The multilateral architecture of the Paris Agreement Crediting Mechanism (PACM) is now in place. Whether it scales from here depends substantially on host-country authorization systems that are fast, technically grounded, and honest about what each country can afford to give away. In other words, it requires solid institutional infrastructure.
To authorize or not to authorize, that's the question
Yes, it is one of the most overused lines a columnist can borrow. It earns its place here because it names the problem exactly. Authorization is a new procedure under Article 6 of the Paris Agreement, but limited institutional capacity has stalled it, along with the difficulty of making sovereign decisions under uncertainty. That constraint is old, and familiar to almost every host country.
The multilateral machinery, for its part, is working. In February 2026 the PACM closed its first full credit cycle, issuing its first A6.4ERs to a transitioned cookstove program in Myanmar (UNFCCC). The Supervisory Body is operating, a registry contract is in place, and sovereign buyers are active. Methodologies are advancing too: the Body approved the first PACM methodology in October 2025 (AMM-001, for landfill gas, revised from its CDM predecessor), a second in May 2026 (AMM-002, for nitrous oxide from nitric acid production) and a third in July 2026, covering grid-connected renewable electricity. That third one carries the most weight: renewables dominate both the transition pipeline and the notifications of prior consideration, and until July there was no Article 6.4 methodology they could apply. A draft methodology for efficient household cooking was sent back for further work at the same July meeting.
Transitioning CDM projects still run on updated legacy methodologies under provisional arrangements. The architecture that took nearly a decade to negotiate is, for practical purposes, built. The binding constraint now sits elsewhere, in the institutional capacity host countries need before they can authorize – And the market it was meant to enable is still thin. Demand estimates keep climbing: CORSIA’s second phase alone, which opens in 2027 and runs to 2035, is projected to need somewhere between roughly 500 million and 1.3 billion tons of eligible credits, before sovereign compliance buyers such as Japan, South Korea, and Switzerland are counted.
Against that, authorized supply is a rounding error. The transition pipeline meant to seed early volume has thinned at the decisive step. As of 30 June 2026, the Article 6 Pipeline records roughly 409 CDM activities approved for transition by their host countries, across 57 countries, with Brazil (92), Chile (30), Viet Nam (23), and Thailand (19) accounting for most of the volume (UNEP CCC).
Where the mechanism now stalls is at the national level
Around 128 Parties have named a national authority; by June 2026, only 60 had communicated the participation requirements that let projects proceed (A6 Implementation Partnership; UNFCCC). The concentration problem is starker. China and India, historically the two largest sources of transition requests with roughly 36% and 33% respectively at the end of 2025, granted no host-Party approvals before the transition deadline closed on 30 June 2026. Neither appears among the 57 approving countries in the pipeline, so hundreds of legacy activities that might have carried early volume fell outside the viable window. Meanwhile, CORSIA’s mandatory phase begins in January 2027, but A6.4ERs cannot be surrendered against it until ICAO approves the PACM as an eligible emissions unit program, and the Technical Advisory Body has not yet assessed it. Myanmar has already issued letters of authorization covering other international mitigation purposes, CORSIA among them, for the mechanism’s first two issuances; recognition on the aviation side has not caught up.
It is tempting to read the hesitancy as bureaucratic inertia. A better take is rational caution in the absence of the necessary decision systems. Signing a Letter of Authorization commits the country’s carbon accounts. When a host country authorizes a transfer, it accepts a corresponding adjustment against its NDC balance and exports mitigation it can no longer count toward its own target. A government that signs without knowing its emissions balance, its sectoral headroom, or its distance above the unconditional target is spending against a budget it has never drawn up.
The uncertainty here is real. Most NDCs are not clear cut, absolute targets; they are intensity-based, sectoral, or conditional, and many countries have yet to establish a formal emissions balance.
What a functioning authorization system actually requires
If the diagnosis is institutional, so is the remedy. Early implementation work points to three things a workable authorization system needs. All of them are demanding in practice.
An accounting basis
Whatever the NDC target type, the emissions balance rests on absolute emissions drawn from the national GHG inventory. A country needs an NDC accounting framework, a current inventory or emissions balance, and a defined view of its unconditional floor before it can weigh any single transfer. Everything else is built on top of that.
Consistency checks at the moment of decision
The authorization judgment comes down to three questions that can be asked in a structured, repeatable way. Does the project’s accounting parameter reconcile with the national inventory? Does the proposed issuance, once the corresponding adjustment is applied, stay consistent with the NDC emissions balance? And does the mitigation available for transfer remain above the unconditional floor? That third question has to be answered sector by sector rather than pooled nationally, because sectoral targets, costs, and risks differ. A transfer that would push a sector below its unconditional floor should trigger a closer review, not an automatic rejection; the test is whether the project stays consistent with what the country has actually committed to.
A ledger, because authorizations accumulate.
Every Letter of Authorization draws on the same NDC budget as the last, so the exposure that matters is the running total, not any single deal. Volumes authorized and volumes first transferred are distinct quantities, tracked separately in the official reporting model, and the gap between them is where overselling risk lives. Kenya, for instance, caps cumulative authorizations against its own NDC budget, and Ghana and Indonesia reserve a domestic share before export using the same logic. Each of those rules is only as good as the ledger behind it: it holds only if the authority books every new Letter of Authorization against a running position, rather than assessing each deal in isolation.
This is ordinary public-finance discipline applied to a new kind of account. Most host countries can build it, but not instantly, and probably not without support.
Authorization quality is what the market prices
For the private sector, all of this lands in the risk model. Authorized units already trade well above generic voluntary credits. Switzerland’s Foundation for Climate Protection (KliK), the largest sovereign buyer, has recently been paying on the order of USD 35 to 40 a ton for Article 6 units (Carbon Pulse), several times the USD 5 to 8 that generic voluntary credits fetch (AlliedOffsets). That premium attaches to the accounting chain behind the ton more than to the ton itself, and the chain is only as strong as the host-country system standing behind the adjustment.
Authorization risk sits outside the developer’s control. Timing is discretionary; conditions attached to a letter can reshape project economics well after financial close, and revocability remains a live concern wherever authorizations outrun NDC capacity. Developers and financiers do have tools for the risks they can structure around, such as MOPAs, political risk insurance, and delivery guarantees. But those instruments share a limit that is easy to state and hard to escape: insurance can strengthen a market that already exists, but it cannot manufacture the regulatory certainty a market is built on. No instrument can price a process that has no published criteria and no track record to speak of.
So the most important de-risking instrument in the PACM is a predictable, published authorization process, applied the same way from one deal to the next. Financial products sit on top of that; they cannot be a substitute for it. Where the process exists, capital can model the residual risks and buy protection against them. Where it does not, the discount applied to a country’s pipeline is simply the market pricing that uncertainty correctly.
The advantage goes to the prepared
The transition window has now closed. Host-Party approvals for CDM activities were due by 30 June 2026, with supporting documentation due by year end. So the countries that had built authorization capacity in time captured that pipeline while the rest watched it lapse. The next inflection is close behind: CORSIA’s mandatory phase opens in January 2027, and the PACM has to move from a first issuance to repeatable supply. Host countries that treat authorization as an institutional capability, built on an accounting basis, structured consistency checks, and a running ledger, will convert their pipelines into authorized supply while the premium is still forming. Those that treat it as an ad hoc act of discretion will watch projects, and the capital behind them, move to jurisdictions where the answer to the opening question is predictable.
The multilateral test has been passed. The one that remains is domestic. Host countries have to build the capacity to make good decisions, at speed and under uncertainty. That is the oldest problem in public administration. The PACM has made it the hinge on which a new market turns.
Key takeaways
The mechanism’s supply problem is, above all, a matter of institutional capacity. Authorization is where that gap becomes visible, and it will be closed at country level or not at all. Five points follow.
Authorization carries fiscal weight
A corresponding adjustment removes mitigation from the host country’s own NDC balance, so the decision needs a live emissions balance behind it rather than a discretionary signature.
Three capabilities separate a system from an ad hoc process:
- an accounting basis grounded in the national inventory,
- structured consistency checks at the moment of decision,
- and a running ledger that tracks authorizations against the NDC budget across every deal.
Data readiness is the binding precondition.
A country cannot judge what it can safely authorize without a current GHG inventory and emissions balance, and close to half of Parties have not yet filed a complete Biennial Transparency Report, the vehicle through which that data is compiled and reported. Building it comes before any authorization decision.
The premium is priced on the accounting chain
Buyers are paying for the credibility of the host-country system behind the corresponding adjustment. A published process with stable criteria de-risks a pipeline more than any financial product can.
The tempo is set from outside
With the CDM transition approval deadline now passed and CORSIA’s mandatory phase opening in January 2027, the countries that built authorization capacity early are capturing supply and capital while the unprepared watch both migrate.
