ITMO Market Shows Promise – But Needs Structure

The global community continues to employ a variety of innovative solutions to fight and abate the effects of climate change. These include carbon credits, an instrument representing 1 metric ton of greenhouse gas emissions (GHG) verified to have been removed from the environment or avoided via carbon-capture technology, reforestation or green energy, for example.

The voluntary market for trading carbon credits—which allows corporates and other buyers to acquire credits, while also allowing sustainable projects and Global South economies to access financing—has in turn grown. But there’s another burgeoning market solution that’s showing great promise in helping countries scale their climate ambitions and work toward emission commitments.

Internationally Transferred Mitigation Outcomes (ITMOs) are becoming increasingly important as the first agreements between sovereign countries are reached and a global deal pipeline builds. Taken together with other developments, like the possible conversion of REDD+ results into ITMOs, and the potential for the mitigation outcome market is clear. The necessary work is now to help establish, institutionalize and mature the market through infrastructure and transparency.

The emergence of ITMOs

ITMOs derive from Article 6 of the Paris Agreement, which provides a framework for countries to cooperate toward Nationally Determined Contributions (NDCs) through carbon markets. In essence, Article 6 lays the groundwork for countries to transact with one another if, say, one country transfers excess mitigation outcomes to another that needs help in meeting established NDC targets.

The model is meant to stimulate the level of international collaboration that is necessary to climate mitigation efforts. Like carbon credits, ITMOs represent 1 metric tonne of carbon or equivalent GHG that is reduced, removed, or avoided, and which is verified and validated to be additional—i.e., the emission reduction would not have occurred without the ITMO.

Ideally, ITMOs will offer nations a cost-effective and efficient mechanism for climate progress, sustainable development and environmental integrity and transparency in the governance of mitigation outcomes. Near-term savings achieved through cooperation could then be reinvested into climate action, creating a sovereign market worth potentially hundreds of billions.

Encouraging first results

We’re starting to see the framework of Article 6 bear fruits. As of October 2024, the UN Environment Programme Copenhagen Climate Centre has observed:

• 91 bilateral agreements
• 56 countries involved
• 141 pilot projects (the vast majority of which owned by Japan)

The strong pipeline has led to some milestone agreements:

• Bangkok E-Bus Program (Thailand-Switzerland)
• Solar power electrification of Vanuatu islands (Vanuatu-Switzerland)
• Smart agriculture practices for sustainable rice cultivation in Ghana (Ghana-Switzerland)
• Integrated waste recycling and composting for methane reduction (Ghana-Switzerland)
• Transformative Cookstove Activity in Rural Ghana (Ghana-Switzerland)

The Bangkok E-Bus program recorded the first ever ITMO transaction under Article 6.2 in late 2023, with Swiss representatives saying the purchase would go toward the country’s domestic NDC goals.

Suriname has also made headlines, leveraging another Paris Agreement mechanism: REDD+, which is a methodology for reducing emissions from deforestation and forest degradation in developing countries. Through forest-related activities, conservation and enhance of forest carbon stocks. The verified data results of these programs can be converted into ITMOs. In August, Suriname announced an offering of 1.5 million ITMOs related to rainforest conservation. These authorized ITMOs were the culmination of multiyear process of validating and the first sovereign carbon credits

ITMO market needs infrastructure to grow

Presently, countries operate through a decentralized framework to arrange bilateral agreements. But to establish and grow a global ITMO market, infrastructure is needed to support efficiency across the transaction life cycle and provide the transparency necessary for accurate accounting. Absent this, true scale will be difficult to achieve, stifling international cooperation, capitalization, and climate action.

In many ways, registries are the backbone of markets; the case is no different for ITMOs. Advanced and scalable infrastructure will be essential creating the technology estate needed to support growing volumes, an inscrutable book of records, and efficient cross-border transactions at scale across the ITMO life cycle.

From issuance through transfer, custody, and settlement, technology will have a major role to play in the cultivation and maturation of the global ITMO market. Empowering this market will not only entail solidifying structure but also incorporation of advanced solutions like smart contracts. These technologies, importantly, will enable secure and immutable recordkeeping, increasing transparency and market participant trust while reducing risks such as double counting fraud and enhancing trust among market participants.

Nasdaq is committed to advancing climate action in its business and through its solutions, as well as Puro.earth. Our carbon registry technology can help lay the groundwork for an efficient, scalable global ITMO market as nations seek to collaborate and innovate toward a better future.