Deep dive: Carbon markets & offsets integrity — what's working, what's not, and what's next

In 2024, the voluntary carbon market (VCM) contracted by 61% amid a credibility crisis that saw millions of carbon credits deemed worthless following investigations into REDD+ and renewable energy projects (OECD, 2024). Yet paradoxically, the global carbon market reached a record $949 billion, with high-quality carbon removal credits commanding prices up to $125 per tonne—a 400% increase from 2020 levels (BloombergNEF, 2024). This divergence between discredited legacy offsets and premium integrity-verified credits represents the defining tension in carbon markets today. For sustainability engineers and corporate buyers navigating Scope 3 emissions strategies, understanding what separates credible carbon credits from "phantom credits" has never been more critical.

Why It Matters

Carbon markets serve as a crucial financial mechanism for channeling private capital toward emissions reductions and carbon removal. The voluntary carbon market alone is projected to reach $23.99 billion by 2030, with compliance markets exceeding $6 trillion (Grand View Research, 2024). For corporations pursuing net-zero commitments, carbon credits offer a pathway to address hard-to-abate emissions while emerging decarbonization technologies mature.

However, the integrity of these markets directly impacts their climate efficacy. Research published in Science found that 94% of rainforest protection credits certified by the largest voluntary registry failed to deliver promised emissions reductions (The Guardian, 2023). This systemic credibility deficit has triggered regulatory responses across major economies: the EU's Green Claims Directive (effective 2026) prohibits generic "climate neutral" claims based on offsets, California's AB 1305 mandates detailed carbon credit disclosures, and the Corporate Sustainability Reporting Directive (CSRD) requires auditable evidence of credit quality.

For Asia-Pacific organizations—operating in the fastest-growing carbon credit supply region—the stakes are particularly high. China's emissions trading system expanded in 2024 to cover cement, steel, and aluminum sectors, with prices rising 50% year-over-year. Singapore's carbon tax increased to S$25/tonne in 2024, with planned escalation to S$50-80 by 2030. These compliance pressures, combined with voluntary net-zero commitments from 60% of S&P 500 companies, create both risks and opportunities for organizations that can navigate the integrity landscape effectively.

Key Concepts

Understanding carbon market integrity requires mastery of several foundational concepts that determine whether a credit represents genuine climate impact:

Additionality refers to whether emissions reductions would have occurred without carbon credit revenue. A solar project in Germany likely proceeds regardless of carbon financing (low additionality), while a biochar facility in rural Indonesia may depend entirely on carbon revenue streams (high additionality). The Integrity Council for the Voluntary Carbon Market (ICVCM) requires demonstration that projects face barriers—financial, technological, or regulatory—that carbon revenue overcomes.

Permanence addresses how long carbon remains sequestered. Forest-based credits face reversal risks from wildfires, disease, and land-use changes; California's offset buffer pool lost 45,000 hectares to wildfires between 2015-2024. Engineered removal methods like direct air capture (DAC) or geological storage offer near-permanent sequestration but at significantly higher costs ($400-1,000/tonne versus $10-50/tonne for nature-based solutions).

Baseline methodology establishes the counterfactual scenario against which emissions reductions are measured. Inflated baselines—assuming higher-than-realistic business-as-usual emissions—generate excess credits representing no real climate benefit. The ICVCM Assessment Framework now requires baselines aligned with national Nationally Determined Contributions (NDCs) and updated every five years.

Leakage occurs when project boundaries shift emissions elsewhere. Protecting one forest parcel may simply displace deforestation to adjacent areas. The Climate Action Reserve's Mexico Forest Protocol v3 now incorporates a 40% leakage discount to address this concern.

Double counting happens when multiple parties claim the same emissions reduction. The Paris Agreement's Article 6, finalized at COP29 (November 2024), establishes "corresponding adjustments" requiring host countries to add back emissions reductions sold internationally, preventing credits from counting toward both corporate claims and national targets.

KPI	Measurement Approach	Target Range	Current Market Average
Additionality Score	Investment analysis + barrier assessment	>80% probability	45-60% (legacy credits)
Permanence Period	Years of guaranteed sequestration	>100 years (removals)	25-40 years (forests)
Baseline Accuracy	Deviation from actual BAU emissions	<10% variance	20-40% overestimation
Leakage Rate	Activity displacement to non-project areas	<15% of claimed reductions	15-40% (avoided deforestation)
MRV Frequency	Monitoring, reporting, verification cycles	Annual minimum	3-5 years (typical)

What's Working and What Isn't

What's Working

ICVCM Core Carbon Principles (CCPs) have emerged as the de facto global standard for high-integrity credits. By November 2025, 36 methodologies achieved CCP-Approved status, with 101 million credits eligible for the CCP label across seven major programs including Verra, Gold Standard, American Carbon Registry, and Climate Action Reserve (ICVCM, 2025). CCP-labeled credits command a 25% price premium and are required for VCMI Bronze/Silver/Gold claims.

Digital MRV technologies are transforming verification accuracy. Satellite-based monitoring now achieves 80-90% accuracy in predicting deforestation leakage risks. Companies like Pachama and Sylvera deploy machine learning algorithms across satellite imagery to provide near-real-time project performance assessments, enabling buyers to verify claims independently.

Carbon removal procurement is maturing rapidly. Microsoft's 8+ million tonne carbon removal purchase agreement (2024-2025)—the largest in history—demonstrates corporate willingness to pay premium prices for durable removals. Frontier Climate's advance market commitment has aggregated $1 billion from Stripe, Alphabet, Meta, and others to purchase permanent carbon removal, signaling demand for high-integrity solutions.

Regulatory convergence is reducing greenwashing opportunities. The EU's Carbon Border Adjustment Mechanism (CBAM) entered its transitional phase in 2024, with full implementation in 2026. Combined with CSRD's carbon credit disclosure requirements and the Green Claims Directive, European markets are creating enforceable standards that may propagate globally.

What Isn't Working

Legacy REDD+ credits remain deeply problematic. Verra's August 2024 revocation of 37 Chinese rice-farming projects—representing 4.5 million over-issued credits—exposed systematic verification failures. Shell served as "authorized representative" for 10 projects later found to involve no actual emission-reducing activities. As of January 2025, only 480,000 of the 4.5 million credits had been compensated, with Verra controversially using credits from other failed rice projects to address the shortfall (Climate Home News, 2025).

Auditor accountability has proven insufficient. In March 2025, Verra suspended four major certification bodies—TÜV Nord, China Classification Society, China Quality Certification Center, and CTI Certification—for failing to detect fraud across 57+ projects. This raises fundamental questions about third-party verification models in carbon markets.

Supply-demand imbalance for quality credits constrains corporate decarbonization strategies. Only 4% of 2024 credit issuances qualified for CCP approval, creating tight supply and driving multi-year offtake negotiations. Organizations delaying procurement risk being unable to secure credible credits for 2030 net-zero targets.

Voluntary market fragmentation complicates buyer decisions. With 170+ carbon standards globally and inconsistent quality indicators, due diligence requires specialized expertise most organizations lack. The proliferation of blockchain-based tokenization platforms (Toucan, KlimaDAO) adds transparency but also complexity.

Key Players

Established Leaders

Verra (Verified Carbon Standard) remains the largest voluntary registry, issuing over 1.2 billion credits since inception. Despite recent scandals, Verra's VCS program achieved CCP-Eligible status and hosts the majority of voluntary market projects. The organization is implementing risk-based review processes and digital verification tools to address integrity concerns.

Gold Standard differentiates through stringent sustainable development requirements and explicit rejection of REDD+ methodologies. The registry publicly distanced itself from avoided deforestation following 2023 investigations, focusing instead on renewable energy, energy efficiency, and community-based projects with verifiable co-benefits.

Climate Action Reserve (CAR) operates primarily in North American compliance contexts, with protocols for forestry, livestock, and landfill gas. CAR's Mexico Forest Protocol v3, approved for CCP labeling in 2024, incorporates enhanced leakage accounting and 40-year permanence requirements.

Emerging Startups

Isometric has developed six CCP-Approved carbon removal methodologies covering biomass geological storage, bio-oil injection, subsurface biomass removal, and biogenic CCS. With 3.2 million credits/year projected from Isometric projects, the company represents the leading platform for durable carbon removal verification.

Pachama provides AI-powered forest carbon monitoring, enabling remote verification of project performance against baselines. The company's technology underlies carbon credit purchases by SoftBank, AirBnB, and Boston Consulting Group.

Sylvera offers independent carbon credit ratings using satellite data and machine learning, providing buyers with project-level risk assessments. The platform rates credits on permanence, additionality, and co-benefits, functioning as a "credit rating agency" for offsets.

Key Investors & Funders

Breakthrough Energy Ventures (Bill Gates) has invested $2+ billion in climate technologies including direct air capture companies Climeworks and Carbon Engineering, signaling long-term commitment to permanent carbon removal.

Lowercarbon Capital focuses exclusively on climate tech investments, with portfolio companies spanning carbon removal, emissions monitoring, and market infrastructure. The fund has deployed $800+ million since 2020.

Frontier Climate operates as an advance market commitment aggregating $1 billion from major technology companies to guarantee purchases of permanent carbon removal at scale, de-risking early-stage removal technologies.

Examples

Microsoft's Carbon Removal Portfolio: Since 2020, Microsoft has purchased over 8 million tonnes of carbon removal credits, becoming the world's largest buyer of durable removals. The company's Carbon Removal Program requires minimum 1,000-year permanence, third-party verification, and transparent lifecycle assessments. Microsoft publishes detailed methodological criteria and project-level data, establishing procurement best practices that influence corporate standards globally. Their 2024 portfolio included biochar, enhanced weathering, direct air capture, and geological storage projects across 20+ countries (Microsoft Sustainability Report, 2024).
Singapore Airlines' CORSIA Compliance Strategy: As aviation faces mandatory offsetting under CORSIA Phase 1 (2024-2026), Singapore Airlines developed a tiered procurement framework prioritizing ICVCM-approved methodologies. The airline sources 60% of offsets from CCP-labeled landfill gas and biochar projects, with remaining volume from Gold Standard renewable energy credits meeting CORSIA eligibility criteria. This approach balances compliance obligations with integrity requirements while managing procurement costs across multi-year horizons.
Nestlé's Supply Chain Carbon Insetting: Following criticism over Verra credits linked to Brazilian Amazon land-grabbing allegations, Nestlé restructured its carbon strategy around "insetting"—emissions reductions within direct supply chains rather than external offset purchases. The company's Nescafé Plan invests in regenerative agriculture practices across 500,000 coffee farms, generating verified emissions reductions attributable to Scope 3 supplier emissions. This approach demonstrates how carbon market integrity concerns are driving corporate strategy toward higher-quality, supply-chain-integrated solutions.

Action Checklist

Audit existing carbon credit portfolio against ICVCM Assessment Status tracker, identifying non-CCP-aligned holdings requiring phase-out by 2026 regulatory deadlines
Establish internal procurement policy requiring CCP-Eligible programs as minimum threshold, with preference for CCP-Approved methodologies
Implement tiered pricing expectations: $10-25/tonne for avoidance credits, $50-250/tonne for nature-based removals, $400-1000/tonne for durable engineered removals
Negotiate multi-year offtake agreements for high-integrity credits before 2026 supply constraints intensify
Separate carbon credit use in climate disclosures: report as "Beyond Value Chain Mitigation" (not toward SBTi near-term targets) per VCMI Claims Code guidance
Deploy independent verification tools (Sylvera, Pachama, BeZero Carbon) for project-level due diligence on material purchases
Monitor EU Green Claims Directive implementation timelines, updating marketing claims to remove generic "carbon neutral" language by September 2026

FAQ

Q: Can carbon credits count toward Science Based Targets initiative (SBTi) near-term targets? A: No. SBTi explicitly excludes carbon credits from Scope 1, 2, and 3 near-term reduction targets. Credits may only be used for "Beyond Value Chain Mitigation"—climate contributions that do not substitute for internal emissions reductions. The VCMI Claims Code reinforces this by requiring organizations to demonstrate 90%+ emissions reductions before claiming net-zero status, with credits limited to residual emissions and atmospheric benefit contributions.

Q: What distinguishes carbon avoidance credits from carbon removal credits, and why does it matter? A: Avoidance credits (e.g., renewable energy, avoided deforestation) prevent emissions that would otherwise occur, while removal credits (e.g., biochar, direct air capture) extract CO2 already in the atmosphere. For net-zero claims, the distinction is critical: the IPCC and SBTi frameworks indicate that achieving genuine net-zero requires removal of residual emissions, not merely avoiding new emissions. Removal credits typically command 5-40x price premiums but offer stronger permanence and additionality characteristics essential for credible long-term climate strategies.

Q: How should organizations respond to the Article 6 corresponding adjustment requirements? A: Article 6.4, finalized at COP29, requires host country corresponding adjustments for internationally transferred mitigation outcomes (ITMOs). This means credits purchased from projects in countries with NDC targets may require the host country to "add back" transferred reductions to their national inventory. Organizations should: (1) verify whether purchased credits carry corresponding adjustment authorization, (2) assess whether voluntary market credits are impacted based on project location and timing, and (3) consider this factor in procurement decisions, as credits from countries with ambitious NDCs may face supply constraints.

Q: What role do blockchain and tokenization play in carbon market integrity? A: Blockchain platforms like Toucan Protocol and KlimaDAO tokenize carbon credits for enhanced traceability and fractional ownership. While tokenization can reduce double-counting risks and improve market liquidity, it does not address underlying credit quality issues. The fundamental integrity factors—additionality, permanence, baseline accuracy—depend on project design and verification, not on the ledger technology recording transactions. Organizations should view blockchain as a transparency tool rather than a quality assurance mechanism.

Q: How are Asian markets evolving in terms of carbon integrity standards? A: Asia-Pacific represents the fastest-growing region for both carbon credit supply and demand. China's national ETS expanded in 2024 to cover heavy industry sectors, with prices increasing 50% year-over-year. Singapore, Japan, and South Korea are developing Article 6-aligned bilateral frameworks for international credit transfers. However, the region also faces significant integrity challenges: the Verra Chinese rice project scandal demonstrated verification gaps in high-volume Asian projects. Organizations operating in Asia-Pacific should prioritize credits with CCP labeling and independent satellite-based MRV verification.

Sources

ICVCM. (2025). CCP Impact Report 2025. Integrity Council for the Voluntary Carbon Market. https://icvcm.org/engagement-impact/ccp-impact-report-2025/
BloombergNEF. (2024). Global Carbon Market Outlook 2024. Bloomberg New Energy Finance.
OECD. (2024). Exploring Governments' Efforts to Shape Carbon Credit Markets. Organisation for Economic Co-operation and Development.
Climate Home News. (2025). Carbon credit auditors suspended for failures in sham rice-farming offsets. https://www.climatechangenews.com/2025/03/25/
Grand View Research. (2024). Voluntary Carbon Credit Market Size & Share Report, 2030. https://www.grandviewresearch.com/industry-analysis/voluntary-carbon-credit-market-report
UNFCCC. (2024). Decisions adopted by the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement (CMA) at COP29. United Nations Framework Convention on Climate Change.
Microsoft. (2024). 2024 Environmental Sustainability Report. Microsoft Corporation.
VCMI. (2023). Claims Code of Practice. Voluntary Carbon Markets Integrity Initiative. https://vcmintegrity.org/