The purpose of creating markets for carbon credits is to enable more, and more effective, action on climate change. Companies and individuals who find it difficult or costly to reduce their own emissions, or who have reduced their emissions as far as they can, can use carbon credits to enable others to undertake additional mitigation. Without carbon credits, fewer mitigation projects would get funded, and – all else equal – progress in addressing greenhouse gas (GHG) emissions would be slower. Carbon markets create “liquidity” for climate action that allows the world to go further, faster in reducing emissions.
That is the promise of carbon markets. Nevertheless, carbon credits have been periodically criticized as counterproductive. Common criticisms fall into two categories:
- Criticisms about the way in which carbon credits are used
- Concerns about the “quality” of carbon credits
Some of these criticisms are based on differing understandings about the nature of carbon credits and the most appropriate ways to combat climate change. Some criticisms, especially related to carbon credit quality, have been borne out by empirical studies. In recent years, multiple initiatives have sought to respond to these concerns. For prospective credit buyers, it is important to understand the nature of the criticisms and how they can be addressed.
Criticisms about how carbon credits are used
These kinds of criticisms are not so much about whether carbon credits are a valid form of climate change mitigation, but rather whether carbon credits create perverse incentives that could undermine more effective forms of climate action. Examples of these criticisms include:
- “Carbon credits allow polluters to go on polluting and are therefore a form of greenwashing”
- “Carbon credits are not a long-term solution and can ‘lock in’ high-carbon infrastructure”
- “Carbon credits create an incentive to avoid regulating certain sectors and industries”
In brief, critics fear that companies, rather than making investments needed to significantly reduce their own emissions, could be inclined to use carbon credits to achieve all (or large parts) of their corporate GHG reduction goals. If this happens, they could continue to allow more emissions from their own operations and even invest in high-emitting equipment and facilities, effectively “locking in” higher levels of emissions over the long run. Moreover, companies engaged in this behavior may still claim to be “carbon neutral” or “net zero,” or make other claims that effectively obscure the difference between their own activities and those of other companies with lower emission intensities.
Another, related, concern is that the very existence of carbon credit markets could work to discourage government regulation of emissions. In short, for many sectors of the economy, regulation (or mandatory carbon pricing) would be a more effective way to drive comprehensive decarbonization. Regulation, however, could prevent project developers from selling carbon credits, because their mitigation activities would no longer be considered “additional” (see Additionality). Project developers receiving carbon credits may therefore resist regulatory changes, and by doing so, hinder broader climate policy efforts. Buyers of carbon credits may wish to consider this dynamic when choosing what types of projects to support.
Addressing criticisms about the use of carbon credits
These concerns are part of ongoing debates about what the best strategy should be for companies (and other organizations) engaged in voluntary climate action, and what it means to use carbon credits “responsibly” as part of those strategies. Multiple initiatives now emphasize the need to follow a “mitigation hierarchy” when using carbon credits – i.e., focus first on decarbonizing one’s own activities, and then use carbon credits to supplement, not substitute for, those efforts. These initiatives, and wider debates around “responsible use” of carbon credits, are further explained Using Carbon Credits: Issues and Considerations.
Criticisms about carbon credit quality
This type of criticism is focused on carbon credits themselves. In short, many observers are concerned that carbon credits fail to deliver a valid claim to having avoided GHG emissions, or enhanced removals, in ways that avoid adverse social or environmental impacts (see What Makes High-Quality Carbon Credits for a full explanation of carbon credit “quality”). Some typical concerns might be:
- “Carbon credits are based on inflated claims of mitigation impact, and if they are used as a substitute for internal emission reductions by a company, they only make climate change worse.”
- “Carbon crediting projects have adverse impacts on local communities and may make other environmental problems worse.”
In fact, independent studies have identified problems with some types of carbon credits. For example, studies in the last decade of two international crediting programs established under the Kyoto Protocol – the Clean Development Mechanism and Joint Implementation – suggested that up to 60-70% of their carbon credits may not have represented accurately calculated avoided emissions or enhanced removals.1 A more recent 2024 survey of peer-reviewed analyses – looking back over the past 10-12 years – found that fewer than 16% of the credits issued to forestry, cookstove, wind power, and chemical processes projects represent accurately quantified GHG mitigation impacts.2 Multiple investigative news reports over the years have also suggested problems with the integrity and quality of carbon credits, including instances where projects have had adverse impacts on local communities and indigenous peoples.
It is sometimes difficult to know what to make of these studies and news reports. Often, they focus on specific categories of carbon credits and ignore or underplay categories where quality concerns are not prevalent. Taken together, however, they suggest that across different carbon markets there are very real risks associated with credit quality, which are especially challenging for buyers who are not confident in their ability to distinguish “good” from “bad.” At a minimum, the perception of widespread quality issues presents a reputational risk for buyers. dits.
Addressing carbon credit quality criticisms
Fortunately, there are a growing number of resources available to buyers concerned about avoiding low-quality carbon credits. Initiatives like the Integrity Council for Voluntary Carbon Markets (ICVCM) were launched precisely to address these concerns by providing a label for high quality credits. There are also now multiple carbon credit rating services offering clients detailed assessments of individual project activities and the relative quality of their credits. How to Avoid Lower-Quality Credits explains these initiatives and other strategies buyers can use to avoid using low-quality carbon credits.
- The primary concern is that a large number of carbon credits come from non-additional energy sector projects that have significant sources of revenue other than carbon credits, suggesting that they would have happened anyway. Other identified issues include concerns about over-estimation of avoided emissions or enhanced removals, e.g., for industrial gas destruction and other project types (Alexeew et al. 2010; Cames et al. 2016; Gillenwater and Seres 2011; Haya and Parekh 2011; Kollmuss et al. 2015; Kollmuss and Lazarus 2010; Lazarus et al. 2012; Ruthner et al. 2011; Schneider 2009; Schneider et al. 2010; Spalding-Fecher et al. 2012). ↩︎
- See Probst, B. S., Toetzke, M., Kontoleon, A., Díaz Anadón, L., Minx, J. C., et al. (2024). Systematic assessment of the achieved emission reductions of carbon crediting projects. Nature Communications, 15(1). 9562. DOI:10.1038/s41467-024-53645-z. ↩︎