Domestic implementation key to Article 6-led financing for Asia Pacific amid growing trade barriers: EcoSecurities | News | Eco-Business

Amid the global climate finance shortfall that will likely increase due to ongoing geopolitical volatility and resultant trade restrictions and tariffs, Article 6 of the Paris Agreement could provide a framework to help countries meet their climate targets and unlock well-needed capital through carbon markets without the financial strain, according to EcoSecurities, an environmental services provider.

With the planet requiring some US$7.4 trillion in climate finance annually by 2030 to maintain Paris-aligned pathways – and emerging markets as well as developing economies in Asia needed at least US$1.1 trillion annually for climate-related investments – it can be said that Article 6 is well-positioned to support the low-carbon transition in the region.

Pedro Carvalho, head of policy and markets at EcoSecurities, noted that the announcements present an opportunity for Asia to meet its climate targets through carbon markets.

“Amid ongoing geopolitical shifts and international development budget cuts, carbon markets offer a way to attract capital investments, especially as liquid capital becomes scarcer, and state budgets tighten,” Carvalho said.

Last year’s COP29 delivered the “Article 6 Rulebook”, which included guidance on key operational elements of Article 6, such as Letters of Authorisation, and the establishment of the Paris Agreement Crediting Mechanism (PACM) under Article 6.4, the UN-sponsored carbon crediting mechanism.

These outcomes are significant not only for international cooperation but also for developers and companies involved in carbon project development as they create the enabling conditions for international carbon markets to flourish, Carvalho added.

Opportunities for Asia’s carbon markets

With existing independent standards like Verra and Gold Standard in place, developers can soon opt for PACM to develop projects, as it allows host countries more flexibility to shape specific methodologies in line with their national climate targets.

“Though not yet fully operational, we have the Article 6.4 mechanism to consider. This provides another option for developing carbon projects, whether for adjusted or non-adjusted carbon credits,” he said.

There will be greater focus on domestic implementation following the conclusion of the Article 6 Rulebook, Carvalho added, which requires countries to develop policies and regulations aligned with UN guidelines to extract benefits from their engagement with the mechanism.

Japan, South Korea, and Singapore have implemented relevant policies and strategies to enable cooperation under Article 6. Being on the demand side of the mechanism, each of these countries has varying strategies for acquiring ITMOs.

In addition, these countries, along with Bhutan, Cambodia, Laos, Malaysia, Pakistan, Papua New Guinea, and the Philippines, have been collaborating or planning bilateral collaboration under Article 6.2 of the Paris Agreement to enable the transfer of mobilisation of climate finance and ultimately the transfer of ITMOs, thus supporting regional cooperation in carbon markets and climate finance.

“With its immense mitigation potential, the operationalisation of Article 6 of the Paris Agreement can be a critical lever to enable Asia Pacific’s transition to a low-carbon economy,” a spokesperson from Singapore’s Ministry of Trade and Industry (MTI) told Eco-Business.

The spokesperson highlighted that countries tapping into opportunities under Article 6 can harness the economic and social benefits for the region, including investments, job creation, and sustainable development.

By 2030, carbon market activity in Southeast Asia could create some US$10 billion in economic opportunities annually, with such growth driven by demand for expertise in carbon services, project development, and carbon financing.

The MTI spokesperson added that nature-based solutions will be a key growth area for APAC following Article 6 announcements, as the region is home to vast natural capital, such as tropical rainforests and mangroves.

Singapore, for one, has signed numerous memorandums of understanding (MOU) with countries that lack formal frameworks, such as Papua New Guinea. These MOUs serve as a groundwork for subsequent implementation agreements that could help mobilise capital even before comprehensive policies are in place.

The city-state also launched its first tender for carbon credits in March, attracting over US$1 billion in submissions.

Implementation challenges

Despite these opportunities, fragmented standards across countries remain a barrier to Article 6 implementation within carbon markets.

With Article 6.2 implementation, host countries may find it challenging to strike the right balance between creating a market-friendly framework that attracts international investment and protecting national interests.

For instance, while larger and more developed nations like Indonesia can design tailored systems, countries with fewer resources like Laos may need to balance ambition with feasibility. Flexible and locally appropriate solutions, Carvalho added, will help Article 6.2 operationalisation.

For Singapore, the approach under Article 6.2 leverages voluntary carbon market infrastructure, using established methodologies from Verra and Gold Standard for project crediting.

Another major challenge in Article 6 implementation is ensuring that carbon credit authorisations for corresponding adjustments align with national priorities and NDCs. Poorly managed authorisations can undermine national targets, making it important for countries to integrate Article 6 policies within their legal and strategic frameworks.

“Without a strong, clear, and actionable NDC, it becomes impossible to determine whether projects genuinely support national ambitions. Engaging with Article 6 without this foundation is unlikely to yield positive outcomes,” Carvalho said.

Nevertheless, Asia Pacific appears to be progressing faster than other regions on Article 6, benefitting from stronger institutional support.

Multilateral development banks (MDBs) like the Asian Development Bank (ADB), Carvalho explained, are actively supporting Asia Pacific through initiatives such as the Climate Action Catalyst Fund, which is already being deployed to help national governments engage with Article 6.

Other notable developments in the region include Thailand, which conducted the world’s first Article 6 ITMOs transfer in January 2024 to Switzerland. Pakistan also recently announced Carbon Market Policy Frameworks at COP29, while Sri Lanka published its positive and negative list for project activities across six sectors eligible to generate credits under Article 6.

In February this year, South Korea announced its plan to revamp the process for acquiring Article 6 carbon credits to streamline the country’s engagement strategy to address the current lack of scalability, project size, as well as host-country policy readiness. Japan, on the other hand, is expected to build on top of its Joint Crediting Mechanism (JCM) to align with Article 6 requirements.

Carvalho expects more capital to be deployed into feasible projects within Asia Pacific this year. He added that governments that are transparent about their plans and active in creating roadmaps, as well as working groups, are better positioned to manage expectations and attract climate capital.

Carvalho also noted that investment decisions must consider other indicators in the absence of policies, such as the overall transparency of national governments to build trust and enable the engagement of developers, investors, communities, and those within the government, from the outset.

Article 6-led financing

COP29 also highlighted the growing role of compliance carbon markets in mobilising climate finance, with Article 6 emerging as a key enabler. A major announcement was the New Collective Quantified Goal (NCQG) of raising US$300 billion annually by 2035, and the goal of mobilising up to US$1.3 trillion annually by then to support developing nations in addressing climate change. While this marks a step forward, there is still a large financing gap.

Climate finance mobilisation will be a central topic for COP30 in Belém, Brazil, with the presidency seeking pathways to build the roadmap for mobilising the pledge made in Baku, Azerbaijan. Recently, the COP30 Presidency launched the Circle of Finance Ministers that will support the “Baku to Belém Roadmap” and has clearly defined that private-sector capital mobilisation and stronger regulatory frameworks as key strategic priorities of the initiative, which could foster the role Article 6 can play in supporting the achievement of NCQG.

Earlier this year, the United States exited various international climate commitments, including the Paris Agreement, and the Network for Greening the Financial System, which is a global network of central banks and financial supervisors promoting climate risk management. The US also withdrew from the Loss and Damage Fund, which is a global financing mechanism designed to support vulnerable developing countries in addressing the irreversible impacts of climate change.

The governments of the United Kingdom, France, and Germany have also announced various budget cuts towards international development cooperation, which could affect climate finance flows, infrastructure investments, and capacity-building efforts in Asia.

While carbon markets can facilitate emission reductions and capital flows, their alignment under blended finance approaches would help to scale investments, with public funds made available to bear potential first losses, thus mitigating project risks and enabling participation of private finance, Carvalho noted.

“This requires robust investment frameworks, clear taxonomies, and readiness to identify and foster the right projects to instill investor confidence,” he said.

Singapore has pledged up to US$500 million in concessional funding to support the Financing Asia’s Transition Partnership (FAST-P), a blended finance initiative aiming to raise US$5 billion for Asia’s green transition, by bringing MDBs, sovereign partners, philanthropic organisations, and the financial sector together.

The MTI spokesperson said this initiative is gaining momentum, with Australia announcing a A$75 million (US$47 million) contribution to FAST-P in December 2024.

“We will continue to support our fellow developing countries in other areas like capacity-building,” noted the MTI spokesperson, adding that through the Sustainability Action Package (SAP), Singapore has trained over 1,400 government officials in carbon market development, green project management and financing, and resilience-building strategies.

The NCQG, which tripled its previous climate finance target of US$100 billion, aims to align financial conditions to better mobilise capital to support developing nations.

If Article 6 is integrated into NCQG, buying countries may be more willing to invest, as their contributions can help to meet these targets, Carvalho said. This, he added, is because carbon markets offer a debt-free alternative, allowing host countries to generate revenue and benefit from technology transfers without repayment obligations.

“Ultimately, if we’re serious about mobilising US$300 billion annually without loans, [then] carbon markets offer a pragmatic and beneficial solution,” he noted.