Demand for international carbon credits is expected to rise sharply in the coming years. China has turned from a net exporter to a net importer, and recent EU regulations are driving demand for offsets to aviation emissions. But where will this increased demand be met? While India could be one of the biggest suppliers, there is a trade-off with meeting its own climate targets. Sanjena Narayanasamy Damodaran discusses how India could selectively widen its pool of projects eligible for authorisation under Article 6 of the Paris Agreement.
An international mechanism for trading carbon credits
Article 6 of the Paris Agreement allows countries to cooperate on meeting their climate targets by providing an internationally sanctioned system for buying and selling emission reductions in the form of carbon credits. As modelling by the International Emissions Trading Association suggests, such cooperation could lower the cost of meeting these targets by around US$250 billion per year in 2030 or, if the savings were reinvested, enable around 50% more emission reductions at no extra cost. This is because emissions can now be cut wherever it is cheapest to do so: a country can pay for lower-cost reductions abroad rather than more expensive ones at home, while host countries can receive financing for clean investment.
Although countries initially approved the Article 6 mechanism at the 21st meeting of the Conference of the Parties (COP21) in Paris in 2015, they only agreed on a final rulebook at COP29 in Baku in 2024. Implementation of the mechanism was delayed by several contentious issues, including rules to prevent double counting (whereby carbon credits arising from emission reductions are counted against multiple countries’ decarbonisation targets), standards for verifying removals (designed to prevent the market from being flooded with low-quality carbon credits), and international and national responsibilities for overseeing the system.
Now that the rules are in place, including those on corresponding adjustments to prevent double counting, Article 6 is gradually being implemented across various countries. Parties to the Paris Agreement have established Designated National Authorities that oversee carbon market activities and, ultimately, authorise which projects qualify under Article 6. A key factor in such authorisation is whether a project should contribute towards a country’s own Nationally Determined Contribution (NDCs) or whether it can be sold to other countries under Article 6.
While Article 6 is now operational, the market it has created is still small. The Article 6 Implementation Partnership counts 113 bilateral cooperation agreements, but only around 48 million tonnes of carbon dioxide equivalent (MtCO₂e) of credits have been authorised for international use. That cumulative total is less than one-third of the 168 million carbon credits of all types, most of them voluntary, that were retired worldwide in 2025 alone. Nonetheless, the market for Article 6 credits is expected to grow substantially in the next few years, due to rising demand from advanced economies seeking to meet their own climate targets and the aviation industry as it offsets emissions from international flights, along with increased use of carbon border adjustment mechanisms.
Three sources of future demand for international carbon credits
A major source of demand for Article 6 credits will come from advanced economies’ efforts to achieve their decarbonisation targets. The EU, which is home to the largest domestic carbon market in the world (by value), is expected to become a major net importer of international credits in the next decade. The EU’s 2040 climate target, adopted in March 2026, requires a 90% cut in net emissions from 1990 levels. While most of these reductions will come from domestic initiatives, the EU has agreed that, from 2036, up to 5% of emission reductions can be offset by imports of high-quality international credits (with a possible pilot phase from 2031). Climate & Company estimates that if the EU gradually built up its use of international credits, the bloc would require around 232 MtCO₂e of such credits per year by 2040. That is nearly five times the volume that has been globally authorised under Article 6 to date.
Some European governments are already planning to make large purchases of international credits. For example, Norway has proposed a state budget for 2027 that nearly doubles the value of Article 6 purchases to 26.1 billion Norwegian kroner, and plans to use up to 40 million credits by 2035. Similarly, in October 2026, Germany’s Environment Agency launched a tender for up to 1.1 million credits.
Meanwhile, the aviation industry will drive increased demand for international carbon credits. From 2027, 134 states will take part in the second phase of the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), a UN scheme that requires airlines to offset growth in emissions from international flights. However, airlines can only buy credits from a country that confirms they can be used for CORSIA rather than counted towards a national climate target. Therefore, a government’s Article 6 authorisation decision determines whether its credits can be sold in this market. The International Civil Aviation Organization estimates that airlines will need to offset a total of roughly 950–1,500 MtCO₂e between 2024 and 2035.
Carbon border adjustment mechanisms could be another source of growing demand. Under the EU’s Carbon Border Adjustment Mechanism, exporters to the bloc can deduct a carbon price they have already paid at home. A European Commission draft regulation published in May 2026 would allow that price to include the cost of international credits used in the exporter’s domestic carbon market, provided they were authorised Article 6 units and covered no more than 10% of the emissions in the exporting country’s system. It is estimated that this could generate up to 17 MtCO₂e of international credits per year by 2040, but caps will likely reduce such demand once the rules are finalised.
Who will meet growing demand for international carbon credits?
Future demand for Article 6 credits is expected to be far higher than the levels currently authorised by Designated National Authorities. Few countries can supply Article 6 credits on a large scale, either because their carbon markets are too small or because they are striving to meet their own decarbonisation targets. As discussed, the corresponding adjustment mechanism ensures that emission reductions from carbon credits exported under Article 6 will not count towards domestic decarbonisation targets.
China was the world’s largest exporter of international carbon credits under Article 6’s predecessor, the Kyoto Protocol’s Clean Development Mechanism (CDM). However, it has largely stepped back as a supplier to focus on the domestic carbon market, submitting only two project notifications under Article 6. Other host countries are also emerging as suppliers, albeit on a much smaller scale. Brazil, Kenya, Chile and Pakistan operate open or long positive lists on which almost all their submitted projects qualify, but India’s 649 new project notifications outnumber those of China, Brazil, Kenya and Pakistan combined.
Therefore, India could become a major supplier of Article 6 credits. Yet the country’s Designated National Authority has kept its list of authorised activities qualifying for Article 6 relatively short, such that just under 11% of new projects qualify. Together, India’s 593 requests to move legacy CDM projects into Article 6 and its 649 new project notifications account for around 476 MtCO₂e of emission reductions per year.
There are good reasons for India’s caution. The first is the quality of its carbon credits. Studies have found that under 16% of credits worldwide, and at most half of those from Indian CDM wind farms, represent true emission reductions. India’s positive list largely excludes conventional renewables, focusing instead on costlier technologies such as renewables with storage and offshore wind, where carbon finance is more likely to determine whether a project goes ahead. This places India in a strong position to deal with demanding buyers such as the EU. The second reason for India’s caution is cost. As every credit India authorises for sale is an emission reduction it can no longer count towards its own climate targets, the country must weigh financing today against the extra mitigation it may need later. Recent analysis from the Global Green Growth Institute makes a similar point: host countries need clear strategies for how Article 6 should contribute to their national decarbonisation targets.
Our new research suggests that India could expand its positive list of eligible activities while still achieving targets under its own NDC. Authorising the 71 newly proposed projects in areas on the positive list would add only around 5% to India’s projected net zero gap for 2035, while potentially mobilising around US$5.4 billion by 2036. India can, therefore, authorise projects selectively and promptly, widening the positive list where the evidence supports this rather than either opening the entire pipeline or restricting most of it. Such an approach would be consistent with the Oxford Principles for Responsible Engagement with Article 6, which state that positive lists should be regularly reviewed as technologies and circumstances evolve.
At COP31, the debate around Article 6 will shift from rules to implementation. A new assessment from the United Nations Framework Convention on Climate Change describes the transition from Article 6 negotiations to operationalisation as a “fundamental shift”, with countries now seeking support on participation rules, institutional arrangements, positive lists and implementation pathways. Article 6 remains on COP31’s formal agenda, and an Article 6.2 Ambition Dialogue is scheduled for the opening day.
That returns us to the opening question: where will this demand be met? India has enough emission reduction projects to become a major supplier of carbon credits under Article 6, but this should not mean opening its entire pipeline. By selectively adding to its positive list, India could help supply a growing market while retaining mitigation for its own climate goals. This means reviewing the list regularly, prioritising activities that widen the net zero gap the least, and making authorisation decisions quickly. As Article 6 increasingly connects with carbon pricing, aviation and trade, it will become ever more important to strike that balance.
The author would like to thank Ira Irina Dorband, Joseph Feyertag, Neïla Khelifi and Robert Patalano for their review of this work.
The views in this commentary are those of the author and do not necessarily represent those of CETEx or its funders. Any errors or omissions remain those of the author.