As companies race toward net-zero emissions, one question looms large: How should we balance avoidance and removal carbon credits in our portfolio? The answer isn’t one-size-fits-all, but getting it right is critical for credibility, impact, and compliance with evolving climate standards.
Avoidance credits, such as those generated by REDD+ projects, renewable energy initiatives, or methane capture systems, prevent emissions from entering the atmosphere in the first place. On the other hand, removal credits—like those from reforestation, Direct Air Capture (DAC), or biochar projects—actively draw down CO₂ that is already in the atmosphere. While avoidance is essential for achieving immediate emissions reductions, removal is non-negotiable for reaching true net-zero, a principle clearly outlined by the Oxford Offsetting Principles.
Yet, many organizations make a costly mistake by focusing solely on avoidance and treating removals as an afterthought. This approach not only risks accusations of greenwashing but also leaves companies vulnerable to regulatory non-compliance and falling short of their net-zero goals.
In this guide, we’ll break down how to structure your carbon portfolio for maximum impact. We’ll explore how to align your strategy with the Science-Based Targets initiative (SBTi) and the Oxford Principles, ensuring your efforts are both credible and future-proof.
Avoidance credits: the foundation of your portfolio
Avoidance credits serve as the cornerstone of early climate action. They are cost-effective, scalable, and well-established, making them an ideal starting point for organizations beginning their sustainability journey. However, it’s important to note that avoidance credits do not reduce the amount of CO₂ already present in the atmosphere—they simply prevent additional emissions.
What are Avoidance Credits?
Avoidance projects are designed to prevent emissions that would otherwise occur. Common types of avoidance projects include nature-based solutions like REDD+, which focuses on preventing deforestation, and peatland protection initiatives. Tech-based solutions, such as methane capture from landfills or agricultural operations and energy efficiency upgrades, also fall under this category.
Pros and Cons of Avoidance Credits
Pros | Cons | Best For |
|---|---|---|
Cost-effective, typically ranging from $5 to $20 per tonne | Not permanent, with risks of reversals such as forest fires | Short-term emissions reductions |
Scalable and well-established within the carbon market | Does not reduce atmospheric CO₂ levels | Compliance with SBTi’s "mitigation hierarchy" |
Offers co-benefits such as biodiversity conservation and community development | Limited long-term climate impact | Early-stage climate strategies |
When to Prioritize Avoidance
Avoidance credits are particularly valuable during the initial phase of your net-zero journey, especially while you are actively reducing your Scope 1, 2, and 3 emissions. They are also well-suited for high-emission sectors like manufacturing and agriculture, where immediate reductions are critical. For organizations with budget constraints, avoidance credits provide an affordable option, particularly when removal credits, which can cost between $50 and $1,000 per tonne, are prohibitively expensive.
For example, a food manufacturer might invest in methane capture projects to offset emissions from its supply chain while simultaneously transitioning to low-carbon production methods.
Key standards to consider for high-integrity avoidance credits include Verra (VCS) and Gold Standard, both of which offer robust frameworks for ensuring additionality and credibility.
Removal Credits: The Net-Zero Imperative
Removal credits are essential for achieving true net-zero because they actively reduce the amount of CO₂ in the atmosphere. However, they come with higher costs and face scalability challenges that must be carefully managed.
What Are Removal Credits?
Removal projects work by pulling CO₂ out of the air and storing it long-term. These projects can be nature-based, such as reforestation, mangrove restoration, and soil carbon sequestration, or tech-based, including Direct Air Capture (DAC), biochar, and enhanced weathering.
Pros and cons of Removal Credits
Pros | Cons | Best For |
|---|---|---|
Provides permanent CO₂ reduction | High cost, ranging from $50 to $1,000+ per tonne | Long-term net-zero goals |
Aligns with net-zero definitions, such as those set by SBTi | Limited supply and scalability challenges | Hard-to-abate sectors like aviation and cement |
Future-proofs your carbon portfolio | Technology risks, such as DAC not scaling as expected | Late-stage climate strategies |
When to prioritize removal
Removal credits become increasingly important in the second phase of your net-zero journey, after you have made significant progress in decarbonizing your operations. They are particularly critical for hard-to-abate sectors like aviation, shipping, and cement production, where avoidance alone is insufficient to achieve net-zero. If your organization has committed to reaching carbon neutrality by 2040 or 2050, incorporating removal credits into your portfolio is non-negotiable.
For instance, a tech company with minimal Scope 1 emissions might invest in DAC projects to neutralize the carbon footprint of its cloud computing operations.
Key standards for high-integrity removal credits include Climeworks, a leader in DAC technology, and Plan Vivo, which specializes in community-led reforestation projects.
How to structure your Carbon Portfolio: a phased approach
A credible carbon portfolio is not static; it evolves as your organization progresses toward its net-zero goals. Structuring your portfolio effectively requires a phased approach that balances immediate needs with long-term objectives.
Step 1: reduce emissions first
Before considering carbon offsets, the first step is to decarbonize your operations in line with SBTi’s mitigation hierarchy. This involves cutting Scope 1 and 2 emissions by transitioning to renewable energy sources and addressing Scope 3 emissions through supplier engagement and the adoption of low-carbon materials.
Step 2: invest in Avoidance Credits
In the early stages of your carbon strategy, focus on high-integrity avoidance credits from recognized standards like Verra, Gold Standard, and American Carbon Registry (ACR). Prioritize projects that offer co-benefits, such as those aligned with the Sustainable Development Goals (SDGs). For example, REDD+ projects not only prevent deforestation but also support biodiversity. Diversifying geographically can help mitigate risks—consider a mix of Latin American forestry projects and African clean cookstove initiatives.
Allocate around 80 to 90 percent of your early offset investments to avoidance credits. This approach allows you to achieve immediate emissions reductions while keeping costs manageable.
Step 3: shift to Removal Credits
As you progress toward net-zero, gradually increase the proportion of removal credits in your portfolio. Start with a small allocation of 10 to 20 percent for removal projects, with a goal of reaching 50 percent or more by 2040 as costs decrease and supply increases. Mix different types of removal projects, combining nature-based solutions like reforestation with tech-based solutions like DAC, to spread risk and maximize impact.
Sample portfolio allocation over time
Year | Avoidance | Removal | Focus Areas |
|---|---|---|---|
2025 | 90% | 10% | REDD+, methane capture, renewable energy |
2030 | 70% | 30% | Reforestation, biochar, early-stage DAC |
2040 | 50% | 50% | Large-scale DAC, enhanced weathering, soil carbon |
Key considerations for balancing your portfolio
Cost: Avoidance vs. Removal
Avoidance credits are generally more affordable, costing between $5 and $20 per tonne, but they offer only temporary emissions reductions. Removal credits, while more expensive at $50 to $1,000+ per tonne, provide permanent CO₂ reduction. A balanced strategy involves starting with low-cost avoidance credits and gradually increasing your investment in removal credits as your budget allows.
Risk Management
Avoidance projects carry the risk of reversals, such as deforestation or changes in policy that could undermine their effectiveness. To mitigate this risk, choose projects that include buffer pools, like those offered by Verra. Removal projects, particularly tech-based solutions, face risks related to scalability and technological feasibility. Diversifying your portfolio across both nature-based and tech-based removal projects can help manage these risks.
Credibility and Compliance
To ensure your carbon portfolio is both credible and compliant with evolving standards, follow the Oxford Offsetting Principles:
Cut emissions first.
Shift to removal credits as you approach net-zero.
Support high-quality projects that demonstrate additionality, permanence, and co-benefits.
Avoid the pitfall of "removal-washing" by being transparent about the ratio of avoidance to removal credits in your portfolio.
Co-Benefits: align with the Sustainable Development Goals
Consider the broader impact of your carbon investments by aligning them with the SDGs. For example:
Social impact: The FairTrade Climate Standard ensures that carbon projects deliver fair benefits to local communities.
Biodiversity: Verra’s Climate, Community & Biodiversity (CCB) Standards focus on conservation and community development.
Innovation: The 4 Per 1000 Initiative promotes soil carbon sequestration as a way to enhance food security.
Common mistakes and how to avoid them
Mistake 1: over-relying on avoidance credits
Relying too heavily on avoidance credits risks falling short of net-zero definitions set by organizations like SBTi. To avoid this, set a clear plan to escalate your investment in removal credits, such as increasing their share by 5 percent annually.
Mistake 2: buying low-quality removal credits
Investing in unproven or non-additional removal projects can result in wasted spend and reputational damage. To ensure the integrity of your investments, stick to certified removal credits from reputable providers like Climeworks and CarbonCure.
Mistake 3: ignoring additionality
Offsets that do not represent real emissions reductions undermine the credibility of your carbon strategy. Use third-party verification from organizations like the Integrity Council for the Voluntary Carbon Market (ICVCM) and Gold Standard to confirm the additionality of your credits.
Mistake 4: not planning for supply constraints
The demand for high-quality removal credits is expected to outstrip supply by 2025, according to McKinsey. Secure long-term contracts with project developers now to avoid future shortages.
Future-proofing your carbon portfolio
Trends to watch
Regulatory Shifts: The EU Carbon Border Adjustment Mechanism (CBAM) may increasingly favor removal credits. Meanwhile, Article 6 of the Paris Agreement could create new linkages between voluntary and compliance carbon markets.
Supply Crunch: With demand for high-quality removal credits expected to exceed supply, it’s crucial to lock in contracts early to secure your future needs.
Technological Advancements: The cost of DAC is projected to drop as the technology matures. Stay informed about these developments to identify new investment opportunities.
Action steps for a future-proof portfolio
Diversify your portfolio across different geographies, project types, and standards to spread risk.
Engage your suppliers in your carbon strategy to address Scope 3 emissions.
Report your progress transparently using frameworks like CDP and the Task Force on Climate-related Financial Disclosures (TCFD).
Conclusion: your next steps
A well-structured carbon portfolio balances avoidance credits for immediate impact with removal credits for long-term net-zero alignment. This approach ensures compliance with SBTi, the Oxford Principles, and your organization’s climate goals. Here’s how to get started:
Begin by assessing your Scope 1, 2, and 3 emissions to understand your baseline.
Develop a phased plan that transitions from avoidance to removal credits over time.
Diversify your investments across different project types, geographies, and standards.
Continuously monitor and adjust your strategy as regulations and technologies evolve.
Need expert guidance?
Structuring a carbon portfolio can be complex, but you don’t have to do it alone. Contact us to design a tailored strategy that aligns with your climate goals, budget, and risk tolerance.
