As companies around the world ramp up efforts to combat climate change, many have turned to voluntary carbon markets to offset their emissions. These markets, where businesses buy credits for projects aimed at reducing greenhouse gases—such as forest preservation or renewable energy generation—offer a way for firms to claim they are contributing to global climate goals. However, recent scrutiny suggests that for some companies, the rush to purchase cheap carbon offsets may be more about marketing and less about real environmental impact.

The concept behind carbon offsets is straightforward: when a company is unable to reduce its own emissions, it can invest in projects elsewhere that lower greenhouse gases on its behalf. The idea is that global emissions reductions, no matter where they occur, will benefit the planet. But while this approach seems promising in theory, the reality is much more complex. Investigations into the voluntary carbon market have raised concerns about the integrity and effectiveness of many offset projects.

The voluntary carbon market has expanded significantly in recent years, driven by increasing pressure on companies to meet environmental commitments. In 2022 alone, the market grew to account for approximately 30 million metric tons of carbon offsets. As the industry matures, major investment banks predict that the voluntary carbon market could be worth $100 billion by 2030 and reach $250 billion by 2050. Yet, experts are questioning whether the boom is genuinely helping the climate or simply enabling companies to engage in “greenwashing”—the practice of exaggerating or fabricating environmental achievements.

Voluntary carbon markets differ from compliance markets, where companies must buy emissions allowances from regulators to meet legal requirements. In contrast, voluntary markets lack the same level of regulation, making it difficult to ensure the credibility of the offset projects. While some offset projects—such as renewable energy generation and carbon capture and storage—are considered high-quality, many others, particularly in forest management, have been found to offer little actual climate benefit.

A study examining carbon offset usage among 866 publicly traded companies between 2005 and 2021 reveals troubling trends. While companies in high-emissions sectors like oil and gas, utilities, and transportation could potentially benefit most from offsetting, they tend to use offsets sparingly. On the other hand, companies in low-emissions sectors, including financial services, are often more aggressive in their offset purchases. Some of these firms have been found to claim large reductions in emissions by purchasing cheap offsets, sometimes for almost all of the emissions they report, raising doubts about the actual effectiveness of their climate actions.

The discrepancy can be explained in two ways. One is that companies with relatively low emissions can reduce their carbon footprint more cheaply by buying offsets than by making costly investments in emissions reductions within their own operations. In contrast, high-emissions industries are more likely to focus on reducing their direct emissions, as offsetting large amounts of carbon could quickly become prohibitively expensive.

The second, more concerning explanation is that offsets offer a convenient tool for companies to engage in greenwashing. By purchasing inexpensive, low-quality carbon offsets, companies can improve their environmental image without making substantial changes to their operations. This is particularly problematic because many carbon offset projects, especially those rated poorly by independent agencies, are sold at prices far below the market rate for verified, high-quality offsets. More than 70% of the offsets used by companies in a recent study were priced below $4 per ton, indicating that many firms are opting for cheaper, less reliable options to fulfill their climate commitments.

These practices raise serious questions about the integrity of the voluntary carbon market. A lack of transparency and accountability has allowed companies to take advantage of a market that is still in its early stages, with little oversight or regulation. The situation has prompted calls for stricter standards to ensure that carbon offsets are genuine and that their claimed climate benefits are real.

The global community has begun to recognize the need for reform. Following the release of the Paris Agreement’s Article 6, which establishes principles for carbon markets, negotiations have been ongoing to create clearer guidelines for offset projects. In April 2024, the Science-Based Targets Initiative (SBTi) announced that it would allow companies to use carbon offsets to cover emissions in their supply chains. This move highlighted the growing influence of carbon offsets in corporate climate strategies.

Meanwhile, in May 2024, the U.S. Treasury and several other federal agencies issued a joint policy statement calling for more robust rules to govern voluntary carbon markets. The statement acknowledged the potential of carbon markets to help reduce emissions but stressed the need for stronger safeguards to address challenges such as low-quality offsets and lack of transparency.

As these debates unfold, the COP29 conference, going on in Baku, Azerbaijan, could prove pivotal in determining the future of voluntary carbon markets. With the stakes so high, global leaders will need to find ways to ensure that carbon offsetting becomes a legitimate and effective tool for decarbonization, rather than a mechanism for companies to continue polluting with little accountability. If progress is not made, the voluntary carbon market risks remaining a tool for greenwashing rather than a meaningful contributor to climate action.