An airplane takes off from an airport in the sunset amid a smog
Buyers of carbon credits tend to be heavy emitters, such as airlines, a study found © Luis Sinco/Getty Images

From which budget does the money for carbon credits, which are used by companies to compensate for their emissions, come? Marketing? Or sustainability?

In August, analysts at BloombergNEF concluded that many of the major buyers of offsets were purchasing the units to burnish their reputations, rather than to achieve sustainability goals. Top buyers came from “heavy-emitting sectors”, such as airlines and oil majors, and tended to be consumer-facing, the analysis found.

Trove Research made similar findings in August: while 35 per cent of 3,133 companies with net zero emissions targets had bought offsets, only 10 per cent had purchased a “meaningful” amount, defined as more than 10,000, over the past three years.

“The vast majority of firms use carbon credits to improve their climate reputation,” says Guy Turner, founder of Trove Research.

Carbon credits — each of which is supposed to represent a tonne of emissions avoided or removed from the atmosphere — have soared in popularity over the past two years, as concerns about climate change have gone mainstream. US carrier Delta Air Lines, for example, spent $137mn to buy and use 27mn credits last year.

But who buys offsets, how companies use them, and the extent to which they are being relied on for the achievement of net zero goals is inconsistent. Also, despite the growing interest in offsets — which are generated by projects such as tree planting schemes — the credits have regularly come under attack from activists and researchers who say they do not always deliver the environmental benefits they promise.

Efforts are now under way to reform the system, with some industry groups working to thrash out what “good” offsets should look like, and others focusing on how companies should be using them. Any new guidelines will be voluntary, though, as the sector is unregulated.

Companies can want offsets for different reasons. Some buy credits in order to promote specific products as “carbon neutral”. Some use them to compensate for polluting activities that they hope eventually to make clean. Others see offsets as a long-term investment — and acquire large volumes that they can either sell or use to help meet their long-term sustainability goals.

“We are experiencing growing interest in companies wanting to develop [offsetting projects],” says EcoAct, a consultancy and seller of credits. Whether buyers had a net zero target was “varied”, and those that did might not have a clear strategy for achieving the goal, it added.

Appetite for credits also differs by sector. Trove found that 63 per cent of 48 fossil fuel companies with net zero targets had bought offsets, and a third had purchased a meaningful amount. But, in the food, beverage and agriculture sector, a third of the 209 companies with targets had bought credits, and only 3 per cent had purchased a meaningful number.

Bar chart of % of businesses with net zero targets that have made purchases showing Many companies buy some carbon credits, but few buy large volumes

Most proponents of credits stress that they should not be the first tool companies reach for on their journey to net zero. Emissions should be reduced as much as possible, first, with offsets compensating for the rest, they say.

Some activists still argue that offsetting remains too cheap and easy to incentivise genuine change, with many credits available for less than $5. But others say there is nothing wrong with companies using offsets in the short term to cover emissions they plan to eliminate later, provided they do not make false claims.

Purchasing credits “places a very specific price on carbon within a company that further incentivises emissions reductions”, Max Scher, senior director of sustainability at software company Salesforce, told a recent panel discussion.

But the issue of potentially misleading claims is gaining prominence, since companies have started using offsets to market goods as “green”.

Energy groups including BP have begun selling “carbon-neutral” liquefied natural gas, and airlines offer the option to “offset” flight emissions.

Such claims can be difficult to understand, compare and verify, however — and have largely been self-policed. The Voluntary Carbon Markets Integrity Initiative, a multi-stakeholder group, is now developing guidance on when and how companies can credibly use offsets to make claims. They will need to be on track to meet “science-based” net zero targets, and use credits to cover a proportion of their current emissions.

“There were adverts by companies saying they were ‘carbon neutral’ during COP26 [the 2021 climate summit] . . . Then you looked at the small print,” says Mark Kenber, executive director of the VCMI. The claims meant wildly different things, with some companies relying almost entirely on offsets, he notes. Kenber wants to see “clarity for customers, so we know what we’re buying”.

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