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Many companies across the world use carbon credits as part of their climate strategies to offset emissions. A carbon credit is a certificate that represents the reduction, avoidance or removal of one ton of carbon dioxide from the atmosphere. While organizations claim these credits help them reduce their environmental impact, there is debate about whether companies that buy credits decarbonize faster. However, an in-depth study of 89 multinationals, in Nature Communications, reveals that companies that purchase credits do not decarbonize any quicker than those that do not.

"Voluntary emission offsetting is not associated with positive corporate environmental performance. Therefore, it is not a reliable alternative to regulatory measures, such as compliance carbon pricing, wrote the researchers in their paper."

Researchers examined over 400 sustainability reports and self-reported environmental data from multinational companies working in the oil and gas, automotive and airline industries. These were firms that bought and used roughly a quarter of all carbon credits that were available in 2022.

They then compared how much these companies reduced their emissions between 2018 and 2023 and how ambitious their climate goals were with the amount of carbon credits they purchased. To make sure the company data was accurate, the researchers checked it against major carbon credit agencies.

The study found that, on average, companies spend about 1% of their capital spending on carbon credits, which means they account for a small share of the overall budget. The research also highlights a problem where carbon offsets can compete with internal decarbonization.

For some large-scale offsetters, such as Delta Air Lines and easyJet, buying large amounts of carbon credits can divert funds from internal projects that would directly cut their emissions. Other companies use carbon credits to meet their goals because it is cheaper and easier than making internal structural changes.

What's the solution?

The researchers suggest a way forward, namely a shift away from voluntary carbon offsetting to regulatory measures, such as carbon compliance. This is a government-mandated system where companies must pay for the carbon they emit. The main goal here is to create a financial incentive for companies to reduce their carbon emissions.

Whether or not this shift happens, the study highlights concerns about greenwashing when companies accidentally or intentionally mislead consumers about their environmental practices. The findings indicate that the current rules often fail to prevent businesses from making false environmental claims. This is a fundamental issue for environmentally conscious consumers who want to know if a company's promises to be green are genuine or just for show.