Paris Agreement Article 6 Update: Choosing Host Countries by ITMO Prices

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. This article is Section B (Policy Trends) of our VCM Updates (Voluntary Carbon Market updates).

Introduction

In this month’s highlight (analysis article), we present information on funding, profitability, and contributions that are now required in detail under the India-Japan JCM Operational Manual, along with implications for companies. We will cover the following topics:

• Policy Trends
  • Major International Regulatory Trends
    • Paris Agreement Article 6.2 (Bilateral Cooperation)
    • Paris Agreement Article 6.4 (Paris Agreement Crediting Mechanism)
    • National Carbon-related Policies
    • Non-state Actor Initiatives
  • UNFCCC Registry
• Analysis Article
  • India JCM Manual—Host Countries Choosing Based on the "Price" of ITMOs

Keywords: Article 6, PACM, JCM, India, EU ETS, Clean Cooking

1. Major International Regulatory Trends

The three primary highlights are as follows:

1. Adoption of Clean Cooking Methodologies under Paris Agreement Article 6.4 (PACM): The Supervisory Body (SB) has approved two long-awaited methodologies related to clean cooking and a reversal risk assessment tool. This represents a significant practical step forward for the framework of credit issuance under PACM.
2. Deepening JCM Operations and Institutional Development in Asia and Latin America: Japan has established JCM Operational Manuals with India and Chile. Additionally, the Philippines has issued an executive order directing the formulation of a national carbon market framework, signaling an acceleration in state-led market construction.
3. Discord Among Member States Over EU ETS Reform: Ahead of full-scale operations in 2026 and the progress of CBAM, debates over the balance between industrial protection and climate goals have resurfaced, with Italy and the Czech Republic calling for the maintenance of free allocations and a delay in the introduction of ETS2.

Paris Agreement Article 6.2 Related

This month was marked by Japan reaching agreements on detailed operational rules with partner countries and the emergence of new market players.

• Deepening Operations of Existing Partnerships (Japan)
  • Japan and India jointly released the JCM Manual (Source).
  • Japan and Chile adopted JCM rules and guidelines during the 4th Joint Committee meeting and designated a third-party entity (TPE) (Source).
  • In the Philippines, a public comment period has begun regarding a new ARR (Afforestation, Reforestation and Revegetation) project under the JCM, showing progress in concrete nature-based projects (Source).
• New Bilateral Cooperation and Market Entry Movements
  • Brazil, looking ahead to COP31, has begun negotiations with China as a potential ITMO buyer. It aims to secure carbon finance through ecosystem restoration (Source).
  • In Zambia, a Swiss consultant is recruiting developers for a Program of Activities (PoA) under Article 6.2, continuing Swiss-led project formation in Africa (Source).

Paris Agreement Article 6.4 Related

Regarding Paris Agreement Article 6.4 (the new mechanism: PACM), the approval of methodologies by the Supervisory Body remains the primary focus, as the UN-led carbon market finally begins to move at a practical level.

• Approval of Methodologies and Introduction of Reversal Risk Assessment Tools
  • The UNFCCC has adopted two new methodologies for clean cooking (Source). This allows projects supporting the transition from polluting fuels—a challenge faced by 2.1 billion people worldwide—to generate credits under PACM.
  • Simultaneously, a "reversal risk assessment tool" was adopted to ensure the Permanence of Emission Reductions (Source).
• Debates Over Effectiveness and Integrity
  • Conversely, some developers have expressed concerns that clean cooking projects may be "unviable" under the current PACM methodologies and Buffer Pool settings, highlighting the dilemma between institutional rigor and market revitalization (Source).
  • Furthermore, civil society groups are moving to block the issuance of Article 6.4 credits related to projects in Myanmar due to human rights concerns, indicating that ensuring Integrity remains a critical challenge (Source).

National Carbon-related Policies

Countries are rushing to update their NDCs (Nationally Determined Contributions) and establish domestic Emissions Trading Systems (ETS) and carbon taxes to achieve their 2030 targets.

• Formulation of National Market Frameworks and Entry Plans
  • President Marcos of the Philippines issued Executive Order No. 127, directing the formulation of a national carbon market policy and designating the Department of Environment and Natural Resources (DENR) as the lead agency (Source).
  • Fiji announced a five-year plan aiming for entry into the international carbon market by 2030, positioning Article 6-based trading within its national strategy (Source).
• Political Conflict Over EU ETS and CBAM
  • Italy and the Czech Republic, concerned about rising industrial costs, are calling for a fundamental review of the ETS and a halt to the introduction of ETS2 (the new system for transport and buildings) (Source).
  • The United States is considering the possibility that the EU's CBAM could become a trade barrier and has begun collecting feedback from industry, making it a spark for international trade friction (Source).
• Adjustments to Domestic Systems
  • New Zealand released government endorsement criteria for voluntary nature and carbon markets, aiming to improve the reliability of private investment (Source).
  • Ireland announced a temporary halt to carbon tax increases on home heating oil, prioritizing household support during the energy crisis (Source).

Non-state Actor Initiatives

Initiatives aimed at restoring trust in the Voluntary Carbon Market (VCM) show a dual focus: expanding corporate participation and strengthening market oversight.

• SBTi Expansion and Policy Response
  • The number of SBTi-certified companies has increased by one-third over the past year, surpassing 12,000. It continues to maintain its status as the de facto standard for corporate decarbonization target setting (Source).
  • The UK Government is preparing its response to voluntary carbon credit policies ahead of COP31 (2026), and national-level rules for VCM utilization are expected to be clarified (Source).
• Market Maturity and Challenges
  • Concerns have been raised regarding the ICVCM’s market oversight, particularly slow responses to complaints, calling governance transparency into question (Source).
  • In Asia, movements toward infrastructure development are visible, such as the Korea Exchange partnering with carbon rating agencies to launch into the voluntary market (Source).

2. UNFCCC Updates

Between last month and this month, a total of one report (1 BTR) was submitted to the UNFCCC (United Nations Framework Convention on Climate Change) registry. During this period, there were no new report submissions from JCM (Joint Crediting Mechanism) partner countries. The sole submitting country, Qatar (QAT), submitted its first Biennial Transparency Report (BTR1), demonstrating a positive stance toward the utilization of Paris Agreement Article 6.2 and outlining a path toward achieving its NDC (Nationally Determined Contribution) through CCS (Carbon Capture and Storage) and renewable energy.

BTR (Biennial Transparency Report) Related

Qatar (QAT) - First Biennial Transparency Report (BTR1)

Basic Information

• Document Submitted: First Biennial Transparency Report
• Submission Date: 2026-09-16
• Source: UNFCCC Submissions

1. NDC Targets and Intent to Use Article 6
Qatar has set a goal to reduce emissions compared to its Business-as-Usual (BAU) scenario by 2030. In this BTR1, Qatar explicitly stated its openness to "Voluntary Cooperation" based on Article 6.2. This indicates an intent to promote the introduction of low-carbon technology and sustainable development through the transfer of ITMOs (Internationally Transferred Mitigation Outcomes).

2. Trends in the Forestry and LULUCF Sector
Currently, emissions and removals from the forestry sector (LULUCF) are categorized as Not Estimated (NE) in the inventory. However, Qatar is promoting the "One Million Trees Initiative" as a national strategy and achieved its goal in 2022. It has set a target to conserve 30% of its land and sea areas by 2030, with growing interest in NbS (Nature-based Solutions) such as mangrove conservation in arid regions.

3. Energy and Industrial Sectors
Approximately 90% of emissions are concentrated in the energy sector (oil and gas, electricity, and water).

• Renewable Energy: Goal to meet 30% of peak power demand with renewable energy by 2030.
• CCS/CCUS: Emphasis on deploying large-scale Carbon Capture and Storage (CCS) at LNG facilities and other sites.
• Transport: Aims for 100% electrification of public transport vehicles by 2030.

4. Article 6 Infrastructure and MRV System
With the Ministry of Environment and Climate Change (MECC) as the authorizing body, Qatar is currently developing a domestic registry and ITMO tracking system as part of its national MRV platform. In accordance with the Enhanced Transparency Framework (ETF) of the Paris Agreement, the implementation of Corresponding Adjustments (CA) is also under consideration.

5. Implications for Japanese Companies (JCM Perspective)
While Qatar is not currently a JCM partner country, it is proactive in utilizing Article 6.2. Potential demand for Japanese corporate technology is expected particularly in the following areas:

• Advanced Decarbonization Technology: Methane Leak Detection and Repair (LDAR) in LNG production processes and large-scale CCS technology.
• Water and Energy Efficiency: Improving efficiency in desalination and solar power technologies adapted to desert environments.
• Potential for JCM Expansion: Since Saudi Arabia is already a JCM partner country in the Middle East, Qatar's proactive stance toward Article 6 suggests the future possibility of applying the JCM scheme or similar bilateral cooperation.

3. Analysis Article: India JCM Manual—Host Countries Choosing Based on the "Price" of ITMOs

Introduction

In September 2026, Japan and India released the "Operational Manual for Joint Crediting Mechanism, Version 1.0" (Source). In the same month, a JCM Forum was held in India, showing progress in cooperation between the two countries for the implementation and operation of the JCM (Source).

This manual is a massive 231-page volume covering everything from project cycle procedures to the designation of Third-Party Entities (TPE) and 24 different forms. At first glance, it appears to be a "merger" of rules and guidelines developed with other partner countries. However, a detailed reading reveals several requirements not previously seen in JCM documents.

To state the conclusion upfront: the characteristic of the India JCM is that it requires detailed information on funding, profitability, and contributions at each stage—PIN, PDD, and credit allocation forms. This includes identifying exactly how much each ton of Internationally Transferred Mitigation Outcomes (ITMOs) costs. India intends to use this information on business profitability and financial burden as a factor in project selection. As a "selective host country" that chooses "what to export and at what price," India appears to have designed the JCM as a tool for technology transfer and capital mobilization. This concept of a "selective host country" may spread further to other nations as Article 6.2 practices mature.

Focusing on this manual, this article will cover: (1) the positioning and goals of Article 6.2 for India, (2) information on funding, profitability, and contributions required by the manual, (3) implications for companies, and (4) a summary.