When a 2023 study from the University of California, Berkeley revealed that over 90% of rainforest offsets certified by Verra did not represent real emissions reductions, it did not just expose a few bad projects. It indicted the entire mechanism of carbon credits. Verra’s own data eventually showed that many projects were over-credited by a factor of two or more, which means the foundation of corporate climate claims is built on phantom accounting. Administrative tweaks, regulatory reforms, and tighter disclosure rules will not salvage a system that was never built to deliver actual physical changes in the atmosphere. The evidence points in a single direction. This market is a distraction that delays industrial decarbonization, and its collapse is a mathematical inevitability.
The market is a structural failure masquerading as climate progress.
Why the Consensus on Carbon Credits Is Dangerous
The conventional wisdom insists these instruments are a necessary bridge to a low-carbon economy. Advocates argue that the market pushes capital toward climate projects and helps companies move faster than regulation alone would allow. Industry projections from the Taskforce on Scaling Voluntary Carbon Markets, BloombergNEF, and McKinsey cluster around a massive expansion, forecasting demand rising to 1.5 billion tons and market values converging between tens of billions and $50 billion by 2030. Shell continues to act as a prominent buyer and backer of offset projects, while the World Bank’s State and Trends of Carbon Pricing report frames these certificates as a standard part of the net-zero toolkit.
That optimism ignores the central structural flaw of the asset class. Buying a certificate does not automatically mean an emissions cut occurred because the system rewards the production of paperwork rather than physical atmospheric change. Delta Air Lines and Gucci have historically used these purchases to frame themselves as climate responsible, even while their underlying operational emissions remained high. That is not a transition strategy. That is a branding exercise funded by cheap certificates.
The defenders of this ecosystem insist the answer lies in better standards and tighter enforcement. That argument misses the fundamental economic reality of the asset. The market depends entirely on verifying additionality, which is the claim that a project would not have happened without the specific revenue from selling certificates. That counterfactual claim is notoriously hard to prove and remarkably easy to game. Once additionality breaks, the entire logic of the transaction breaks with it. The certificates stop being a climate tool and become a financial instrument carrying a green label.
Four Structural Cracks That Cannot Be Plugged
The case against this market rests on several compounding faults. They reinforce each other, which means each one weakens the broader market, and together they make the system unfixable.
1. Additionality is a fiction. The gold standard for these instruments is that they fund projects that would not have happened otherwise. Yet historical data from the European Union’s Emissions Trading System shows that more than 85% of projects registered under the Clean Development Mechanism were likely non-additional. A 2022 investigation by The Guardian and Die Zeit found that many Verra forestry projects were already underway before certification. The result is that the issued certificates paid for retroactive paperwork rather than new climate action.
2. Double counting is rampant. Article 6 of the Paris Agreement was supposed to eliminate double counting, where both the buyer and the seller claim the same reduction. In practice, the accounting loopholes remain massive. A 2024 report by Carbon Market Watch found that nearly 30% of units issued under the UN’s REDD+ program were double-counted, which means a single ton of reduction was claimed twice on different ledgers. Norway’s purchases from Gabon became a textbook example of this failure. Norway bought the certificates to meet its targets, while Gabon simultaneously counted the exact same forest preservation toward its own national inventory. The atmosphere saw no actual benefit from the transaction.
3. Prices are divorced from reality. Market prices should theoretically reflect the marginal cost of real carbon abatement. They do not. In the voluntary market, prices for nature-based certificates fell from about $15 per ton in 2021 to under $2 per ton in 2026, according to Ecosystem Marketplace. Industrial variants often trade below $1 per ton. Those prices are mathematically too low to fund credible, large-scale infrastructure projects. They are, however, perfectly priced for companies seeking to buy symbolic cover without changing their physical operations.
4. The market enables greenwashing. Corporate behavior clearly illustrates the damage caused by cheap offsets. A 2025 analysis by InfluenceMap found that 80% of companies using these instruments to signal climate progress had no credible plan to cut their own operational emissions. Saudi Aramco, the world’s largest corporate emitter, has spent millions on these certificates while simultaneously expanding its oil output. These purchases do not just fail to reduce emissions. They actively delay reductions by giving executive management an easy, low-cost escape hatch from making hard capital allocation decisions.
5. Integrity labels cover too little ground. Even the governance bodies created to repair institutional trust cannot reach enough of the system. The Integrity Council for the Voluntary Carbon Market noted that its first approved methodologies covered only 27% of annual issuance. That leaves the vast majority of the market outside the so-called high-integrity zone. A financial market that requires a small, heavily protected island to appear legitimate is admitting structural weakness.
The Best Counter-Argument, and Why It Fails
The strongest case for maintaining this system is the argument that flawed funding is better than no funding. Proponents argue that these markets mobilize capital toward climate projects that otherwise would not exist. The International Emissions Trading Association takes exactly this position, stating that carbon markets have mobilized more than $100 billion for climate action since 2010.
That defense collapses on contact with empirical data. A 2024 study by the University of Oxford found that less than 10% of the revenue generated actually reaches the ground-level projects meant to reduce emissions. The remaining 90% is absorbed by intermediaries, certifiers, project developers, brokers, and transaction layers. Even when a project appears useful on the ground, the additionality problem remains unsolved. If a wind farm or forest protection plan would have happened anyway, the purchase is not financing new climate action. It is simply reallocating corporate capital inside a broken administrative system.
The only data that could overturn this thesis would be proof that these instruments consistently produce real, additional emissions cuts at scale. That proof does not exist. The market keeps promising integrity through new exceptions, revisions, and labels, but it consistently fails to produce confidence.
Three Stakeholders, Three Paths Forward
The collapse of this market is a strategic risk for anyone holding these assets on their balance sheet. Different groups face different exposures, but the operational mandate is identical across the board. Stop treating certificates as a substitute for action.
Divest or Demand Real Reductions
Institutional investors have poured significant capital into funds and vehicles tied to these markets. BlackRock’s Climate Finance Partnership has raised more than $1.5 billion for climate-linked investment, and Brookfield Asset Management has backed market exposure through its broader climate platform. That money is increasingly at risk of becoming stranded capital as buyers begin to doubt the integrity of the underlying claims. These instruments do not hedge transition risk. They often hide it from the investment committee.
Investors must force portfolio companies to cap offset use and publish hard emissions-reduction plans tied to direct operational cuts. That means setting strict thresholds, such as allowing no more than 5% of a transition budget to be used for offsets, and requiring a line-item bridge from baseline emissions to actual reductions. If a company like Microsoft states that 70% of its claimed progress comes from purchased certificates, that disclosure should trigger a governance review rather than applause. Investors must demand Scope 1, Scope 2, and Scope 3 reduction pathways within the next reporting cycle.
Capital must move away from paper claims and toward measurable infrastructure. Carbon capture, grid storage, electrification, process heat, and industrial efficiency are harder to sell, but they are infinitely easier to verify. Firms such as Brookfield have the scale to shift capital quickly, and they should redirect exposure toward assets with physical output and auditable performance. The catalyst for this shift will likely be a public scandal tied to a misrepresented pool of assets within the next 12 months, which will force fund managers to explain why they paid for claims instead of cuts.
Stop Buying Credits, Start Cutting Emissions
Enterprise buyers are the primary source of demand, which leaves them highly exposed to reputational damage. Microsoft, Amazon, and other large buyers have leaned heavily on these instruments to support net-zero and carbon-neutral claims. Microsoft’s 2025 sustainability report explicitly stated that 70% of its claimed emissions reductions came from purchased certificates rather than actual operational cuts. Amazon has similarly relied on offset language while its logistics and cloud footprint continue to grow. That is climate accounting, not climate leadership.
Large buyers must freeze new purchases and redirect those budgets into power purchase agreements, electrification, low-carbon procurement, and supplier decarbonization. A company such as Salesforce can measure its progress through supplier energy intensity. Apple can measure progress through manufacturing emissions per unit shipped, and Amazon can track delivery emissions per package. Those physical metrics are hard to hide, which is exactly why they are valuable.
Regulatory pressure is rising to force this transition. The EU’s Corporate Sustainability Due Diligence Directive and related disclosure rules will push companies to defend their climate claims with physical evidence. Firms that keep leaning on paper certificates will face a stark choice. They will either disclose weak progress and lose credibility, or they will finally confront the cost of real decarbonization. Buyers that cut emissions now will be able to prove resilience later, while those that keep buying offsets will be forced into expensive, highly public retrospective cleanups when auditors ask for proof.
Build Real Climate Solutions
Startups and product teams have rushed to build marketplaces, dashboards, verification layers, and AI tools around this ecosystem. Pachama and Sylvera have raised significant funding to use satellite data and machine learning to assess forestry projects. Those products improve monitoring at the margins, but they cannot solve the core structural problem. Better measurement does not create additionality, and better software cannot turn a false claim into a real reduction.
Product and engineering teams must shift their focus from credit infrastructure to reduction infrastructure. That means building software for supplier decarbonization, energy management, industrial process optimization, and renewable procurement. Watershed and Sweep already point in this direction by helping enterprises find and cut emissions inside their own operations and supply chains. The companies that keep building around offsets are building for a market that is rapidly losing institutional trust.
Teams must design for proof. Products should track energy use, material intensity, route efficiency, and supplier switchovers. For a manufacturer, that means measuring tons of emissions per production line. For a software company, it means tracking cloud usage tied to carbon intensity by region. These direct levers create far less room for manipulation than certificates ever will.
Two Collapses, One Opportunity
Two major shifts are likely to reshape this landscape over the next several years.
1. The voluntary market will contract sharply by 2027. Nature-based prices are likely to fall below $1 per ton as buyers pull back from projects they no longer trust. The leading indicators will be visible early through declining retirement volumes on exchanges like Xpansiv, slower issuance from Verra, more negative buyer commentary in sustainability reports, and a rising share of inventory left unsold for longer periods. When a major corporate buyer publicly permanently stops using offsets, the market will reprice instantly.
2. The compliance market will shrink in scope. Regulators will continue tightening rules on additionality, double counting, and host-country authorization. The leading indicators will be new Article 6 authorization rules, lower offset tolerance inside the EU ETS, and revised guidance from national climate agencies. If COP32 in 2027 fails to deliver a clean global framework, the market will split into fragmented regional rules instead of a single liquid system, which will reduce growth and increase legal risk for participants.
The opportunity sits on the other side of this contraction. Capital will move toward projects that reduce emissions directly and can survive rigorous verification. Companies and investors that move early will maintain their credibility, while those that stay tied to paper claims will be left holding assets that no longer command trust.
Why should a CFO care if these purchases are only a small part of the balance sheet?
A CFO must care because the accounting risk is vastly larger than the line item. A small financial spend can create a massive corporate liability if the underlying claim is proven false. Microsoft’s 2025 disclosure showed 70% of claimed reductions came from these instruments, which means the company's reputational exposure is attached to its reported performance rather than just the purchase cost. Auditors, lenders, and regulators now look at climate claims as decision-grade information. If those claims fail, the resulting cost lands squarely in financing, valuation, and legal defense.
Are high-quality units from direct air capture or verified forestry still acceptable?
While some projects are technically better than others, the fundamental market problem remains unresolved. Climeworks sells direct air capture units that Stripe and other buyers have supported, yet the buyer still needs absolute proof that the purchase caused a reduction that would not have happened otherwise. That proof is hard to establish and incredibly easy to dispute. The same logic applies to forestry projects. When a sector depends on rare exceptions to defend its existence, the exception is no longer a side case. It is concrete evidence that the system cannot scale cleanly.
Why should a regulator intervene if buyers voluntarily choose to use these instruments?
Voluntary use distorts broader markets and misleads the investing public. These instruments allow companies to claim progress without changing their physical operations, which weakens policy mandates and delays real industrial reductions. Carbon Market Watch found nearly 30% of certain REDD+ units were double-counted, which means one unit of climate benefit was claimed twice across different ledgers. A regulator does not need to ban every transaction. A regulator only needs to stop false claims, force clear disclosure, and prevent climate language from being used as a substitute for measurable operational cuts.
The verdict is plain. This market has become a mirror that reflects corporate intent rather than atmospheric impact. Systems that reward claims over cuts will keep producing noise instead of progress. The next phase of climate strategy will belong entirely to actors that reduce emissions directly, measure them honestly, and stop mistaking certificates for climate action.
Related MarketIntel briefing: read Fixing Carbon Credit Markets for a connected view on this market signal.