5 common issues with carbon removal credits and how to avoid them
Carbon removal credits can be a useful tool for companies to meet their net-zero targets. They also help scale solutions needed to address wider climate and nature challenges. And large-scale removal of carbon dioxide from the atmosphere is required to limit global warming to 1.5˚C. But the voluntary carbon market (VCM) used to buy and sell carbon credits faces several key challenges, including concerns around quality, supply, and greenwashing.
For companies investing in climate solutions, this may leave them between a rock and a hard place. Here we provide an overview of the common pitfalls and some practical advice on how to avoid them.
Feeling confused? See the jargon buster below for an explanation of key terms.
How should carbon removal credits be used?
Carbon dioxide removal (CDR) is not an alternative to deep emissions reduction, but it can be used in parallel to complement mitigation activities. Under the Science Based Targets initiative (SBTi) guidance, companies must reduce greenhouse gas (GHG) emissions across their full value chain by at least 90% from their baseline year to achieve net zero. Carbon removal credits can be purchased to remove and store the remaining 10% of unavoidable emissions.
Are companies still investing in carbon removals?
The VCM’s heyday is waning, but carbon removals are not. MSCI found corporations used credits worth a total of $1.4 billion in 2024, compared to $1.7 billion in 2022. But companies have increasingly been choosing higher-quality carbon removal credits over cheaper carbon avoidance credits, and MSCI projects the removal market will rise to $4–11 billion by 2030.
What’s being done to restore faith in the market?
The VCM is key to enabling large-scale private funding of carbon removal projects. It complements public finance, which is not enough to reach global net-zero targets by itself. To stimulate investment, several governments are promoting high-quality carbon credits. In April 2025, the UK launched a consultation on its carbon credit integrity framework, and in June, Singapore issued draft guidance on using carbon credits voluntarily.
Beyond government initiatives, the SBTi recently released its draft Corporate Net-Zero Standard V2, which encourages early uptake of carbon removal credits. The guidance includes a ‘removals target’ for scope 1 emissions, whereby companies gradually increase their use of carbon removals over time until all residual scope 1 emissions are matched by the net-zero target year.
Practical steps to overcome common challenges
1. Addressing quality and additionality concerns
There are several factors that can affect credit quality, such as lack of governance, tracking, short removal timescales, and additionality (i.e. projects would not have occurred without the carbon credit). Several companies have been criticised for purchasing “worthless” carbon credits that do not deliver real climate benefits, for example funding projects that would have occurred anyway.
Ensuring project due diligence, tracking, verification, and certification is crucial when choosing which credits to buy. There are a range of legitimate guidelines available to help you, including:
- SBTi
- Voluntary Carbon Markets Integrity Initiative (VCMI)
- Integrity Council for the Voluntary Carbon Market (ICVCM).
The ICVCM has developed 10 principles to help identify carbon credits that create verifiable climate impact, such as third-party validation, permanence, and robust quantification.
Beyond confirming the integrity of each credit, you should consider your credits as a portfolio. Projects originally considered high quality could fail to live up to the initial expectations. Like other investments, diversifying your portfolio reduces overall risk.
2. Navigating the lack of standardisation
A wide range of projects and credit providers are available, with varying levels of quality. The lack of standardisation can lead to confusion, undermining market confidence and making it challenging for companies to gauge the impact and credibility of a project.
Look out for leading carbon credit providers that conduct their own due diligence on each project and ensure they’re verified by internationally recognised carbon certification standards. Some of the most widely recognised certification standards include Gold Standard and Verra’s Verified Carbon Standard (VCS).
3. Securing a shrinking supply
Demand for high-quality carbon removal projects is on the rise but supply is limited. Purchasing credits close to your net-zero target date could risk sky-high prices as many companies race to secure the dwindling reserves.
To secure carbon credits before the price is too steep, you can use carbon forward contracts, purchasing credits now to remove GHG emissions in future years. This provides a fixed price and helps fund projects that need financing to scale. But it’s worth considering the uncertain future impact of these investments as climate science is rapidly evolving.
4. Overcoming budget constraints
Companies should prioritise investing in GHG emissions reductions over credits. But most companies, particularly those in hard-to-abate sectors, will need carbon removal credits in future to balance out the remaining 10% of their emissions. For some, budget could be an issue, even without the risk of prices for high-quality credits skyrocketing the nearer we get to 2050 (assuming there are any left).
Besides carbon forward contracts, there are high-quality projects with a lower price tag. These projects often involve nature-based carbon removal methods, such as reforestation. But make sure to avoid purchasing cheap, low-quality carbon credits by ensuring project due diligence and certification, as these may not have the impact they claim and risk greenwashing allegations.
5. Avoiding reputational risks
Fossil fuel companies dominated the VCM in 2024,[1] raising concerns that companies are misusing carbon credits without reducing their own GHG emissions. Companies have faced heavy backlash for using low-quality carbon credits to make GHG emissions reductions or carbon-neutral claims.[2]
To avoid greenwashing risks, steer clear of using credits to make GHG emissions reduction, net-zero, or carbon-neutral claims. Instead, transparently report on credits used and distinguish these disclosures from your GHG emissions reporting. Include specifics on the volume and type of credits purchased, project location, purpose of use, third-party certification, and technical details.
See the European Sustainability Reporting Standards (ESRS), International Financial Reporting Standards (IFRS), and Global Reporting Initiative (GRI), for guidance on how to report on carbon removals (ESRS E1-7, IFRS S2 36e, and GRI 102-10).
Beyond their core purpose and key challenges, carbon removal projects can provide benefits like creating job opportunities in local communities, reducing air pollution, and protecting biodiversity. Look for projects that deliver positive sustainable development impacts while ensuring best practice social and environmental safeguards are in place.
There are several ways to go about purchasing carbon removal credits, and your company’s approach depends on several factors, including the maturity of your net-zero roadmap, GHG emissions reduction progress, targets, carbon credit awareness, and budget. Context supports companies to develop and implement carbon credit and wider sustainability strategies. If you’d like to talk about your organisation’s needs, please reach out to helen.fisher@contexteurope.com.
Jargon buster
- Carbon credits are a market-based tool to generate funding to remove or avoid GHG emissions. One credit represents 1 metric tonne of carbon dioxide equivalent (CO2e).
- Carbon removal credits remove carbon from the atmosphere for the short, medium, or long term. These include natural carbon removals, such as reforestation projects, and technological carbon removals, such as Direct Air Capture (using technology to capture carbon from the air). Companies can use these credits to remove the remaining 10% of their GHG emissions (in addition to reducing 90% of their emissions under SBTi guidance).
- Carbon avoidance credits prevent additional future GHG emissions being released into the atmosphere. They should not be used to reach net zero under SBTi guidance, but investments can be made in parallel to reduction and removal activities. Examples include renewable energy and forest protection projects.
- Carbon dioxide removal (CDR) refers to human activities to deliberately remove and durably store carbon dioxide from the atmosphere. CDR includes a range of technologies, practices, and approaches, such as Bioenergy with Carbon Capture and Storage (growing and burning biomass to create energy and capture the resulting GHG emissions), that all differ in integrity, maturity, timescale, mitigation potential, cost, co-benefits and side effects.
- The voluntary carbon market (VCM) operates in parallel with the mandatory carbon market, enabling companies to purchase carbon credits on a voluntary basis.
[1] https://carbonmarketwatch.org/2025/02/12/behind-the-green-curtain-big-oil-and-the-voluntary-carbon-market/
[2] https://www.theguardian.com/environment/article/2024/may/30/corporate-carbon-offsets-credits
