Companies buy carbon credits for three core reasons: to meet legal requirements in regulated markets, to make progress on voluntary climate pledges, and to strengthen their brand with customers and investors who care about sustainability. The mix of motivations varies widely. Some companies treat credits as a compliance checkbox, while others see them as a strategic investment tied to their identity and competitive positioning.
Compliance Markets Require It
In some jurisdictions, buying carbon credits isn’t optional. Cap-and-trade programs set a legal ceiling on how much greenhouse gas certain industries can emit. Companies that exceed their allocated limit must purchase allowances or credits to cover the difference or face penalties. California’s Cap-and-Invest Program is one prominent example, and the European Union runs the world’s largest emissions trading system. China’s national system, already the biggest by coverage of emissions, is expanding to include aluminum, cement, and steel sectors.
International aviation has its own scheme. CORSIA, adopted by the International Civil Aviation Organization in 2016, is the only global market-based measure specifically targeting CO₂ from international flights. Airlines must offset emissions above a baseline level by purchasing eligible credits from approved programs. Eight emissions unit programs were approved for CORSIA’s first phase (2024 to 2026), with four approved for the second phase running through 2029.
Voluntary Pledges and Net-Zero Goals
Outside of legal mandates, thousands of companies buy credits voluntarily to back up public climate commitments. A company that has pledged carbon neutrality or net-zero emissions typically can’t eliminate every ton of CO₂ from its operations and supply chain, at least not yet. Credits fill the gap between what a company has actually reduced and what it has promised.
The Science Based Targets initiative, the most widely recognized standard for corporate climate goals, lays out a strict hierarchy for how this should work. Companies must set near-term targets to roughly halve their emissions before 2030. They must also set long-term targets to cut more than 90% of emissions before 2050. Only after hitting that 90%-plus reduction can a company use permanent carbon removal to neutralize the remaining slice. In other words, credits are meant to be the last step, not a substitute for actual cuts.
This reflects a broader principle called the mitigation hierarchy: avoid emissions first, mitigate what you can’t avoid, and only then offset what’s left. Companies that skip straight to buying credits without reducing their own footprint face growing criticism.
Branding and Competitive Advantage
Climate commitments don’t exist in a vacuum. Research published in npj Climate Action found that roughly 60 companies in their study used offset projects as a branding tool to enhance market competitiveness and align global and local market strategies. Among the companies studied, 22 specifically aimed to strengthen public relations through their offset investments, and 25 focused on supporting the UN Sustainable Development Goals as part of their purchasing rationale.
The study identified three distinct motivations driving companies into voluntary carbon markets. Companies focused on “carbon management and efficiency” tended to buy cheaper credits, particularly from renewable energy projects, treating offsets as a cost-effective way to manage their carbon footprint. Companies motivated by “values” or “market competitiveness” behaved differently: they were willing to pay more for projects that delivered visible local benefits like community employment or improved health outcomes. These higher-cost projects served double duty, reducing emissions on paper while generating stories the company could tell customers and shareholders.
For consumer-facing brands, a credible climate story can influence purchasing decisions. For companies courting institutional investors, strong environmental credentials can affect access to capital. The credit itself is almost secondary to what it signals.
What Companies Actually Buy
Not all carbon credits work the same way. The two broad categories are avoidance credits and removal credits, and the distinction matters.
- Avoidance credits fund projects that prevent emissions from entering the atmosphere in the first place. This includes financing wind or solar farms that replace fossil fuel power plants, protecting forests from being cleared, or upgrading industrial equipment to use less energy.
- Removal credits pay for extracting CO₂ that’s already in the atmosphere and storing it long-term. Nature-based options include planting forests and enriching soil carbon. Engineered approaches include direct air capture, which filters CO₂ from ambient air and stores it underground, and biochar, which converts organic waste into a stable carbon form that can be locked into soil.
Avoidance credits have historically been cheaper and more widely available. Removal credits, especially engineered ones, cost significantly more but are increasingly seen as higher quality because they address carbon that’s already warming the planet. The SBTi framework specifically requires permanent carbon removal for neutralizing residual emissions, pushing companies with serious net-zero commitments toward the removal category.
How Credits Are Verified
A carbon credit is only worth something if the emission reduction it represents actually happened. Third-party registries exist to certify this. The Verified Carbon Standard, run by Verra, is one of the largest. Under its program, independent auditors validate a project’s design, then verify the actual emission reductions against a monitoring plan. An auditing body can’t verify more than six consecutive years of a single project’s reductions, a rule designed to keep oversight fresh. All project data, including credit generation and retirement, is stored in a public registry.
Gold Standard is another major certifier, with both programs approved to supply credits for CORSIA. The certification process generally checks for “additionality,” meaning the emission reduction wouldn’t have happened without the credit funding it. It also assesses permanence: whether the carbon stays out of the atmosphere long-term or could be released again (as when a protected forest later burns).
The Risk of Getting It Wrong
Buying carbon credits carries real legal and reputational exposure. Federal agencies including the FTC, SEC, and DOJ have increased scrutiny of carbon credit projects, with enforcement actions targeting fraudulent schemes. Companies that make carbon-neutral or net-zero claims backed by low-quality credits are facing lawsuits. One notable case was among the first to allege that a company relying on offsets should have known the benefit of those offsets was overcalculated.
The legal landscape is shifting toward requiring companies to verify that the offset projects they buy from are legitimate and that their public claims don’t overstate the effect. Greenwashing allegations have moved from public relations problems to courtroom problems. Companies that treated carbon credits as a quick marketing fix without doing proper due diligence are now the ones most exposed.
This growing scrutiny has reshaped how sophisticated buyers approach the market. Many now invest in higher-quality, more expensive credits and pair their purchases with documented internal emission reductions, building a defensible record that their climate claims hold up under examination.