A carbon credit is a certificate that can be bought and sold. It shows that one metric ton of carbon dioxide or its equivalent (CO₂e) has been prevented from entering the atmosphere or removed from it. Carbon offsetting means using these credits to balance out the greenhouse gas (GHG) emissions of a company, organization, or individual, as required by reporting programs or goals.

Carbon credit trading systems allow project developers to create projects that reduce GHG emissions. These projects can earn credits, which are then sold to buyers who use them to claim they have reduced their own emissions. In some regulated markets, like the European Union Emission Trading Scheme or California’s Cap-n-Trade program, credits are used to meet legal requirements for lower emissions. These programs have specific rules about how credits can be used. Beyond meeting legal requirements, credits can also help support global efforts to reach net zero GHG emissions. The buyer of a credit decides how to use or "retire" it.

Projects that earn carbon credits involve actions that reduce or remove GHG emissions. These projects follow the rules of specific crediting programs, which include guidelines, methods, and requirements. For example, methods for tree planting, restoring mangroves, or retiring coal power plants are approved for certain types of projects. If a project meets all the requirements of a crediting program, it can earn credits that are sold to buyers. Each program has its own label for credits, such as Certified Emission Reductions (CERs), Verified Emission Reductions (VERs), or Climate Reserve Tonnes (CRTs).

There are hundreds of GHG reduction project types, each with approved methods under specific crediting programs. The Clean Development Mechanism (CDM) was the first major program to help develop carbon markets and provides a booklet listing its approved methods. However, each program has its own list of approved methods. For example, a method approved by one program, like ACR, may not be used in another program, such as Verra’s Verified Carbon Standard.

Carbon credits are a way to assign a price to carbon emissions, similar to carbon taxes or Carbon Border Adjustment Mechanisms (CBAM). While credits can be used in different markets, some programs and regulations only accept certain types of credits based on factors like when the credit was issued, where the project took place, or what kind of project it was.

Credit quality

The idea behind a carbon credit is that it can replace actions a buyer might have taken to reduce their own emissions (called compensation use). For this to work, the world should be at least as well off when a carbon credit is used as it would have been if the buyer had reduced their own emissions. The "quality" of a carbon credit refers to how certain we are that using the credit meets this goal.

Carbon credits and the programs that create them have faced more attention after studies and reports found problems with their quality. These issues include claims that carbon credits overstate how much carbon is stored, credits being counted more than once, and projects failing to provide extra environmental benefits that would not have happened without the project. Some projects that claim to remove large amounts of carbon have been criticized for misleading people, with some even increasing total emissions.

The key factors that determine the quality of a carbon credit are five criteria:

• Additional: The credit must result in environmental benefits that would not have happened without the project.
• Robustly quantified: The amount of carbon stored or avoided must be accurately measured.
• Permanent: The carbon stored must remain in the environment for a long time.
• Not claimed by another entity: The credit must not be used by more than one group.
• No significant social or environmental harms: The project must not cause serious harm to people or the environment.

Assessing the quality of carbon credits is possible. In response to growing concerns, many rating systems began in 2020 to help buyers and programs distinguish high-quality from low-quality projects. These systems include free online tools, labeling programs that evaluate methods and assign quality labels, and detailed analysis tools that rate methods on a scale from 1 to 5. For-profit companies also provide quality ratings for individual projects by reviewing their documents.

The Paris Agreement crediting mechanism

In 2015, the Paris Agreement was created through international climate meetings led by the UNFCCC. This agreement includes rules about using carbon credits to help countries reach their Nationally Determined Contributions (NDCs), which are their national climate goals. At COP27, leaders agreed that carbon credits from Article 6 of the Paris Agreement count as "mitigation contributions" toward meeting these goals.

Article 6 of the Paris Agreement outlines three ways countries can work together to meet climate goals, including carbon credit markets. Article 6.2 allows countries to directly trade carbon credits through agreements between two countries (bilateral crediting programs). Article 6.4 created a new international program called the Paris Agreement Crediting Mechanism (PACM), which replaces the older CDM program. This new system aims to improve the quality of carbon credits and set higher standards for the market.

Article 6.8 is a third option but does not involve carbon credits and is not discussed here. The rules in Articles 6.2 and 6.4 allow countries to develop systems that use carbon credits to help achieve their NDCs.

The PACM program is replacing the CDM program and includes stricter rules to ensure credit quality. CDM projects can become PACM projects if they meet new requirements. A group called the Article 6.4 Methodology Panel is reviewing CDM and other project methods to see if they meet PACM’s higher standards. These standards will guide how future projects are developed under the PACM system.

Project types

Some projects include forestry efforts that stop logging and plant young trees, renewable energy initiatives like wind farms, biomass energy, biogas digesters, hydroelectric dams, and energy efficiency programs. Other projects involve removing carbon dioxide from the air, capturing and storing carbon, and reducing methane emissions in places like landfills.

Common terms

Forward crediting is often seen as a risky method that may result in credits that are not reliable. This process involves giving credits for expected reductions in emissions or increases in removals of carbon, even before the activities that create these reductions have taken place. Buyers can claim these credits before the actual reduction happens.

The "vintage" of a carbon credit refers to the year the credit was issued by a crediting program. This year usually matches the year a third party, such as an auditor, reviews the project and issues the credit.

A registry is an important part of a carbon crediting program. A registry is typically a public online system that keeps track of carbon credits, including who owns them and when they are retired. Registries may also include details about projects, such as their current status, documents related to the project, the number of credits created, who owns them, when they are sold, and when they are retired.

History

In 1977, important changes to the U.S. Clean Air Act created one of the first systems where companies could buy and sell emission reductions. This allowed companies that produced more pollution to pay others to reduce their emissions of the same pollutant by a larger amount. In 1990, new rules under the same law started the Acid Rain Trading Program. This program introduced a system called "cap and trade," which let companies buy and sell emission reductions from other companies that invested in projects to lower pollution, all while keeping total emissions within a set limit. During the 1990s, rules under the U.S. Clean Water Act created programs like mitigation banking and wetlands offsetting. These programs helped set the foundation for later carbon offsetting efforts.

In 1997, international carbon markets began with the Kyoto Protocol, an agreement that created three ways for developed countries to earn carbon credits. One of these was the Clean Development Mechanism (CDM), which helped expand carbon trading globally. This mechanism focused on reducing emissions of major greenhouse gases that cause climate change, including carbon dioxide (CO₂), methane, nitrous oxide (N₂O), perfluorocarbons, hydrofluorocarbons, and sulfur hexafluoride. The Kyoto Protocol was scheduled to end in 2020 and would be replaced by the Paris Agreement. Countries are still discussing how carbon offsets will be used in the Paris Agreement through talks about Article 6 of the agreement.

In November 2024, after many years of disagreement, governments at the COP29 conference in Baku, Azerbaijan, agreed on rules for creating, trading, and registering carbon credits. These credits represent emission reductions or removals that higher-emission countries can buy. This process helps fund technologies that produce fewer emissions.

Economics

The economics of programs like the Kyoto Protocol showed that the cost to reduce pollution would vary between countries. Research suggested that using flexible methods could lower the total cost of meeting emission targets. Offset and credit programs allow countries to meet their climate goals under the Paris Agreement at a lower cost. These programs may also help reduce the gap between current emissions and the levels needed to avoid serious climate impacts, as reported by the UNEP each year.

Offset and credit markets are influenced by many sources of supply and demand, as well as different trading systems. Demand for offsets and credits comes from requirements set by international agreements, national laws, and voluntary goals that companies and governments choose to follow. Voluntary carbon markets involve private companies buying carbon credits to meet their own goals for reducing greenhouse gases. In some cases, companies not covered by an emissions trading system may buy credits instead of purchasing offsets in a voluntary market.

These programs also provide other benefits, such as cleaner air, more plant and animal life, and better protection of water and soil. They can also create jobs, improve access to energy, and support equal opportunities for men and women. They may also lead to new jobs, better education, and the sharing of new technologies. Some certification programs offer tools and research to measure these benefits.

The prices of offsets and credits differ a lot because it is difficult to determine the true value of carbon reductions. This uncertainty has made some companies less confident about buying offsets.

Emissions trading is now a key part of rules to control pollution, including greenhouse gases. These programs operate at local, national, and global levels. Under these systems, there is a limit, or "cap," on how much pollution can be released. Companies that produce pollution can choose the cheapest ways to reduce their emissions. A government or authority usually gives out or sells a limited number of permits. Each permit allows a specific amount of pollution to be released over a certain time. Companies must have permits equal to the pollution they produce. If a company wants to release more pollution, it must buy permits from others who are willing to sell. These programs are used for greenhouse gases because their effects on the climate are the same no matter where they are released. The cost to reduce emissions varies depending on the source. The cap ensures that environmental goals are met.

Regulations and schemes

As of 2022, 68 carbon pricing programs were either active or planned to start worldwide. International programs include the Clean Development Mechanism, Article 6 of the Paris Agreement, and CORSIA. National programs include Emissions Trading Systems (ETS), such as the European Union Emissions Trading System (EU-ETS) and the California Cap and Trade Program. Credits used in these programs may come from international or independent systems. Standards and credit systems are also managed by independent groups like Verra and Gold Standard.

Under the Clean Development Mechanism, a developed country can fund a greenhouse gas reduction project in a developing country, where such projects are usually less expensive. The developed country receives credits called Certified Emission Reductions (CERs) to help meet its emission targets, while the developing country gains investment, clean technology, or changes in land use. Under Joint Implementation, a developed country with high domestic costs of reducing emissions may fund a project in another developed country. Credits from this program are called Emission Reduction Units.

The International Emissions Trading program allows countries to buy and sell carbon credits internationally to cover their emission targets. Countries with extra credits can sell them to countries that have exceeded their targets under Annex B of the Kyoto Protocol.

Nuclear energy projects are not eligible for credits in these programs. Projects under the Clean Development Mechanism are approved by country-specific designated national authorities.

Article 6 of the Paris Agreement supports international credit programs, including Clean Development Mechanism projects from the Kyoto Protocol. These programs now help countries meet emission reduction goals outlined in their nationally determined contributions (NDCs).

The ITMO system requires "corresponding adjustments" to prevent double counting of emission reductions. Double counting happens if both the country hosting a project and the country buying its credits count the same reduction toward their targets. If a country uses ITMOs toward its NDC, the host country must adjust its emissions budget by reporting a higher total in its biennial reports. Otherwise, Article 6.2 allows countries flexibility in creating trading agreements.

The supervisory board under Article 6.4 is responsible for approving methods, setting guidelines, and managing procedures. Work on this is expected to finish by the end of 2023. Emission Reduction (ER) credits issued will decrease by 2% to ensure the program reduces global emissions overall. An additional 5% reduction in ERs will fund adaptation efforts. Administrative fees for program management are still being discussed.

Clean Development Mechanism projects may move to the Article 6.4 program if the host country approves and the project meets new rules. Projects can use existing CDM methods until 2025. Starting in 2026, all projects must meet Article 6 requirements. Up to 2.8 billion credits could become eligible for issuance under Article 6.4 if all CDM projects transition.

Article 6 does not directly control voluntary carbon markets. In principle, carbon offsets can be issued and sold without referencing Article 6. A multi-tier system may develop, with different types of offsets and credits available for investors. Companies may purchase "adjusted credits" to avoid double counting, which could be more valuable if they support science-based targets or net-zero goals. Other offsets might support claims about environmental or social benefits, even if they are less effective for emissions reduction. Uncertainty remains about how Article 6 will affect future voluntary carbon markets and what claims investors can make by buying different types of credits.

REDD+ is a UNFCCC program focused on tropical regions in developing countries. It rewards countries for preserving forests or increasing their carbon storage. It uses results-based payments to assign financial value to carbon stored in forests and promotes benefits like biodiversity protection. REDD+ was introduced at COP11 in 2005 and has expanded into a major policy effort to address deforestation and forest degradation.

In 2015, REDD+ was included in Article 5 of the Paris Agreement. REDD+ initiatives typically reward developing countries or their regional governments for reducing emissions from deforestation and forest degradation. The program has four stages: achieving REDD+ readiness, formalizing financing agreements, measuring and verifying results, and receiving payments based on results.

Over 50 countries have national REDD+ programs. REDD+ also operates through provincial, district, and local governments, as well as private landowners. As of 2020, more than 400 REDD+ projects were active globally. Brazil and Colombia have the largest areas covered by REDD+ projects.

The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is a global program to reduce emissions from international flights. It allows credits and offsets for emissions that cannot be reduced through technology, operations, or sustainable aviation fuels. To ensure environmental integrity, CORSIA lists eligible offsets. Operating rules are similar to existing trading systems and certification standards. CORSIA began in 2019, requiring airlines to report annual CO₂ emissions. Since 2021, all international flights must offset emissions under CORSIA.

Markets

Compliance market credits make up most of the offset and credit market today. In 2021, trading on voluntary carbon markets reached 300 million metric tons of carbon dioxide equivalent (MtCO2e). In comparison, the compliance carbon market traded 12 billion metric tons of CO2e, and global greenhouse gas emissions in 2019 were 59 billion metric tons of CO2e.

Several exchanges trade carbon credits and allowances for both spot and futures markets. These include the Chicago Mercantile Exchange, CTX Global, the European Energy Exchange, Global Carbon Credit Exchange (gCCEx), Intercontinental Exchange, MexiCO2, NASDAQ OMX Commodities Europe, and Xpansiv. Many companies now work on emissions reduction, offsetting, and carbon storage programs, which create credits that can be sold on exchanges.

At the start of 2022, there were 25 operational emissions trading systems worldwide. These systems cover areas that account for 55% of global GDP and manage 17% of global emissions. The European Union Emissions Trading System (EU-ETS) is the second-largest trading system after China’s national carbon trading scheme. It covers over 40% of European greenhouse gas emissions. California’s cap-and-trade program covers about 85% of the state’s greenhouse gas emissions.

Voluntary carbon markets (VCM) are markets where carbon offsets are traded by companies, individuals, and organizations that are not legally required to cut emissions. In these markets, businesses or individuals use offsets to meet their own emission reduction goals. Credits are issued based on independent standards. Some credits are also approved through international or national programs. National and local programs for emissions reduction have become more popular.

Many groups operate in the voluntary carbon market, such as developers, brokers, auditors, and buyers. Certification programs for VCMs set rules for accounting, project eligibility, and monitoring, reporting, and verification (MRV) processes. These include the Verified Carbon Standard from Verra, the Gold Standard, the Global Carbon Council in Qatar, the Climate Action Reserve, the American Carbon Registry, and Plan Vivo. Puro Standard, the first standard for engineered carbon removal, is verified by DNV GL. Isometric was the first registry to issue credits for enhanced weathering carbon removal. Additional standards for co-benefits include the Climate, Community and Biodiversity Standard (CCB Standard) from Verra and the Social Carbon Standard from the Ecologica Institute. The Integrity Council for the Voluntary Carbon Market (ICVCM) sets rules called Core Carbon Principles (CCPs) to ensure credit quality and checks if programs meet these standards.

Voluntary carbon markets currently cover less than 1% of the emission reductions pledged by countries in their 2030 climate goals. They cover an even smaller part of the reductions needed to meet the 1.5°C Paris Agreement target. However, the VCM is growing quickly. Between 2017 and 2021, the number of carbon credits issued and retired in VCMs more than tripled. Some predictions say global VCM demand could grow 15 times between 2021 and 2030, and 100 times by 2050. Carbon removal projects, such as reforestation and carbon capture and storage, are expected to play a larger role in the future than renewable energy projects. However, some large companies are becoming less willing to use VCM credits because of the many standards involved, even though they are focusing on net zero goals.

In 2022, voluntary carbon market prices ranged from $8 to $30 per tonne of CO2e for common offset projects. Several factors affect these prices. The cost of developing a project is a major factor. Projects that store carbon, called Nature-Based Solutions, have recently sold at higher prices than projects like renewable energy or energy efficiency. Projects with extra social and environmental benefits can also sell for more. Credits from well-known organizations may cost more. Credits from developed countries may be more expensive because companies often prefer to support projects near their operations. Credits from older projects tend to be worth less.

Prices in compliance markets are usually higher. They vary by region, with EU and UK ETS credits trading at higher prices than US credits in 2022. Lower prices in VCMs are partly because there is more supply than demand. Some offsets can be created at very low costs under current standards. Without this surplus, VCM prices could be at least $10 per tonne higher.

Some forecasts predict VCM prices could rise to $47–$210 per tonne by 2050. Prices might spike even higher in certain situations. A key factor in future prices is how much programs that support long-term carbon removal influence global climate policies. This could reduce the number of approved offsets, raising prices.

Demand for VCM offsets is expected to grow five to ten times over the next decade as more companies commit to net zero goals. This could help reduce greenhouse gas emissions. If carbon offset prices stay much lower than predicted, companies might face criticism for "greenwashing," which is claiming credit for emission reductions that would have happened anyway. At prices of $100 per tonne, carbon removal technologies could reduce emissions by about 2 billion metric tons of CO2e annually between now and 2050. These technologies include reducing deforestation, restoring forests, carbon capture and storage, bioenergy with carbon capture and storage (BECCS), and renewable energy in least developed countries. As offset costs rise, companies may invest more in reducing emissions from their supply chains.

Verra was created in 2005. It is a widely used standard for voluntary carbon credits and provides methods for REDD+ projects, which help reduce emissions from deforestation. By 2020, over 1,500 projects had been certified under Verra’s program, covering energy, transport, waste, forestry, and other sectors. In 2021, Verra issued 300 million metric tons of CO2e in offset credits for 110 projects. Verra is the main standard for forest credits in the voluntary market and is used for most REDD+ projects.

The Gold Standard was created in 2003 by the World Wide Fund for Nature (WWF) with input from an independent advisory board. Projects can be led by non-government or community-based organizations. Eligible projects include renewable energy, energy efficiency, afforestation, reforestation, and agriculture. The program supports the United Nations Sustainable Development Goals. Projects must meet at least three of these goals in addition to reducing emissions. They must also improve the economic, environmental, and social well-being of local communities. Monitoring rules help ensure these requirements are met.

Types of offset projects

Many projects can help reduce greenhouse gas (GHG) emissions and create carbon offsets and credits. These projects may involve improving land use, capturing methane, storing carbon in plants, using renewable energy, or increasing energy efficiency in industries. Other examples include reducing methane emissions, planting trees, and switching to fuels that do not add carbon to the air, such as carbon-neutral or carbon-negative fuels. The Clean Development Mechanism (CDM) lists over 200 types of projects that can generate carbon offsets and credits. An example of land use improvement is managing forests more carefully to protect them.

Certification programs for carbon offsets and trading systems differ in how they decide which projects qualify for credits. The European Union Emission Trading System does not allow credits for nuclear energy projects, planting new forests, or projects that destroy industrial gases like HFC-23 and N₂O.

Renewable energy projects include hydroelectric power, wind energy, solar panels, solar water heating, and using biomass for electricity or heat. These projects help societies move away from energy sources that rely on fossil fuels, which release more carbon. However, some renewable energy projects may not qualify as offset projects. This is because it is hard to prove whether the project would have happened without the offset program. These projects often make money and may involve government support or complex financial agreements, which can disqualify them from some offset programs.

Methane is a powerful greenhouse gas that is often released from landfills, animals, and coal mining. Methane can be captured and used for energy, creating carbon offsets. For example, methane from farm animals can be collected using anaerobic digesters, or methane from landfills can be burned or stored.

Carbon offsets that fund renewable energy projects help reduce the amount of carbon in energy supplies. Energy conservation projects aim to lower overall energy use. These projects include three main types:

• Cogeneration plants produce both electricity and heat from the same energy source. This is more efficient than most power plants because they use the heat that is usually wasted.
• Fuel efficiency projects replace equipment that uses more fuel with ones that use less fuel to produce the same amount of energy. This can be done by improving industrial processes or encouraging actions like biking instead of driving.

Industrial gases like hydrofluorocarbons (HFCs) and perfluorocarbons (PFCs) trap much more heat than carbon dioxide. These gases are easy to capture and destroy, making them a low-cost way to create carbon offsets. Projects that reduce HFCs, PFCs, and N₂O make up about 71% of carbon offsets approved by the CDM. Many of these gases are now banned by an agreement called the Montreal Protocol, so they are no longer eligible for offsets or credits.

Land use, land-use change, and forestry projects are grouped under the label LULUCF. These projects focus on natural carbon sinks, such as forests and soil. Some LULUCF projects aim to stop deforestation by protecting existing forests, restoring forests on land that was once forested, or planting new forests on land that was not previously forested. Other projects focus on soil management, which helps keep more carbon stored in the soil.

Deforestation is a major source of greenhouse gas emissions in countries like Brazil, Indonesia, and parts of Africa, contributing about 20% of total emissions. Carbon offsets allow companies to pay for forest protection or support alternatives to products made from trees. Programs like REDD, which use reforestation to create offsets, are now available in many developing and developed countries, including the United States and the United Kingdom.

China has a policy for forestry carbon credits. These credits are based on measuring how much forests grow, which is converted into carbon reduction measurements by government agencies. Forest owners, usually rural families or villages, receive tradeable certificates called "carbon tickets" (碳票; tan piao).

Processes

An offset project is created by developers, funded by investors, checked by a verifier, and officially recorded by a carbon offset program. Official registration means the program has approved the project and that the project can begin creating carbon offset credits once it starts. Most carbon offset programs have a list of approved methods that cover different types of projects. After a project starts, programs often check it regularly to measure how much emissions are reduced. The time between checks can vary, but it is usually one year. Once a program approves the check results, it gives carbon offset credits, which are placed in the project developer’s account in a system managed by the offset program.

Rules for judging the quality of offsets and credits usually include the following areas:

• Baseline and Measurement
• Additionality
• Leakage
• Permanence
• Double counting
• Co-benefits

In addition to the certification programs mentioned, industry groups have worked since the 2000s to improve the quality of these projects. The International Carbon Reduction and Offset Alliance (ICROA) was formed in 2008. It encourages the best ways to do things in the voluntary carbon market. ICROA includes carbon offset providers from the United States, Europe, and Asia-Pacific regions who agree to follow the ICROA Code of Best Practice.

Other groups are now pushing for new methods to ensure offsets and credits are reliable. The Oxford Offsetting Principles say traditional carbon offsetting schemes may not be enough to reach net zero emissions. These principles focus first on reducing emissions. For offsets, they suggest moving to projects that remove carbon from the atmosphere and store it long-term. They also support creating offsets that align with net zero goals. The Science Based Targets initiative’s net-zero rules say it is important to move beyond offsets based on reduced or avoided emissions. Instead, projects should focus on carbon that has been removed from the atmosphere, such as CO2 Removal Certificates.

Some initiatives aim to improve the quality of current carbon offset and credit projects. The Integrity Council for the Voluntary Carbon Market has created a draft set of rules to define high-quality carbon credits. These rules are called the Core Carbon Principles. Final rules for this program are expected in late 2023. The Voluntary Carbon Markets Integrity Initiative developed a code of practice that was published in 2022. The UK government partially funds this initiative.

Limitations and drawbacks

The use of carbon offsets and credits has faced many criticisms. Some people say that using these tools might lead companies to continue their usual practices without making major changes to reduce emissions at the source.

Research from The Australia Institute suggests that at least 25% of carbon offsets may not be reliable, calling them "hot air." Some reports also worry that carbon offsets could be used to support fossil fuel projects, which might delay efforts to cut emissions directly.

Using projects in this way is called "greenwashing." Pope Francis warned in his 2015 letter Laudato si' about the risk that countries or industries might use carbon credits as a way to keep their high levels of consumption.

Some projects that claim to reduce carbon emissions by storing carbon in the environment have been criticized for overstating their impact. Some projects were found to actually increase total emissions.

In 2023, a lawsuit was filed against Delta Air Lines for using carbon credits to claim it was carbon neutral. In 2016, the Öko-Institut studied several projects and found that 85% were unlikely to truly reduce emissions or were overestimating their benefits. In 2023, the University of California decided to stop buying offsets and instead focus on reducing emissions directly.

Another challenge is that current carbon pricing and policies are not strong enough to meet the goals of the Paris Agreement. However, some studies show that companies using offsets may make bigger efforts to cut emissions than those that do not.

Researchers say that using carbon offsets, such as protecting forests, planting trees, or capturing carbon, along with renewable energy certificates, might let polluting companies continue emitting greenhouse gases without making real changes.

There are several standards for measuring emissions and reductions, but no single standard controls the industry. Some providers have been criticized for making exaggerated or misleading claims about their carbon reductions. For example, carbon credits from the California Air Resources Board used a formula that simplified how much carbon was stored in different types of forests.

Experts estimate that California’s cap-and-trade program created between 20 million and 39 million forestry credits that did not provide real climate benefits. This is nearly one-third of all credits issued through that program. The Australia Institute says Australia’s carbon offset system appears to be regulated but lacks independent checks and transparency. Without reliable data or oversight, it is hard to verify if these projects work, which could lead to false claims or even increased emissions if offsets support new fossil fuel projects.

Determining whether a project is "additional" (meaning it would not happen without offset funding) is difficult. This can create risks for people buying offsets. Projects that make money without carbon credits or are required by laws are usually not considered additional. A full check of each project is needed to decide if it is truly additional.

Carbon offsets can create problems because they provide money for reducing emissions, which might encourage companies to emit more so they can claim credits for reducing emissions from a higher starting point. Regulatory groups could help by setting clear rules for checking, uniqueness, and transparency.

Forestry projects have been criticized for their reliability as offset programs. Reports from 2021 to 2023 questioned nature-based offsets, the REDD+ program, and certification groups. One report said that about 90% of rainforest offset credits from the Verified Carbon Standard might be "phantom credits" (credits that do not represent real emission reductions).

Tree-planting projects have faced many problems. Trees take decades to grow, and it is hard to know how long a forest will last. Forests might be cleared, burned, or mismanaged. Some projects use fast-growing invasive plants, which can harm native plants and reduce biodiversity. Some standards now require planting multiple species to help protect biodiversity. Tree-planting in high-latitude forests might actually warm the planet because the trees absorb sunlight, which can balance out their carbon absorption. Tree-planting projects can also cause problems for local communities and Indigenous people if the projects take away their use of forest resources.

Carbon offsetting is a common tool for dealing with greenhouse gas emissions, but it has limits in directly reducing emissions at the source. Companies buy credits from outside projects to balance their emissions, often through reforestation or renewable energy projects. However, offsetting has been widely criticized and misused. Many companies have bought credits to claim they are reducing emissions without making real efforts to cut their own emissions.