Carbon offset credits represent one tonne of verified CO2e emissions that have been avoided, reduced, or removed through accredited projects and can be used by organisations to compensate for their emissions. As credit quality varies, businesses should prioritise high-quality, independently certified carbon removal credits to minimise reputational and greenwashing risks.
However, carbon credits should complement, not replace, direct emissions reductions, with organisations first focusing on cutting emissions across their operations before using offsets for residual emissions.
What are Carbon Offset Credits and how do they work?
A carbon offset credit represent a measurable avoidance, removal or reduction of one metric tonne of CO2e. These credits are generated through various project developers that have implemented a successful emission avoidance, removal or reduction project. These credits are typically verified by third parties, issued into a registry and sold to companies who wish to ‘claim’ these credits and mitigate their emissions. At this stage the credits are ‘retired’ from the market, meaning that they cannot be sold to again or claimed by another company which prevents any double counting from occurring.
What are the different types of Carbon Offset Credits?
Carbon offset credits can be categorised into three different categories:
1. Carbon avoidance credits
The credits are generated from projects that avoid the generation of future emissions occurring.
They do not directly remove any CO2e from the atmosphere. Examples of this type include implementing renewable energy credits from clean energy projects such as wind and solar projects, forest conservation projects, and clean cookstove projects.
2. Carbon reduction credits
The credits represent projects that reduce the number of emissions compared to previous practices in place. Examples of this include energy efficiency upgrades to infrastructure and industrial processes and switching from carbon intensive fuels to lower carbon alternatives.
3. Carbon removal credits
These types of credits are generated from projects that remove emissions from the atmosphere.
Once the emissions are captured, they are then stored for long periods of time. Examples of this type include afforestation and nature-based solutions, direct air capture, and bioenergy with carbon capture and storage (BECCS).
What are the risks and concerns about quality?
Carbon offset credits have received considerable scrutiny in recent years regarding their credibility and integrity, particularly around whether the emissions reductions or removals they claim are genuine and accurately quantified.
These concerns are particularly relevant for nature-based projects such as afforestation and reforestation, where carbon sequestration can be difficult to measure precisely and often relies on modelling assumptions. Small changes in these assumptions can significantly affect the number of credits generated. Furthermore, some nature-based carbon projects face permanence risks, as the carbon stored may be released back into the atmosphere through events such as wildfires and land use changes.
Companies purchasing carbon offset credits can also face accusations of “greenwashing”, particularly if they rely on low-quality credits to support claims such as being “carbon neutral” or achieving “net zero”.
Lower-quality credits may appear attractive due to their lower cost, but they can create reputational risks and undermine the credibility of a company’s climate strategy.
What to do to ensure a credible approach?
Companies seeking to purchase carbon credits should prioritise high-quality credits, and favour carbon removal credits, where possible, such as direct air capture or strongly vetted and approved nature-based projects.
Companies should also favour credits certified under recognised standards such as Gold Standard and Verra. These organisations provide independent validation and verification of the projects and therefore delivers an important level of assurance that projects have been assessed against recognised industry standards.
In line with leading frameworks such as the Science Based Targets initiative (SBTi), companies should prioritise reducing emissions across their operations and value chains before relying on carbon credits.
The SBTi’s Net-Zero Standard requires organisations to achieve emissions reductions of at least 90–95% before reaching net zero. High-quality carbon removals should then be used to neutralise the small volume of residual emissions, typically of around 5–10%.
Residual emissions refer to those that cannot be decarbonised due to technical and / or financial restrictions. To understand if emissions are not abatable from a technical or fuel-switching perspective, companies should perform a detailed on-site audit of equipment and manufacturing / industrial processes.
How NUS Can Help
NUS guide companies through the entire carbon offsetting process to provide tailored approaches that align with a sustainability goals, financial budgets and best-practice standards. Our team of experts advise on suitable available projects, including innovative technologies, credits aligned with an organisation’s global footprint and projects that secure social value.
All advisory services are directly enhanced by NUS’ ability to perform a full and competitive RFP on behalf of clients to collect, screens and advise on offers from a network of trusted carbon credit providers.