How Carbon Credits Compare to Other Mitigation Strategies

The use of carbon credits as a climate mitigation tool has sparked ongoing debate. Critics argue that purchasing carbon credits allows companies to delay meaningful decarbonization, redirecting resources away from reducing their own emissions.    

Concerns about the quality of some projects and the credibility of the voluntary carbon market have further fueled skepticism. Recent sentiment data confirms this trend with perceptions of carbon credits continuing to decline throughout the past year.

However, despite the criticism, carbon credits remain an integral part of many companies’ climate strategies, and the data tells a more nuanced story. The number of buyers in the voluntary carbon market has continued to grow, underscoring the importance of offsets in addressing hard-to-abate emissions. Furthermore, a shift toward higher-quality credits is becoming evident, with the share of low-quality credits retired dropping from 88% in 2020 to 67% in 2024.

Companies that purchase carbon credits also demonstrate stronger overall climate performance. These organizations reduce their absolute Scope 1 and 2 greenhouse gas emissions at a median rate of 3.6% per year—more than double the rate of non-users (1.5%). Additionally, companies using carbon credits are more likely to set climate targets (92% vs. 52% for non-users), with those targets more frequently meeting credibility standards like third-party validation and interim milestones.

These findings highlight the dual nature of the debate: while voluntary carbon credits are not without their challenges, they can play a pivotal role when integrated thoughtfully into a broader climate strategy. This blog explores how carbon credits compare to other mitigation approaches, such as direct emissions reductions, carbon dioxide removal technologies, and compliance mechanisms, to better understand their place in global climate action.

Direct Emissions Reduction

Reducing greenhouse gas emissions at the source is one of the most direct and impactful ways companies can mitigate their climate impact. Key strategies include adopting renewable energy, improving energy efficiency, and optimizing industrial processes. These actions create measurable, immediate reductions by addressing emissions within a company’s operations.

Energy efficiency alone has the potential to deliver over 40% of the emissions reductions needed to align with the Paris Agreement, while scaling digital technologies could cut emissions by 20% across key sectors by 2050. The emissions intensity of the iron, steel, and aluminum industry decreased by 31% due to technological changes and efficiency measures.

Reduction initiatives can also contribute to the carbon market. Initiatives that exceed regulatory requirements or achieve surplus emissions cuts can generate carbon credits, which companies can sell to those managing hard-to-abate emissions. This cycle not only supports continuous decarbonization but also encourages businesses to pursue increasingly ambitious targets, amplifying their climate impact. However, ensuring the integrity of these credits requires careful accounting to prevent issues like double counting.

Key Differences Between Carbon Reductions and Carbon Credits

1. Approach: Direct reduction focuses on immediate, in-house changes, while carbon credits provide a market-based mechanism for emissions management.
2. Flexibility: Carbon credits enable companies to offset emissions they cannot immediately eliminate, offering a practical option for sectors facing technological or financial constraints.
3. Long-term Impact: Direct reductions often lead to lasting operational changes, while carbon credits rely on the quality and durability of the projects they fund.
4. Verification: Direct reductions are more easily measurable and verifiable, whereas carbon credits often rely on complex calculations and projections.
5. Cost Implications: While direct reductions require significant upfront investments, they can yield long-term savings. Carbon credits, in contrast, provide a cost-effective short-term solution for addressing unavoidable emissions.

Together, these approaches form complementary tools in a broader climate strategy, balancing immediate action with scalable solutions.

Carbon Dioxide Removal

Carbon dioxide removal or CDR focuses on actively taking CO₂ out of the atmosphere rather than preventing its release. Technologies like direct air capture, reforestation, and soil carbon sequestration are designed to address existing atmospheric carbon, offering a pathway to achieving net-negative emissions.

Implementing carbon removal technologies directly is highly challenging due to the significant investments, expertise, and infrastructure required. Instead, companies typically support carbon removal by purchasing removal credits through voluntary carbon markets as this is a more impactful and practical approach. Carbon removal credits are regarded as high-quality offsets.

The SBTi, once cautious about companies relying on carbon credits before reducing their own emissions, now advocates for a balanced approach. It recommends that businesses integrate removal-based carbon credits to address emissions beyond their value chain, while simultaneously working on reducing emissions within their operations.

Direct Emissions Reduction

Voluntary carbon credits serve as a vital tool in corporate climate strategies, offering flexibility and impact where direct reductions fall short. By enabling companies to offset hard-to-abate emissions, these credits bridge the gap between ambition and reality. Beyond their practical value, voluntary credits drive investment in critical technologies, from engineered removal solutions to large-scale reforestation efforts.

Market data shows that the share of removal-based credits is steadily increasing. As demand grows for high-quality credits, the voluntary market continues to evolve, pushing businesses to make meaningful contributions to global climate action. A number of voluntary standards seek to spur corporate use of carbon credits, in addition to reducing corporate emissions as quickly as possible, to speed decarbonization.

How Do Voluntary Carbon Credits Drive Impact?

Voluntary credits go beyond simple offsetting. They enable companies to contribute to meaningful climate action in the following ways:

1. Complement reductions: Carbon credits allow companies to tackle hard-to-abate emissions while continuing to reduce their own footprint.
2. Drive innovation and funding: By supporting carbon removal technologies and nature-based solutions, voluntary credits help accelerate the development and deployment of essential climate innovations.
3. Empower corporate climate action:: Voluntary credits enable businesses to take proactive steps toward sustainability, even in industries where decarbonization remains a long-term challenge.
4. Provide flexibility for hard-to-abate sectors: Companies in sectors with limited decarbonization options can still align with climate targets by investing in high-quality offsetting mechanisms.
5. Catalyze market growth: The demand for credible voluntary credits drives market improvements, leading to stricter standards, greater transparency, and increased funding for impactful climate projects.

Conclusion

Voluntary carbon credits play an important role in corporate climate strategies, offering a practical solution where direct emissions reductions are not enough. They enable businesses to address hard-to-abate emissions while driving investment in climate innovation. As the market evolves, the shift toward high-quality credits reinforces their importance in accelerating decarbonization.

Rather than being a substitute for emissions reductions, voluntary carbon credits function as a complementary tool. Companies that integrate both approaches can make tangible progress toward their climate goals, support the development of scalable climate solutions, and align with global climate commitments and regulatory expectations.