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As Article 6 of the Paris Agreement moves from negotiated text to early transactions, a familiar gap is emerging. Political commitments are multiplying, bilateral agreements are being signed, and mitigation pipelines are taking shape. Yet private capital—the scale of finance needed to turn ambition into delivery—continues to enter cautiously.
The reason is not a lack of interest, nor a shortage of mitigation opportunities. The bottleneck lies elsewhere: risk—combined with regulatory fragmentation and transaction complexity. Under Article 6, private investors face a landscape that differs fundamentally from both traditional climate finance and the voluntary carbon market (VCM). Until those risks are credibly managed and transaction frameworks become more predictable and standardized, Article 6 will struggle to mobilize private finance at scale.
Article 6 Is Not “Just Another Carbon Market”
Much of the early discourse around Article 6 framed it as a successor—or upgrade—to existing carbon markets. In practice, this framing obscures a more fundamental distinction. Article 6, and particularly Article 6.2, was conceived as a Party-driven mechanism for international cooperation to achieve nationally determined contributions (NDCs), not as a market designed to mobilize private investment from the outset.
Early implementation reflects—and continues to reflect—this intergovernmental logic. Cooperation under Article 6.2 is structured between governments, and demand for mitigation outcomes is, by design, sovereign. At the same time, implementation has relied heavily on private project developers from the start, particularly in early-mover jurisdictions. While the treaty architecture centers on government-to-government cooperation, project-level delivery has often been private.
This reliance on public demand is not a response to investment risk; it is a defining feature of the mechanism as designed. Article 6.2 was expected to be government-driven on both demand and supply sides. In practice, however, governments have largely acted as buyers and regulators, while project origination and delivery have remained predominantly private.
Over time, the limits of this model have become apparent. Public finance and administrative capacity alone have proven insufficient to mobilize mitigation at scale or deliver sustained implementation. Some earlier crediting approaches combined government finance with private implementation by design. By contrast, many current Article 6.2 arrangements expect private developers to carry substantial upfront risk, with sovereign buyers purchasing outcomes only upon delivery.
Outside clearly defined channels such as CORSIA, evidence of material non-government demand for Article 6–aligned units remains limited. Where private actors engage, it is largely through the positioning of corresponding adjustment (CA) units as higher-integrity instruments aligned with national accounting. Yet the close linkage between project-level outcomes and NDC accounting—reflected in authorization procedures and biennial transparency reporting cycles—adds regulatory density and reduces fungibility.
As a result, Article 6.2 increasingly resembles a market in practice, while Article 6.4 was market-oriented from the outset. For private actors, however, participation remains embedded within a sovereign accounting architecture. Revenues are shaped not only by project performance, but by authorization decisions, reporting alignment, and corresponding adjustment issuance. A technically sound project may remain unbankable if authorization processes are opaque, conditional, or slow.
This transition—from an intergovernmental cooperation mechanism to one that seeks meaningful private participation—helps explain why questions of risk allocation and regulatory design now sit at the center of the Article 6 debate.
The New Risk Stack Facing Private Investors
Despite its intergovernmental origins, Article 6 depends on private sector participation to translate cooperation frameworks into mitigation outcomes. Governments define the rules and authorize transfers; private actors design, finance, and implement projects.
Under Article 6.2, early movers established pragmatic pathways for private engagement within bilateral agreements. However, most sovereign buyers purchase mitigation outcomes upon delivery. This creates a structural financing gap: developers must absorb development costs and commit capital expenditure well before revenues materialize. While mitigation outcome purchase agreements (MOPAs) provide forward revenue visibility, their conditionality and bespoke structures often limit securitization and increase financing costs.
The Paris Agreement Crediting Mechanism (PACM) under Article 6.4 offers a more centralized architecture, yet similar challenges persist, including layered governance requirements and evolving reporting expectations.
Several risk categories converge under Article 6:
Authorization risk
Authorization risk remains central. Letters of authorization, their conditions, and the application and timing of corresponding adjustments—reflected in national reporting cycles—are sovereign acts. Delays or uncertainty can directly affect revenue certainty and financing structures.
Policy and regulatory risk
Policy and regulatory risk extends beyond stability. Emerging national frameworks increasingly seek to capture greater economic value for the state through fees, shares of proceeds, or profit-based contributions. While such measures may be domestically justified, they can materially affect project economics if not transparently and predictably structured.
Delivery and performance risks
Demand-side risk
Demand-side risk reflects limited non-sovereign demand and additional compliance layering that frequently exceeds Article 6 requirements. Claim-related standards and bespoke conditions further segment the market, reducing fungibility.
Taken together, these factors create not only risk, but complexity. The challenge for Article 6 is therefore as much about reducing transaction friction and enhancing standardization as it is about mitigating financial exposure.
De-Risking as the Real Enabler of Scale
If Article 6 is to mobilize private finance meaningfully, de-risking must begin upstream. Financial instruments cannot compensate for structural ambiguity or regulatory fragmentation.
Several solutions lie in regulatory design and harmonization:
- Anchoring carbon market rules at appropriate legal levels.
- Introducing time-bound and legally enforceable pre-authorization stages.
- Clarifying export procedures as distinct from domestic project approval processes.
- Standardizing documentation and reporting templates across jurisdictions.
The closer Article 6 frameworks resemble other internationally traded commodities—where domestic production approvals are clearly separated from export authorizations—the more scalable they become. Cross-jurisdictional comparability would enable companies to develop portfolios across multiple countries and allocate mitigation outcomes more efficiently.
Blended finance and insurance remain important, but complementary. Political risk insurance presumes that core structural risks have already been contained. Experience suggests that where authorizations remain discretionary or registry governance unclear, insurance cannot substitute for sound institutional design.
Importantly, not all bottlenecks reflect inherent risk. Early Article 6-linked financing structures demonstrate that private capital can be mobilized. Yet bringing such transactions to market has required significant time and bespoke structuring. Bureaucratic intensity and limited standardization can slow deployment even where risk itself is manageable.
De-risking, therefore, encompasses both risk mitigation and simplification.
Long-Term Offtake as Financial Infrastructure
Mitigation Outcome Purchase Agreements (MOPAs) provide revenue visibility, but their effectiveness depends on institutional context. Long-term offtake can support financing only when the buyer—typically a sovereign entity, potentially supported or facilitated by development partners—has already worked extensively with the host country to clarify authorization, registry, and reporting arrangements.
It is this prior institutional engagement, rather than the contract alone, that enhances bankability. However, reliance on institutionally intensive processes raises legitimate questions about scalability. If each transaction requires bespoke negotiation and layered conditions precedent, liquidity will remain limited.
Scaling Article 6 will likely require more standardized offtake structures and clearer allocation of conditionality between sovereign cooperation and project-level risk.
Insurance and the Rise of Carbon-Specific Risk Management
Carbon-specific insurance products seek to address non-delivery or regulatory failure. They can enhance confidence and signal due diligence. However, insurance functions best within predictable governance frameworks. Where authorizations are revocable or reporting alignment uncertain, insurers may be reluctant to assume exposure.
Insurance strengthens markets; it does not create them.
What This Means for Scaling Private Sector Finance
Early experience under Article 6 suggests that integrity is necessary but not sufficient. Participation depends on how risks, responsibilities, and economic value are allocated—and on whether regulatory frameworks are coherent and proportionate.
For host countries, this means balancing sovereign oversight with market functionality. Excessive layering of fees, profit-sharing mechanisms, and conditional approvals may unintentionally deter investment. For buyer countries, pay-on-delivery structures shift substantial upfront risk to private developers, potentially limiting participation to well-capitalized actors.
Development partners can enhance credibility, but institutional processes must evolve toward greater market-readiness if they are to support scale rather than slow deployment.
Public finance alone cannot deliver the scale, speed, or replication required to meet mitigation targets. Private capital brings operational capacity, portfolio diversification, and balance-sheet depth. Yet if carbon finance itself requires substantial de-risking before it becomes investable, scale will remain elusive.
From Climate Commitments to Investable Assets
Article 6 has the potential to reshape carbon finance by aligning national mitigation goals with private capital. That potential will only be realized if mitigation outcomes are treated as investable assets within credible, streamlined, and standardized governance frameworks.
If policy clarity, authorization stability, reporting alignment, and regulatory proportionality are addressed upfront, private finance can move from the margins to the center of Article 6 implementation. If not, Article 6 will remain technically robust but economically constrained.
The path to scale lies not in reducing environmental integrity, but in designing cooperation frameworks that are predictable, proportionate, and sufficiently standardized to function as markets rather than purely administrative schemes. The difference between those futures will be determined less by ambition than by the willingness to treat carbon finance as a serious investment domain—one that demands the same institutional rigor as any other market expected to operate at scale.
Acknowledgments
Neyen would like to thank the following individuals for their valuable contributions to this article:
Alexandra Soezer, Director, Climate Action Center of Excellence (CACE);
Ash Sharma, Fund Manager, Article 6 Climate Cooperation Facility, Global Green Growth Institute; and
Chris Leeds, Head of Carbon Markets Development, Standard Chartered Bank
Any remaining errors or omissions are the sole responsibility of Neyen.
