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The 2027 carbon offsetting guide: how to buy credits that stand up to scrutiny
Carbon offsets, carbon credits, net zero claims, ICVCM labels… As the carbon market matures, scrutiny of corporate claims grows with it. This guide explains how offsetting works, where the risks sit, and how to choose credits that stand up to reporting and claims review. Fewer than 9% of the carbon projects we assess pass our Keystone 3.0 screening.
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What is carbon offsetting?
Carbon offsetting means compensating for a company’s emissions by funding the reduction or removal of an equivalent amount of greenhouse gases (GHGs) elsewhere. Each carbon credit represents one tonne of carbon dioxide equivalent (tCO2e), measured and verified under an independent standard.
Credits should cover the residual emissions a company can’t yet cut, on top of a science-based reduction plan. That’s what SBTi and VCMI expect before a company makes a climate claim, and it’s where greenwashing risk begins if the plan is missing.
Carbon offsetting can be done by purchasing carbon credits, which represent the reduction or removal of one metric tonne of carbon dioxide. These carbon credits can be bought from various organisations, such as third-party providers or governments, and are used to fund projects that aim to reduce or remove carbon emissions.
In Earthly’s view, when these carbon-removal projects are nature-based - reforestation for example - they tackle the dual crises of climate change and biodiversity loss. More on this below.
Carbon offsets vs carbon credits
Carbon offset and carbon credit are terms that are often used interchangeably but have distinct meanings.
Carbon offset refers to a reduction in carbon dioxide emissions made in one location to compensate for carbon emissions produced elsewhere. The idea behind carbon offsetting is to balance an individual's or organisation's carbon footprint by funding projects that remove an equivalent amount of carbon from the atmosphere. This can be achieved by investing in nature-based projects like reforestation or peatland restoration, or in technology-based projects such as carbon capture and storage or clean cookstoves.
Compliance markets work differently. Schemes such as the EU ETS and RGGI issue allowances, each giving the right to emit one tonne of CO2 under a legal cap. Carbon credits in the voluntary market represent a tonne of emissions reduced or removed by a specific project. Carbon credits are used in emissions trading schemes, such as the European Union Emissions Trading System (EU ETS) and the Regional Greenhouse Gas Initiative (RGGI) in the United States, which set caps on the total amount of greenhouse gases that can be emitted by participating companies. These companies must then either reduce their emissions or purchase carbon credits from other companies that have reduced their emissions below their allocated limit.
In that sense, carbon offsetting is a way to balance one's carbon footprint by funding projects that remove carbon from the atmosphere. A carbon credit is the unit used to do this. Compliance allowances, by contrast, are a way to trade the right to emit under a legal cap. Both concepts aim to reduce greenhouse gas emissions and mitigate the impact of climate change, but the implementation and mechanism of each is different.
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How does carbon offsetting work?
The offsetting process typically begins by measuring an individual or a company’s carbon footprint: the total amount of greenhouse gas emissions produced as a result of their operation. This can include emissions from manufacturing, transportation, energy use and waste. Businesses may also look to offset the footprint of a certain activity, product, team or process.
Once the carbon footprint has been determined, the individual or organisationMany businesses use high-integrity credits for residual emissions while those plans are under way, provided the reduction targets come first and every claim is accurate can then purchase carbon credits.
It's essential to note that carbon offsetting is not a substitute for reducing emissions at the source. It should be used in combination with other strategies such as: using a sustainable supply chain, improved energy efficiency, using renewable energy, and achieving emissions and waste reduction. Complex, organisation-scale reduction strategies can take a long time to be realised. Many businesses use high-integrity credits for residual emissions while those plans are under way, provided the reduction targets come first and every claim is accurate
It is also important to ensure the validity and quality of the carbon credits purchased. Standards such as Verra and Gold Standard certify projects, and the ICVCM’s Core Carbon Principles add a market-wide quality label. Earthly adds a further check with our Keystone 3.0 assessment, which draws on 168 indicators across carbon, biodiversity and people.
How are businesses approaching carbon offsetting?
Businesses are buying carbon credits to meet public net zero commitments, to report credit use under CSRD and CDP, and to manage the reputational risk of claims that don’t stand up. Carbon offsetting can be a way for businesses to take accountability for their emissions, as well as to invest in projects that reduce or remove carbon from the atmosphere alongside supporting nature and local communities.
Alongside emission reduction strategies, some businesses are setting carbon neutral targets. This involves calculating the total emissions of operations or a particular activity or product, then purchasing carbon credits from verified projects that are designed to reduce or remove an equivalent amount of carbon from the atmosphere.
A net zero target goes much further. It requires deep cuts across the value chain, with carbon removals used only to neutralise what’s left (see the SBTi benchmark below).
Carbon neutral certifications typically require annual carbon accounting and credit retirement. Credits don’t count towards SBTi reduction targets, but carbon credits and offsetting allow businesses to balance residual emissions and support wider climate commitments.
Overall, businesses are taking a variety of approaches to carbon offsetting. The effectiveness of these approaches will depend on factors such as the types of projects being supported, the rigour of verification and monitoring, and the overall commitment of businesses to addressing their carbon impact.
>> Get expert advice on a credit portfolio that stands up to audit <<
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What are the risks of carbon offsetting?
1. Not a substitute for emission reductions: While offsetting can complement sustainability strategies, it is not a replacement for reducing emissions at the source. Relying heavily on offsets may delay necessary operational changes, perpetuating the very practices that contribute to climate change.
2. Quality and credibility of offsetting projects: As an emerging sector, not all offset projects are effective or ethically sound. Some may fail to deliver promised emissions reductions or have negative social or environmental consequences. Our Keystone 3.0 assessment exists to screen these projects out, and fewer than 9% of the projects we assess pass. See the high-integrity projects that did.
3. The issue of additionality: A core principle of offsetting is additionality - the idea that a project’s emissions reductions would not have occurred without the offset investment. Proving additionality can be challenging, as it requires a clear understanding of what would have happened without the project. Projects that fail this test offer little real impact.
4. Permanence challenges: The permanence of carbon storage is another concern. For example, reforestation projects may lose their effectiveness if forests are later destroyed by logging, fire, or other environmental factors. This undermines the long-term credibility of the offsets and complicates emissions accounting.
5. Risk of greenwashing: Greenwashing happens when claims are vague or misleading, such as “the greenest way to travel”, or when a business promotes its offsetting without a reduction plan behind it. It’s now a regulatory risk as well as a reputational one, and the VCMI Claims Code of Practice sets out what a credible claim needs.
There are a few actions companies can take to prevent making false claims:
Be transparent about your environmental impact and any trade-offs.
Back up any environmental claims with third-party certifications or verifications.
Don't exaggerate or make misleading claims about the environmental benefits of your products or services.
Continuously strive to improve your company's environmental performance rather than relying on greenwashing as a one-time solution.
6. Inefficiencies and lack of transparency: Critics argue that a significant portion of funds for offsetting goes towards administration rather than actual emissions reductions. Sourcing credits from reputable providers with transparent reporting and independent verification is essential to ensure value.
What are the benefits of carbon offsetting for businesses?
1. Reducing a carbon footprint: Carbon offsetting enables businesses to compensate for their unavoidable carbon emissions. By investing in projects that remove or reduce greenhouse gases, companies can lower their overall carbon footprint and move closer to achieving (or going beyond!) net zero targets. This is particularly useful for emissions that cannot yet be eliminated through operational changes.
2. Meeting climate targets and disclosure commitments: For companies with science-based targets, credits address the residual emissions left once reductions are under way. Reported transparently under CSRD and CDP, they give investors, customers and auditors evidence of action beyond the company’s own value chain.
3. Supporting environmental and social projects: Many carbon offset initiatives go beyond reducing emissions. Projects like reforestation, peatland protection or agroforestry offer co-benefits such as biodiversity conservation, water management, food security and employment opportunities for local communities. By investing in these projects, businesses can make a positive impact beyond their own operations.
4. Enhancing corporate reputation and legacy: Protecting corporate reputation: Credits from rigorously assessed projects reduce the risk of a project failing publicly and taking a company’s claims with it. Backed by transparent reporting, they also build trust and competitive advantage with investors and customers.
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Earthly's position on carbon offsetting
We help enterprises manage nature-related risk and meet compliance requirements, using high-integrity, nature-based projects to address residual emissions alongside their own reductions.
Investing in nature-based solutions is a key initiative all businesses can employ to help reduce the effects of climate change and biodiversity loss. Research published in PNAS found that natural climate solutions can provide 37% of the cost-effective CO2 mitigation needed by 2030 to keep warming below 2°C (Griscom et al., 2017). Very low-priced credits often reflect projects assessed on carbon alone. Nature-based solutions assessed across carbon, biodiversity and people give buyers a fuller picture of a project’s value and its risk. This approach will lead to more meaningful and sustainable results for people, carbon and biodiversity.
Overall, our stance is clear: while carbon offsetting can be a useful tool for businesses to reduce their carbon footprint (especially in the short term), it is not a replacement for reducing emissions at the source. We also encourage organisations to go beyond net zero by funding mitigation outside their value chain, on top of their own reductions. The SBTi calls this beyond value chain mitigation (BVCM) and recommends it to companies with science-based targets.
>> Ask our experts which credits fit your residual emissions <<
A balanced approach to carbon offsetting
Carbon offsetting is a useful tool, but it belongs inside a wider climate strategy. Experts agree that companies must prioritise reducing emissions at their source - through energy efficiency, renewable energy adoption and supply chain improvements - before turning to offsets for unavoidable emissions. The SBTi Corporate Net-Zero Standard sets the benchmark: most companies should cut emissions by at least 90% and neutralise only the remainder with carbon removals.
Additionally, businesses should select offset projects with high standards of verification. These certifications help ensure that the projects are delivering measurable, permanent and additional emissions reductions while also considering potential co-benefits for communities and ecosystems.
Carbon offsetting can play a valuable role in achieving corporate sustainability goals, provided it is used responsibly. By investing in high-quality projects and prioritising emission reductions within their operations, businesses can balance the need for immediate action with the long-term transition to a low-carbon economy. The key is to view offsetting as a complementary measure - not a standalone solution - on the path to net zero and beyond.
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