August 2025 VCM Updates Section B

This article is an automatically translated version of the original Japanese article. Please refer to the Japanese version for the most accurate information.

Sustainacraft Inc. newsletter. This article is Section B (Trends in major international regulations) of VCM Updates (Voluntary Carbon Market Updates). For inquiries, please contact us here.

This article outlines the key developments in carbon-related policies announced from July to August 2025, covering the following items:

• Paris Agreement Article 6 (6.2) (Bilateral Cooperation)
• Paris Agreement Article 6 (6.4) (Paris Agreement Credit Mechanism)
• National Carbon-Related Policies
• Developments in Non-State Actor Initiatives

Keywords: 6.2, JCM, 6.4 Mechanism, PACM, IC-VCM, CCP, SBTi, Verra, CORSIA

Introduction

There have been several important developments regarding the bilateral framework under Paris Agreement Article 6.2. Regarding JCM, the "Forum for Promoting Business Participation in JCM in Indonesia and Business Matching" was held in Jakarta, where a member of our company also spoke. As for other bilateral cooperation, an announcement was made on the signing of a bilateral implementation agreement between Singapore and Thailand, and Malawi submitted its initial report under Article 6.2. This initial report is required before the authorization and transfer of ITMOs and can be seen as an official declaration of intent by the host country, so these developments need to be continuously monitored.

Furthermore, there have been significant developments regarding the Paris Agreement Credit Mechanism (PACM) under Article 6.4. First, the Supervisory Body adopted criteria for suppressed demand. This was previously introduced in our previous newsletter, where it was decided that the Methodology Expert Panel would recommend these criteria to the Supervisory Body. Moving forward, the development of criteria concerning non-permanence (reversal) is also progressing, and these criteria are scheduled to be discussed at the 8th meeting of the Methodology Expert Panel, planned for early September.

Regarding national carbon-related policies, we will introduce the progress of carbon policies in host countries such as Malaysia, Turkey, South Africa, and Liberia. Political foundations are steadily being laid in each country toward the maturation of carbon markets.

Finally, regarding developments in non-state actor initiatives, we will introduce the IC-VCM's CCP certification for biochar and Improved Forest Management (IFM) methodologies, the release of a trend report by SBTi, and Verra's partnership with leading UK insurer Howden regarding "insurance," a requirement for issuing CORSIA-eligible credits (assessment of compatibility with Verra's CORSIA Label Guidance).

As introduced in this article, CORSIA-eligible credits require the implementation of a **compensation mechanism** in case Corresponding Adjustments (CA) are not made or a LoA (Letter of Authorization) is revoked. While compensation mechanisms vary by registry, they often include insurance contracts. Through this partnership, insurance compatible with Verra's guidance will be clarified and will be listed on Verra's website in the future.

Paris Agreement Article 6 (6.2) (Bilateral Cooperation including JCM)

Bilateral cooperation under Paris Agreement Article 6.2 is a framework for international Carbon Credit transactions aimed at achieving each country's Nationally Determined Contribution (NDC). Developments observed in the past month are as follows:

Holding of the Forum and Business Matching for Promoting Business Participation in JCM in Indonesia (link)

On August 21, 2025, the "Forum and Business Matching for Promoting Business Participation in JCM in Indonesia" was held in Jakarta, where a member of our company also spoke. This forum, co-hosted by Japan's Ministry of the Environment and Indonesian government agencies, aimed to introduce the latest trends such as JCM implementation status, Mutual Recognition Agreements (MRA), and the domestic Carbon Credit system (SPEI), as well as to facilitate the formation of actual projects through business pitches and individual consultations on technologies and solutions in various fields, including waste-to-energy, REDD+, and high-efficiency industrial technologies.

Singapore Signs Bilateral Implementation Agreement with Thailand (link)

On August 19, 2025, Singapore signed a bilateral implementation agreement with Thailand under Article 6.2. The two countries had signed an MoC (link) in October 2022, and negotiations had continued. With the signing of this implementation agreement, preparations for concrete Project development are now complete. Thailand is primarily a country with many energy projects, and the potential for nature-based projects is limited. However, the theoretical potential for Alternate Wetting and Drying (AWD) (rice paddy area) is significant, and within the context of JCM nature-based projects, the development of AWD projects is expected to advance.

Malawi Submits Initial Report under Article 6.2 (link)

On August 12, 2025, Malawi submitted its initial report as stipulated under Paris Agreement Article 6.2. This document is essential for participating in the trade of "Internationally Transferred Mitigation Outcomes (ITMOs)." In this report, Malawi confirmed that it has established the necessary legal framework and institutional arrangements for participating in cooperative approaches, including authorization procedures and a system for tracking and recording ITMOs, and designated the "Biomass Energy for Conservation Programme" (GS-11677), registered with Gold Standard, as its first authorized activity.

As of August 2025, host countries that have submitted this initial report (in order of submission) are Ghana, Vanuatu, Thailand, Guyana, Suriname, Mongolia, Cambodia, Zimbabwe, Maldives, and Malawi. Many JCM partner countries have yet to submit. However, this initial report is required not at the JCM Credit generation stage, but before the authorization and transfer of ITMOs. Therefore, its absence at this stage does not necessarily mean there is a problem. Nevertheless, as this constitutes an official declaration of intent by the host country regarding the authorization and transfer of ITMOs, their submission status needs to be continuously monitored.

Paris Agreement Article 6 (6.4) (Paris Agreement Credit Mechanism: PACM)

Supervisory Body Adopts Criteria for Suppressed Demand (link)

The Supervisory Body of Paris Agreement Article 6.4 has newly adopted "Suppressed Demand" criteria (as introduced in our previous newsletter, where it was decided that the Methodology Expert Panel would recommend these criteria to the Supervisory Body meeting). These criteria aim to include projects that contribute to development, such as improving access to clean energy, as eligible for Carbon Credits, especially in regions where basic needs are not met due to poverty, while also accounting for future Emission Reduction resulting from improved living standards. This is expected to promote climate mitigation projects in developing countries that are compatible with development support, which has previously been difficult to evaluate. The Supervisory Body plans to further develop criteria concerning non-permanence (reversal) in the future.

Holding of the 8th Meeting of the Methodology Expert Panel (link)

The Methodology Expert Panel (MEP) of the Paris Agreement Credit Mechanism will hold a meeting in early September in Bonn, Germany, to discuss new criteria to address the significant challenge of "non-permanence (reversal)" in Carbon Dioxide Removal (CDR) projects.