Carbon credits are failing to help with climate change — here’s why

Achieving the global temperature targets set in the Paris climate agreement requires deep, rapid cuts in greenhouse-gas emissions, and therefore the swift phase-out of fossil fuels. Many factors stand in the way. One of the most pernicious is carbon offsets.

Offsets are tradable credits from projects that claim to reduce emissions, either by avoiding them or by removing carbon dioxide from the atmosphere. Businesses and countries trade these credits — each representing the equivalent of one tonne of CO2 — to ‘neutralize’ their own emissions.

Although conceptually appealing, this reliance on offsets has fatal flaws. In practice, it’s difficult to ensure that they represent real emissions reductions rather than ‘hot air’, with the claimed climate benefits existing only on paper. Equally challenging is ensuring that emission reductions are ‘additional’, meaning that they would not have occurred without the incentive provided by the sale of carbon credits. For projects credited for sequestering carbon, it is also crucial to ensure that the CO2 is locked away permanently and not released back into the atmosphere later.

Most carbon-offset schemes fall foul of one or more of these requirements. Thus, offsets undermine decarbonization by enabling companies and countries to claim that emissions have been reduced when they have not. This results in more emissions, delays the phase-out of fossil fuels and diverts scarce resources to false solutions.

Yet, climate-policy processes continue to rely on them. The operationalization of Article 6 of the Paris agreement and full implementation of the Carbon Offsetting and Reduction Scheme for International Aviation, both achieved in 2024, are set to turbocharge demand for carbon credits. In parallel, voluntary carbon markets are promising to raise standards as a way of further legitimizing and scaling up offsets.

Of greatest concern is the expanding role of offsets in domestic carbon-pricing schemes, such as emissions trading and carbon taxes. Although the European Union’s Emissions Trading System phased out offsets in 2020, they still feature in most major carbon-pricing schemes outside Europe, including in China, Korea, Japan, Indonesia, Singapore, California, Canada and Australia. They are even permitted as a substitute for paying carbon taxes in countries such as South Africa, Mexico, Chile and Colombia.

Such practices threaten to undermine global decarbonization efforts. Low-quality offsets artificially depress carbon prices, which dilutes the incentive for industries to cut their emissions and weakens the effectiveness of carbon-pricing schemes.

Here, we outline the problems and call on decision makers to exclude offsets from carbon-pricing schemes.