As carbon markets mature, the terminology guiding them also seems to become more technical in nature. Terms such as ‘carbon credits’, ‘offsetting’ as well as ‘removals’ refer to unique processes and cannot be used interchangeably in climate conversations. Yet, they are often misrepresented, leading to confusion, greenwashing risks, and compliance issues. For companies looking to engage credibly in carbon markets, here’s a brief look at the comprehensive meaning and implementation of these terms.
Carbon Credits vs. Offsets
A carbon credit refers to a tradable certificate that represents the reduction or removal of one metric tonne of CO₂ or an equivalent greenhouse gas (tCO₂e). This is typically generated by a certified project such as reforestation, renewable energy deployment, or methane capture. Carbon credits can be bought or sold in both compliance and voluntary markets.
Coming to carbon offsets, these refer to the action of using a carbon credit to compensate for emissions produced elsewhere. In simpler terms, carbon offsets are the use of carbon credits to balance out emissions generated by a company or activity elsewhere.
Saying your company “bought offsets” can be misleading if the credits were never officially retired. Offsets must be accounted for in verified registries to be valid in ESG or BRSR disclosures. Without retirement, a credit is still active and can be resold—making it ineligible for ESG or regulatory disclosures like BRSR in India.
Avoidance vs. Removal
All carbon credit projects will fall under two main categories:
Avoidance or Reduction projects are those that prevent emissions from occurring. An example of this can be replacing a coal plant with solar power.
Removal projects take existing carbon out of the atmosphere. This can be done through afforestation or direct air capture.
The Science Based Targets initiative (SBTi) and the Integrity Council for the Voluntary Carbon Market (ICVCM), stresses on the fact that removals are more aligned with net-zero goals. They state that avoidance credits play more of a transitional role. Companies aiming for long-term neutrality must be clear on this distinction when setting sustainability targets or making claims.
Insetting: Offsetting Inside Your Value Chain
Insetting refers to carbon reduction or removal projects within a company’s own supply chain. For example, if your chocolate brand is working with its cocoa suppliers to restore forests, this would be considered insetting. While insetting isn’t yet regulated globally, many businesses see this as a more credible and strategic climate investment. Scope 3 emissions reporting tightens under frameworks like the EU CSRD and India’s BRSR Core.
New Developments to Watch
UAE (June 2024) introduced a national carbon credit registry under Cabinet Resolution No. 67, signaling a pivotal step in formalizing carbon trading across the Middle East. For businesses, this creates a more transparent and credible platform for issuing, trading, and retiring carbon credits within the region—making cross-border transactions more streamlined and reliable.
India is preparing to broaden its carbon credit trading scheme, shifting from a focus solely on energy-saving certificates to also include voluntary offset credits. The Bureau of Energy Efficiency (BEE) is in the process of finalizing verification and issuance frameworks to support this transition. This opens up new opportunities for Indian companies to monetize decarbonization projects and participate in global voluntary markets, while aligning with emerging compliance pathways.
The Science Based Targets initiative (SBTi) is set to release its 2025 guidance, which will provide clearer rules on how businesses can use carbon offsets within net-zero strategies. This update may restrict the use of avoidance-based credits, favoring higher-integrity removal options. Companies will need to re-evaluate their offset portfolios and prioritize carbon removal projects to maintain alignment with future-proof climate commitments.
As carbon markets continue to evolve rapidly, it becomes important to be a credible part of this transformation. This is why it makes it imperative for businesses to go beyond buzzwords and understand the functional meaning and legal implications of carbon credit terminology. At Fitsol, a number one decarbonization partner, we help companies navigate this complexity by offering carbon intelligence tools, MRV-ready emissions tracking, and expert guidance on integrating verified credits into your net-zero roadmap.