The hidden costs of cheap carbon offsetting
Carbon credits have the potential to be a force for good. They can be an effective means of climate financing, restoring nature, protecting biodiversity, removing CO2 from the atmosphere, and positively impacting people's lives—for example, through job creation. Furthermore, they enable companies to take responsibility for their emissions and impose an internal cost (a carbon tax) on them, often leading to faster CO2 reductions for those same companies.
At the same time, research shows that not all carbon credits are created equal. Research has shown that 84% of credits within the Voluntary Carbon Market (VCM) fail to meet their impact promise of one tonne of avoided or removed CO2 emissions. Companies that purchase poor-quality CO2 certificates therefore run significant risks. Cheap carbon credits can do more harm than good, due to a lack of impact, greenwashing risks, and inefficient use of budgets.
In this article, we discuss why it's important for companies to avoid buying cheap, low-quality carbon credits. We'll look at the problems associated with low-quality credits, the applicable European regulations, and how to recognize reliable carbon credits. For companies serious about their sustainability goals, it's essential to make well-considered choices.
The growth of the carbon credit market
The carbon credit market is growing rapidly. Recent forecasts show the market value increasing from $2.52 billion in 2025 to $3.04 billion in 2026, with an expected growth to $16.38 billion by 2035. This growth is driven by stricter regulations, increasing stakeholder pressure, and net-zero targets from companies and governments. High-quality carbon credits play a crucial role in this, as they not only help offset emissions but also contribute to real climate change.
Companies that invest in high-quality carbon credits now will be better positioned for the future. They will not only meet the expectations of consumers and regulators but will also contribute to a more sustainable world. Therefore, it's important to understand why cheap carbon credits are often not the best option.
Want to learn more about current trends and prices for carbon credits? Check out our Carbon Credit Prices Today: Trends and Forecasts for 2026.
Why cheap CO2 certificates often fail: risks and quality
There's a strong correlation between the price of carbon credits and their quality. Cheap carbon credits are often cheap for a reason: they don't meet the highest standards for additionality, permanence, and measurable climate impact. Additionality means that a project is only possible thanks to the revenue from the sale of carbon credits. Permanence guarantees that the CO₂ reduction is permanent. Many cheap credits score poorly on these criteria, meaning they make little or no real contribution to reducing greenhouse gases.
Furthermore, it's important to realize that certification itself doesn't always guarantee quality. Research by Carbon Market Watch and other independent organizations shows that some certified projects fail to deliver the promised climate benefits. This is because certification standards are sometimes too broad, or because projects aren't properly monitored. For example, a study by the University of California, Berkeley, found that many forest management projects that generate carbon credits make exaggerated claims about their impact. In some cases, the trees would have been preserved even without the carbon credits, meaning there's no additionality.
In short, a certificate alone isn't enough. Companies need to dig deeper and examine the actual impact and transparency of a project. Only then can they be sure that their investment in carbon credits actually contributes to climate goals.
Cheap carbon credits may seem attractive at first glance, but they carry significant risks:
Quality and integrity issues: studies show that up to 84% of issued credits fail to deliver the promised climate benefits. This is because projects sometimes fail to achieve the intended emission reductions or even have negative side effects, such as damage to ecosystems or local communities.
Risks of greenwashing: cheap credits can create a false sense of progress. Companies believe they are offsetting their emissions, while in reality, the credits have little or no impact. This can lead to accusations of greenwashing, which damages an organization's image and credibility.
Negative impact on local communities and biodiversity: some projects that generate cheap carbon credits have negative consequences for local residents and natural ecosystems. These can include deforestation, land conflicts, and the displacement of indigenous peoples.
Inefficiency and budget waste: buying cheap carbon credits is often a waste of money. Companies invest in projects that don't have the desired climate impact, which can lead to higher costs in the long run.
Risks of cheap carbon credits: quantification and examples
Cheap carbon credits pose not only environmental and reputational risks, but can also lead to significant financial and legal consequences. Here are some quantifiable risks:
1. Fines for greenwashing
The Green Claims Directive is expected to impose strict requirements on environmental claims, including carbon neutrality claims. Companies making misleading claims risk fines. While the exact fine amounts have not yet been finalized, we can look at existing regulations and examples from other sectors:
EU example: Under the Unfair Commercial Practices Directive (UCPD), fines can reach up to 4% of a company's annual turnover in the relevant Member State, depending on national implementation. In the Netherlands, the Netherlands Authority for Consumers and Markets (ACM) can impose fines of up to €900,000 or 1% of annual turnover for misleading environmental claims. For large companies, this can quickly run into millions.
Example from France: In 2022, TotalEnergies was fined €500,000 for misleading advertising about its "carbon-neutral" LNG (liquefied natural gas). This was based on French anti-greenwashing legislation.
2. Legal costs and claims for damages
In addition to fines, companies may face legal costs and claims for damages from consumers, investors, or NGOs:
Lawsuit against KLM: In 2022, Fossil Free NL filed a lawsuit against KLM for misleading advertising about "sustainable flying" and the use of carbon offsets. Although the ruling is not yet final, such cases can lead to millions in legal costs and damages.
Lawsuit against Shell: In 2021, Shell was sued by Friends of the Earth Netherlands (Milieudefensie) for insufficient climate action. While this wasn't directly about carbon credits, it demonstrates that companies are increasingly being challenged on their climate claims. Shell's legal costs quickly ran into the tens of millions.
3. Financial risks due to non-compliance with CBAM
The Carbon Border Adjustment Mechanism (CBAM) requires companies importing goods into the EU to account for the carbon footprint of their products. If carbon credits used to offset emissions do not meet EU standards, companies may face additional levies:
Expected CBAM costs: From 2026, companies will have to pay for the carbon footprint of their imported products. If the carbon credits used are not recognized, the costs could reach €50-100 per tonne of CO₂, depending on the market price of EU ETS allowances. For a company offsetting 10,000 tonnes of CO₂ per year with low-quality credits, this could amount to €500,000-1,000,000 in additional costs per year.
4. Reputational damage and loss of investors
Reputational damage is difficult to quantify, but can lead to loss of customers and investors:
Volkswagen example: After the Dieselgate scandal, Volkswagen lost €25 billion in market value in just a few days. While this is an extreme example, it shows how quickly trust can be damaged.
Shareholder value impact: Companies caught greenwashing can see their share price fall. A study by Arabesque and Oxford University showed that companies with poor ESG (Environmental, Social, and Governance) practices see average share returns fall by 6%.
5. Costs of recovery measures
If it turns out that the carbon credits used do not meet the requirements, companies must still invest in high-quality credits or other compensation measures:
Cost of high-quality credits: High-quality carbon credits currently cost €15-50 per tonne of CO₂, while cheap credits often cost less than €10 per tonne.
Summary of financial risks
Risk | Estimated costs | Example |
|---|---|---|
Fines for greenwashing | €100,000 - millions | TotalEnergies: €500,000 fine in France |
Legal costs and claims for damages | €100,000 - tens of millions | KLM and Shell: millions in legal costs |
CBAM levies | €50,000 - €1,000,000+ per year | Depending on CO₂ emissions and market price |
Reputational damage | Loss of market value and customers | Volkswagen: €25 billion loss after Dieselgate |
Regulations and standards in 2026
European regulations
For European companies, several important regulations and standards will apply in 2026 that will affect the quality and effectiveness of carbon credits:
Green Claims Directive: This directive, expected to be fully in force in 2026, aims to combat greenwashing. Companies must be able to demonstrate that their environmental claims, including carbon offset claims, are based on scientific data and independent verification. This means that companies using carbon credits to offset their emissions must be able to prove that these credits actually contribute to emission reductions. Misleading claims will be dealt with more rigorously, resulting in fines.
EU Taxonomy: The EU Taxonomy is a classification system that determines which economic activities can be considered environmentally sustainable. For carbon credits, this means they must meet strict criteria for climate mitigation and adaptation. Companies that purchase carbon credits must demonstrate that their investments contribute to the Taxonomy's objectives.
Carbon Border Adjustment Mechanism (CBAM): The CBAM ensures that the carbon footprint of imported products is equivalent to that of products produced within the EU. Companies using carbon credits to offset their emissions must ensure that these credits meet EU carbon footprint standards. This mechanism encourages companies to invest in high-quality credits that actually contribute to emission reductions.
Commitments under the Paris Agreement: The EU has committed to the Paris Agreement and aims to reduce greenhouse gas emissions by at least 55% by 2030. Carbon credits used by companies to offset their emissions must demonstrably contribute to these targets. This means that cheap, low-quality credits will no longer be sufficient to meet the requirements.
Importance of compliance
It's crucial for companies to be aware of these regulations and ensure their carbon credits meet the new standards. This not only helps ensure effective climate action but also meets the increasing demands of consumers, investors, and regulators. Non-compliance can lead to legal risks, reputational damage, and financial losses.
Benefits of high-quality carbon credits
High-quality carbon credits offer several advantages over low-cost alternatives:
Reliability and effectiveness: high-quality carbon credits are often audited and verified by independent bodies such as Verra, Gold Standard, Puro Earth and Isometric. This provides a higher degree of certainty about their impact and prevents greenwashing.
Positive impact on local communities and biodiversity: projects that generate high-quality carbon credits often have a positive impact on local communities and natural ecosystems. They contribute to forest protection, biodiversity restoration, and improved living conditions for local residents.
Future-proof: high-quality credits meet the strictest standards and are more resilient to regulatory changes. This makes them a safer and more sustainable investment in the long term.
How companies can identify reliable carbon credits
Identifying reliable carbon credits can be challenging, but the following steps can help companies make informed choices:
Pay attention to transparency and verification: Companies must ensure that the projects they support are transparent about their methods, results, and impact. Independent audits and reporting are essential to ensure a project's credibility.
Conduct thorough research: Conduct due diligence on the projects and organizations offering the credits. Consider their track record, partnerships, and how well they comply with international standards.
Work with trusted partners: If you don't have the capacity or knowledge to do thorough research yourself, it's wise to collaborate with experienced advisors or platforms specializing in high-quality carbon credits, such as Regreener.earth, who can help you make the right choices.
Invest in future-proof climate impact
Buying cheap carbon credits can do more harm than good. They carry risks of greenwashing, negative impacts on local communities and biodiversity, inefficient use of budgets, and significant financial and legal consequences. In 2026 and beyond, it will be especially important to invest in high-quality carbon credits that comply with the new standards and regulations.
Invest in high-quality carbon credits and contribute to a sustainable future. Contact us for personalized advice on selecting the best carbon credits.
