By Ash Sharma, Fund Manager, Swedish Article 6 Climate Cooperation Fund (ACCTIF)

As countries move from carbon market readiness to implementation under Article 6 of the Paris Agreement, a critical challenge is emerging: how to finance climate mitigation projects before carbon revenues begin to flow. The challenge is increasingly urgent because Article 6 is now moving beyond readiness activities and into real world transactions. As project pipelines develop, the availability of upfront capital may even become a more important constraint than buyer demand.

For many high-impact carbon projects, the issue is not a lack of demand for emissions reductions. Rather, it is a timing problem. Significant capital is needed upfront to deploy technologies, build infrastructure, and establish monitoring systems, while carbon revenues are only received years later after mitigation outcomes have been verified and transferred. This mismatch continues to limit the scale and speed of climate investment.

Recent GGGI research in Nepal, one of the four countries of operation of the Swedish Article 6 Climate Cooperation Fund (ACCTIF), has explored whether and to what extent Mitigation Outcome Purchase Agreements (MOPAs), long term offtake agreements backed by sovereign buyers, could help address this challenge by enabling future carbon revenues to support financing of low carbon projects today.

The Carbon Finance Bottleneck

Article 6.2 creates a framework for countries to cooperate on climate action through the transfer of Internationally Transferred Mitigation Outcomes (ITMOs). While this offers an important source of future revenue for mitigation projects, payments typically occur only after verified outcomes have been delivered.

This results-based payment structure is common among sovereign carbon funds and buyers. But for project developers, this creates a familiar challenge. Capital expenditure is required at the beginning of the project’s lifecycle, while carbon-related income arrives later. Smaller developers and projects in frontier markets often struggle to bridge this financing gap using traditional sources of capital. While public carbon funds can provide long-term demand for mitigation outcomes, they are unlikely to provide sufficient capital on their own to finance climate investments at the scale required. Mobilizing commercial banks, institutional investors, and other private sources of domestic finance is essential.

The question therefore becomes: how can the future value of contracted carbon revenues be converted into financeable cashflows that help unlock funding before mitigation outcomes are delivered?

Why MOPAs Matter

MOPAs are emerging as a potentially important building block in solving this challenge.

A well-structured MOPA provides visibility on future carbon revenues by defining expected volumes, pricing arrangements, delivery obligations, and the responsibilities of the buyer and seller. In theory, such agreements could provide lenders or investors with greater confidence about future cashflows, buying down risk, and enhancing creditworthiness.

However, contractual certainty alone is rarely enough.

Under Article 6, future carbon revenues remain exposed to a complex range of risks including authorization processes, monitoring and verification requirements, registry operations, sovereign approvals, and evolving regulatory frameworks. These risks can make lenders reluctant to treat future carbon revenues as a primary source of repayment.

As a result, the key challenge is not simply creating carbon revenue streams, it is making those revenues sufficiently predictable, enforceable, and bankable. In many respects, the challenge facing Article 6 is not a shortage of capital, but the incomplete translation of future carbon value into financeable cashflows that lenders are prepared to recognize.

What Conditions Enable Upfront Carbon Finance?

Our work in Nepal and elsewhere highlights several enabling conditions that could support the use of MOPAs as part of financing structures. The objective is not to treat MOPAs as carbon market instruments alone, but to understand under what conditions future carbon revenues become sufficiently bankable to support commercial finance.

1. Regulatory Readiness
   A functioning Article 6 ecosystem requires predictable authorization procedures, transparent rules for carbon transfers, operational registries, and clear processes for corresponding adjustments. Where approvals are uncertain or delayed, future revenues become harder to finance.
2. Standardized Documentation
   Financial institutions are accustomed to assessing standardized contracts. The greater the variability in MOPA terms, the more difficult and expensive financing becomes. Developing lender-friendly templates and standardized approaches to key contractual provisions, including payment terms, delivery obligations, assignment rights, and dispute resolution, can help reduce transaction costs and improve scalability.
3. Credit Enhancement
   Guarantees, first-loss capital, insurance products, reserve accounts, and blended finance structures can improve risk profiles and attract private capital. At the current stage of market development, these mechanisms are likely to be particularly important because most lenders do not yet view carbon revenues as a standalone basis for repayment. Importantly, these tools work best when they complement good risk mitigation, strong governance and contractual clarity.
4. Portfolio Aggregation
   Many climate mitigation projects are too small to attract financing individually. Aggregating multiple projects into larger portfolios can diversify risk, generate more stable revenues, and create financing opportunities better suited to institutional investors and capital markets. This is exactly what ACCTIF is working on with commercial scale biogas plants in Nepal, together with the Alternative Energy Promotion Centre.

Case Study: FarmCarbon Turning Future Carbon Revenues into Working Capital

While Article 6′ financing structures remain at an early stage, valuable lessons can be drawn from early movers. The common thread across these examples is not carbon finance itself, but the successful conversion of future, performance-based revenues into predictable cashflows capable of supporting investment today.

FarmCarbon, created by project developer Sistema.bio alongside AXA IM and British International Investment (BII), provides an example of how forward carbon revenues can be mobilized upfront.

The USD 50 million in-house fund supports biodigester deployment by effectively advancing the future carbon benefit to farmers through discounted pricing. Carbon rights are retained within the fund, while future credits are sold under long-term forward offtake agreements.

The model demonstrates how portfolio aggregation, integrated monitoring systems, and long-term carbon sales can convert future carbon income into immediate working capital. Although not structured as a traditional securitization, it shows how future carbon revenues can support present-day investment.

Looking Ahead

The next phase of market development will depend not only on creating demand for mitigation outcomes, but on creating financing structures capable of supporting project deployment before those outcomes are generated.

MOPAs offer a promising mechanism for transforming future mitigation outcomes into financeable revenue streams. Yet their success will depend on much more than buyer offtake. Regulatory certainty, contractual standardization, strong MRV systems, credit enhancement mechanisms, and scalable portfolio approaches will all play critical roles in determining whether future carbon revenues can unlock investment today.

In the near term, carbon revenues are likely to function primarily as credit-enhancing instruments that improve overall project bankability rather than as standalone collateral. Over time, as Article 6 frameworks mature, track records develop, and risks are progressively reduced, these revenues may evolve into fully financeable assets capable of mobilizing significantly larger volumes of private capital. The key policy lesson is therefore clear: de-risking, standardization, and market confidence will determine the pace at which upfront carbon finance can scale.In the next blog, we will explore the findings from Nepal’s banking sector, examining how commercial lenders view MOPA-backed financing, the risks they continue to identify, and what steps are needed to unlock larger-scale private-sector participation in Article 6 markets.

Note: A more detailed exploration of these findings, including recommendations for policymakers, financial institutions and carbon market practitioners, are published in a recent GGGI paper on ‘Unlocking Upfront Carbon Finance for Article 6 Projects Through MOPA-Backed Financing‘.