The effects of carbon credits on a company’s climate action are negligible and impossible to untangle from other factors.

In an environmentally conscious world, businesses realise the importance of appearing to be green. To remain relevant, companies need to convince, sometimes in dubious ways, consumers, investors and other stakeholders that they are doing as much as they can to halt climate change. 

Many businesses have turned to the voluntary carbon market (VCM) to signal their green credentials to the world. With carbon credits facing criticism for their often overstated climate impact and their role in greenwashing, VCM advocates have resorted to suggesting that carbon markets boost corporate climate ambition.

But is there any truth to this hypothesis?

Carbon Market Watch set out to investigate these claims by commissioning the independent researchers of the Oeko-Institut to scrutinise the available evidence. Their research revealed that no conclusion can be drawn from existing studies to prove a cause-and-effect relationship between the use of carbon credits and faster corporate internal emission reductions.

There is, however, a study by researchers at the Max Planck Institute showing that the excessive purchase of carbon credits can actually hamper in-house emission reductions. It also finds that there is no causal link between carbon credit use and climate ambition simply because carbon credits make up a tiny fraction of corporate investments. 

“Carbon credits have become a comforting myth, not a catalyst for genuine corporate climate ambition. The unhelpful narrative that buying credits accelerates real decarbonisation runs counter to the evidence and distracts us from meaningful action,” author of the Carbon Market Watch briefing Benja Faecks explained. “Instead of fixating on weak correlations, we must speed up real innovation, supplier engagement, and the structural and sectoral changes needed to truly extinguish the fire in our own house.”

Greenwishing and greenwashing

Credits suggest climate responsibility, that this investment is doing good in the world. Yet, they offer a far cheaper alternative than transforming an energy system, redesigning supply chains or abandoning fossil fuels altogether. When used to offset emissions, they also, at best, make no difference to global emission levels and, at worst, lead to greater emissions in the real world due to exaggerated climate claims or reversals.

The voluntary carbon market is an unregulated space which, when used for offsetting, provides fertile ground for companies to exaggerate claims that are at best greenwishing, and at worst greenwashing.

Rather than weigh claims against the structural transformations required to meet the Paris Agreement’s 1.5°C temperature boundary, the VCM is a hotbed of net-zero promises without the pain of cutting off the excess.

Fast track or limiting ambition?

Market players are keen to claim that carbon crediting schemes are catalysts for an organisation's speedier transition to net zero. Some previous studies have suggested that apparent correlations between carbon credit purchases and climate ambition reveal a causal link, which in turn has been propelled as a mainstream narrative in the market. 

However, peer-reviewed research shows no evidence of causation, given the tiny size of the VCM, among other factors. There are a plethora of other factors affecting a company’s climate ambition. These include the size, value and location of the company, the sector and regulatory environment within which it operates, and even its gender balance.

The analysis we commissioned, which assessed what’s necessary for a clean, unbiased study on the causal impact of credits on a company’s decarbonisation journey, concluded that the search for causality is almost impossible to accomplish. Besides the other factors that weigh in, companies would have to be monitored over a long period of time - but company data is not comparable or even consistent enough for that. And even more thought provokingly, what if the relationship is the other way round and the level of emission reductions impacts the use of carbon credits?  

Moreover, credit purchases can take away from budgets available for internal emissions cuts, thereby putting a damper on ambition.

“The voluntary carbon market must not be hyped up as the silver bullet solution for climate change mitigation. This is a smokescreen for what really makes a difference: a whole lot of internal efforts, and a whole lot of other conditions,” Faecks concludes. “Corporate claims promise the world, but don’t deliver for the planet. Corporations that really want to make a difference must sharpen up their schemes to become aligned with the strained beating heart of climate science.”