Quest | Edition 6 | Carbon credits: Clever climate fix or just a green mirage?

SPJIMR
Wise Innovation Studio for Emerging Technologies (WISE Tech)
Quest
Volume 1
Edition 6

Volume 1 | Edition 6 | March 22, 2025

Carbon credits: Clever climate
fix or just a green mirage?

Article

Shruti was browsing her favourite e-commerce site late one evening when a bright green banner caught her eye: “This delivery is 100% carbon neutral!” The claim seemed reassuring, yet puzzling. Did this mean the truck carrying her package ran on clean energy? Or that the warehouse storing it had zero emissions? She initially dismissed it, but later that night, as she read news about record-breaking heatwaves and rising sea levels, the question resurfaced—how could an e-commerce giant, still reliant on energy-intensive supply chains and fossil fuel-driven logistics, make such a promise?

The next day, as she sipped her morning coffee, she noticed a similar claim on her food delivery app. The message read: “Your meal is carbon neutral—thanks to our offsetting initiatives.” Offsetting? She had heard the term before but never truly understood what it meant. So, she set out to explore the world of carbon neutrality, carbon credits, and their role in climate action.

What really is carbon neutrality?

Imagine you have a jar which can be filled with red or green marbles. Ideally, you need as many green marbles as the red ones to call your jar ‘Neutral’. So, whenever you use electricity, drive a car, or manufacture a product, you add a red marble (CO₂ emissions). Every time you plant a tree (or someone else plants one for you), it leads to CO₂ absorption, and you get a green marble.

To prevent the jar from becoming all red marbles, you must remove an equal number of red marbles by planting trees, investing in clean energy, or funding emission reduction projects. When the green and red marbles are equal, you achieve (carbon) neutrality.

Companies often claim to be carbon-neutral by offsetting their carbon emissions when they buy carbon credits— think of it as “permission slips” that allow them to emit a certain amount of CO₂ while offsetting it through sustainability projects. Given that for many businesses it’s hard to be 100% green, purchasing carbon credits is often the most effective way to achieve carbon neutrality. As a result, today we have a huge carbon credit market.

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Carbon credits: Baby steps to big bets

The idea of carbon credits was introduced as part of the Kyoto Protocol in 1997¹, where countries agreed to limit their greenhouse gas emissions. Instead of cutting emissions directly, governments and businesses were given the option to trade emissions allowances—a system known as cap-and-trade. This meant that countries or companies that reduced their emissions below their targets could sell their unused allowances to those exceeding their limits.

The carbon credit market is projected to grow 50-fold by 2030, reaching $100 billion—yet concerns about transparency and real impact persist. (Source: Morgan Stanley)

To further encourage sustainable practices, the Clean Development Mechanism (CDM) was introduced, allowing wealthier nations to invest in green projects in developing countries—such as wind farms or reforestation efforts—in exchange for carbon credits. Over time, this market evolved into two distinct categories: compliance and voluntary markets.

The compliance market, governed by frameworks like the Kyoto Protocol and later the Paris Agreement, enforces legally binding emission reduction targets on countries and corporations. Governments set emission limits, and businesses trade allowances within regulated systems like the EU Emissions Trading System (EU ETS) or, more recently, India’s Carbon Credit Trading Scheme (CCTS).

In contrast, the voluntary carbon market (VCM) emerged as corporations and individuals sought to offset their carbon footprints beyond legal requirements. This market, facilitated by carbon credit registries like Verra² and Gold Standard³, allows companies to invest in carbon reduction projects, such as afforestation, soil carbon sequestration, and direct air capture (DAC).

Over the last three decades, the carbon credit market has witnessed exponential growth, driven by corporate commitments to achieving net-zero emissions. According to estimates by Morgan Stanley, the market is expected to expand 50-fold in a decade, increasing from $2 billion in 2022 to $100 billion by 2030, with the potential to reach $250 billion by 2050⁴. This surge in demand is fueled by a growing number of corporations integrating carbon credits into their sustainability strategies. According to Net Zero Tracker, currently over one-third of the world’s 2,000 largest publicly held companies have declared net-zero targets⁵, emphasizing the crucial role of carbon credits in their environmental commitments.

Some interesting examples of Corporates pursuing Carbon Neutrality:

Coldplay and Taylor Swift are buying carbon offsets—proving that sustainability claims now extend beyond industries to personal brands.

IndiGo Airlines: emitted nearly 6 Million Tonnes of carbon dioxide in FY 2023⁶. To achieve neutrality, the airline purchases carbon offsets from various foundations whose projects and carbon credits are verified by agencies.
Entertainment Industry: Even the world of entertainment is embracing carbon offsetting. Coldplay has actively invested in carbon credit⁷ and offset programs as part of its sustainability commitment, aiming to neutralize its tour emissions. Similarly, Taylor Swift has made efforts to offset the environmental impact of her extensive travel by purchasing carbon credits⁸. These examples highlight how various industries leverage offsets.

India’s carbon market in action

The Carbon Credit market in India is valued at approximately $1.2 billion, assuming a global average price of $4 per credit⁹ growing at a CAGR of ~ 43%¹⁰. This underscores the growing importance of Carbon Credit in India. The opportunities in the carbon credit market are expected to grow as climate change concerns intensify and companies strive to meet net-zero emission goals.

The amended Energy Conservation Act, 2022, grants the Indian government the authority to establish a domestic carbon market and designate agencies to issue Carbon Credit Certificates (CCC). Each CCC will represent the reduction of one tonne of CO₂ from the atmosphere. These initiatives are all aimed at creating a structured market where companies can trade credits while ensuring emissions reduction remains a priority¹¹; in line with global trends.

Further, The Hindu reported that the government is set to announce emission intensity targets for nine industrial sectors in the coming months. This means that businesses in these sectors will need to implement compliance measures to reduce their CO₂ emissions.¹².

Challenges with carbon credits

After Shruti learned about the expanse of the carbon credit market, she started wondering: if carbon credits are such an effective tool, why isn’t their impact more visible? She saw companies proudly advertising their offset purchases, but global emissions were still rising. News reports frequently exposed cases where reforestation projects failed, and carbon credit markets faced loopholes and credibility concerns. Were companies using carbon credits as a genuine sustainability tool or as a way to continue emitting guilt-free? It became clear to her that while carbon credits had promise, they also came with significant challenges and ethical dilemmas.

For some corporations, carbon credits serve as a green badge of honor, but for others, are they merely a license to emit.?

Are carbon credits a license to emit?

Many corporations use carbon credits to maintain a sustainable image while continuing business as usual. Oil companies like Shell and BP have been criticized for buying offsets while continuing fossil fuel exploration. Similarly, fashion brands invest in reforestation projects while ignoring the pollution caused by their supply chains.

A billion-euro carbon credit scam exposed in China highlights a troubling reality—without stringent verification, the system is open to abuse. (Source: DW & ZDF Investigation)

The issue of low-quality offsets

Not all carbon offsets are equal. Some projects fail to deliver actual carbon reductions, leading to “phantom offsets.¹³” For example, some deforestation prevention projects claim to protect forests that were never at real risk, while poorly managed reforestation projects fail due to inadequate land management. Recent investigations have exposed large-scale carbon credit fraud, with a DW and ZDF report uncovering how a Chinese firm orchestrated a billion-euro scam by selling fraudulent carbon credits that did not meet legal requirements, raising serious concerns about the transparency and integrity of global carbon markets¹⁴.

Shell purchased 14.1 million carbon credits in 2024—more than half in December alone. Is the market benefiting big players at the expense of genuine climate action?

Exclusion of small businesses and developing nations

The carbon credit market is dominated by large corporations. The largest purchaser in 2024 was Shell, which used up 14.1 million carbon credits¹⁵ – with more than half used in December alone – which represented almost three times the number of credits used by the next biggest buyer, Microsoft. This raises a critical question: Is the sustainability market favoring large corporations while leaving SMEs struggling to keep up?

So, can carbon credits drive real change?

Carbon credits present a promising tool for climate action, but their effectiveness depends on how they are used. When paired with genuine emissions reduction efforts, they can accelerate sustainability. However, if misused as a license to pollute, they risk becoming mere greenwashing. The real challenge lies in strengthening transparency, enforcing accountability, and ensuring that carbon markets drive actual, measurable reductions—not just financial transactions.

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