The fight against climate change depends on the ability to scale carbon reduction and removal projects through effective carbon markets. Yet, a critical barrier to growth remains: the lack of enforceable security interests over carbon credits. Without clear mechanisms to secure financing through debt or forward purchase agreements, project developers struggle to attract the investment needed to bring these projects to life.
In this blog, we explore the importance of security interests in carbon markets, the challenges posed by their absence, and how the Article 6.4 Mechanism Registry could offer a solution.
In traditional project finance - such as renewable energy projects - lenders routinely secure their investments by taking security over assets like real estate, equipment, and contractual rights. This security mitigates their risk and ensures they can recover their investment if the borrower defaults.
However, in carbon markets, this practice is largely nonexistent. Leading voluntary carbon market (VCM) standards, such as Verra, explicitly prohibit security interests over carbon credits. This creates investment uncertainty for lenders, ultimately stifling the growth of carbon projects that require significant upfront capital.
Recognizing this gap, we, along with Philipp Lee LLP and Skylight Law, two law firms, and emral carbon, a carbon market brokerage and advisory firm, submitted a formal letter to the Article 6.4 Supervisory Body in April 2024.
In our letter, we highlighted the challenges faced by project developers, particularly in the VCM, where registries like Verra not only fail to facilitate security interests but actively prohibit them. Without the ability to provide lenders with enforceable security, financing for carbon projects remains limited.
In response to the public call for input, which closed in May 2024, the Supervisory Body received nine responses - all supporting the need for security interests in the Article 6.4 Mechanism Registry. On January 30, 2025, the UNFCCC secretariat issued two information notes regarding Control and Ownership and Security Interests in Article 6.4 carbon credits.
Key takeaways from the consultation:
The pledge system would be a significant step forward in enabling financing for carbon markets. Here’s how it would work:
This model would mirror established financial practices, such as the New Zealand Emissions Trading Scheme (NZ ETS), which already facilitates security interests.
In addition, stakeholders have proposed expanding this system by adopting a centralized security interest registry, similar to the Cape Town Convention (CTC). A global tracking and enforcement system for security interests across international carbon registries would:
The ability to establish enforceable security interests in the Article 6.4 Mechanism Registry is not just a technical upgrade - it is a necessary evolution to scale carbon markets and drive global climate action.
By addressing the financing challenges that carbon project developers and investors face, the Supervisory Body could potentially unlock billions in investment for projects that reduce and remove emissions.
As the Article 6.4 Mechanism Registry continues to take shape, it is essential to engage with stakeholders, refine the proposed solutions, and ensure that the registry is designed to meet the needs of a rapidly growing global carbon market. The time for action is now, and with the right frameworks, the carbon market can become a powerful tool for achieving the Paris Agreement’s climate goals.
The Article 6.4 Mechanism Registry holds the potential to transform global carbon markets by allowing enforceable security interests over carbon credits. By incorporating the insights from our advocacy, the public call for input, and best practices from financial markets, the Supervisory Body can create a registry that attracts investment, expands carbon financing, and accelerates climate action.
Solutions like the pledge system and global security interest registries could strengthen carbon markets and drive climate finance at scale.