Article 6.4 Integrity Crisis: First UN Credit Issuance Faces Over-Crediting Claims

The Paris Agreement Crediting Mechanism (PACM) is officially live—and it has immediately stumbled into an integrity crisis.

On February 26, 2026, the United Nations approved the first-ever issuance of Article 6.4 credits. The project, a clean cooking initiative in Myanmar (Programme of Activities 10415), has been authorized to issue approximately 60,000 credits. For proponents of international carbon markets, this should be a victory lap: the transition from the Kyoto Protocol’s Clean Development Mechanism (CDM) is finally operational, unlocking a potential $250 billion in annual climate finance.

Instead, the issuance has exposed a critical fault line in the mechanism’s architecture. While the Article 6.4 Supervisory Body (SBM) applied a 40% "haircut" to the project’s credit volume to align with new, more conservative methodologies, independent analysis suggests this correction is mathematically insufficient. Research from Carbon Market Watch indicates the project relies on legacy CDM methodologies that could be over-crediting by a factor of 26x compared to peer-reviewed scientific literature.

For portfolio managers and traders, this signals that the "UN Stamp of Approval" does not automatically equate to high integrity. We are witnessing the birth of a bifurcated market where political validity (compliance eligibility) and scientific validity (atmospheric integrity) are drifting further apart.

The Mathematics of the "Haircut"

The core of the controversy lies in the transition mechanics. PoA 10415 was originally registered under the CDM. To move into the Article 6.4 system, it had to update its baseline and monitoring protocols.

According to Supervisory Body Chair Mkhuthazi Steleki, the application of updated Article 6.4 methodologies resulted in a 40% reduction in issued credits compared to what the project would have generated under the old CDM rules. This adjustment was intended to account for:

• Fraction of Non-Renewable Biomass (fNRB): Updating outdated deforestation assumptions (e.g., Ghana's similar program had to drop its fNRB from 0.98 to significantly lower levels).
• The Hawthorne Effect: Adjusting for the fact that households use stoves more efficiently when they know they are being tested.
• Leakage: Applying stricter discount factors for emissions displaced rather than reduced.

However, a 40% reduction on a fundamentally flawed baseline is merely a discount on a distressed asset. The Carbon Market Watch analysis highlights that the underlying methodology (AMS-II.G) systematically overestimates fuel consumption and adoption rates. If the 26x over-crediting figure holds true, a 40% cut still leaves the issued credits nearly 15 times higher than actual atmospheric benefits.

The CDM Transition Trap

As we covered in our [November 2025 analysis of the COP30 Belém outcomes], the decision to allow a "transition period" for CDM projects was a political necessity to keep developing nations at the table. We are now seeing the cost of that compromise.

The Myanmar project is the tip of the iceberg. Currently, there are nearly 1,400 CDM activities requesting transition to Article 6.4. This pipeline represents roughly 900 million tonnes of potential credit supply.

• 80% of these requests are for grid-connected renewable energy projects—a category the Integrity Council for the Voluntary Carbon Market (ICVCM) has explicitly rejected for failing additionality tests.
• 19 additional cookstove projects with similar methodological profiles to the Myanmar PoA are currently in the queue.

If the Supervisory Body establishes a precedent that a simple percentage haircut is sufficient to "clean up" legacy CDM projects, the Article 6.4 market risks being flooded with sub-prime credits. This would depress prices for high-quality removal credits and potentially contaminate the portfolios of early buyers.

Market Implications: The Compliance vs. Voluntary Split

This development creates a complex arbitrage environment.

1. The Compliance Bid: The demand for these credits is already secured. The Myanmar credits are authorized for use by the Republic of Korea towards its Nationally Determined Contribution (NDC). South Korea’s upcoming GX-ETS, launching in 2025/26, allows regulated entities to use credits for up to 10% of compliance. For a Korean utility, the scientific integrity of the credit is secondary to its regulatory validity. If the UN and the Korean government accept the credit, it is a valid financial instrument.

2. The Voluntary Freeze: For corporate buyers in the Voluntary Carbon Market (VCM), these credits are toxic assets. With Carbon Direct’s 2026 outlook warning that 80% of high-durability supply is at risk due to lack of offtake, buyers are already flighty. A corporate sustainability officer cannot defend a portfolio containing credits flagged for 26x over-crediting, regardless of UN backing. We expect a widening spread between Article 6.4 Compliance Units (trading on regulatory utility) and ICVCM-aligned Voluntary Credits (trading on reputational safety).

3. The CORSIA Wildcard: The International Civil Aviation Organization (ICAO) is currently assessing programs for the 2027-2029 compliance phase (applications close March 9, 2026). The Myanmar project is explicitly flagged for CORSIA authorization. If ICAO accepts Article 6.4 credits with these methodological flaws, it provides a massive demand sink for legacy projects but severely damages CORSIA's credibility.

Strategic Guidance for Practitioners

For Project Developers: Expect scrutiny to intensify, not relax. The controversy surrounding this launch will likely force the Supervisory Body to tighten the rules for the remaining 1,300 transition candidates. If you are holding legacy CDM assets, the "haircut" applied to Myanmar (40%) should be viewed as the minimum discount. Model your economics with a 50-60% reduction in issuance volumes for transitioning projects.

For Traders and Brokers: Do not treat "Article 6.4" as a monolithic asset class. The vintage and methodology matter immensely.

• Short: Transitioned CDM credits targeting voluntary buyers. The reputational risk is too high.
• Long: Article 6.4 credits from new methodologies (like the Landfill Gas protocol approved Oct 2024) that don't carry CDM baggage.

For Corporate Buyers: Avoid the "UN Trap." Just because a credit is issued under the Paris Agreement mechanism does not mean it meets the Core Carbon Principles (CCP) of the ICVCM. Require independent due diligence on Article 6.4 credits just as you would for Verra or Gold Standard units.

What to Watch

• The 14-Day Appeal Window: Stakeholders have two weeks to appeal the Myanmar issuance. If an appeal is lodged—likely by an NGO citing environmental integrity violations—it will be the first test of the Article 6.4 grievance mechanism. A successful appeal would freeze the market; a dismissal will greenlight the rest of the CDM pipeline.
• South Korea's GX-ETS Rules: Watch for specific guidance from Seoul on whether they will place quality filters on Article 6.4 credits, or if they will accept all authorized units blindly.
• ICAO's March Decision: If ICAO signals that Article 6.4 credits are automatically eligible for CORSIA without additional filters, expect a price rally for legacy CDM projects currently trading at discount.

The Paris Agreement's market mechanism is open for business, but the "buyer beware" sign is larger than ever. The transition from the CDM was meant to raise the bar; instead, it appears to have lowered the floor.