Carbon Credits: Could Offsetting Delay Decarbonisation?
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As of 2025, approximately 60% of all Forbes 2000 companies have net-zero pledges, with the majority planning to purchase carbon credits to meet these pledges. Consequently, the voluntary carbon market was estimated at USD 4.04 billion as of 2024 and is only expected to grow in coming years. Corporate interest in purchasing carbon credits on the voluntary market has fuelled both praise and criticism. Using offsets can allow for companies to make up for hard-to-abate emissions, contributing to sustainability goals elsewhere in the world. However, carbon credits have been criticised for facilitating greenwashing, allowing companies to obscure their true environmental impact. This article will unpack what carbon credits are, and interrogate the implications of corporate overreliance on them.
What are Carbon Credits?
Carbon credits are tradeable certificates that represent a tonne of CO2 avoided, reduced, or removed from the environment. Carbon credits are generated by projects that remove or avoid emissions, with projects needing to prove that these emissions are additional to the baseline scenario (scenario where the project did not take place). Projects that generate carbon credits can take place anywhere in the world, from woodland restoration in the UK to community forest management projects in Peru. These credits can then be sold either on the compliance market, or the voluntary market.
This article will focuses on the voluntary carbon market, which is the market on which businesses have chosen to purchase additional carbon credits to offset purportedly unavoidable emissions. On this market, carbon credits can be purchased by individuals, businesses, governments, or other organisations who wish to compensate for their emissions beyond their legal obligations. After being sold, the credits are retired and permanently removed from circulation.
Naturally, the process of creating, verifying, and selling carbon credits is prone to greenwashing. In 2023, an investigation into Verra, a leading carbon standard organisation that certifies and sells voluntary carbon credits, found that most of their rainforest offset credits did not translate to actual reductions in deforestation, and 90% did not represent genuine emission reductions. Carbon credits may also fail to have the permanent impacts they promise, resulting in backsliding in the fight to mitigate greenhouse gas emissions.
Nevertheless, voluntary carbon credits are likely to remain popular. They have remained an attractive way for organisations to meet their carbon emission reduction goals, and the market is only expected to grow in the coming years. For instance, the UK government is already expressing its goal of positioning the UK as a global hub for carbon markets. Given this, it is worth interrogating why buying carbon credits is so popular, and the impacts of this popularity.
Carbon Credits vs. Decarbonisation?
As of 2024, it is estimated that nearly two-thirds of all sustainability targets set by large businesses in the UK will be achieved by the purchase of carbon credits. Companies like British Airways have plans to purchase millions of pounds worth of carbon credits that support projects both within and outside of the UK, from reforestation projects in Scotland and Wales to a biochar project in India. If we look at it optimistically, these purchases pour much needed funding into projects exploring innovative ways of reducing emissions in need of development, effectively making sustainability more profitable. This is especially important in industries where low-carbon solutions are limited, like the aviation industry. For British Airways to meet its goal of net zero by 2050 while continuing to be profitable, using carbon removal credits seems inevitable. By purchasing carbon credits, companies can adhere to their sustainability targets, bolstering their reputations in a time where consumers are increasingly conscious about the environmental impacts of the products they buy.
However, the question of why companies are choosing to rely heavily on carbon offsets to meet their sustainability goals remains. Carbon credits are not without risks; they can fail, leaving businesses without money and unable to meet their emissions targets. They are also prone to issues of integrity, as verification and monitoring of these offsets depend on third-party auditors. A 2025 study has even found that expenditure on carbon offsets does not correspond to greater speed or ambition from corporations to decarbonise their value chains.
The answer could lie in the fact that corporations can meet their climate targets more cheaply and easily by buying carbon credits, despite rising carbon offset costs. This replaces the imperative to overhaul their operations and processes to actually mitigate greenhouse gas emissions. For example, Shell spent US$1.4 billion on carbon credits in 2024 alongside decreased spending on clean energy. Other companies like ExxonMobil have followed a similar trajectory, continuing to purchase carbon credits to meet net zero targets while reducing their investment in low-carbon technologies. This does not necessarily suggest that these companies are purchasing carbon credits because they are moderating their commitments to decarbonising energy production. It is more likely that these revisions in spending on clean energy are in response to other factors, including continued strong demand for oil and gas. Thus, the ability to purchase carbon credits allows polluting companies to maintain some sustainability goals and reap the reputational benefits , while capitalising on opportunities to continue profiting in industries with high emissions.
Similar trends can also be observed in the tech industry, where Microsoft has ramped up its carbon credit purchases to offset the increasing emissions caused by AI data centres. This move suggests that companies like Microsoft are using carbon credits in lieu of a need for structural changes to reduce emissions caused by increased AI use. Though the purpose of carbon credits is to allow organisations to offset emissions they cannot eliminate, it seems that they have become default tools to justify companies’ lukewarm approaches to decarbonisation, rather than being used as a solution of last resort. This approach to carbon credits takes money away from investment in longer-term structural solutions for decarbonisation. As companies rely on offsets, they divert money into emitting technology or capital; money that then cannot be moved to help develop lower-carbon alternatives. Additionally, for a few of the largest spenders on carbon credits, spending on carbon credits can directly compete with investment in reducing emissions.
The issue of overreliance on carbon credits is exacerbated by the fact that the additional emissions that are avoided or removed by carbon offset projects is challenging to measure and their impacts tend to be exaggerated. Studies have shown that most REDD+ forest carbon offset projects – forest-related projects located in developing countries – overstate their climate benefits. As of 2022, 127 million credits were purchased by companies or individuals to offset their GHG emissions, but only an estimated 35 million represented real emissions reductions. With companies buying carbon credits to substitute decarbonisation action, it is likely that a delta between companies’ sustainability targets and their actual net emission targets has formed, jeopardising the ultimate goal of mitigating climate change.
What Should the Role of Carbon Credits Be?
It would be remiss to characterise carbon credits as simply a tool for corporations to greenwash. Carbon credits do play an important role in channelling funding to sustainability projects which would otherwise be unprofitable. They can also have important redistributive effects. For example, REDD+ forest carbon offset projects provide payments to developing countries if emissions are reduced through decreased deforestation, providing the Global South with the means to fund a green transition.
However, governments increasingly recognise that carbon credits should not be used alone. The UK Government’s ‘principles for voluntary carbon market integrity’highlights the importance of using carbon credits alongside other “ambitious actions” to minimise the environmental harm companies cause. This approach to using carbon credits envisions it as a tool to aid the economy’s broader decarbonisation transition. In industries where mechanisms to decarbonise value chains have yet to be developed or scaled, carbon credits can be an effective way for companies to reduce their net emissions and contribute to sustainability elsewhere in the world. Even still, they should still only be used as a temporary measure as a broader green transition takes place.
The ever-growing interest in buying carbon credits is as worrying as it is encouraging. On one hand, it indicates interest from organisations in mitigating greenhouse gas emissions and taking strides towards a sustainable transition. On the other hand, carbon credits are meant to be a tool to target emissions that cannot be addressed through other means. Intense interest in them could take away from other mechanisms like carbon pricing and investment in low-carbon value chains, which would be more punishing in the short-term, but will have greater impacts in mitigating greenhouse gas emissions. Therefore, governments and firms must prevent carbon credits from becoming a substitute for structural decarbonisation in order to effectively mitigate climate change.