What a Signature Costs

By Bay St. Clair, Associate, Entoro

Credits transferred under Switzerland's Article 6 agreements have commanded a substantial premium over the voluntary carbon market. KliK, the foundation responsible for procuring international mitigation outcomes for Switzerland, paid an average of roughly $30 a tonne for Article 6-aligned units in 2023. Broad voluntary-market credits, by comparison, have recently averaged closer to the mid-single digits.

The spread is often described as an integrity premium, the market paying more for a unit that has been authorized by the country where the reduction occurred and protected against double counting through a corresponding adjustment. That explanation is not wrong, but it describes the buyer's motive and says much less about the seller's.

The more useful question is what the signature costs the government providing it.

The answer helps determine how much authorized supply will ever exist, and at what price. And it is not primarily a question about project quality.

The entry the host has to make

When a host country authorizes a mitigation outcome for international transfer and a corresponding adjustment is triggered, that tonne can no longer be counted toward the host country's own climate target.

The reduction still physically occurred inside its borders. What changes is the accounting. For purposes of its nationally determined contribution, or NDC, the country gives up the benefit of that mitigation outcome and must make up the difference elsewhere if it is needed to meet the target.

That is more than a reporting formality. It creates an economic commitment with a potentially measurable cost: whatever additional mitigation the country may need to undertake because the original tonne was transferred abroad.

The Article 6.2 guidance rules adopted at COP26 in Glasgow also closed an important loophole. Corresponding adjustments can apply to authorized mitigation outcomes whether the underlying activity falls inside or outside the sectoral scope of the host country's NDC. Moving a project outside the target boundary does not automatically make the authorization free to the national account.

Which means cheap abatement is not automatically for sale

Once authorization is understood as the use of national compliance headroom, the incentives facing a host government change.

The cheapest reductions in an economy are often the ones a country most wants to preserve for meeting its own target. Selling them internationally may generate revenue today, but it can force the government to replace them later with more expensive mitigation.

That is why host-country guidance increasingly focuses on marginal abatement costs, opportunity-cost pricing and the risk of overselling. Some governments restrict transfers from activities already needed for their unconditional NDC. Others identify activities outside that core pathway, charge authorization fees, limit transfer volumes or require prices high enough to compensate for the mitigation that may have to be replaced.

That changes an assumption inherited from the old offset market.

The traditional logic was straightforward: abatement is cheaper in developing economies, so capital should flow there and the tonnes should flow back. Under Paris accounting, however, the cheapest domestic abatement may also be the mitigation a host country has the strongest reason to keep.

A low-cost tonne is therefore not automatically a low-priced export.

The spread is an opportunity cost

Singapore's first tender for correspondingly adjusted nature-based credits makes the economics visible.

Most disclosed bids came in between roughly S$25 and S$55 per tonne, or about US$19 to US$41 at the time, with much of the bidding concentrated around S$30 to S$40. Singapore's carbon tax is S$45 per tonne for 2026 and 2027, with a stated goal of reaching S$50 to S$80 by 2030. Covered facilities may use eligible international credits against no more than 5 percent of taxable emissions.

The comparison is revealing.

Those bid prices cannot be explained by verification expenses or project-development costs alone. They also reflect the scarcity and value of an authorization that allows the unit to enter a compliance system.

Economically, the host country's reservation price should reflect the cost of giving up the tonne, including the marginal cost of replacing mitigation needed for its own NDC. On the other side, the buyer compares the credit with its available compliance alternatives.

The project's cost still matters. But once a corresponding adjustment is attached, it is no longer the only cost that matters.

The signature itself has value.

The constraint does not disappear with scale

The emerging market already shows why authorized supply may remain constrained.

Host countries are increasingly building rules specifically to protect themselves against overselling. Some are limiting which project types can receive authorization. Others are setting transfer budgets or preserving activities required for domestic targets. The concern is straightforward: a country that transfers too much mitigation today may discover later that it needs those same tonnes to meet its own commitment.

Administration is another bottleneck.

The European Union is funding Article 6 capacity-building work in Peru, Tanzania and Sri Lanka to help governments develop the modelling, institutions and procedures needed to participate effectively. Singapore reported eleven implementation agreements by May 2026 while acknowledging that eligible supply remains limited and that carbon projects can take several years to produce credits.

Better infrastructure should make authorization easier to administer. It does not eliminate the underlying economic tradeoff.

As national targets become more ambitious, the opportunity cost of transferring mitigation can rise because more domestic reductions are needed. Falling technology costs, new investment and faster decarbonization can offset that pressure, so tighter supply is not inevitable. But neither should investors assume that authorized supply will expand simply because the market matures.

Every authorization still has to make sense for the country signing it.

The Bottom Line

Underwriting an authorized credit requires more than underwriting the engineering of the project.

The relevant diligence question is not only whether the reduction is real, additional and accurately measured. It is whether the host country can afford to transfer it, whether its NDC leaves room for the corresponding adjustment, how the government values that headroom and whether the authorization will remain economically and politically defensible when delivery occurs.

That introduces a risk the traditional voluntary market rarely had to price directly: sovereign decision-making.

An authorized tonne is not sovereign debt, but part of its value depends on a sovereign choosing to surrender a scarce national accounting asset. That makes the country's NDC trajectory, marginal abatement cost, authorization framework and transfer capacity part of the underwriting.

In that sense, Article 6 is creating something very different from the voluntary carbon market it grew out of.

The project still produces the tonne.

The government determines whether that tonne can leave.

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.