Even as global carbon emissions continue to scale new heights and as businesses try to find loopholes to avoid cutting their own carbon footprint, the carbon credit market has rapidly emerged as a key tool in creating the myth of achieving cuts in their emissions. What began as a relatively niche concept has exploded into a multi-billion-dollar industry as businesses and governments, under mounting pressure to show some concrete actions to curb emissions, try to couch their failure through the carbon credit market.
At its core, the carbon credit market is a system that puts a price on carbon emissions. One carbon credit represents the right to emit one tonne of carbon dioxide, or the equivalent in other greenhouse gases. Companies that cannot fully reduce their emissions can buy these credits from projects that claim to cut or remove emissions elsewhere, such as forest protection, renewable energy or carbon capture. This allows firms to “offset” part of their carbon footprint while continuing business operations.
Though the idea has existed for decades, the market remained small and relatively unknown until last decade when climate concerns intensified and governments introduced tougher emissions rules. At the same time, thousands of major companies began pledging to reach NetZero emissions by 2030 or 2050. With immediate emission cuts often costly or complex, buying carbon credits became a short-term solution.
As a result, the market grew significantly. In 2023, it was worth an estimated USD 479.4 billion and projections suggest it could surpass USD 4.7 trillion by 2030, according to a report by Grand View Research. The voluntary market, where companies or even individual consumers purchase credits without legal obligation, is also expanding.
However, this sudden rise has also exposed serious flaws. Investigations and academic studies show that many carbon credits do not lead to real or lasting reductions in emissions. A 2023 joint report by Die Zeit and SourceMaterial found that 90 pc of rainforest offsets certified by Verra, the world’s largest verifier, were essentially worthless, based on exaggerated or fictional claims of avoided deforestation. Research from the University of California, Berkeley revealed these findings, suggesting that just 15 pc of forest-based credits had solid evidence of reducing carbon.
“Carbon credit is not a new concept and there has always been a question mark on the credibility of the carbon market, and this is not a new issue. For the past 20 years, there have been serious allegations regarding whether the carbon market is truly effective and whether it is the right tool to combat climate change. Many experts believe that a carbon tax is a more effective and direct method of addressing emissions, as it targets pollution at its source rather than relying on a market-based approach,” Chandra Bhushan, CEO, iForest, International Forum for Environment Sustainability and Technology, a non-profit environmental research organisation based in Delhi, tells Media India Group.
With hundreds of credit types and little consistency in how projects are verified, it is difficult to know whether a credit actually represents one tonne of carbon removed or avoided.
“The first version of carbon credit was called CDM – Clean Development Mechanism, which was part of the Kyoto Protocol, designed in the 1990s. In CDM, credits were generated in developing countries and bought by developed countries. These mechanisms are old, but there were design problems. For example, leakage in carbon credit occurs when a poor design allows emissions to be reduced on paper but not in reality. Ideally, a carbon credit should be given to a project that is actually reducing emissions. There are also many forestry projects where carbon credit is given for planting trees. Now, whether that forest is actually sequestering carbon dioxide depends on the life of the tree. Maybe carbon credit is given now, but 10 years later the tree is cut and sold off, then it is not an effective credit,” says Bhushan.
A tool for greenwashing
Despite these concerns, many large companies continue to rely on carbon credits to claim progress toward their climate goals. Oil giants like Shell and BP have invested heavily in carbon offset projects, even while increasing fossil fuel production. Critics argue this allows businesses to appear environmentally responsible without making the hard decisions needed to actually reduce emissions. In other words, it becomes a form of greenwashing, projecting an image of sustainability while doing little to change business as usual.
The voluntary carbon market, where companies purchase credits by choice rather than legal obligation, remains relatively small compared to compliance markets run by governments. According to MSCI, an American finance company headquartered in New York City, the voluntary market was worth only USD 1.4 billion in 2023, though it is expected to grow to between USD 7 and 35 billion by 2030. In contrast, global revenues from government-led carbon pricing schemes reached USD 104 billion in 2023, according to the World Bank.
Another problem is the low cost of most carbon credits. Prices on the voluntary market often range from just USD 4 to 8 per tonne, with the highest quality credits reaching about USD 30. But experts at the World Bank and other institutions argue that prices need to rise to at least USD 50 to 100 per tonne by 2030 in order to drive meaningful emission reductions. If companies can continue to buy cheap offsets, they have little incentive to reduce their own carbon footprints.
“Carbon credits involve buying and selling, which often leads to issues like leakage and integrity concerns. Although the Paris Agreement introduced some design improvements over the Kyoto Protocol to enhance the effectiveness of carbon markets, persistent doubts remain, especially in the voluntary market,” says Bhushan.
Efforts underway to fix the system
At the 2024 COP29 climate summit, countries reached a deal to set up a unified carbon credit framework under the United Nations. The plan includes a centralised registry, standard rules and stronger verification processes. But these changes will take time to implement, and many of the details remain uncertain. In the meantime, poorly regulated credits continue to circulate.
Governments are also beginning to take more action. In both the United States and the European Union, new rules require companies to be more transparent about the credits they use. Regulators are also pushing for stricter audits and independent verification to prevent companies from making misleading claims about their carbon neutrality.
As the market grows, the risk is that the financial value of carbon credits will be faster than their environmental value. Without urgent reform, this booming industry could do more to protect business interests than to protect the planet.
