Sustainability Atlas
Climate Finance & Markets·12 min read··...

Explainer: Carbon markets & offsets integrity — the concepts, the economics, and the decision checklist

A practical primer: key concepts, the decision checklist, and the core economics. Focus on integrity criteria, additionality, permanence, and buyer due diligence.

In August 2024, a landmark study published in Nature Communications revealed that 87% of carbon offsets purchased by major corporations carry a high risk of not delivering real, additional emissions reductions. The voluntary carbon market, valued between $1.4 billion and $4 billion in 2024 depending on methodology, experienced a 61% value decline between 2022 and 2024 as credibility concerns mounted. Yet amidst this crisis of confidence, over 300 million carbon credits were retired in 2024, and Microsoft secured the largest carbon removal deal in history—8 million credits—signaling that sophisticated buyers are not abandoning the market but demanding transformation. This article unpacks the core concepts, economic drivers, and decision frameworks that separate high-integrity carbon credits from costly greenwashing liabilities.

Why It Matters

Carbon markets represent one of the most significant financial mechanisms for channeling private capital toward climate mitigation. The theoretical premise is elegant: by creating a price signal for carbon, markets enable emissions reductions to occur where they are most cost-effective, while generating revenue streams for conservation and clean technology deployment. When functioning with integrity, carbon markets can accelerate decarbonization by 15-30% compared to regulatory mandates alone (World Bank State and Trends of Carbon Pricing, 2024).

However, the stakes extend far beyond financial efficiency. If carbon offsets fail to represent genuine emissions reductions, they become worse than ineffective—they actively enable continued pollution while providing false assurance of climate action. A company that offsets 100,000 tonnes of CO2 with low-quality credits hasn't achieved carbon neutrality; it has purchased a license to pollute while misleading stakeholders. The Annual Review of Environment and Resources (2025) documented that widely-used offset programs overcredit by 5-10x or more, meaning the climate is receiving a fraction of the claimed benefit.

The regulatory landscape is tightening rapidly. The EU's Empowering Consumers Directive, effective September 2026, will ban generic "climate neutral" claims without substantiation. The Integrity Council for the Voluntary Carbon Market (ICVCM) and the Voluntary Carbon Markets Integrity Initiative (VCMI) have established new standards that will fundamentally reshape acceptable practices. Companies that fail to adapt risk regulatory penalties, reputational damage, and stranded assets in credit portfolios.

Key Concepts

Additionality: The Foundational Principle

Additionality is the bedrock criterion for carbon offset integrity. A project is additional only if the emissions reductions would not have occurred without carbon credit revenue. This seemingly simple concept creates profound measurement challenges: proving additionality requires demonstrating a counterfactual—what would have happened in the absence of the project.

Consider a wind farm in India. If the project would be economically viable without carbon credit revenue (due to power purchase agreements, tax incentives, or declining technology costs), then the credits it generates are non-additional. The emissions reductions would have happened anyway; the carbon market simply subsidized an existing trajectory.

Research from the Carbon Offset Guide at Stockholm Environment Institute identifies three additionality tests: financial additionality (the project wouldn't be profitable without credit revenue), regulatory additionality (the project exceeds legal requirements), and common practice additionality (the project goes beyond what similar entities typically do). High-quality credits must pass all three.

Permanence: Ensuring Long-Term Storage

Permanence addresses whether sequestered carbon will remain stored over climatically relevant timescales. This is particularly critical for nature-based solutions: forests can burn, flood, or be illegally logged. The voluntary carbon market is 40% forest-based credits, yet over 90% of forestry offsets fail to guarantee long-term carbon storage.

High-integrity programs address permanence through buffer pools (setting aside a percentage of credits as insurance against reversals), monitoring requirements (satellite verification and on-ground audits), and legal protections (conservation easements and long-term contracts). The best programs now require 100-year permanence guarantees with ongoing verification.

Baseline Setting and Over-Crediting

The baseline represents the emissions trajectory that would occur without intervention. Inflated baselines—overstating how much deforestation or emissions would have occurred—lead directly to overcrediting. If a forest conservation project claims to prevent 100,000 tonnes of deforestation, but only 20,000 tonnes would actually have been cut, the project has issued 80,000 phantom credits.

REDD+ (Reducing Emissions from Deforestation and Forest Degradation) projects have been particularly vulnerable to baseline inflation. A 2024 investigation by The Guardian and Die Zeit found that 94% of rainforest credits from the largest certifier provided no climate benefit, largely due to exaggerated baseline deforestation rates.

Double Counting and Corresponding Adjustments

Double counting occurs when the same emissions reduction is claimed by multiple parties—the project developer, the host country in its national inventory, and the purchasing corporation. Under Article 6 of the Paris Agreement, host countries must make "corresponding adjustments" to their national accounts when credits are transferred internationally, preventing the same reduction from counting toward multiple countries' nationally determined contributions (NDCs).

Without corresponding adjustments, a company's offset purchase may be entirely negated in the global carbon accounting, as the host country claims the reduction for its own targets. This issue has stalled international carbon market negotiations and remains unresolved for many voluntary market transactions.

What's Working

ICVCM Core Carbon Principles

The Integrity Council for the Voluntary Carbon Market launched its Core Carbon Principles (CCPs) in 2024, establishing the first global benchmark for high-quality carbon credits. By December 2025, eight major crediting programs—including Verra, Gold Standard, and ACR—achieved CCP-Eligible status, covering 98% of market retirements. Thirty-six methodologies have been approved, while 22 legacy renewable energy methodologies were rejected for failing additionality requirements.

CCP-labeled credits now trade at a 25% premium, with high-rated credits (A-AAA) averaging $14.80 per tonne compared to $3.50 for low-quality alternatives. This price differentiation is creating market signals that reward integrity.

Engineered Carbon Removal

Direct Air Capture (DAC) and other engineered removal technologies sidestep many integrity concerns plaguing nature-based solutions. DAC projects are unambiguously additional (no one captures CO2 from the atmosphere for free), offer geological permanence when paired with underground storage, and are easily measured and verified. Microsoft's 2025 purchase of 3.5 million carbon removal credits demonstrates growing buyer confidence in technology-based approaches.

The ICVCM approved six new carbon dioxide removal methodologies in October 2025, including Gold Standard's Concrete Aggregate Carbonation and Isometric's Biomass Geological Storage protocols. These approvals signal regulatory acceptance of next-generation removal technologies.

Independent Ratings and Due Diligence Platforms

Third-party rating agencies like Sylvera, BeZero Carbon, and Calyx Global now provide independent assessments of credit quality, creating transparency that didn't exist five years ago. These platforms analyze additionality, permanence, and co-benefits at the project level, enabling buyers to distinguish high-integrity credits from problematic ones without building internal expertise.

What's Not Working

Renewable Energy Offsets

Renewable energy projects once dominated voluntary carbon markets, but their additionality has collapsed as clean energy became economically competitive. In most regions, solar and wind projects are now cheaper than fossil alternatives regardless of carbon credit revenue. The ICVCM explicitly rejected 22 renewable energy methodologies in 2024, acknowledging that these projects no longer meet additionality requirements.

Forest Conservation Baseline Inflation

Despite reform efforts, forest conservation credits remain plagued by baseline problems. The Nature Communications study (August 2024) found that forest conservation (REDD+) projects are among the worst offenders for non-additionality, often claiming credit for preventing deforestation in areas that faced minimal threat.

Scope 3 Offsetting Delays

The VCMI's 2024 Scope 3 Action Code allows companies to use carbon credits for Scope 3 emissions until 2040—a provision criticized by NGOs as enabling continued delay of supply chain decarbonization. While credits can theoretically fund transition activities, critics argue this approach masks inaction and doesn't incentivize the hard work of supplier engagement.

Key Players

Established Leaders

Verra operates the world's largest carbon crediting program, with 64% of registered offsets. Following criticism, Verra now requires real-time monitoring data and climate risk accounting, though legacy methodology concerns persist.

Gold Standard has shifted from "offsets" to "climate contributions," emphasizing that credits should complement rather than substitute for direct reductions. Their rigorous additionality requirements and sustainable development focus have maintained premium positioning.

South Pole is one of the largest carbon project developers globally, with over 700 projects across 50 countries. They've been instrumental in developing new methodologies for nature-based solutions and clean cooking projects.

Emerging Startups

Patch provides API-first carbon credit infrastructure, enabling companies to integrate high-quality offset procurement into existing workflows. Their vetting process filters for ICVCM-aligned credits.

Pachama uses satellite imagery and machine learning to monitor forest carbon projects in near-real-time, addressing permanence and verification gaps that have undermined nature-based solutions.

Climeworks operates the world's largest direct air capture facility in Iceland, partnering with corporations seeking removal credits with unambiguous additionality and geological permanence.

Key Investors & Funders

Breakthrough Energy Ventures (led by Bill Gates) has invested heavily in carbon removal technologies, including Climeworks and Heirloom Carbon.

Generation Investment Management (co-founded by Al Gore) focuses on sustainable investing and has backed multiple carbon market infrastructure companies.

Lowercarbon Capital specifically targets climate tech including carbon removal and market infrastructure startups.

Sector-Specific KPIs for Carbon Credit Procurement

MetricPoor (<Threshold)AcceptableBest Practice (>Target)
Credit Rating (BeZero/Sylvera)CCC-BBB-BBBA-AAA
Price per Tonne (USD)<$5$5-15>$15
Additionality Score<50%50-80%>80%
Permanence Guarantee<20 years20-50 years>100 years
Third-Party VerificationNoneSingle auditContinuous monitoring
ICVCM CCP StatusNot assessedUnder reviewCCP-Approved
Corresponding AdjustmentNonePendingConfirmed

Examples

Microsoft's Carbon Removal Portfolio

Microsoft committed to becoming carbon negative by 2030 and has built the world's largest corporate carbon removal portfolio. In January 2025, Microsoft secured 3.5 million carbon credit units for AI development offsets, following their record 8 million credit deal in 2024. Their procurement criteria require verified additionality, 100-year permanence guarantees, and independent ratings. Microsoft publishes detailed portfolio composition reports, setting transparency benchmarks for corporate buyers.

Delta Air Lines Voluntary Offsetting

Delta invested over $30 million in carbon offsets from 2020-2022, but faced significant criticism when investigations revealed many purchased credits failed additionality tests. Delta subsequently overhauled its procurement criteria, partnering with third-party raters and shifting toward higher-quality, ICVCM-aligned credits. The case illustrates both the reputational risks of poor due diligence and the recovery pathway through transparent reform.

Shopify Sustainability Fund

Shopify's Sustainability Fund purchases carbon removal credits exclusively, avoiding avoidance/reduction credits entirely. By focusing on technologies like direct air capture, biochar, and enhanced weathering, Shopify sidesteps additionality concerns inherent in nature-based solutions. Their portfolio approach funds early-stage technologies at premium prices, accelerating cost declines for the broader market.

Action Checklist

  • Audit existing offset portfolio using third-party ratings (Sylvera, BeZero, Calyx Global) and flag credits rated below BBB
  • Transition renewable energy and legacy REDD+ credits to ICVCM CCP-approved alternatives by Q4 2026
  • Establish procurement policy requiring additionality documentation, permanence guarantees exceeding 40 years, and corresponding adjustments for international credits
  • Develop internal governance requiring sustainability team sign-off on all credit purchases exceeding $50,000
  • Prepare VCMI Claims Code compliance documentation, including science-based target alignment and credit use thresholds
  • Budget for credit price increases (project 25-40% annual growth in high-quality credit prices through 2030)
  • Engage legal counsel on EU Empowering Consumers Directive implications for climate marketing claims

FAQ

Q: Should my company still purchase carbon offsets given the integrity concerns? A: Yes, but with significantly elevated due diligence. High-quality offsets remain valuable for funding climate action and addressing residual emissions after direct reduction efforts. The key is distinguishing CCP-approved, independently rated credits from the 87% that fail integrity tests. Prioritize removal over avoidance credits, and never use offsets as a substitute for direct emissions reductions.

Q: How do we explain the price difference between $3.50 and $15+ credits to our CFO? A: Frame it as risk management. Low-cost credits carry substantial regulatory, reputational, and stranded asset risks. The EU's incoming regulations can impose penalties for unsubstantiated climate claims, while media investigations regularly expose low-quality offset portfolios. A $15 credit that actually represents one tonne of CO2 reduction is cheaper than a $3.50 credit that represents nothing and generates negative headlines.

Q: What's the timeline for VCMI compliance requirements? A: From January 1, 2026, VCMI Claims Code requires CCP-approved credits (or Article 6.4/CORSIA-eligible alternatives) for companies making Carbon Integrity Claims. Companies must submit claims to the VCMI Claims Reporting Platform within nine months of fiscal year-end, with third-party assurance required. Begin transition planning now to avoid supply constraints as demand for high-quality credits surges.

Q: Are nature-based solutions still viable for corporate offset strategies? A: Selectively. High-quality forestry projects with conservative baselines, continuous satellite monitoring, and long-term permanence guarantees remain valuable. However, the category requires elevated scrutiny. Prioritize projects from CCP-approved methodologies (VM0047 for afforestation, improved forest management protocols), and verify additionality through independent ratings. Diversify portfolios to include engineered removal as these technologies mature.

Q: How do we handle legacy offset portfolios that may not meet new standards? A: Conduct a portfolio audit using current rating methodologies. For credits that fail integrity tests, options include: (1) writing off the investment and purchasing replacement credits, (2) engaging project developers on methodology updates if feasible, or (3) transparently disclosing the issue in sustainability reporting while committing to improved procurement. Avoid the temptation to quietly retire low-quality credits—the reputational risk of discovery outweighs the writedown cost.

Sources

Topics

carbonoffsetsriskWACCIRRunderwritingcompliance

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