Switzerland, Thailand conclude first Article 6.2 deal in landmark move for carbon markets

Switzerland and Thailand have completed the transfer of Article 6.2 carbon credits, marking the first ever for deal for emissions reductions under the Paris Agreement.

Article 6.2 sets out a system of national accounting for greenhouse gas emissions, with common principles that countries can adopt to allow cross-border exchanges of credits.

Countries can adopt cross-border exchanges of credits, known as Internationally Transferable Mitigation Outcomes, or ITMOs, under Article 6.2, which sets out a system of national accounting for greenhouse gas emissions.

The Swiss-based KliK Foundation said Jan. 8 it purchased the first ITMOs from the Thai company Energy Absolute Public Co. Ltd. for the Bangkok E-Bus Program.

The deal involves the purchase of 1,916 ITMOs which were credited to the KliK Foundation's account in the Swiss Emissions Trading Registry on Dec. 15.

"The ITMOs will be used by the KliK Foundation to fulfil its compensation obligation under the Swiss CO₂ Act. Switzerland intends to use these internationally transferred mitigation outcomes towards its target under the Paris Agreement. To avoid double counting, Thailand has committed to adjust its greenhouse gas inventory by the amount of mitigation outcomes transferred to Switzerland," the companies said in a joint statement.

The goal of the Bangkok E-Bus Program is to convert the fleet of private operators of e-buses in the Bangkok Metropolitan Area from internal combustion engines to electric vehicles.

Under the Article 6.2, countries can avail of emission reductions that can either be counted toward their own domestic targets, known as Nationally Determined Contributions (NDCs), or can be sold to other countries to put toward their own NDCs.

Key milestone

This development is a beacon moment for climate action, said Chatrapon Sripratum, vice president of climate change strategy & sustainability at Energy Absolute Public Co. Ltd.

"It shows that the complex mechanism under the cooperative approach is leading to reductions in CO₂ emissions. Our successful program implementation is contributing towards a decarbonized economy and may inspire other private sector actors in Thailand and worldwide to scale up their climate action," he said.

Many analysts expect this development to kickstart more country-company level collaboration in emissions trading, as private sector activity on Article 6 has been rather slow to take off due to technical and jurisdictional issues.

Around 69 bilateral deals have been signed under Article 6.2, according to data compiled by S&P Global Commodity Insights and the UN Environment Programme.

Many countries see Article 6 as a key tool to stimulate decarbonization and private investment, which can lead to reductions in greenhouse gas emissions.

Activity under Article 6.2 has been slow to take off, though there has been a slight pickup in pace in the past few months.

The shortage of carbon market infrastructure globally, especially the dearth of national registries, has added to the sluggishness of this trade.