Two Doors, Two Different Assets

By Bay St. Clair, Associate, Entoro

Last in a series of three on authorization under Article 6

The previous piece in this series ended on an open point: which protections are available, and who ultimately stands behind them, depends heavily on the route a transaction takes under Article 6.

That route is often treated as a detail.

Offering materials and buyer requests regularly refer to “Article 6 credits” as though the label describes a single asset. In practice, Article 6 provides two principal market architectures, Article 6.2 cooperative approaches and the Article 6.4 Paris Agreement Crediting Mechanism, with different rulebooks, counterparties, deductions and paths to authorization.

They are not completely separate. An Article 6.4 emission reduction authorized for international use can enter the Article 6.2 accounting framework when it is first transferred.

For a financier, understanding where a unit starts and how it moves through that system can matter as much as the quality of the underlying project.

Two Routes, Two Rulebooks

Article 6.2 provides the accounting framework for cooperative approaches between countries. Participating governments determine the terms of their cooperation, often through bilateral or implementation agreements, and the host authorizes the mitigation outcomes it is prepared to transfer.

Article 6.2 does not itself create a single centralized crediting mechanism. Cooperative approaches can use different methodologies, standards, registries and activity structures, subject to the accounting, reporting and review requirements established under the Paris Agreement.

Article 6.4 works differently. It established the Paris Agreement Crediting Mechanism, a centralized UN mechanism supervised by the Article 6.4 Supervisory Body. The Supervisory Body develops or approves methodologies, registers activities, accredits verification bodies and oversees the mechanism registry.

One framework leaves more of the architecture to cooperating countries. The other places the crediting process inside a common multilateral system.

Most of the practical differences follow from that.

Who Sits on the Other Side

Article 6.2 activity is growing, but the buying side remains concentrated.

As of October 2026, the UNEP Copenhagen Climate Centre's Article 6 Pipeline recorded 112 bilateral agreements involving 65 countries. Japan accounted for 32 agreements, Singapore for 28 and Switzerland for 20.

Singapore alone estimates that it may use approximately 2.51 million tonnes of ITMOs per year over its 2021 to 2030 NDC implementation period.

Transfers have also moved beyond the pilot stage. Thailand and Switzerland completed the first transfer of ITMOs for NDC use in December 2023, and additional countries have since begun transferring outcomes.

A unit moving through Article 6.2 can therefore depend not only on the host country's authorization, but also on the acquiring country's rules governing what it is willing to recognize or use.

Article 6.4 introduces a different structure.

The first credits under the Paris Agreement Crediting Mechanism were approved in February 2026 for a clean-cooking programme in Myanmar that transitioned from the Clean Development Mechanism.

The credited reductions were approximately 40 percent lower than what the older system would have issued, according to UN Climate Change, reflecting updated values and more conservative calculations.

That difference matters.

The underlying activity did not change simply because it entered the new mechanism. The rulebook changed how much of its mitigation could be credited.

Where the Tiers Are Built In

Article 6.4 units can ultimately take different paths.

If the host country authorizes an Article 6.4 emission reduction for international use, it becomes an authorized emission reduction. Upon first transfer, it becomes an ITMO and enters the Article 6.2 accounting framework, including the corresponding-adjustment requirements.

If the host does not authorize it for international use, it remains a mitigation contribution unit. That unit contributes toward mitigation in the host country and can support purposes such as climate finance or domestic programmes, but it is not an internationally transferred mitigation outcome.

The host country's authorization therefore determines whether an Article 6.4 unit remains a contribution to domestic mitigation or enters the international Article 6 accounting system.

Earlier pieces in this series described a market separating authorized from non-authorized tonnes.

Under Article 6.4, that distinction is built directly into the mechanism and recorded in the registry.

Under Article 6.2, an ITMO is authorized by definition. The relevant distinction is whether a mitigation outcome has entered an authorized cooperative approach at all.

What Comes Off the Top

The two frameworks also differ in what happens before the holder receives the final volume.

Under Article 6.4, 5 percent of issued emission reductions are forwarded to the Adaptation Fund as a share of proceeds. For authorized A6.4ERs, a minimum of 2 percent is also cancelled to deliver an overall mitigation in global emissions.

Headline issuance can therefore differ from the volume ultimately available for international transfer.

Article 6.2 does not impose equivalent mandatory deductions. Instead, participating Parties and stakeholders are strongly encouraged to contribute resources for adaptation and to cancel ITMOs to deliver overall mitigation in global emissions.

The distinction matters in a financing model.

Two activities producing the same gross mitigation can generate different net transferable volumes depending on the framework and transaction structure applied to them.

A model built only on gross issuance can therefore overstate what will ultimately be available for transfer or sale.

Who Stands Behind the Unit

This is the question the previous piece left open.

Under Article 6.2, the core accounting commitments sit with participating governments. Private developers and financiers must look to the cooperative framework, the host country's authorization and their own contractual arrangements to understand what rights they have if something goes wrong.

That can make sovereign policy and the continuing operation of the cooperative approach important parts of the risk analysis.

Article 6.4 adds a different layer.

Its methodologies, registration requirements, verification framework, issuance process and registry are administered under rules overseen by the Supervisory Body. The mechanism also includes formal appeal and grievance procedures.

That creates greater standardization in the crediting process.

But it creates a different source of exposure as well. Changes to methodologies, baselines and mechanism rules can affect the quantity or treatment of credits. The first issuance provides a useful example: applying the newer framework resulted in materially fewer credited reductions than the predecessor mechanism would have produced.

Host-country authorization also remains important. Article 6.4 does not remove the sovereign decision over whether an emission reduction is authorized for international use.

The distinction is therefore not that one route has sovereign risk and the other does not.

Article 6.2 places more of the transaction architecture within cooperation between governments. Article 6.4 places more of the crediting architecture within a common multilateral rulebook.

The Bottom Line

“Article 6 credit” is not a precise description of a single asset.

A mitigation outcome transferred through an Article 6.2 cooperative approach is shaped by the countries involved, the structure they have agreed and the domestic requirements governing its authorization and use.

An Article 6.4 emission reduction is created within a standardized UN crediting mechanism, subject to common methodologies, verification, registry rules and mandatory deductions. Whether it then becomes an internationally transferred mitigation outcome still depends on host-country authorization.

The distinction matters because the two frameworks distribute risk differently.

Across this series, the same theme has appeared in three forms. The economics of authorization depend partly on what the host country gives up. The firmness of that authorization differs between outcomes already transferred and those expected in the future. And the route through Article 6 determines which rules govern the unit, which institutions control key decisions and where a financier must look for protection.

Authorization is therefore where the underwriting begins, not where it ends.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of Entoro, LLC, or any of their respective affiliates. This article is provided for general informational and educational purposes only and does not constitute investment advice, a recommendation, an offer to sell, or a solicitation of an offer to buy any security, financial product, or investment strategy. The information presented is believed to be reliable but is not guaranteed as to its accuracy, completeness, or timeliness. Any forward-looking statements or opinions are subject to change without notice.

Author Bio: Bay St. Clair is an Associate at Entoro Capital, LLC, focused on structured finance, carbon markets, insurance, and renewable energy transactions. He supports financial modeling, due diligence, automation, and valuation work for climate finance and environmental asset securitization projects.

He plays a central role in expanding Entoro’s Natural Capital Securities platform and 1NatCap’s transaction infrastructure. He supports the origination, structuring, and execution of carbon and natural capital securitization projects through the development of Entoro’s automated processes for diligence frameworks, risk-assessment processes, and capital-markets systems required to move projects from initial evaluation through financing and commercialization.

Bay has supported Entoro Insurance Services by preparing research and presentation materials for various carbon credit insurance partnership initiatives. He also worked as a student consultant with CarMax, where he developed a financial and marketing strategy to enhance electric vehicle adoption.

He earned a Bachelor of Science in Commerce with concentrations in Finance and Management from the University of Virginia’s McIntire School of Commerce. He holds FINRA Series 3, 7, 24, 27, and 63 licenses and is a licensed Property and Casualty Insurance Agent in Texas.