The line between climate action and greenwashing is thin when it comes to carbon credits. At their best, they help finance worthwhile projects and support a broader transition.
But because it’s easier to buy carbon credits than to decarbonise, they can quickly shift from tool to shortcut. When that happens, they stop supporting a transition and start replacing it. As Benja Faecks, policy expert in global carbon markets at Carbon Market Watch, says: “Society has deemed that climate financing, including through carbon markets, is necessary for fighting climate change, but the way these are implemented is so problematic that it gives me a headache.”
In this article, you will learn:
- What carbon credits actually represent and how they’re supposed to work.
- Why they exist, and where they can create real climate value.
- Where the system breaks down, from weak governance to flawed incentives.
- Why aren’t all carbon credits equal, and how to spot the difference?
- When carbon credits support credible climate strategies, and when they become greenwashing.
Carbon credits 101: what they are and what they were meant to do
At its simplest, a carbon credit is a unit that represents one tonne of carbon dioxide equivalent (CO₂e) that has been reduced, avoided, or removed from the atmosphere. Companies can buy these credits to offset emissions they cannot (or do not yet) eliminate.
The logic is simple: emissions are global. A tonne of CO₂ emitted in one place has the same impact as a tonne emitted elsewhere. In theory, this allows for finance to drive emissions reductions wherever they’re most effective or most urgently needed, while still contributing to overall climate goals.
From Kyoto to voluntary markets
Carbon markets didn’t emerge overnight. The Kyoto Protocol introduced a mechanism for trading emission reductions, which was later expanded under the Paris Agreement. This was particularly through Article 6, which formalised international cooperation on carbon markets.
As Faecks points out, “Historically speaking, global emissions have come from a relatively small number of countries, while the worst impacts of climate change are frequently felt by nations that contributed minimally to the problem. A fair and equitable way of trading could mitigate climate change and channel finance.”
Compliance vs. voluntary markets
Today, carbon markets broadly fall into two categories:
- Compliance markets: regulated by governments. Companies are required by law to account for and, in some cases, reduce or offset their emissions within clearly defined systems. These markets tend to have stricter rules, more oversight, and clearer boundaries around what counts.
- Voluntary markets: unregulated and not mandatory. Companies choose to buy credits, often as part of broader sustainability strategies or public climate commitments. These markets offer flexibility, but they also come with weaker governance, inconsistent standards, and a wide variation in project quality.
Much of the greenwashing debate takes place in the voluntary space, where carbon credits are used for accounting and communication. “The voluntary carbon market comes forth from a compliance market,” explains Faecks, “because the Kyoto mechanisms were too slow, too inflexible. That’s why the voluntary carbon market emerged.”
A tool shaped by how it is used
That leaves carbon credits in an inherently unstable position. They can serve as a legitimate financing tool for climate action, but they can also be used to reframe emissions without reducing them.
The difference lies in how they are used.
Do credits follow meaningful emissions cuts, or replace them?
Why do carbon credits exist?
Carbon credits didn’t emerge as a loophole. They were designed to solve a practical problem: how to direct funding toward emissions reductions and climate projects that would not otherwise happen.
They’re a financing mechanism for projects such as reforestation, ecosystem conservation, and carbon removal technologies, which often require upfront capital, long timelines, and uncertain returns. Carbon markets create a way to monetise those activities by linking them to corporate demand. “In an ideal scenario, you could regard carbon credits as a pure financing mechanism for something that you want to achieve,” says Faecks.
Technologies such as carbon dioxide removal (CDR), including approaches like enhanced rock weathering or bioenergy with carbon capture and storage (BECCS), are still developing and often expensive. Credits can help create early markets for these solutions, even if costs remain high and methodologies are still evolving. As highlighted in the reviewed materials, higher-integrity credits tend to be tied to more robust data, monitoring, and verification processes, which also increase their price and complexity.
Beyond financing, there is a second, more pragmatic reason carbon credits persist: they offer companies something tangible in a space that is otherwise slow and difficult.
For organisations at the beginning of their climate journey, internal emissions data is often incomplete, especially across Scope 3. Building a full picture of a value chain, setting targets, and implementing reductions can take years. In that context, credits are one of the few immediate actions available. As Mariel Garcia, marketing and communications lead at Cozero, explains, “This is something we can actually talk about because it is a concrete project or action… It’s at least some sort of very tangible action we can take.”
Carbon credits aren’t meant to replace emissions reductions.
But used correctly, carbon credits can support real projects, mobilise capital, and complement long-term decarbonisation. Their impact depends on how they’re verified, priced, used, and communicated.
Where the narrative starts to break down
Carbon credits come into play when decarbonisation becomes difficult, and that is where the market distorts. Instead of following real emissions cuts, credits are often used to stand in for them, creating a gap between what companies report and what actually changes.
Design flaws and implementation gaps
One of the core issues is structural. The rules that underpin carbon markets—particularly on the voluntary side—have developed unevenly. Governance is fragmented, standards compete, and no single authority defines quality. “After 30 years with so many design flaws, and not only design flaws but also implementation flaws, we need to start putting question marks up”, says Faecks. Rigorous data, long-term monitoring, and clear methodologies back some credits. Others rely on assumptions that are difficult to verify or sustain over time.
Supply-side problems: what is being sold
Supply-side challenges are technical, but their consequences are practical.
A central issue is quantification. Measuring how much carbon is actually reduced or removed isn’t straightforward, particularly for nature-based solutions. Forest conservation projects, for example, depend on counterfactuals: what would have happened without the project? This introduces uncertainty around additionality, one of the most contested concepts in carbon markets.
Permanence is another weak point. Many nature-based credits depend on carbon being stored in forests, soils, or ecosystems, but that storage is rarely guaranteed over the timescales required by climate accounting. Fossil emissions can affect the climate for centuries to millennia, while biological carbon storage may last only years or decades and can be reversed through fire, drought, disease, logging, or land-use change. Recent research suggests that carbon storage used to compensate for fossil CO₂ should last at least 1,000 years. Without that durability, the claim becomes a false equivalence: short-term storage is used to cancel out long-term emissions. That makes climate progress look stronger on paper than it is in the atmosphere.
There are also persistent issues with double-counting, where the same emissions reduction or removal is claimed more than once across different actors, registries, countries, or corporate targets.
Beyond technical flaws, there are social and ethical concerns. Some projects have been criticised for weak engagement with local communities, unclear land rights, or negative impacts disguised as climate solutions. High-integrity credits require not only scientific robustness but also safeguards around human rights, transparency, and local participation. These conditions are often not met. “There have been instances of nature restoration projects that started off being social projects, poverty alleviation projects, and then turned into planting monoculture trees for the climate,“ explains Faecks. “Then, they’re resettling whole communities and basically infringing human rights.”
Demand-side problems: how credits are used
Even if supply-side issues were resolved, the demand side introduces a different kind of problem.
Carbon credits are often cheaper than internal emissions reductions. Decarbonising operations, especially across complex supply chains, is slow, expensive, and operationally disruptive. Buying credits, on the other hand, is comparatively simple. Faecks agrees: “I think it’s very clear that in most cases it’s much, much cheaper to buy a carbon credit than to go and sweep your own door.”
That cost gap creates a dangerous incentive. Instead of treating credits as a limited tool for residual emissions, companies may use them to delay harder changes in their own operations. This is where credits can become a form of reassurance. “This is also a market that is optimised for transaction volume. So we can buy a lot of these credits, and hopefully that pays off,” Mariel explains. “Going back to these carbon credits and offsets is just something that also acts as a security blanket—to be like, I did my due diligence.”
The integrity question: not all carbon credits are equal
A tonne is a tonne. A certificate is a certificate. But in practice, the differences between credits can be substantial and difficult to see without going several layers deeper into how they are generated, measured, and maintained over time.
One of the first distinctions is between nature-based solutions and engineered removals.
- Nature-based projects include activities such as reforestation, forest conservation, and soil carbon storage. These are often more affordable and easier to scale, but they come with higher uncertainty. Forests can burn, be logged, or degrade over time, which affects how permanent the carbon storage really is.
- Engineered removals, such as direct air capture or mineralisation, offer more durable storage but are significantly more expensive and technically complex. This helps explain price differences.
There is also a fundamental difference between removal credits and avoidance or reduction credits. Removal credits are tied to removing carbon from the atmosphere. Avoidance credits, by contrast, are based on preventing emissions that would have occurred otherwise: by protecting a forest that might have been cut down, for example. Still, they are not equivalent in terms of certainty or long-term impact.
If a project had happened anyway, the credit would not deliver an additional benefit. Additionality remains one of the most contested and difficult aspects of carbon accounting, particularly for nature-based projects.
Because of these differences, price becomes a rough—though imperfect—signal of quality. Jade Aguirre, Business Development Manager, says: “The more integrity, the more data, the more effective the report, the more expensive the carbon credit.”
MRV: monitoring, reporting, and verification
MRV is the backbone of carbon credit integrity. “Technology helps us a lot,” says Jade. “There are geospatial photo companies, you rent a satellite and start taking photos, there’s a laser you pass over a drone…” In practice, these tools are often used to estimate biomass, especially above-ground biomass, or AGB. AGB helps indicate how much carbon is stored in trees and vegetation in a given area, and it forms part of the calculation behind carbon credits, alongside factors such as deforestation rates, project size, baseline scenarios, and verification. Early assessments often rely on secondary data and remote sensing, while later project stages require fieldwork and due diligence to validate estimates.
Social and governance factors matter just as much. High-quality projects are expected to demonstrate clear land rights, meaningful engagement with local and Indigenous communities, and long-term stewardship of the ecosystems involved. Without these elements, projects risk creating harm while still generating credits.
The Carbon Market Watch guidance reinforces this broader view of integrity, noting that credible climate action depends not just on quantification, but on transparency, accountability, and the sequencing of actions—reductions first, with credits used cautiously and clearly communicated. “Especially with regards to misleading ‘carbon neutral’ claims—even if organisations use perfectly quantified carbon credits to claim to have no impact on the climate, then that’s still wrong and misleading,” summarises Faecks.
All of this makes carbon credits inherently difficult to assess from the outside. Two credits may appear identical in a report or marketing claim, yet represent very different levels of certainty, durability, and real-world impact.
Why are carbon credits so tempting for companies?
For most companies, climate action begins with incomplete data, complex value chains, and competing priorities.
Emissions are not confined to a single facility or process. Scope 1 and 2 can be measured with relative precision, but Scope 3—often the largest share—sits across suppliers, logistics, product use, and end-of-life. Mapping that footprint takes time. Changing it takes even longer.
Companies are expected to show progress now, while the actual work of decarbonisation unfolds over the years.
Supply chain transformation is particularly difficult. It involves renegotiating contracts, shifting procurement, investing in new technologies, and aligning multiple partners across geographies. It’s expensive, operationally disruptive, and often outside a company’s direct control. Climate risk itself is systemic—embedded across the business—making it hard to isolate, manage, and report in a way that fits existing structures.
At the same time, the external environment is unstable. Regulations are evolving unevenly. Some frameworks are tightening expectations around disclosure and claims, while others are delayed or weakened. Investors and reporting cycles still reward short-term clarity over long-term transformation.
Then, carbon credits become attractive.
They offer something immediate. A project can be selected, a volume purchased, and a narrative built. They also offer simplicity. A credit translates into a number that fits neatly into reporting frameworks and communications. It creates a clear storyline: emissions occurred, action was taken, and impact was achieved. That storyline is far easier to communicate than the incremental, often messy process of reducing emissions across operations and supply chains.
Cost is another factor. In many cases, purchasing credits is cheaper than reducing emissions internally, particularly in the short term. Decarbonisation requires capital expenditure, operational change, and long payback periods. Credits, by contrast, can be integrated into existing budgets with fewer immediate disruptions.
None of this implies bad intent. Most companies are navigating real constraints: limited data, evolving regulation, and pressure to demonstrate progress. But the market structure makes one path easier than the other.
The greenwashing problem: how carbon credits can be misleading
The first red flag is timing. Credible climate strategies follow a clear sequence: measure emissions, reduce them as far as possible, and use credits only for what remains. When used before meaningful reductions, credits act as substitutes, not complements.
A second issue is equivalence. Carbon credits are often presented as if they cancel out emissions one-to-one. In practice, that equivalence is rarely precise. Avoided emissions are not the same as removals. Temporary storage is not the same as permanent sequestration.
A third marker is quality and selection. The market offers a wide range of credits, from high-integrity projects with robust monitoring to lower-cost options with weaker guarantees. When companies prioritise price and convenience over quality, the risk of overstating impact increases.
There is also the issue of certainty. Carbon credits are often communicated as definitive outcomes—emissions offset, impact delivered. In reality, many projects carry uncertainty, whether due to measurement challenges, future risks (such as forest loss), or assumptions built into their methodologies. Presenting these outcomes as fixed and final can create a misleading sense of precision. “There are not so many bold net-zero and carbon-neutrality claims as, say, three years ago. That really did change over the years,” says Faecks.
The result is simple: the claim is often cleaner than the strategy.
In search of a better model: contribution, not compensation
The shift is conceptual, but it has practical consequences: separating what a company emits from what it contributes. Instead of treating carbon credits as a way to “cancel out” emissions, this approach draws a clear line between reducing a footprint and supporting climate action beyond it.
As Faecks frames it, “It should be a contribution model. You have your emissions on one side, and then on the other side are all the contributions that you’re making to global net zero.”
Under this model, carbon credits still have a role. But they sit alongside other forms of climate finance, rather than acting as a one-to-one compensation mechanism. That can include funding for removal projects, support for climate funds, investment in ecosystem restoration, or contributions to civil society and grassroots initiatives working on mitigation and adaptation.
There’s a shift toward beyond-value-chain mitigation (BVCM), a framework that treats external climate action as a contribution rather than an offset. It reframes the question from “how do we balance our emissions?” to “how do we reduce our impact and support wider climate goals at the same time?”
Instead of claiming “carbon neutrality,” the focus moves to transparency: what emissions exist, how they’re being reduced, and what additional actions are being taken beyond that footprint.
Carbon credits are not a climate strategy on their own
Carbon credits were never meant to carry the weight they are often given. “I think carbon markets can have a part in credible climate strategies, but they’re definitely not the essential fundamental body of them,” says Faecks.
What remains unresolved is not the existence of carbon credits, but their role.
Used well, they can sit inside a broader transition. Used poorly, they offer a way to reframe emissions without addressing them.
A credible approach is more demanding. It requires companies to reduce emissions across their operations and value chains, to be explicit about what remains, and to treat any external climate finance as a contribution rather than a correction.
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