Carbon credits

It takes nearly a three-hour postgraduate lecture for a professor to explain the concept of carbon credits to a room full of professionals struggling to understand how this abstract financial instrument connects to the real world. Yet outside that classroom, it is rapidly becoming the currency of survival for billions of people who will live and die by the consequences of the markets' design. From drought-stricken villages of Africa to flood-battered plains of Pakistan, carbon credits may soon determine who has access to clean water and food security, and who bears the harshest climate costs.

The devil hides in the details — perhaps because men have worked tirelessly to keep it there. These tradable credits — sold by projects that claim to reduce or absorb greenhouse gases - have become the currency of climate comfort. Every tonne of carbon emitted by an airline, oil company or tech giant can be cancelled out by paying for a tree planting drive, forest protection scheme or a renewable energy project elsewhere. The transaction is meant to neutralise pollution, as if it never happened.

However, there is a catch! If good intentions could cool the planet, we would already be safe. Instead, we are burning faster than ever and pretending we aren't. The concept sounds elegant: polluters pay to compensate for emissions while supporting climate-positive projects in developing nations. But it's a dangerous illusion that risks turning the world's most urgent challenge into a game of creative accounting.

According to a Nature publication in October this year, a 2024 meta-analysis of over 2,300 carbon offset projects found that only less than 16 per cent delivered their promised emission reductions. This raises a simple but devastating question impact carbon credit impact.

Credits are supposed to be "additional", i.e. the emission reduction wouldn't occur without the credit sale. Yet developers routinely inflate their baselines to mint more credits. Even when projects are real, permanence is rarely guaranteed. Forest-based credits, for instance, can go up in smoke in a single wildfire.

Despite this, governments, corporations and international institutions increasingly rely on them to meet climate targets. The Paris Agreement's Article 6 has created new frameworks for trading credits, while voluntary markets are booming. In 2024 alone, the voluntary market was worth over $2 billion as China, South Korea, Canada and Australia, among others, still allow companies to use carbon offsets instead of reducing emissions; consequently, low-quality credits flood the market, driving down carbon prices and weakening incentives for real decarbonisation. The European Union, recognising this danger, phased out offsets from its Emissions Trading System in 2020. But elsewhere, the practice persists.

Credits distort climate action. When a company prioritises $15 credit over $50 to decarbonise its operations, the short-term balance sheet improves but the planet pays the difference.

Carbon offsets appeal because they allow governments to set ambitious climate goals while continuing to subsidise fossil fuels. Offsets shift the burden of action from rich polluters to poorer nations. A company in Europe can claim climate leadership by funding a reforestation project in Kenya even if that forest later burns or displaces local communities.

Scientific assessments have declared the offset system broken. Whether it's avoided deforestation, clean cookstoves or renewable energy projects, most offset types suffer from lack of additionality, inaccurate measurement or impermanence.

Experts believe that carbon credits cannot replace real emission cuts. Governments should phase them out of carbon-pricing systems. Corporations should stop using them to reach "net zero" targets and instead invest directly in clean energy, efficiency and sustainable infrastructure. Above all, policymakers must understand that carbon neutrality achieved on paper does not equate to climate stability in reality.