The sustainable investor for a changing world

Forward thinking | Article - 4 Min

Exploring the carbon offset market: Issues, reforms and the future

The voluntary carbon market has come under criticism recently after research accusing many offsets of being worthless. Thibaud Clisson takes a closer look at the carbon offsets market, its usefulness and the work being done to improve its integrity.  

Carbon offset credits, or carbon allowances, can be seen as permission slips allowing the holder to emit a certain amount of greenhouse gases at a price. Credits concern tonnes of carbon dioxide equivalent (tCO2e) and carbon credit markets have been growing rapidly as the race to net zero speeds up and companies and governments commit to targets for the next few decades.

The voluntary carbon market, which allows participants to exchange credits, has attracted increased interest. It has quadrupled in value and almost doubled in volume to reach USD 2 billion in 2021, with 166 million tonnes of carbon emissions avoided or removed. The market is expected to reach between USD 10 billion and USD 40 billion by 2030.[1]

Despite such growth, greenhouse gases emissions[2] are not yet on track for the Paris Agreement goals to limit global warming to 1.5°C by the end of the century: they have been estimated to have reached 40.5Gt CO2 in 2022.

In addition, a recent press article – based on a nine-month investigation by UK newspaper the Guardian, German weekly Die Zeit and SourceMaterial[3], a non-profit investigative journalism organisation, into one of the leading carbon credit standards firms has brought the concept of carbon credits into question.

The joint investigation revealed that millions of carbon credits have apparently been sold over the years that should never have existed in the first place. The reporting indicates that numerous forest conservation projects have vastly overstated the amount of emissions they avoid or remove because the rules applied by Verra, the most important certifier on the market, allow them to do so. And because supervision failed.

A global research team examined 29 of the 87 forest conservation projects currently certified by Verra. Analysis of the data indicates that over 90% of all carbon credits issued by those projects are worthless. They appear to be ‘phantom credits’ – they do not lead to genuine reduction of emissions and may even worsen climate change.

Verra has said that claims that Verra-certified REDD projects were consistently and substantively over-issuing carbon credits were incorrect and based on studies that ‘massively’ miscalculated the impact of REDD projects. It said its methodologies used the best-available science and technology to ensure that calculations of carbon credits were robust and credible.

However, the failure to reduce global GHGs in addition to controversy over the real impact and efficacy of voluntary carbon credits have raised questions over the role of voluntary markets.

Nevertheless, we believe carbon offsets remain a useful tool in pricing externalities. They can be helpful in decision-making and driving an appropriate allocation of capital and resources.

Improving reliability and trust

Next to REDD+ (Reducing Emissions from Deforestation and Forest Degradation), other types of offsets include Afforestation, Reforestation and Revegetation (ARR) projects, Biochar carbon credits, Carbon Capture Utilisation and Storage offsets and Direct Air Capture offsets. 

Steps are being taken to improve transparency and confidence in the market with two organisations at the forefront: the Integrity Council for the Voluntary Carbon market (ICVCM) and the Voluntary Carbon Markets Integrity Initiative (VCMI).

The ICVCM is an independent governance body targeting the supply side of the carbon market. Its goal is to standardise regulations governing issuers in the global voluntary carbon credit market by creating a framework built from its Core Carbon Principles.

The VCMI targets the demand side of the market. It aims to provide guidance for corporate buyers to ensure their green claims are being met. This is of particular importance considering the new Corporate Sustainability Reporting Directive, which came into force in the EU in January. 

The CSRD requires disclosures from large EU companies including on their carbon offsetting initiatives. Such disclosures should help increase transparency and force accountability back onto companies, allowing for due diligence by buyers of offsets so that they can find high-quality offsetting schemes.

Additionally, there is the Taskforce on Scaling Voluntary Carbon Markets. This private sector-led initiative aims to create a blueprint for building an effective and efficient voluntary carbon market.

In 2022, the ‘rulebook’ for Article 6 of the Paris Agreement was finalised, allowing nations to swap carbon credits earned from reducing emissions to help other nations meet their climate targets.

This environment may drive the market to become more dependable, trustworthy and efficient. We see this as a prerequisite to make carbon credits an efficient tool to help the world reach net zero emissions.


We measures to reduce greenhouse gas emissions should be the priority and that carbon offsets should be used as a last resort. Voluntary carbon markets can play an important role in pricing externalities such as GHG emissions, but steps need to be taken to bolster confidence in their efficacy.

BNP Paribas Asset Management has offset the carbon footprint of funds with just under EUR 2 billion in assets under management through voluntary carbon credits. However, as a member of the net zero asset manager initiative (NZAM), we cannot rely on carbon credits when implementing our net zero commitments, but we could still use offsets as a top-up

[1] Understanding the Voluntary Carbon Market | BCG  

[2] Analysis: Global CO2 emissions from fossil fuels hit record high in 2022 – Carbon Brief  

[3] SourceMaterial reports on climate change, corruption and democracy and is funded by the European Climate Foundation and the Grantham Foundation 


Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
Environmental, social and governance (ESG) investment risk: The lack of common or harmonised definitions and labels integrating ESG and sustainability criteria at EU level may result in different approaches by managers when setting ESG objectives. This also means that it may be difficult to compare strategies integrating ESG and sustainability criteria to the extent that the selection and weightings applied to select investments may be based on metrics that may share the same name but have different underlying meanings. In evaluating a security based on the ESG and sustainability criteria, the Investment Manager may also use data sources provided by external ESG research providers. Given the evolving nature of ESG, these data sources may for the time being be incomplete, inaccurate or unavailable. Applying responsible business conduct standards in the investment process may lead to the exclusion of securities of certain issuers. Consequently, (the Sub-Fund's) performance may at times be better or worse than the performance of relatable funds that do not apply such standards.

Related insights

13:32 MIN
Market weekly – Climate change, a critical issue for our time (podcast)
A pandemic side-effect: Climate change, front and centre
To access insights from our teams worldwide visit:
Explore VIEWPOINT today