Carbon credits have emerged as a prominent financial tool in the fight against climate change. They are often marketed as an easy fix for companies looking to “offset” their carbon emissions. While the idea of using carbon credits to help mitigate the environmental impact of businesses seems promising, the reality is far more complex. Behind the glossy reports of sustainability and net-zero commitments lies a market that is riddled with inconsistencies, lack of transparency, and questions about whether these credits are truly delivering the climate benefits they promise.
This blog isn’t about whether carbon markets should exist, but rather about how they function and why not all carbon credits deliver the impact buyers expect. A 2025 analysis by Chartered Professional Accountants of Canada (CPA Canada) and its partners revealed serious concerns regarding the credibility, integrity, and overall quality of voluntary carbon markets. The findings underscore that carbon credits are not all created equal.
The Promise and the Problem: How Carbon Credits Are Supposed to Work
Carbon credits are essentially designed to help reduce global greenhouse gas emissions. The concept is simple: for every carbon credit purchased, one metric tonne of CO₂e is either removed or reduced from the atmosphere. The theory is that companies with higher emissions can buy these credits to compensate for their footprint, directing funds toward projects that generate genuine climate benefits. These projects may include reforestation, renewable energy installations, methane capture, and even innovations like clean cookstoves.
There are two primary types of carbon credit markets: compliance markets, which are mandatory under regulatory requirements, and voluntary markets, where companies choose to offset their emissions beyond what regulations demand. While this model sounds straightforward, it falters when we dive deeper into how these markets operate, how projects are verified, and what incentives truly drive their success.
Why All Carbon Credits Aren’t Equal
Experts often emphasize that “not all carbon credits are created equal.” The reasons for this are multi-faceted, and there are several key factors that make some credits less effective than others:
1. Additionality: Did the Project Really Change Anything?
The core principle of carbon credits is additionality. In simple terms, for a credit to be valid, it must result in an emissions reduction that wouldn’t have occurred without the investment in the carbon credit. If a project, such as a wind farm or forest conservation, was already going to happen without the funding from carbon credits, then the credits issued for that project do not contribute to reducing emissions.
Unfortunately, too many projects are receiving credits without sufficient proof that their activities were truly additional. This raises the question: Are buyers truly compensating for emissions, or simply funding projects that were already financially viable?
2. Permanence: What Happens if It Doesn’t Last?
Many nature-based credits, such as those tied to forest conservation, face the risk of reversibility. A forest project might store carbon for decades, but external factors like wildfires, disease, illegal logging, or land-use changes can easily undo the carbon sequestration. If a forest is lost years later, the carbon credit that was issued becomes meaningless.
A 2025 meta-analysis estimated that fewer than one-sixth of carbon credits across global projects actually correspond to real, lasting emissions reductions. This stark statistic emphasizes that quality is far more important than quantity.
3. Double Counting and Transparency Issues
In any well-functioning market, each carbon credit should be counted once and only once. Unfortunately, in the carbon credit market, the same credit may be sold or claimed multiple times. This issue, known as double counting, artificially inflates the number of credits being sold, and ultimately undermines the market’s credibility.
The lack of a unified global registry, coupled with opaque reporting and inconsistent standards, makes it difficult for buyers to assess the quality of the projects they’re investing in. Without clear and standardized verification procedures, businesses may end up purchasing credits that deliver little to no climate impact.
4. Greenwashing: Reputation Over Real Reductions
One of the most controversial aspects of carbon credits is their potential misuse by companies seeking to improve their public image without making substantial changes to their operations. Critics argue that many organizations use carbon credits as a form of “greenwashing”, a way to appear environmentally responsible without making any meaningful reductions to their own emissions.
This practice undermines efforts to genuinely decarbonize by allowing high-emission companies to delay making significant operational changes, all while projecting an image of environmental responsibility.
Market Structure Matters: Compliance vs. Voluntary Credits
Carbon markets can generally be broken into two categories:
- Compliance Markets: These are regulated markets tied to legal emissions reduction obligations, such as cap-and-trade systems. These markets generally have stronger oversight and clearer rules.
- Voluntary Markets: Here, companies opt to buy carbon credits independent of regulatory requirements. While voluntary markets offer more variety, they lack the same level of standardization and oversight. This often leads to inconsistent credit quality and makes it difficult for buyers to differentiate between high-quality and low-quality projects.
Voluntary markets are particularly prone to quality issues, as they operate without universal standards or enforcement mechanisms. Different certification bodies use different methodologies, resulting in a patchwork of credits with varying levels of credibility.
Case Studies: When Credits Fail to Deliver
Real-world investigations have uncovered troubling practices within the carbon credit market. For instance, several carbon credit conservation projects in Brazil’s Amazon rainforest were touted for their efforts in protecting vast areas of forest. However, it was later revealed that some of the entities behind these projects had been fined for illegal logging. This created a significant gap between the promised emissions reductions and the actual environmental impact.
These incidents are not isolated cases. Studies have shown that certain project types, like forest conservation or renewable energy credits, may offer far smaller climate benefits than claimed, or fail to demonstrate statistically significant emissions reductions.
So… Are Carbon Credits Worth It?
The short answer: it depends.
Carbon credits can still play an important role when they are built on rigorous scientific baselines, validated by credible third parties, and used as part of a broader climate strategy. High-quality carbon credits, those that are real, additional, permanent, measurable, and independently verified, can still channel capital into meaningful climate solutions.
Global bodies like the Integrity Council for the Voluntary Carbon Market are working to improve credit quality by setting new standards and thresholds. As the market matures, it’s crucial that buyers seek out only high-integrity credits that contribute to real climate impact.
What Buyers Should Do Before Purchasing Credits
Given the variability in carbon credit quality, it’s important for buyers to approach the market cautiously. Here are a few steps to help ensure you’re making a sound investment:
- Seek independent third-party verification: Reputable standards like Verra or Gold Standard are more reliable starting points for ensuring that credits are credible and verified.
- Assess additionality and permanence: Make sure the project genuinely reduces or removes emissions beyond what would have occurred without the credit investment and that the carbon savings will last over time.
- Evaluate transparency: Invest in projects with clear data, traceability, and open reporting.
- Integrate credits into a broader climate strategy: Carbon credits should complement your company’s internal efforts to reduce emissions, not serve as a replacement for them.
The Bigger Picture: Reform Starts with Quality, Not Quantity
Carbon credits were created as a market-based signal to reduce emissions. But without transparency, integrity, and genuine environmental value, they can easily do more harm than good.
As corporations, investors, and policymakers work toward net-zero goals, the focus must shift toward ensuring carbon markets are rooted in science, governed with clarity, and directed toward creating a real climate impact. Only then can carbon credits become a trustworthy tool in the fight against climate change.
Final Thoughts
Carbon credits are not inherently flawed. However, buying them without verifying their authenticity, relying on low-quality credits, or using them as a shortcut for genuine emissions reductions undermines the larger goal of combating climate change.
Move From Offsets to Strategy
Carbon credits can support climate goals, but only when they’re evaluated rigorously and integrated into a broader financial and tax strategy.
ClearWealth works with business owners and executives to assess ESG initiatives through a governance, tax, and capital-allocation lens, helping ensure sustainability decisions stand up to scrutiny, from regulators, investors, and future buyers. 👉 Request a strategic review of how carbon credits fit into your broader tax and business plan.
