As global climate rules shift from the Kyoto era to the Paris Agreement, one concept remains central: ADDITIONALITY. Projects seeking to generate international carbon credits must prove that they would not have gone ahead without the revenue from those credits. To enforce this, the UN’s Article 6.4 Supervisory Body has introduced a new methodological tool for investment analysis. On paper, it looks highly technical, but in practice, it will decide whether Indian projects can tap into the next wave of carbon finance.

If a project is financially unattractive without credits but crosses the threshold once revenues from credits are added, it qualifies as additional.

At its core, the tool provides a structured way for project developers to demonstrate additionality. It asks them to model the financial performance of their project with and without carbon credit revenues, using familiar indicators such as internal rate of return or net present value. If a project is financially unattractive without credits but crosses the threshold once revenues from credits are added, it qualifies as additional. For India, where projects range from massive solar parks to small biogas plants, this offers both a hurdle and an opportunity: a clear framework to prove the value of carbon finance, but also a stricter bar to clear.

One of the tool’s most important features is its use of country-specific default values for the cost of equity. For India, this has been set at roughly 10.8 to 11.5 % for recent years. This number matters enormously. It serves as the financial benchmark against which projects must be tested. If a wind farm in Gujarat earns only 9% without credits, the tool will judge it to be additional. But if a solar park in Rajasthan already delivers a return above 11%, it may be excluded. By pegging additionality to a national benchmark, the tool prevents arbitrary judgments but also reshapes which kinds of Indian projects are likely to qualify.

This has wide consequences for India’s carbon landscape. The government is already rolling out the Carbon Credit Trading Scheme, which will feature both a compliance market for industries and a voluntary market for offsets. Article 6.4 credits, known as A6.4ERs, are unlikely to count toward India’s own climate targets but can be exported to international buyers. That means developers will now weigh whether to register a project under India’s domestic scheme or under Article 6.4. In either case, the investment analysis tool will be central in deciding which projects make the cut for international sale.

The tool requires transparent, verifiable financial models, something many smaller Indian developers are not used to preparing.

The sectoral effects will be uneven. Renewable energy, where financing costs have fallen in recent years, may find it harder to prove that credits are decisive. Some wind and solar projects may simply be too profitable without carbon finance. On the other hand, waste management and biogas plants, which often struggle to cover costs, are more likely to pass the test. Forestry and land-use projects may also benefit, since carbon revenue is often their only income stream. The uniform benchmark, however, may disadvantage riskier or innovative technologies like carbon capture, which face higher financing costs but are not recognized as a special case in the current tool.

The challenges should not be underestimated. The tool requires transparent, verifiable financial models, something many smaller Indian developers are not used to preparing. Validators will have to check assumptions rigorously, and India has only a handful of accredited auditors with relevant experience. Domestic banks are still reluctant to lend against uncertain carbon revenues, and until the international registry allows future credits to be pledged as collateral, financing will remain difficult. Add to this the fees and levies imposed under Article 6.4, and small projects may struggle to justify participation at all.

Yet the potential is significant. By enforcing credible standards, the tool can build trust in the integrity of Indian credits. It can also direct scarce carbon finance toward projects that genuinely need it, rather than subsidizing business-as-usual investments. For policymakers, aligning India’s domestic carbon market with the Article 6.4 rules will be key to avoiding duplication or confusion. For developers, mastering this tool will be essential to access international buyers hungry for high-quality credits.

In the end, this is more than a methodological detail. It is the financial filter that will shape India’s role in the global carbon market. Used well, it can unlock new streams of capital for waste, forestry, and frontier technologies that otherwise struggle to find backers. Misapplied, it risks excluding India’s projects from a mechanism that could be a lifeline for climate finance. The Article 6.4 investment analysis tool is thus both a challenge and an opportunity: a demand for greater financial discipline, and a chance for India to prove that its projects meet the highest standards of credibility in the era of the Paris Agreement.