Article 6 of the Paris Agreement & Brazil: Cross-Border Transfers

Key Takeaway

Article 6 of the Paris Agreement governs international carbon credit transfers between countries. For investors purchasing Brazilian carbon credits for use in another country’s NDC compliance, Article 6 requires Brazil to apply a corresponding adjustment — subtracting the transferred emission reductions from its own national inventory. This mechanism prevents double counting but adds regulatory complexity and cost. Brazil has signaled selective participation in Article 6, prioritizing bilateral deals (Art. 6.2) over the centralized mechanism (Art. 6.4), and has not yet finalized its corresponding adjustment framework.

---

Article 6 Mechanisms Explained

The Paris Agreement’s Article 6 establishes three cooperative mechanisms for international carbon markets:

Article 6.2: Bilateral/Cooperative Approaches

Countries negotiate bilateral agreements to transfer ITMOs (Internationally Transferred Mitigation Outcomes) between their NDCs.

Feature	Detail
Governance	Bilateral — countries set their own rules
Instrument	ITMOs (any unit of mitigation outcome)
Corresponding adjustment	Required for both transferring and acquiring country
Authorization	Host country must authorize each transfer
Reporting	Annual reporting to UNFCCC
Brazil status	Active bilateral discussions with Switzerland, Japan, South Korea, Singapore

Article 6.2 is the most relevant mechanism for foreign investors purchasing Brazilian carbon credits for international use. It offers flexibility but requires navigating bilateral treaty requirements.

Article 6.4: Centralized Crediting Mechanism

A UN-supervised mechanism (successor to the CDM) that issues credits through standardized methodologies.

Feature	Detail
Governance	Article 6.4 Supervisory Body (UN)
Instrument	A6.4ERs (Article 6.4 Emission Reductions)
Corresponding adjustment	Required if used for another country’s NDC
Authorization	Host country authorizes activities
SOP (Share of Proceeds)	5% of credits to Adaptation Fund
OMGE	2% of credits cancelled for Overall Mitigation of Global Emissions
Brazil status	Observing but not actively participating in early implementation

Article 6.8: Non-Market Approaches

Cooperative approaches that do not involve credit trading (e.g., technology transfer, capacity building). Less relevant for investors.

---

How Corresponding Adjustments Work

Corresponding adjustments are the accounting mechanism that prevents double counting — ensuring an emission reduction is not claimed by both Brazil (in its NDC) and the purchasing country (in its NDC).

The Mechanics

1. Brazil generates a carbon credit from a project (e.g., REDD+ in the Amazon)
2. A Swiss company purchases the credit to use toward Switzerland’s NDC
3. Brazil adds the emission reduction to its reported emissions (corresponding adjustment — increases Brazil’s accounting emissions)
4. Switzerland subtracts the reduction from its reported emissions (claims the credit)
5. Net global effect: one reduction counted once

Why Brazil Might Resist

Corresponding adjustments reduce Brazil’s progress toward its own NDC targets. Every credit transferred internationally represents an emission reduction Brazil can no longer claim.

Brazil’s NDC targets:

• 48.4% reduction below 2005 levels by 2030
• Net-zero by 2050

If Brazil is comfortably exceeding its NDC (i.e., has “surplus” emission reductions), corresponding adjustments are painless. If Brazil is struggling to meet its NDC, corresponding adjustments become politically difficult.

Current assessment: Brazil’s deforestation trajectory will determine whether surplus reductions exist. Under the current government’s Amazon deforestation reduction policies, Brazil may have NDC surplus — creating space for Article 6 transfers. A future government with different deforestation policies could eliminate that surplus.

---

Brazil’s Article 6 Strategy

Bilateral Deals (Art. 6.2)

Brazil has engaged in bilateral discussions with several countries:

Partner	Status	Focus Areas	Estimated Volume
Switzerland	Advanced (MOU signed)	REDD+, reforestation	5-10 MtCO2e
Japan	Active discussions (JCM framework)	Energy efficiency, forestry	2-5 MtCO2e
South Korea	Exploratory	Forestry, agriculture	TBD
Singapore	Exploratory	Nature-based solutions	TBD
UK	Exploratory	Forest protection	TBD

Switzerland’s bilateral program is the most advanced. Under the Swiss KliK Foundation framework, Switzerland has already signed emission reduction purchase agreements with several developing countries, and Brazil is a priority partner.

Selective Authorization

Brazil has signaled that it will selectively authorize Article 6 transfers rather than allow open market transfers. Key principles:

• Government authorization required for each transfer or category of transfers
• Sector/methodology restrictions — Brazil may authorize transfers from certain project types (e.g., reforestation) but not others (e.g., REDD+ in the Amazon, which is more politically sensitive)
• Volume caps — Annual limits on total ITMOs transferred
• Premium pricing — Government may require that Article 6 credits carry a premium to compensate for the NDC impact

---

Implications for Foreign Investors

Scenario 1: Buying Credits for Voluntary Use Only

If you are purchasing Brazilian carbon credits for voluntary corporate offsetting — not for NDC compliance in any country — Article 6 corresponding adjustments are not required. The credit represents a real emission reduction, and its voluntary retirement does not affect any country’s NDC accounting.

Practical impact: None. This is the simplest transaction structure. See ERPA contract guide.

Scenario 2: Buying Credits for CORSIA Compliance (Aviation)

ICAO’s CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) may accept credits with or without corresponding adjustments, depending on the CORSIA eligibility criteria. Brazilian credits from approved programs (Verra VCS, Gold Standard) may qualify.

Practical impact: Monitor CORSIA eligibility lists. Corresponding adjustments may be required for CORSIA credits starting 2028.

Scenario 3: Buying Credits for Another Country’s NDC Compliance

If you are purchasing credits on behalf of a government or for use in a country’s NDC accounting, full Article 6 compliance is required:

1. Brazil must authorize the transfer
2. Corresponding adjustment applied to Brazil’s NDC
3. ITMO tracked through international registry
4. Acquiring country applies corresponding adjustment to its NDC

Practical impact: Significant regulatory process. Requires engagement with Brazil’s designated national authority (currently being established under MMA). Timeline: uncertain, likely 6-12 months per authorization.

Scenario 4: Buying Credits for SBCE Compliance

SBCE is a domestic system. Credits used for SBCE compliance remain within Brazil’s NDC accounting — no corresponding adjustment required.

Practical impact: None regarding Article 6. SBCE eligibility criteria apply.

---

Price Impact of Corresponding Adjustments

Corresponding adjustments add cost to Article 6 transactions:

Cost Component	Estimated Impact
Government authorization fee	USD 0.50-2.00/tCO2e (TBD)
Compliance documentation	USD 0.25-1.00/tCO2e
SOP (Art. 6.4 only)	5% of credits
OMGE (Art. 6.4 only)	2% of credits
NDC premium (Brazil policy)	10-30% above voluntary price (estimated)
Total estimated premium	15-40% above voluntary market price

This premium means Article 6 credits will trade at a significant markup to voluntary credits. For investors, this creates a tiered pricing opportunity: develop projects that can generate both voluntary credits (no corresponding adjustment) and Article 6 credits (with corresponding adjustment, at premium price).

---

Legal and Contractual Considerations

ERPA Provisions for Article 6

If your ERPA contract contemplates Article 6 transfers, it should address:

Issue	ERPA Provision
Authorization risk	Who bears the risk if Brazil does not authorize the transfer?
Corresponding adjustment cost	Who pays any government fees associated with the adjustment?
Timing	What happens if authorization is delayed beyond the expected timeline?
Alternative use	If Article 6 authorization is denied, can credits be sold on voluntary market instead?
Price adjustment	Does the price change depending on whether credits receive Article 6 authorization?

Governing Law for Article 6 Transactions

Article 6 transactions involve three layers of law:

1. International law: Paris Agreement, CMA decisions, Article 6 rulebook
2. Brazilian domestic law: Whatever framework Brazil establishes for authorization and corresponding adjustments
3. Contract law: The ERPA and any bilateral treaty between Brazil and the acquiring country

The ERPA should specify which layer governs each aspect of the transaction. See dispute resolution for arbitration considerations.

---

Timeline and Outlook

Period	Expected Development
2025-2026	Brazil finalizes corresponding adjustment framework, first bilateral authorizations
2027	SBCE launches; Article 6 and domestic market begin operating in parallel
2028-2030	Bilateral deals scale; Article 6.4 mechanism matures
Post-2030	Second NDC period — Brazil’s Article 6 strategy may expand or contract based on NDC ambition

---

Country-Specific Analysis: Key Bilateral Partners

Switzerland

Switzerland is the most advanced Article 6 partner for Brazil. Through the KliK Foundation (a private-sector vehicle implementing Switzerland’s international climate obligations), Switzerland has:

• Signed bilateral agreements with multiple developing countries under Article 6.2
• Established standardized authorization and corresponding adjustment protocols
• Committed significant capital (~CHF 100M+) to international credit purchases
• Prioritized nature-based solutions in its acquisition strategy

Opportunity for investors: Projects that obtain Swiss bilateral program approval command premium pricing (the “Swiss premium”) because they come with guaranteed corresponding adjustment authorization. Designing projects to meet both Verra VCS and Swiss bilateral requirements creates dual-market optionality.

Japan (JCM — Joint Crediting Mechanism)

Japan’s JCM is an established bilateral mechanism predating Article 6 adoption. Japan has active JCM partnerships with 29 countries. Brazil is not yet a JCM partner, but discussions are ongoing.

Opportunity: If Brazil joins JCM, projects could generate JCM credits recognized for both Japan’s NDC and Brazilian project revenue. JCM typically focuses on technology-based projects (energy efficiency, renewable energy) rather than nature-based solutions, potentially creating a niche for industrial carbon projects.

South Korea and Singapore

Both countries are actively seeking Article 6 credits to meet their NDC targets. South Korea’s K-ETS has limited domestic offset supply, and Singapore has committed to carbon neutrality by 2050 with limited domestic mitigation potential.

Opportunity: As smaller buyers, Korea and Singapore may accept project types or geographies that larger bilateral programs bypass. Specialized projects in emerging biomes (Caatinga, Pantanal) could find receptive buyers.

---

Article 6 and REDD+: The Political Dimension

The intersection of Article 6 and REDD+ in Brazil is politically sensitive. The Amazon forest is a national sovereignty symbol, and corresponding adjustments for Amazon REDD+ credits effectively “export” Brazil’s deforestation reduction achievements to foreign countries’ climate accounts.

Political considerations:

• Sovereignty concerns: Some Brazilian politicians resist allowing foreign countries to claim credit for Amazon preservation — “they did not plant these trees”
• NDC competition: If Brazil is struggling to meet its own NDC, transferring Amazon REDD+ reductions abroad makes domestic compliance harder
• Pricing use: Brazil can charge a premium for corresponding adjustments, effectively extracting economic rent from its forest assets
• Selective authorization: Brazil is likely to authorize Article 6 transfers for reforestation (ARR) more readily than for avoided deforestation (REDD+), because ARR represents new carbon sequestration rather than preservation of existing stock

Implication for investors: ARR projects may be easier to authorize under Article 6 than REDD+. Design projects accordingly if Article 6 eligibility is a priority.

---

Frequently Asked Questions

Do I need Article 6 authorization to buy Brazilian carbon credits? Only if you intend to use the credits for NDC compliance in another country. Voluntary market purchases and SBCE domestic compliance do not require Article 6 authorization.

Will corresponding adjustments make Brazilian credits too expensive? For some buyers, yes — the 15-40% premium may push them to cheaper alternatives. For buyers who need high-integrity, Article 6-compliant credits from the world’s largest tropical forest, Brazilian credits remain compelling despite the premium.

Can I buy credits now and apply for Article 6 authorization later? Potentially — but the credit must not be retired on a voluntary registry before Article 6 authorization is sought. Structure ERPA and registry actions to preserve Article 6 optionality.

How does Article 6 interact with SBCE? SBCE is domestic. Article 6 governs international transfers. A credit used for SBCE compliance cannot also be transferred internationally under Article 6 (that would be double counting). The two systems are parallel, not overlapping.

---

Why ZS Advogados

Article 6 transactions require legal counsel who understands both international climate law and Brazilian domestic regulation. As the first American admitted to the Brazilian Bar (OAB/SP 351.356), founding partner Zachariah Zagol brings an international perspective to an inherently cross-border legal challenge. We advise on ERPA structuring for Article 6 optionality, coordinate with Brazil’s designated national authority, and ensure your transaction complies with both Paris Agreement rules and Brazilian law.

See our cross-border transactions guide for related FX, tax, and BACEN considerations, or review the foreign investment guide for the full regulatory picture.

“International carbon credit transfers under Article 6 require meticulous legal structuring to navigate corresponding adjustments and bilateral treaty requirements.” — ZS Advogados

Schedule a consultation to discuss Article 6 and your cross-border carbon strategy.