Carbon credits: the whole truth

What are carbon credits? How does emissions trading work? And why do many credits fail to deliver what they promise? This comprehensive analysis explains the basics, uncovers problems and shows solutions — clearly, with concrete figures and the questions you should be asking.

What are carbon credits?

A simple introduction for anyone who has never heard of carbon credits. How does the market work and why do companies need them?

The credit

1 credit = 1 tonne of CO₂ saved or removed from the atmosphere. It is a tradable voucher for climate protection.

Why companies need them

Law (compliance) or CSR targets: to “neutralise” their emissions, companies buy credits from climate projects.

Two markets

Compliance: Required by law (e.g. EU ETS). Voluntary: Voluntary, for CSR targets.

The problem

Not all credits deliver what they promise. Some are cheap greenwashing, others are genuine. The difference: billions of euros.

Compliance market vs. voluntary market

Two completely different markets with different rules, prices and quality standards.

Compliance market

Required by law by governments. Companies must reduce their emissions or buy allowances.

voluntary market

Voluntary — companies buy for CSR, net-zero targets or image.

Three levels of CO₂ impact

The crucial question: is CO₂ avoided, temporarily removed or permanently removed from the atmosphere? These three levels determine the actual climate effect — and the price.

Avoidance / reduction

Less CO₂ is emitted than before. But CO₂ is still being released. Nothing is removed from the atmosphere — the concentration continues to rise, just more slowly.

Temporary removal

CO₂ is actually removed from the atmosphere — but it can be released again at any time. The storage is reversible.

Permanent removal

CO₂ is removed and locked away for centuries or millennia. The only category that genuinely reduces the stock of CO₂ in the atmosphere.

Cap and Trade — how it works

Emissions trading is a market mechanism. Governments set a cap, companies trade allowances. This creates incentives to reduce and to innovate.

The CAP — upper limit

The government (e.g. the EU) sets a maximum quantity of emissions for the market and lowers it year after year.

The TRADE — trading

Each company receives/buys allowances (= emission rights). Those who save can sell surplus allowances.

EEX (European Energy Exchange) auctions new allowances. Revenues go into national climate budgets. Transparent, with prices set by supply and demand.

Companies, banks, funds: buying/selling allowances for hedging or speculation. High liquidity, large daily trading volumes.

Five technologies: a reality check

Each technology has a different mix of avoidance and removal. The honest breakdown shows what is really in it.

Soil Organic Carbon (SOC)

Humus build-up through reduced tillage, cover crops and organic fertilisation. The carbon accumulates in the soil, but can be released again within years if practices change.

Biochar

Biomass is converted into stable carbon through pyrolysis (500+ years). The avoidance component and the energy/transport balance are often overlooked. In addition, the feedstock plays a decisive role — keyword: waste declaration.

Enhanced Rock Weathering (ERW)

Silicate rock (e.g. basalt) is finely ground and spread on fields. Through chemical weathering, CO₂ is permanently bound as bicarbonate — permanence: thousands to millions of years.

Afforestation & agroforestry

Trees actively remove CO₂. But: forest fires, logging, pests or drought can release the stored carbon again immediately. REDD+ projects also have massive baseline problems.

Direct Air Capture + Storage (DACCS)

CO₂ is filtered directly from the ambient air and stored geologically. Highest permanence, highest cost. No avoidance component — pure, measurable removal.

The hidden trick: Project boundaries drawn too tightly

The project boundary decides whether something looks like a removal — or is in reality just avoidance within a small slice.

The boundary decides what counts as a “removal”

Many projects draw their accounting boundary around a single field only. Soil carbon may well be rising there. But the same farm causes massive emissions elsewhere — livestock, machinery, fertiliser production, transport.

If you look only at the field, it looks like a “removal”. If you look at the whole farm or the supply chain, the picture changes completely.

“A clean room does not mean a clean house.”

The waste trick: How the upstream chain becomes invisible

As soon as a material is declared “waste”, all upstream emissions disappear from the balance. What happened before suddenly no longer counts.

The problem: the “waste” cut-off

As soon as a material is declared “waste”, carbon accounting starts at zero. All emissions from the upstream chain drop out completely.

Most methodologies (Verra VM0044, Puro.earth, EBC) assume that waste carries no upstream emissions. But: Many of these “wastes” only exist because an emissions-intensive upstream chain produced them.

Real example: Barry Callebaut

Barry Callebaut — the world’s largest cocoa group — processes cocoa shell residues into biochar and presents this as a contribution to “Carbon Positive by 2025”.

What is not accounted for: The cocoa industry is one of the biggest drivers of tropical deforestation. If the shells count as “waste”, only the pyrolysis is accounted for.

🧪 What the science says

The “alternative fate” must be included in the LCA system boundary.

Avoided emissions are wrongly counted as CO₂ removal.

SOC loss due to residue removal is a significant GHG source.

“Waste is not the same as emission-free. The upstream chain does not disappear just because you declare a material a residue.”

Why temporary credits cannot neutralise fossil emissions

Fossil emissions remain in the climate system for hundreds to thousands of years. Temporary nature-based storage lasts only years to decades. These timescales do not match.

1. Continuous fossil emissions

Fossil emissions occur every year and accumulate in the atmosphere. A fraction of every emission remains in the climate system for centuries to millennia.

2. Temporary nature-based storage

Soil carbon insetting binds CO₂ in the soil — but only temporarily. Microbial respiration, land-use changes and disturbances release the carbon again.

3. Carbon market accounting

Horizontal Stacking: Expired credits are replaced by new ones. On paper the balance appears neutral — “net zero”.

But: the company continues to emit fossil CO₂ every year. The temporary credits mask the physical reality.

4. Atmospheric reality

The stock of CO₂ in the atmosphere keeps growing.

Temporary credits offset emissions on paper, but the fossil CO₂ physically remains in the climate system. The accounting and the physics do not match.

5. Systemic risk

What happens after 2050? Companies disappear, markets collapse, credits are no longer replaced.

When renewal stops, the original fossil emissions remain.

Biomass → pyrolysis → biochar storage (500+ years). Permanent carbon storage brings the timescales of emissions and removals into line. Permanent emissions require permanent storage.

“Temporary carbon storage can delay CO₂ in the atmosphere — but it cannot permanently neutralise fossil emissions.”

The stacking risk — and how Carbon Removal Bonds help

Temporary carbon credits create an endless chain of future liabilities. If one link breaks, the CO₂ returns to the atmosphere. Carbon Removal Bonds offer a way out.

The physical reality of CO₂

Fossil CO₂ remains in the climate system for hundreds to thousands of years. Temporary nature-based storage typically lasts 10–40 years.

The stacking problem

Horizontal Stacking = expired credits are replaced by new ones — an endless chain of future liabilities.

If a renewal fails, the CO₂ returns to the atmosphere.

Systemic financial risk

Similar to financial products before the 2008 crisis: stacked temporary credits can conceal long-term systemic risk.

Carbon Removal Bonds

Permanent removal: approx. €880 / t CO₂ over 100+ years. Equivalent to: €8.80 / t / year.

Diversified portfolio

A stable climate finance system needs a mix of technologies:

How climate projects get “doctored”

These eight methods are used to inflate the impact of carbon credits. If you know them, you can protect yourself. Click on a card for details.

The inflated baseline

The narrow system boundary

The waste cut-off

False additionality

Hidden double counting

The leakage problem

Selling avoidance as removal

Selling temporary as permanent

“If you know the tricks, you ask the right questions. And the right questions are the best protection against bad credits.”

The hidden trick: Double counting across different systems

The same emission reduction can be counted several times — in the EU ETS, in the voluntary carbon market and in a company’s sustainability report.

The core problem

A forest protection project in Brazil can serve three different markets:

• Compliance market (Art. 6 Paris Agreement)
• Voluntary Carbon Market (Verra, Gold Standard)
• Corporate report (Scope 3 carbon neutrality)

The same reduction, sold three times = systematic over-counting.

The solution: corresponding adjustments

Under Article 6 of the Paris Agreement, the country hosting a project must make a “corresponding adjustment”:

The project is counted only once — either for the host country OR the buyer countries, never both.

The project is reported under the EU ETS AND in the voluntary market. But every buyer knows the risk and accepts it.

The same reduction is credited to the buyer as its own achievement AND in the supplier’s sustainability report.

Parallel accounting across different systems is normal and expected. The real risk is Double Claiming — counting the same thing twice within the same system.

Climate-neutral claims: what the science says — and what is banned from September 2026

From September 2026 the EU bans many greenwashing claims. Better to know now what is coming.

Climate-neutral

Emissions are brought to zero on paper by buying credits. Sounds good, but is just as problematic.

Climate-positive

More offset than caused. Sounds like going the extra mile, but is scientifically questionable.

Climate-friendly

Fewer emissions than comparable products. No protected definition — and therefore widely misused.

Net Zero

Genuine reduction to almost zero + the residual amount offset. Highest standard, but rarely implemented in reality.

Core problem: additionality

Projects overestimate their impact by a factor of 5–10. What would have happened without the sale of credits?

Permanence problem

Over 90% of forestry offsets guarantee no long-term storage. Risk of forest fires, insolvency.

Conflicts of interest

Projects pay their own auditors. The incentive to exaggerate is built into the structure.

EmpCo Directive (Sept 2026)

• Ban: Offset-based neutrality claims on products
• Ban: Generic terms without certification
• Obligation: Future claims must be externally verified
• No transition period for existing products

German Federal Court of Justice (BGH) ruling (2024)

• “Climate-neutral” is ambiguous and requires explanation
• Reduction and offsetting are not equivalent
• Mere links to an explanation are not sufficient
• The explanation must be given directly in the advertising

BANNED (from September 2026)

• “Climate-neutral” / “CO₂-neutral” on products
• “Green product” / “sustainable” without proof
• Self-certified sustainability labels
• Climate promises without external verification

STILL PERMITTED

• “We invest in verified climate projects”
• “Carbon footprint reduced by 30%” (with proof)
• Recognised third-party certifications
• Transparent sustainability reports

“The era of cheap offset credits with a ‘climate-neutral’ label is ending. From September 2026, offset-based neutrality claims on products are banned throughout the EU.”

Carbon insetting versus carbon offsetting

Insetting — climate protection within your own supply chain — is more credible, more effective and more firmly anchored in regulation than classic offsetting.

carbon offsetting

Offsetting your own emissions through external climate projects — outside your own value chain.

Carbon Insetting

Climate protection within your own supply chain. Interventions along the value chain to reduce and store greenhouse gases.

For farmers

Regenerative agriculture enables CO₂ sequestration and creates additional sources of income. Farmers go from being producers to climate service providers.

For food companies

Large corporations such as Nestlé are investing over CHF 1 billion in regenerative practices among their suppliers. Supply chain insetting on a large scale.

For local authorities

Local afforestation, peatland protection and partnerships with regional farmers as an alternative to international offsetting.

Strict separation of removals and reductions. Compatible with insetting, increasingly critical of offsetting.

Requires transparent climate reporting. Mere external offsetting is no longer enough.

Increase incentives for genuine reduction. Early supply chain investment = long-term cost advantage.

EU CRCF: Four categories, no mixing

The EU Carbon Removal Certification Framework Regulation (2024/3012) defines separate certificate categories in binding form for the first time.

Permanent carbon removals

DACCS, biochar, ERW — geological storage over centuries

Carbon farming sequestration

SOC build-up, agroforestry — temporary biogenic storage

Storage in products

Carbon in long-lived materials such as timber construction or carbon concrete

Soil emission reductions

Less N₂O, less CH₄ — explicitly as reduction, not removal

CBAM & global emissions trading systems

Carbon Border Adjustment Mechanism — Europe’s answer to carbon leakage. And the worldwide build-up of ETS systems.

What is CBAM?

Europe’s border adjustment for CO₂. Products from countries with a lower CO₂ price pay an adjustment levy when imported into the EU.

The global trend

ETS systems are emerging worldwide. China, South Korea, the UK, California — all are building their own markets.

Reporting obligation only. No customs costs yet.

Gradual deductions for EU ETS allowance prices. Full cost coverage by 2034.

Steel, cement, fertilisers, aluminium, electricity (imports >50 t CO₂/yr)

Real projects — honestly assessed

Concrete, registered projects and their realistic split between avoidance and removal.

AgreenaCarbon

Klim (Germany)

Project Reignite (Biochar)

7 questions to ask of every carbon credit

Click on a question to tick it off ✓

What the market really sells today

The price must reflect the impact

Fewer emissions than the baseline. Useful, but no net removal from the atmosphere.

Genuine removal, but with reversal risk. Higher integrity, no guarantee of permanence.

Net removal plus long-term storage. Highest effort, highest impact.

Have you bought greenwashing credits?

Many companies realise too late that their carbon credits do not deliver what they promise. Asking the right question — that is the first step towards genuine integrity.

Portfolio analysis

We review the credits you have bought. Are they avoidance or genuine removal? Do they match your targets?

Greenwashing check

We evaluate your projects against the 8 tricks and the EU CRCF standards. You receive a transparent risk analysis.

Insetting strategy

How can you decarbonise your supply chain? We design sustainable insetting programmes, not just external credits.

Regulatory advice

CSRD, ESRS E1, EU CRCF — how do you report correctly? We navigate the new standards together with you.

Better than the baseline is not yet removal.

Temporary storage is not yet permanence.

Narrow project boundaries are no substitute for an honest full balance.