Paris Agreement Article 6 (6.2 / 6.4) Periodic Update: JCM and EU CBAM

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

This is the newsletter from Deloitte Tohmatsu Sustainacraft, Inc. In this article, we will report on major developments in carbon-related policies from mid-May to mid-June 2026.

Introduction

The highlight featured this month is how JCM Credits could become a new compliance tool for Japanese companies under the draft EU CBAM regulations. We will examine the underlying assumptions and challenges in our deep-dive article.

The newsletter follows the structure below:

• Policy Trends
  • Paris Agreement Article 6.2 (Bilateral Cooperation)
  • Paris Agreement Article 6.4 (Paris Agreement Crediting Mechanism)
  • National Carbon Policies
  • Non-State Actor Initiatives
  • UNFCCC Registry
• Deep Dive Article
  • JCM Credits and EU CBAM: A New Potential Path for JCM Credits

Keywords: Article 6, Bilateral Cooperation, PACM, JCM, CBAM

1. Major International Regulatory Trends

Paris Agreement Article 6.2

The first international transfer of JCM Credits between Japan and Palau has been completed (Source). This marks a significant practical step for the cross-border transfer of Internationally Transferred Mitigation Outcomes (ITMOs) and the implementation of Corresponding Adjustment (CA) under the Paris Agreement.

Meanwhile, at the UNFCCC SB64 meeting held in Bonn, Germany, challenges were reported regarding delays in submitting the Biennial Transparency Reports (BTR), which serve as the foundation for the Corresponding Adjustment essential for Article 6 transactions (Source).

Paris Agreement Article 6.4

Technical rules for the Paris Agreement Crediting Mechanism (PACM) are being developed toward full-scale operation.

• Approval of New Methodology: The Supervisory Body approved a new methodology for N2O emission reductions in nitric acid production (Source). This is one of the initial methodologies approved under the PACM.
• EU Utilization Criteria: A European non-profit organization has proposed that the EU should adopt a hybrid quality assessment approach based on PACM standards when evaluating international credits for achieving 2040 targets (Source).

National Carbon Policies

Governments are simultaneously strengthening regulated markets and connecting them to international markets.

• 2026 EU ETS Review: Ahead of the 2026 system review, an additional absorption of allowances by the Market Stability Reserve (MSR) (on a scale of 190 million units starting September 2026) was announced. Conversely, there are calls to freeze free allocation benchmarks due to soaring energy prices (Source).
• UK's 7th Carbon Budget: The UK government announced an ambitious target to reduce emissions by 87% by 2040 compared to 1990 levels (Source). Some studies suggest that achieving this will require government subsidies to bring Carbon Dioxide Removal (CDR) prices down to ETS levels.
• Linking CBAM and Article 6: Regarding the proposal to allow EU importers to use Article 6 credits for CBAM fee deductions, analysts estimate a potential demand of 17 million tons per year by 2040 (Source).
• New Zealand Forestry ETS Reform: The New Zealand government proposed a reduction in Forestry ETS levies and further limits on auction volumes. The aim is to balance the management of oversupply risks with the reduction of the burden on forest owners (Source).

Non-State Actor Initiatives

• SBTi "Corporate Net Zero Standard 2.0" (Source): The SBTi released its long-awaited new standard. It introduces the concept of a company's "Ongoing Emissions Responsibility" and clarifies the pathway for using high-quality credits in the process of achieving Net Zero (Source). This is expected to increase alignment between science-based corporate reductions and the use of the VCM.
• Latin American Dominance: Data from May 2026 shows that over 25% of credits Retired in the Voluntary Carbon Market originated from the Latin America and Caribbean region, indicating that REDD+ remains a primary source of market supply (Source).

2. UNFCCC Updates

A total of six important documents were submitted to the UNFCCC Registry this month: three Nationally Determined Contributions (NDCs), one Biennial Transparency Report (BTR), and two Initial Reports under Paris Agreement Article 6.2.

This month, there were no submissions from JCM partner countries. This section introduces the Initial Reports from Peru (PER) and Sierra Leone (SLE), which are noteworthy in relation to Article 6.2.

Peru (PER) - Initial Report

Peru is extremely proactive in utilizing Article 6.2 and has already signed bilateral agreements with Switzerland and Singapore.

• Target: Aims for emission limits of 208.8 MtCO2eq (unconditional) and 179.0 MtCO2eq (conditional) by 2030.
• Article 6 Infrastructure: Peru has established a domestic registry, RENAMI (National Registry of Mitigation Measures), and has legislated the approval process through a Supreme Decree.

Sierra Leone (SLE) - Initial Report

• Sector: Focuses on reducing the consumption of "wood fuel for cooking," which is a primary driver of deforestation.
• Project: Targets the "DelAgua Clean Cooking Project," with an estimated total reduction of approximately 11 million tCO2e over the project period.

3. Deep Dive Article: JCM Credits and EU CBAM — A New Potential Path for JCM Credits?

Introduction

On May 13, 2026, the European Commission published a draft implementing regulation that forms the core of the Carbon Border Adjustment Mechanism (CBAM) (Source). This draft establishes the rules for how carbon prices paid in a third country are converted into a reduction in the number of CBAM certificates to be surrendered—essentially, how to certify carbon costs already paid outside the EU to avoid double payment with CBAM.

With the introduction of this draft regulation, new potential uses for JCM Credits are coming into view. This is because the possibility was indicated that international credits based on Paris Agreement Article 6.2, namely JCM Credits, may be recognized as carbon price deductions under certain conditions. However, the draft sets a cap on their use, and NGOs and industry groups have expressed diverse opinions from different perspectives, which may influence the final adoption of the draft.

In this article, we outline the structure of the draft regulation and interpret some of the feedback submitted during the public consultation that concluded this month to clarify the relationship between CBAM and JCM Credits.