Buying carbon credits for the sake of it

Lessons from London Climate Action Week

Jul 25, 2025

I’ll set the scene.

My first London Climate Action Week. An eclectic mix of investors, bankers, academics, and scientists in the room.

The topic of discussion was on how to ‘widen the funnel’ for institutional investors to buy carbon credits1.

There were the usual suggestions. Better platform infrastructure for over-the-counter transactions, settlements through existing bank/FI relationships, and procuring long-term off take arrangements to ensure supply certainty.

Then one comment from a leading UK retail banker struck me:

‘We recommend that clients buy offsets up to their requirements - plus a margin of safety - just in case the quality isn’t quite there’.

Wait… what?

Here’s the logic behind that argument

Carbon credit quality is hard to notoriously hard to measure.

Despite best efforts, the inherent risk that carbon credits (to be used as offsets) have some fundamental quality issue mean the buyer should over-purchase their requirement.

In practice this could look like buying 110 per cent of a company’s annual offset requirements ‘just in case’ the credit stock winds up being (at least partially) junk.

We can see similarities to the venture capital investing model. Place many small bets and assume some won’t pay off, but risk will be mitigated by the ones that do.

Best case scenario you end up with a surplus of credits to hold over and use for the following year. Worst case scenario you have to write off some of your credit portfolio as junk, but any claims (e.g. offsetting) you’ve made against the use of those credits is protected.

Why I don’t buy it

Firstly, this attitude is blatantly defeatist.

Admitting carbon credit quality can be difficult to measure is of course true. Yet the extension to ‘we better accept some are junk and buy more just in case’ is sloppy logic. Here’s why:

It undermines the crediting standards which already allow for ‘buffers’ (especially concerning additionality) in their own quantitative methodology modelling.
It completely abandons the concept of procurement due-diligence and treats all carbon credits as roughly the same asset class, with the same risk profile, regardless of method. While all credits use the same quantity standard (i.e. per tCO2-e), there are vastly different methodologies to get there. The current price differential between credits (e.g. anywhere from USD $5 to $300) is a good indication of this.
It incentivises opaque carbon credit production methodologies, as a risk buffer will be applied to the purchase regardless of how stringent the use and audit of MRV technologies.

A better way forward

Researchers at Oxford have put together the Oxford Offsetting Principles that step through a number of approaches for procuring, then using, carbon credits.

Principle 3 (page 18) aims to shift to removals with durable storage (low risk of reversal) to compensate residual emissions by the net zero target date.

It covers the risks of relying on biological storage methods (including plantings, soil carbon, mangroves) well. The authors maintain:

To reduce the risk of reversal of nature-based storage, these principles must be followed and projects with a high risk of reversal (e.g., due to bio-physical (including climatic) or political risks) should be avoided or approached with an appropriate risk reduction strategy, e.g. assurance to replace the storage in these projects should carbon be re-released.

This makes more sense on first principles. Buy 100% of the credits you need for 100% of the emissions you aim to offset.

If acquiring carbon credits that use biological methodologies, run sufficient due diligence that you can commit to their integrity. For the avoidance of doubt, also have a backstop that any assurance issues will be addressed (and if needed credits replaced) in the future.

How long is ‘the future’? Quite a while.

Principle 3 of the Oxford guidelines addresses it directly (on page 20):

…given the millennial lifespan of fossil carbon in the atmosphere, schemes or standards that only require monitoring and management of potential reversal on decadal timescales may undermine efforts to achieve and maintain net zero. For this reason, reversals must be monitored and addressed over timescales meaningful for net zero.

As I’ve written previously on the time value of carbon, the integrity of any carbon credit used for offsetting relies on a deep understanding on biological and physical sciences.

Planting methods are good for a few decades, soils for longer still. If the credits can’t stand up to scrutiny, the answer isn’t to buy more of them—it’s to buy better.

For those interested, you can read more on time value of carbon here: