Carbon credits are increasingly appearing in companies’ climate strategies, but their actual impact on decarbonization remains a matter of debate. However, a recent analysis of 89 multinational companies in the oil and gas, automotive and aviation sectors suggests that the role of voluntary carbon offsets is in fact negligible and is not associated with faster internal decarbonization.

Study, which relies on its own environmental data and more than 400 sustainability reports, found no significant difference between the climate strategies of companies that purchased carbon credits and those that did notThis finding holds true for both historical emissions reductions and climate target ambitions.

Low financial outlay and minimal commitment One of the key reasons for this negligible role is low spending by companies on carbon offsets compared to their capital expenditure (CAPEX). On average, the five largest offseters spend only around 1 % of their CAPEX. Even the companies with the highest shares, such as easyJet (2.7 %) and Delta Air Lines (1.8 %), spend relatively small amounts. Compared to the mandatory emissions trading schemes (ETS) in Europe, the costs of voluntary carbon offsets are significantly lower, suggesting that they do not incentivise companies to undertake large-scale internal decarbonisation measures.

Another factor is that most companies offset only a small portion of their total emissionsFor example, easyJet offsets 78.2 % and Delta Air Lines 43.7 % of its emissions (Scope 1, 2 and 3), while other companies, such as Deutsche Lufthansa, only offset 1.5 %. Even in high-emission sectors such as oil and gas, companies such as Eni (1.4 %) and BP (0.7 %) offset only a fraction of their emissions. Furthermore, voluntary compensations are non-binding and companies can change or stop their offset strategies at any time, indicating a lack of long-term commitment to decarbonization.

Risk of moral hazard and passing on costs to customers Although the study did not find a statistically significant association between voluntary offsetting and moral hazard (a situation where companies neglect internal emission reductions because they rely on offsets), there is qualitative evidence of two potential mechanisms where carbon offsets can compete with internal decarbonization efforts:

1. Investment effect: Companies will allocate a fixed budget for decarbonization, which includes both the purchase of credits and internal investments. Every dollar spent on credits reduces funds for internal measures. Examples include Delta Air Lines and easyJet, which have redirected funds originally intended for offsets to internal decarbonization initiatives.
2. Target effect: Companies use carbon credits to meet emissions targets because it is often cheaper and easier than structural changes. Shell, Eni and Inpex, for example, include carbon credits in their emissions reduction targets.

It is important to note that many companies pass on the costs and decisions about purchasing carbon credits directly to their customersAirlines routinely offer the option to offset emissions when booking flights, and oil and gas companies sell pre-compensated fossil products.

Recommendations for policymakers The study results suggest that voluntary carbon offsets are not a reliable alternative to regulatory measures. Policymakers should therefore focus on strengthening regulatory mechanisms to ensure substantial corporate contributions to emission reductionsIt is also crucial to prevent companies from making exaggerated environmental claims (so-called greenwashing) and to direct the public debate on decarbonisation towards progress in internal decarbonisation initiatives and across the value chain. JRi

The study was published in the journal Nature