Over-Emitting, Over-Paying, Over-Claiming
June 20, 2025
Why Carbon Market “Integrity” Matters—Sometimes More, Sometimes Less
Many emission reduction projects are funded by selling carbon credits, issued after a thorough performance review by an accredited third-party verifier. These credits should represent a verified reduction or removal of 1 tonne of CO₂. However, flaws in the carbon quantification process can sometimes lead to more credits being issued than actual reductions.
In this context, sellers like to advertise "high integrity" credits, meaning that carbon credits have followed extra steps and used conservative calculation methods to minimize the risk of overcrediting. The ICVCM is an organization that issues a “Core Carbon Principles” (CCP) label to projects that fullfill such high integrity standards.
Generally, carbon credits can be used in compliance markets or for “voluntary” purposes. Below, we explore the different shades of risk that arise from a potential lack of integrity.
Compliance Markets: Where Integrity Is Non-Negotiable
In compliance carbon markets, tradable emission permits represent the right to emit one tonne of CO₂, with an industry-wide cap set by regulators that typically decreases each year. The trading of permits does not inherently reduce emissions—the declining cap does. Trading reallocates reduction costs more efficiently by allowing low-cost reducers to sell unused entitlements to higher-cost emitters. However, as long as the cap is fixed, overall emissions remain unchanged.
As long as the permitted amount of allowances under a cap doesn’t change, every transaction constitutes a zero-sum equation: one company emits, another reduces. The system only works, however, if the reduction behind a sold permit is real and equivalent to the entitlement. If a seller only cuts half a tonne but the buyer emits a full tonne, then trading actually increases emissions. This is why there is strict oversight and enforcement in compliance carbon markets.
This is why environmental integrity—the true correspondence between claimed and actual reductions—is critical. Without it, the system can backfire and lead to increased emissions.
Compliance markets that accept project-based credits include California, South Korea, New Zealand, and CORSIA.
Voluntary Carbon Markets
The voluntary use of carbon credits, often called “voluntary carbon markets”, takes place outside government oversight. Companies buy credits to signal climate leadership, but these credits don’t count toward a country’s national Paris Agreement targets. If a company buys carbon credits, it doesn’t reduce the obligation of the buyer’s country to reduce emissions. The regulator doesn’t “see” such carbon credits, and it doesn’t alleviate any regulatory obligation that the buying company might face.
Thus, the purchase of credits doesn’t license extra emissions, and any reduction from a sold credit benefits the atmosphere—even if it’s less than claimed. If a company buys 100,000 credits but the low-integrity project delivers only 50,000 tonnes of CO2 reduction, the planet is still 50,000 tonnes better off, although the company arguably overpaid and over-claimed.
Over-claiming has become a legal issue, as media and consumer protection agencies push for integrity in environmental messaging. Overpaying, in hindsight, becomes a commercial issue.
In both instances, the buyer of carbon credits is the victim—not the instigator—of over-crediting. Ideally, any such shortfall should be compensated by “topping-up” at the expense of the developer. Or at the very least, the buyer should be able to voluntarily top up to ensure coherent claiming. Unfortunately, some media outlets use overcrediting scandals to discredit results-based financing for climate action entirely, or try to blame the buyer for a lack of due diligence without a chance to remedy the situation beforehand.
Consider this: if development aid were misused due to corrupt officials, would we blame donor countries and call for the abolishment of development aid? Probably not. We’d call for better oversight instead of into questioning the need for development aid.
When it comes to project-based carbon credits—whose annual market value is less than that for fake eyelashes but infinitely better for the environment—we have witnessed three levels of overreaction.
First-level: Accusations that carbon credits lack integrity and therefore shouldn’t be purchased by companies. As mentioned above, in compliance markets, environmental integrity is essential to reach the intended goal to reduce emissions. However, today 95% of carbon credits are used outside of regulated markets. Even when overcrediting occurs, the purchase of credits still leads to emission reductions. Every credit not purchased results in less necessary climate action.
Second-level: Critics claim that carbon credits distract from investing in value chain emissions reduction measures. Voluntary purchases complement, rather than replace, legislated climate action. Regulators do not “see” voluntary credits. Since the purchase of credits does not grant an entitlement to emit, claiming that they are a “cheap way out” is incorrect. Companies will still need to adhere to national climate laws. Studies also show that companies that purchase project-based carbon credits are mostly climate leaders, not laggards, otherwise they wouldn’t care at all. If companies do not invest in internal emission abatement, it is not a result of buying carbon credits, but a lack of regulatory ambition.
Third-level: Public backlash arises when a company over-claims—i.e., when the project’s reductions fall short of the claimed amount. While it’s important that public claims are accurate, it’s illogical to blame the buyer instead of the seller or project developer. If over-claiming occurs, the company should be given the chance to correct the claim or top-up the missing credits—without the reputational damage that we have seen in the past. One should not assume that overclaiming is a result of willfully deceiving the public. It’s mostly a flaw in the accounting that has been discovered after the transaction has been concluded.
While carbon markets remain a work in progress, a company that unknowingly over-claims emissions reductions is not the villain – the one that does nothing is. The climate needs more “success certificates” in the form of carbon credits, not less.