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Following COP 30 discussions, the parties to the Paris Agreement (PA) have decided to push back the host party approval deadline for Clean Development Mechanism (CDM)- hosted carbon credits transferring to the Paris Agreement Crediting Mechanism (PACM) to June 2026, from the initial 31 December 2025. The deadline for project developers to submit additional documentation has also been postponed to December 2026.
The delay could lift the potential tally of CDM’s Certified Emission Reductions (CERs) transitioning to Article 6.4 Emission Reductions (A6.4ERs) to roughly 980M. To date, only 128M, or 13% of the credits requesting transition, have been approved, with the rest still awaiting host country approval or further documentation. The six-month extension is partly the result of mounting pressure from project developers, who lamented the fragmented organisation of the PACM. “The lack of significant numbers of host party applications reflects the reality that countries are making decisions under a semi-operational PACM standard, without finalised methodologies or full registry functionality,” said the Project Developer Forum, a 65 strong industry initiative, in a statement in September.
Project developers with activities authorised under the CDM mechanism had until December 2023 to request the transition of their CERs to the new PACM registry. An exception was given to Afforestation, Reforestation and Revegetation (ARR) projects, for which developers have until 31 December 2025 to submit transition requests. Among the key requirements for CERs to start the transition towards A6.4ERs are an active crediting period as of January 2021 and being included in the list of activities indicated by the PA parties as eligible for Article 6.4.
The transition process has ten administrative steps, with key milestones being the transition request to the UNFCCC secretariat by the project developer, the approval by the host country, and the green light from the Article 6.4 Supervisory Body.
Approvals from host countries have so far proven the largest hurdle. Out of the 849M credits awaiting transition, 89% are waiting for host country approval to progress to the next stage, with 95M credits confirmed by their respective host countries but still needing to go through some or all the remaining steps. To grant host party approval, countries must first submit a participation requirement form to the secretariat, listing a Nationally Determined Contribution (NDC) and a Designated National Authority (DNA). Countries already featuring participation requirement or working towards submitting the relevant form are therefore more likely to grant approval before June, moving them one step closer to full transition.
Among the four countries with the greatest number of transition-requested credits, three have submitted participation requirements and only one, Bangladesh, has granted host approval for projects. The country so far has greenlit credits from three main types of carbon projects, improved cookstoves, water purification, and detection and repair of natural gas pipelines leaks.
Setting up DNAs and meeting participation requirements requires substantial administrative effort and political capital, followed by ongoing monitoring and support once projects begin. For many countries, particularly those with fewer projects, the costs of maintaining these systems might outweigh the benefits.
We have grouped credits requesting transition into five buckets based on the likelihood of their application progressing. Ultimately, the most significant impact on the quantity of CDM-hosted credits transferring will be the national policies of a few large countries.
· 128M credits have already been registered to the PACM, of which 84% come from Bangladesh. In the eleven months it has had participation requirement approved for, the country greenlit 92% of credits requesting transition.
· 118M credits fall within our “host-approved” bucket, encompassing projects that have already received host approval, or are from countries that have already given out host approvals to some projects.
· 379M credits fall within “high potential”, including countries with participation requirements, but with no approved projects yet. India is the most significant example, with 217M potential credits. None of these have been approved to date, despite receiving a participation requirement in October 2024.
· 341M credits fall within “medium potential”, where countries have an NDC and DNA, and so are well placed to receive a participation requirement. As the largest source of potential carbon credits, China’s decision whether to apply for a participation requirement and approve projects will be the most important for CDM-PACM credit supply, potentially releasing up to 221M credits into the market.
· 11M credits fall within “low potential”, where countries do not have a DNA, and so are least likely to jump through the requisite administrative hoops to be able to approve projects. This includes countries like Iran, Mozambique and Israel, but only represent minimal credits and projects.
Should China and India decide to take the necessary steps towards host approval, the market could see around half a billion A6.4ERs generated, providing an outlet for project developers and a pool of recognised credits for countries seeking to utilise A6.4ERs towards their own NDCs.
Both host countries and project proponents would benefit from a higher rate of credits transferring from CDM to PACM.
Such a transition would allow formerly CDM-hosted projects to continue to issue credits of vintages between 2021-2025. This is a key relief valve for CDM-legacy projects, as the registry stopped issuing credits in 2020. Furthermore, these credits, provided they were generated post-2013, could be used by countries to reach the targets sets in their first or updated-first NDCs, thus finding a market for legacy credits which would have otherwise become obsolete.
At first glance, host countries might not have a lot to gain from a CDM to PACM transfer. Hosts bear the administrative burdens, might see a potential reduction of domestic credits eligible towards their own NDCs, and hold relatively little control over the destination of the credits, given the very nature of the PACM allowing buying countries to pluck A6.4ERs without the need of a bilateral agreement. However, by allowing the transfer, host countries signal to foreign investors that they intend to align with the new PACM and overall Article 6 era, creating incentives for future international financing.
Moreover, several countries such as Ghana and Kenya are already setting up national frameworks, such as domestic carbon registries, to coordinate and oversee issuances and transfers of Article 6 credits, whether 6.2 or 6.4. These not only allow countries to have some control over international transfers of domestic credits, but also provide a new source of income for governments through fees on credit registration and issuance, among others.
Further insight on country-level Article 6 policy can be found within the Fastmarkets Carbon offering.