Why is Carbon Offsetting Losing Credibility?

The carbon offset market saw a massive decline last year, shrinking from £1.9 billion in 2022 to just £566 million in 2023—a 61% drop. This raises a key question: Is carbon offsetting fundamentally flawed, or are there other factors behind the decline?

Historically, carbon offsetting was meant as a “last-mile” tool for companies striving for net-zero emissions, used to compensate for emissions that cannot be eliminated feasibly. Yet, many organizations have come to rely on offsetting as a “whole journey” solution, avoiding reductions at the source by purchasing offsets that invest in carbon sequestration, such as reforestation projects. This can feel like “greenwashing”—purchasing carbon neutrality instead of meaningfully cutting emissions. 

Skepticism Rises Around Offsets

In recent years, studies have challenged the validity of offset projects, with many credits deemed ineffective and some associated with human rights issues. A single carbon credit represents one tonne of CO₂ avoided or removed. However, companies routinely use these credits to claim carbon neutrality while continuing to emit at normal levels. This practice allows firms to use credits as an “easy” solution rather than meaningfully reducing emissions, raising concerns about the integrity of their climate commitments.

Concerns around offset validity have further eroded trust. For instance, a study by The Guardian found that over 90% of rainforest offsets certified by Verra, a leading carbon certifier, were ineffective, a finding that Verra disputes. This perception issue has likely contributed to a 62% drop in the market value of rainforest offsets over the past year.

Toward Genuine Solutions and Transparency

Despite the issues, offsets could still play a role in mitigating climate change, especially by channelling funds toward rainforest preservation. However, reform is urgently needed. The U.S. government backed industry-led reforms to increase transparency, urging companies to prioritise emissions cuts over offsets. This aligns with the need for a more credible, impactful offset market that prioritises real emissions reductions.

While legitimate offset programs exist, they are often overshadowed by schemes that double-count credits or overstate their impact. To restore trust, the offset market needs stronger oversight. A thorough review by the UN’s Intergovernmental Panel on Climate Change (IPCC) could establish standardised criteria to assess and validate offset programs. This would likely include monitoring mechanisms and penalties for non-compliant programs, creating a level playing field for projects making a genuine impact.

Reforming Offsets for Effective Climate Action

The current state of the offset market has prompted some to question its long-term viability. However, abandoning offsets altogether is not feasible if we aim to limit global warming to 1.5ºC. A reformed, regulated offset market can still play a vital role in financing projects that preserve natural carbon sinks.

As Stephen Lezak of Oxford’s Smith School of Enterprise and the Environment put it:

The current market for carbon offsets is a bit like a burning building. We need folks to be firefighters and run toward it, rather than walk away and let it burn to the ground."