatory under Article 6

All Article 6 projects (6.2 or 6.4) require both an LoA and a CA. But an LoA can exist outside Article 6, especially in the voluntary market, to reassure buyers or integrate with national systems.

IV. What should developers or corporates do?

When a carbon project is developed by a private actor, whether a project developer, fund, or corporate buyer aiming to offset emissions along a Net Zero pathway, engaging with the Article 6 framework may seem like a logical move to enhance credibility. However, it introduces important strategic considerations, particularly related to the corresponding adjustment.

The CA enables an official transfer between countries. Once applied, it deducts the emission reduction from the host country’s NDC so that it can be counted by the buyer country. This secures environmental integrity at the intergovernmental level but for private actors, it often results in reduced flexibility. A project bound by Article 6 becomes exposed to the political discretion of the host country and to the finite pool of conditional NDC reductions. The process of obtaining a CA can also take months or longer, involving UN reporting, registry entries, and bilateral validation.

For a company with voluntary climate goals, this complexity can be discouraging. It also introduces uncertainty: if the host country claims the reduction in its NDC, can a company still use the credit for voluntary Net Zero claims? The answer remains debated, fueling growing caution in the private sector around “CA-tagged” credits.

As a result, many developers are now choosing to structure their projects outside the formal Article 6 framework, while still obtaining a Letter of Authorization from the host government. Even without a CA, an LoA brings substantial value: it confirms national alignment, strengthens institutional credibility, and reassures potential buyers and investors. It also avoids bureaucratic delays, limits political risk, and preserves operational flexibility.

In other words, for many voluntary climate actors, an LoA without a CA can be a balanced and strategic choice offering government recognition without entering into a restrictive intergovernmental framework. This model is particularly relevant for nature-based solutions, private-sector Net Zero initiatives, and pragmatic, high-impact climate contributions.

Conclusion

Article 6 of the Paris Agreement represents a major step forward in structuring international climate cooperation. It offers a legal foundation to prevent double counting, enhance transparency, and support countries in meeting their national commitments. Yet, it remains an intergovernmental mechanism designed primarily for credit transfers between states and bound by complex processes.

In this context, carbon project developers and climate-focused companies must make strategic decisions. Activating Article 6 may open doors to regulated markets and international visibility, but it comes with administrative burdens, legal constraints, and political dependencies.

Conversely, working within the voluntary market supported by a Letter of Authorization but without triggering a corresponding adjustment often allows for faster, more flexible implementation. It aligns with national climate strategies while retaining control over timing and use of the credits.

Understanding these distinctions is essential in today’s evolving carbon landscape. Beyond the acronyms, what truly matters is building high-quality, credible projects that deliver real, measurable contributions to the global climate effort.

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