Canada is off track to meet its 2030 emissions target and its nationally determined contribution (NDC), which means more policy ambition will be needed to get closer to its targets and align with net zero emissions. A decade of carbon policy has led to real emissions cuts, but this progress remains modest given rising economic activity, lagging energy efficiency, and increased emissions from an ever-expanding oil and gas sector.
Canada will need a sustained policy effort to bring down emissions and a full toolbox to get it done. Internationally Transferred Mitigation Outcomes—or ITMOs—are not new, but with global rules now firmed up, they offer an important tool to deliver both emission reductions and support carbon competitiveness.
This blog lays out what they are and why they’re relevant for Canada’s climate competitiveness strategy. You can read more on the topic in the Canadian Climate Institute’s scoping paper.
What are ITMOs and why should Canada use them?
ITMOs under Article 6 of the Paris Agreement offer a credible, cost-effective way to complement domestic emissions reductions.
Essentially, ITMOs are formalized agreements between two countries where an emissions reduction that takes place in a host jurisdiction is verified and then transferred or sold to another country. The receiving country then applies the emissions credit to its own emissions inventory (or NDC, in the parlance of the United Nations).
ITMOs let countries count verified emissions reductions achieved abroad through technology transfer and climate finance, provided both partners agree and apply strict accounting rules to avoid double counting the emissions reductions. ITMOs can be generated through co-operative activities or programs jointly designed and implemented by the participating countries.
Article 6 is now operational, with clear rules and nearly 100 bilateral arrangements in place. It creates structured pathways for countries to use verified emissions reductions abroad to meet national targets.
For Canada, this opens a practical, high-integrity tool to complement domestic action and manage the rising costs of reducing emissions. Importantly, the use of Article 6 bolsters carbon competitiveness, helping Canadian firms win in fast-growing clean technology markets.
ITMOs can cut the cost of Canada’s emissions reductions and expand options
ITMOs let countries pursue lower-cost ways to cut emissions abroad, avoiding the most expensive domestic options. This matters for Canada, where hitting medium-term targets will require increasingly expensive options to reduce greenhouse gases, especially in heavy industry.
For example, carbon capture utilization and storage costs upwards of $150 per tonne for industrial sources such as those proposed for the Pathways Alliance project. With heavy industry responsible for about 42 per cent of national emissions, relying only on domestic reductions quickly becomes expensive.
Modelling for the Canadian Climate Institute shows that achieving a 45 per cent reduction below 2005 levels by 2035 implies average carbon costs in the range of $150 per tonne. Shifting even 10 megatonnes of domestic reductions to ITMOs could avoid around $2 billion in costs in 2035. With slowed policy ambition relative to past Emissions Reduction Plans and rising national emissions from more and gas development, the potential savings rise fast. Current international price forecasts of $45 to $100 per tonne imply substantial savings when compared to the costs of reducing these emissions in Canada.
There are trade-offs, however. Capital deployed abroad to catalyze new additional emissions reductions support jobs and investment elsewhere. But lower compliance costs reduce economic headwinds at home, helping protect investment and productivity. And where international partnerships from ITMOs include technology or commercial benefits—namely, that ITMO emissions reductions use technology from Canadian companies—the net economic return improves here at home.
ITMOs can support Canadian trade, technology, and geopolitics
Embedding ITMOs in Canada’s trade and finance strategy could help deepen opportunities for Canadian firms in fast-growing global markets for clean tech and low-carbon energy.
Global trade data shows that Canada sold $5.5 billion worth of low-carbon value chain products into the Global South in 2023, across a range of raw materials such as critical minerals and final products including high efficiency electric motors. This success points to a clear strategy: focus on areas where Canada already leads such as methane reduction, electricity generating technology, and advanced manufacturing.
On liquefied natural gas (LNG), bundled approaches that integrate Canadian LNG with clean energy investments and broader energy transition strategies in importing countries could qualify for Article 6 treatment, but have significant potential pitfalls and are far from the “sell gas, bank credits” model many believe to be true.
To be considered under Article 6, LNG exports would likely need to be embedded in a comprehensive decarbonization plan in the host country, with emission reductions that are demonstrably additional to higher-emitting energy use.
Canada should follow Japan’s model and move now
A deliberate approach involving building bilateral agreements and drawing on lessons from Japan’s Joint Crediting Mechanism (JCM) could convert these strengths into credible ITMO supply and expand global trade partnerships for Canada.
Japan’s experience shows how an organized, long-term approach to Article 6 can deliver emissions reductions, technology deployment, and trade gains. Its JCM is a dedicated platform for bilateral deals that deploy Japanese clean technologies abroad, generate verified emissions reductions, and share credits between Japan and partner countries. Japan now has agreements with 31 countries and more than 250 projects, mostly in clean power and efficiency.
Japan’s early action delivered first-mover advantages by rolling out a fully integrated strategy:
- Co-ordinated governance: Environment, trade, energy, technology, and foreign ministries jointly support deal development, financing, and demonstration projects.
- Focused bilateral platform: The JCM accelerates deployment of Japanese technology, including advanced manufacturing, through standardized rules and state-backed investment, lowering transaction costs and enabling credit sharing.
- Capacity building: The Article 6 Implementation Partnership supports implementation in partner countries, with more than 80 countries and 200 organizations participating.
- Regional alliances: Japan convenes regional forums to drive decarbonization partnerships and secure project pipelines.
- Private-sector integration: Government tools de-risk private investment and support firms pursuing international mitigation projects.
By developing a comprehensive governance system early on, Japan is gaining a project pipeline of low-cost emissions reductions options it could apply to its own emissions inventory while diversifying trade.
Canada has a narrow window to move from discussion to delivery. Learning from Japan, the path forward is clear:
- Establish a national Article 6 co-ordination mechanism linking Environment and Climate Change Canada, Global Affairs, and Natural Resources to manage bilateral co-operation and crediting.
- Launch bilateral pilot projects with willing partner nations to demonstrate Canadian technology and build institutional capacity.
- Leverage existing finance tools such as those provided by the Export Development Corporation to de-risk priority projects and mobilize private capital.
- Integrate ITMOs into Canada’s broader climate and trade strategy, ensuring provincial participation and alignment with broader competitive efforts.
Canada needs to put the ITMO policy pieces in place now
Canada needs to act quickly to secure early-mover advantages as global Articles 6 markets scale up and trading relationships form. Doing so will mean the country will gain access to lower-cost emissions reductions through ITMOs.
To take advantage of this opportunity, Canada needs to stand up a co-ordinated federal platform that pushes pilot transactions, builds capacity, tests approaches, and signals broader intent to trading partners. Linking Canada’s ITMO strategy with trade, finance, and clean tech support tools can drive export opportunities and strengthen competitiveness, all while supporting sustainable development outcomes in the Global South.
That’s a lot of benefits for a single policy lever. But time is short and Canada should act now to start putting the policy pieces in place, so they’re available when needed most.
