Lost in translation: The letter of approval

A great movie with Bill Murray

In almost every Article 6 conversation, the same acronym comes up: LOA — Letter of Authorization. It sounds procedural, almost administrative, as if it were the final stamp at the end of a long but otherwise linear process. In practice, the LOA is where the entire system slows down, fragments, and often quietly breaks.

I think many of us have been uneasy about this for years. Since the early negotiations on the Paris Agreement rulebook, anything related to government authorization has generated anxiety: Letters of Authorization, corresponding adjustments, conditional versus unconditional NDCs. I’ll be honest, I was genuinely concerned. Developing carbon assets is already complex, but adding a government decision layer made the process, from the very beginning, feel fragile and, in many cases, almost unmanageable.

From the outside, Article 6 appears to be moving. Bilateral agreements are announced, MoUs multiply, pipelines are marketed as “Article 6-ready,” and forward offtake discussions increasingly assume that authorization is simply a matter of timing. Yet when we look at what has actually been formalized at the UNFCCC level, the picture is very different. As of early 2026, only a limited number of countries have formally submitted authorization statements under Article 6.2, while more than eighty are reported as having authorization or tracking systems “underway.”

This gap is not a technical anomaly. It is the clearest signal that LOAs are not delayed by a lack of interest or a lack of projects, but by something deeper: governance, sovereignty, and risk.

Independent analysis reinforces this picture. Recent tracking by the Climate Action Center of Excellence (CA.CE) shows that only a small subset of countries have fully operational authorization frameworks, while many others face structural conflicts between credit exports and their own NDC accounting. CA.CE highlights that countries such as Rwanda, Malawi, Ghana, Guyana and others may struggle to authorize significant volumes of credits without jeopardizing their domestic climate targets. In practical terms, this means that the authorization gap is not driven by a lack of mitigation activities or project pipelines, but by unresolved policy trade-offs around how emissions reductions are counted, retained, or transferred.

This leads to a simple but fundamental question: do these countries realistically have alternative ways to unlock large-scale private capital for decarbonisation without international carbon markets and Article 6?

The word most often used to describe the situation is pending. Pending LOA. Pending authorization. Pending approval. But “pending” has become one of the most misleading terms in the Article 6 vocabulary. Pending can mean a document waiting for a signature. It can also mean an inter-ministerial deadlock, an unclear legal mandate, a registry that is not ready, or a political decision that has simply been postponed because its implications are uncomfortable. From the market’s perspective, all these situations look the same. From a host government’s perspective, they are completely different.

A recent conversation made this painfully concrete. A colleague has been working for years on a capital-intensive infrastructure project in an African country, waiting for government authorization. For months, every update sounded identical: “next week,” “almost there,” “we’re close.” The feeling was always that the letter was just around the corner. Then one day, he said something that stopped me: “I don’t know if we’ll receive the letter this year.”

Nothing had changed formally. No rejection, no policy shift, no official communication, just a gradual evaporation of political will. We are talking about a project that could provide access to basic services for thousands of people. For a project developer, this is the worst possible outcome: not a “no,” but no answer at all.

At that point, uncertainty starts to resemble a casino game. You keep playing because the next card might finally be the right one, even though the odds are opaque and the house controls the deck. Capital is deployed, teams stay active, buyers wait, and time passes without any signal that can be modelled, priced, or managed.

What makes this even more fragile is that, in many cases, the authorization process formally exists. It is written into a decree, a regulation, or a ministerial decision. On paper, everything looks correct. In practice, the process is often unreliable. There are no binding timelines, no escalation mechanisms, and no accountability if a decision is simply never taken. The existence of a process creates a false sense of protection while offering none.

At the same time, it would be unfair to frame this purely as a government failure. More and more host countries are simply not comfortable authorizing yet, because they are afraid of the implications they do not fully understand. The rules are complex, accounting consequences are still evolving, inventories are incomplete, and registries are often not operational. Many experts I trust repeat the same message: countries are still learning. I tend to believe this. I also believe the process will become faster over time, as experience and confidence grow.

But belief in future improvement does not solve today’s problem.

The consequences of this authorization gap are already visible in compliance markets. A recent Wall Street Journal analysis highlights that airlines covered by CORSIA Phase I (2024–2026) are expected to require around 200 million carbon credits, while only roughly 30–35 million credits are currently available and authorized for use. The constraint is not a lack of mitigation activities or project pipelines, but the limited number of host countries that have issued Letters of Authorization allowing credits to be transferred internationally without undermining their own climate targets. In this sense, LOA scarcity is no longer a theoretical concern; it is already shaping supply, pricing expectations, and market confidence.

Investors understand this asymmetry very well. Even when they are interested in principle, even when they believe in the project and its impact, they are clear on one point: authorization risk is not their responsibility. If the LOA does not arrive, they want the money back. No shared downside, no patience premium, no risk pooling. The uncertainty sits entirely with the developer. For many investors, this effectively becomes another form of optionality: if authorization arrives, there is upside; if it doesn’t, they walk away. Political risk is excluded from the finance cycle, and this is exactly where the system starts to break.

Under these conditions, it is hard to see how small and medium-sized project developers can survive. This is not a level of risk that can be absorbed, diversified, or professionally managed. You cannot hedge political hesitation. You cannot compensate for it with better MRV or stronger methodologies. The only way to influence the outcome is at the government level, through structured engagement, credibility, and sustained institutional dialogue. Yet most developers are neither equipped nor capitalized to operate at that level. Insurance solutions exist, but they are often prohibitively expensive, with indicative costs that can range between roughly 2% and 4% of total project or credit value, depending on risk perception and structure, and are directly linked to authorization and LOA risk.

This is where the system becomes dangerous. When outcomes depend on opaque decisions, undefined timelines, and discretionary motivation, the door is left open to non-transparent practices. Not because developers or governments intend to behave badly, but because uncertainty without accountability inevitably creates pressure points, especially when a single letter can determine whether a project lives or dies. Recent cases, such as KOKO Networks, show how fragile these dynamics can be.

The core issue is not that governments need more discretion. It is that the system needs less interpretation. In my experience, the only sustainable way forward is a framework where, if a developer meets clearly defined conditions anchored in transparent and credible conditional NDCs, authorization is guaranteed. Not politically encouraged. Not informally supported. Guaranteed. If I develop this type of project, following these rules, the outcome should be predictable.

An LOA is not just permission to sell credits. It is often an implicit commitment to corresponding adjustments, a signal of how a country intends to use its mitigation outcomes, and a precedent that shapes future negotiations. It is climate sovereignty expressed in contractual form. Expecting it to behave like a routine administrative step is a category error. But allowing it to remain discretionary without safeguards is equally problematic.

Until processes exist where interpretation is close to zero and outcomes are predictable, LOAs will remain scarce and unevenly distributed. Today, we are still talking about fewer than 50 LOAs globally, and perhaps only around 20 that are usable for CORSIA. Independent tracking confirms that this is not a temporary mismatch, but a structural transition phase linked to NDC design and national accounting constraints.

This does not mean Article 6 is not working properly. It means it is doing something new and difficult. Authorization is forcing countries to confront, for the first time, the real trade-offs between domestic climate ambition and international cooperation. That learning curve was inevitable.

If this transition succeeds, LOAs can become what they were always meant to be: not a bottleneck, but a bridge between national ambition and global climate finance. The foundations are there.

This article is also published on Substack. illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

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