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From Rulemaking to Asset Generation
The UN carbon market established under the Paris Agreement has formally shifted from rulemaking into live operation. On February 26, the Article 6.4 Supervisory Body approved the first-ever issuance of carbon credits (Article 6.4 Emission Reductions, or A6.4ERs) under the Paris Agreement Crediting Mechanism (PACM), completing, for the first time, the full cycle of project registration, verification, and credit issuance under the UN’s Paris-aligned framework. The mechanism is now operational. Proof of concept, yes. Proof of scale, not yet.
The initial credits come from a clean-cooking project in Myanmar distributing efficient cookstoves to reduce household air pollution and forest pressure, financed by South Korean companies and authorized by Myanmar for use toward South Korea’s NDC and potential CORSIA compliance. The programme (a CDM Programme of Activities that completed its transition to PACM in March 2025) verified 648,783 tCO₂e for the January 2021–May 2022 monitoring period, with a total of approximately 60,000 A6.4ERs approved in the first provisional issuance batch. The issuance is operationally significant, but it carries an immediate analytical signal that the market should not overlook: under PACM’s more conservative methodology, the project’s fraction of non-renewable biomass (fNRB), the share of fuel displaced by the cookstoves that would otherwise have come from unsustainable sources, was revised down from 0.615 to Myanmar’s current default value of 0.36 under Tool 33.
That single parameter adjustment drove a 41.5% reduction in credited volume relative to the CDM baseline, compressing verified reductions from a CDM-estimated 1.1 MtCO₂e to 648,783 tCO₂e for the monitoring period. The commercial question this raises is simple: at lower volumes, do the numbers still work? For some projects, viability will hinge on whether buyers pay enough per credit to compensate for the compression. This is not a project-level anomaly. It is a preview of systemic downward revision across the transition pipeline, driven not only by fNRB recalculation, but also by PACM’s strengthened additionality requirements, which now require projects to account for host-country NDC policies as a regulatory baseline factor. Developers who built commercial models on CDM-era volumes should expect material recalibration. And the mechanism’s permanent structural deductions: 5% to the Adaptation Fund, 2% for overall mitigation, mean headline issuance consistently overstates net deliverable supply.
The symbolic value of this milestone is real. But the question the market is actually asking is different: can the mechanism make this repeatable? The Myanmar programme completed its full cycle, from PACM transition approval in March 2025 to first issuance in February 2026, in approximately eleven months. Whether that cadence is structurally replicable, or reflects first-mover conditions unlikely to be sustained, is itself an open question. A single issuance demonstrates that the system works. Repeatable issuance, across multiple projects, geographies, and methodologies, at a cadence buyers and financiers can plan around, is what transforms a mechanism into a supply channel. And the gap between the demand signals now visible in the market and what the PACM can currently deliver makes that question urgent. A parallel constraint compounds the picture: as of early 2026, only one PACM-originated methodology has been adopted (AMM001, for landfill gas), meaning that all current issuance activity depends on transitioned CDM methodologies under provisional arrangements. The pace of new methodology adoption is, in structural terms, a more reliable indicator of when the mechanism will begin generating genuinely new supply than the status of the CDM transition pipeline alone.
The Demand Signal: Real, But Structurally Mismatched
The scale of the supply challenge becomes clear when set against the demand landscape. Estimates by South Pole adapted by The Nature Conservancy project cumulative ITMO demand through 2030 at approximately 734 MtCO₂e, roughly 515 Mt from CORSIA across both its phases and 219 Mt from sovereign buyer countries. South Korea alone accounts for approximately 37.5 Mt of that sovereign demand, directly relevant given its role as the first PACM buyer. Japan’s projected demand stands at 100 Mt, making it the largest single sovereign buyer in that pipeline. The World Bank’s 2025 State and Trends report adds granularity to the CORSIA component: ICAO estimates Phase 1 obligations alone, covering international aviation emissions from 2024 to 2026, at between 102 and 148 million tons, a volume equivalent to up to three-quarters of all carbon credits retired globally in 2024, against a supply base still heavily constrained by host-country authorization bottlenecks.
That said, the CORSIA figures warrant a direct qualification: PACM credits are not eligible for Phase 1, and Phase 2 eligibility, which covers the 2027–2029 compliance period, remains pending. ICAO’s Technical Advisory Body (TAB) began its formal assessment of PACM in early 2026, with a Council decision expected in late 2026. Until that determination is made, CORSIA demand is potential, not accessible, and the largest compliance channel in the pipeline has no confirmed buyer for PACM supply.
These are projections from sources with commercial exposure to Article 6 transactions and should be read with appropriate calibration. But the directional signal across assessments is consistent: demand is real, growing, and compliance-anchored. Against projected demand in the hundreds of megatonnes, the first PACM issuance delivered 42,000 tonnes, after the fNRB correction that will apply across the broader pipeline. That number defines the challenge.
Supply Constraints: Authorization, Methodology, and MRV Capacity
The near-term supply outlook rests primarily on the CDM transition pipeline. As of February 2026, transition requests were submitted for 1,389 Project Activities and 119 Programmes of Activities, with more than 165 host-Party-approved projects actively transitioning. The UNFCCC has already extended the CDM transition deadline to June 2026, providing additional time for projects to complete their approval processes. On paper, a substantial base of potential supply. In practice, three reinforcing constraints determine how much of it becomes deliverable credits.
Host-country authorization
Host-country authorization is the most visible bottleneck. China and India hold roughly 36 and 33% of transition-eligible projects respectively, yet neither has approved any transition request to date. The A6IP Center’s 2025 Implementation Status Report puts this in an institutional context: of 100 Parties analyzed, only 13 have both authorization and tracking arrangements fully operational. Interest in Article 6 is broad; functional readiness is narrow. Until major host countries move, the bulk of the pipeline remains nominal. Yet host countries across Latin America, Africa, and Southeast Asia, where authorization frameworks are more advanced and bilateral agreements with Japan, Korea, and Switzerland are already operational, represent a near-term supply base that can activate independently, and whose trajectory will shape early market signals regardless of what Beijing and New Delhi decide. Near-term PACM supply will be geographically concentrated: buyers building procurement strategies around Chinese or Indian project pipelines should treat that supply as contingent.
Methodological integrity
Methodological integrity is the second constraint. Over 70 percent of CDM activities eligible to transition utilize grid-connected renewable energy methodologies (World Bank, 2025), specifically ACM0002 and AMS-I.D., among the methodologies rejected by the ICVCM’s Core Carbon Principles assessment, which declined to approve all existing grid-connected renewable energy methodologies, citing additionality concerns. Whether the PACM’s adoption of these methodologies, even under updated parameters, satisfies buyers operating under high-integrity procurement frameworks remains genuinely uncertain. UN issuance approval and market acceptance are not the same determination. For buyers operating under high-integrity procurement frameworks, UN approval of these methodologies is a necessary but not sufficient condition. Market acceptance will have to be earned separately.
MRV capacity
MRV capacity is the most underappreciated constraint, and the one most likely to determine whether supply can scale even once the first two barriers are resolved. The verification of PACM projects depends on Designated Operational Entities (DOEs), accredited third-party bodies responsible for validating project designs and verifying reported emission reductions before credits can be issued. DOE supply is limited, accreditation processes are slow, and their workload will scale non-linearly as the transition pipeline activates. The CDM era demonstrated that verification throughput, not project availability, is often the binding constraint on issuance cadence. The PACM inherits that structural vulnerability without having meaningfully expanded the pool of qualified verifiers. For project developers and financiers, this means that even a project with host-country authorization and a solid methodology faces an uncertain path to issuance. Verification throughput is the variable that neither developers nor buyers can fully control.
The MRV challenge runs deeper than capacity alone. The fNRB correction in the Myanmar issuance is itself a measurement problem: legacy monitoring protocols captured proxy data where direct measurement was needed, and the Supervisory Body’s correction, while methodologically sound, compresses credit volumes and increases the complexity of future monitoring plans. Projects now face more rigorous baseline reassessments, more conservative parameter estimation, and higher documentation standards than under CDM practice. Each of these requirements adds verification time and cost, further slowing the cadence at which issuances can accumulate. For a market where bankability depends on predictable delivery, this friction is not incidental; it is structural.
The registry situation compounds these constraints. In January 2026, UNFCCC awarded a multi-year contract to Trovio and EY to build and operate the core registry infrastructure for Article 6.2 and 6.4, including an interoperability hub for national registries. The system is under development, with a minimum viable product phase planned before full deployment. Cross-registry interoperability, a prerequisite for institutional buyers requiring seamless transfer between the PACM Mechanism Registry and national registries such as the Korean ETS at scale, is not yet operational at the scale the market requires.
Implications for Private Finance
For private capital, the significance of this first issuance is less about the specific credits produced than about what their existence makes structurally possible. Until a UN-governed crediting mechanism had demonstrably completed the full issuance cycle, forward offtake agreements referencing PACM credits carried execution risk with no historical precedent to anchor against. That risk layer has been reduced, though not eliminated.
The Myanmar-Korea linkage, where PACM credits flow into the Korean ETS toward Korea’s NDC, demonstrates the Article 6 accounting architecture functioning as designed. That precedent is directly relevant to financiers structuring instruments around compliance-grade offtake, and it connects to a documented sovereign demand pipeline that makes South Korea one of the most commercially concrete near-term buyers.
The supply constraints described above have a direct read-through to project economics. When verification timelines lengthen, issuance volumes compress, and forward contracts price in administrative delay as a baseline scenario, project IRRs deteriorate and the cost of capital rises. Developers who modeled returns on CDM-era volumes and CDM-era verification cadence are carrying assumptions that the Myanmar issuance has now called into question. For capital allocators, the implication is that risk-adjusted pricing for PACM-linked instruments needs to reflect structural uncertainty, not just project-level execution risk.
The longer-term demand picture adds strategic weight. The EU 2040 Climate Law, for which the Council and Parliament reached a provisional agreement in December 2025, allows up to 5% of 1990 net emissions to be met through high-quality international carbon credits, with operational use from 2036 and a pilot phase anticipated for 2031–2035. The eligibility framework and specific rules for credit use remain to be defined in post-2030 sectoral legislation, meaning the commercial contours of this demand channel will not crystallize for years. Those rules may extend beyond PACM to cover credits from independent high-integrity standards that meet the criteria set. Given the greater rigor and transparency of PACM emission reductions (A6.4ERs) relative to bilateral Article 6.2 credits, they are positioned to become the instrument of choice if EU eligibility rules favor compliance-grade instruments. That potential creates a long-term anchor for investment positioning, but it requires credible near-term pipeline development to be commercially actionable.
The near-term supply constraint under PACM also has implications for the broader carbon market. If PACM cannot deliver predictable volume in the 2025–2030 window, some compliance-motivated buyers may redirect demand toward high-integrity voluntary carbon market (VCM) credits, particularly those aligned with ICVCM’s Core Carbon Principles, as a near-term bridge. That dynamic would not reduce pressure on PACM to scale, but it would shape short-term pricing and procurement strategies in ways that matter for both markets.
The bankability threshold for sophisticated capital, however, is not proof of concept; it is cadence predictability. Forward contracts in carbon markets are structured around delivery milestones tied to verified issuance. When verification timelines are uncertain and administratively variable, as MRV capacity constraints and registry gaps currently make them, the risk premium embedded in offtake pricing rises, project economics deteriorate, and capital deployment stalls. Until the mechanism demonstrates repeatable issuance across a meaningful number of projects, the rational posture for buyers and financiers is to link deployment to verified delivery rather than anticipated supply, and to treat administrative delay as a baseline scenario rather than an edge case.
A Market Now Live, But Not Yet Functional at Scale
The first PACM issuance is a credible milestone. The Supervisory Body has demonstrated that the system can produce credits under tighter methodological standards than its CDM predecessor, that the NDC-linked compliance pathway works, and that the Article 6 accounting architecture can connect project-level activity to sovereign climate commitments. These are necessary conditions for a functioning market.
They are not sufficient. China and India together hold the majority of transition-eligible projects, yet neither has approved a single transition request. Until those approvals come, the bulk of the pipeline remains nominal. Beyond that, verifier capacity across emerging market host countries remains thin, and the commercial terms on which developers and buyers are willing to transact under current uncertainty have not yet stabilized. The first issuance narrows the uncertainty marginally. The gap between that and the predictability the market needs remains the central problem.
Key Takeaways
Project Developers
For project developers, the operational implications of this first issuance are immediate. Credit volume projections built on CDM baselines require systematic revision: the fNRB adjustment, which, in cases of significant downward revision from CDM-era values, may render some legacy projects financially unviable, is pipeline-wide, not project-specific, and the shift to PACM-originated methodologies (applying to projects registered directly under PACM rather than transitioning from CDM, of which only one (AMM001, for landfill gas flaring) has been adopted to date) will introduce further recalibration. Equally important: higher MRV standards mean longer verification cycles and greater documentation complexity. Project timelines and financing structures need to be built around those realities, not against them.
Buyers and Financiers
For buyers and financiers, the Myanmar issuance confirms the NDC-linked compliance pathway is functional. But a single completed cycle is not the same as predictable issuance cadence, and cadence predictability is what bankable structures require. Until the mechanism demonstrates repeatable issuance across a meaningful number of projects, procurement strategies that depend on material PACM supply in 2026 are premature. Linking capital deployment to verified delivery milestones, treating administrative delay as a baseline scenario rather than an edge case, remains the prudent posture. The EU 2040 demand signal creates a long-term investment anchor, but it requires near-term pipeline development to be commercially actionable. In the interim, high-integrity VCM credits may serve as a practical bridge for buyers who cannot wait for PACM supply to stabilize.
Policymakers
For policymakers, two variables stand above all others in unlocking the bulk of the transition pipeline. Transition approval rates in China and India, which together hold the majority of transition-eligible projects, are the single most consequential near-term factor. And PACM’s CORSIA eligibility determination by ICAO is the gateway to the largest projected demand channel through 2030. But the supply response does not depend on those two countries alone. Host countries across Latin America, Africa, and Southeast Asia, where authorization frameworks are in more advanced stages and bilateral agreements with Japan, Korea, and Switzerland are already in place, can deliver meaningful near-term supply independently of what Beijing and New Delhi decide. Expanding DOE accreditation and investing in national MRV capacity are equally urgent across all host country contexts: supply cannot scale through authorization decisions alone if verification infrastructure is not ready to process it.
Acknowledgments
Neyen would like to thank the following individuals for their valuable contributions to this article:
Tiza Mafira, Director, Climate Policy Initiative (CPI)
Erlinda Ekaputri, Indonesia Country Director, Wildlife Works Carbon
Hugh Salway, Principal, Markets, Gold Standard
Any remaining errors or omissions are the sole responsibility of Neyen.
