Carbon Credits: A Deep Dive for Responsible Business

# Carbon Credits: A Deep Dive for Responsible Business In *Catalyst*, I wrote that carbon credits are not the solution, but they can be part of one. Used responsibly, they are a way for businesses to contribute to climate action beyond their own operations. Used poorly, they are a distraction, a delay, or worse, a false signal. This post expands on that section of the book. It is written for accountants, bookkeepers, and SME leaders who want to understand carbon credits properly, not to make claims, but to make progress. --- ## What Is a Carbon Credit? A carbon credit represents the removal or avoidance of one tonne of carbon dioxide equivalent (CO₂e) from the atmosphere. It is a unit of climate mitigation. But like any unit, its value depends entirely on the context, quality, and integrity of how it was created and used. At its best, a carbon credit supports meaningful climate action that would not have happened otherwise. At its worst, it enables greenwashing. This is where nuance matters. --- ## The Three Categories of Carbon Credits There are three broad categories of carbon credits. Understanding the difference is essential. ### 1. Avoidance These projects aim to prevent future emissions. For example: - Providing clean cookstoves to replace wood-burning - Funding renewable energy in areas still using coal These credits are often the cheapest but also the most contested, because they rely on assumptions about what would have happened without the project. They can be beneficial, but they are vulnerable to over-claiming. ### 2. Reduction These projects reduce existing emissions. For example: - Forest conservation (avoiding deforestation) - Energy efficiency upgrades in manufacturing Impact can be real, but questions arise around permanence and leakage. If a forest is protected in one area but logged in another, has the credit delivered its claimed benefit? ### 3. Removal These actively take carbon out of the atmosphere. For example: - Tree planting and reforestation (nature-based removals) - Biochar or direct air capture (engineered removals) Removals are considered the highest quality because they offer measurable, additional, and permanent carbon drawdown if done well. They are also the most expensive, often hundreds of pounds per tonne. --- ## What Makes a Carbon Credit High Quality? Not all carbon credits are created equal. The voluntary carbon market is evolving quickly, and consistency is improving but still uneven. At Thrive, we rely on trusted partners like **[Ecologi](https://ecologi.com/)**, who have introduced a transparent **grading framework** to assess the quality and risk of carbon credits. This framework looks at key indicators such as additionality, permanence, and co-benefits, helping buyers understand what they are funding and why. To assess quality more broadly, look for: - **Additionality:** Would this project have happened without carbon funding? - **Permanence:** Will the carbon stay out of the atmosphere long term? - **Verification:** Has the credit been certified by an independent third party? - **No double counting:** Is the credit’s impact uniquely assigned to one buyer? Global efforts to strengthen integrity continue. The **Integrity Council for the Voluntary Carbon Market (ICVCM)** has released its **Core Carbon Principles (CCPs)** and is assessing programs and credit categories for CCP eligibility. Credits that meet these criteria are beginning to carry a CCP label. This is fast becoming the benchmark for credibility. --- ## Why It Matters Who You Buy From Most SMEs will access carbon credits through platforms that **aggregate and verify projects**. This is a sensible approach, as long as those platforms are transparent about how they assess quality and impact. At Thrive, we partner with **[Ecologi](https://ecologi.com/)** for purchasing verified carbon credits and with **[Veritree](https://www.veritree.com/impact-hub/thrive)** for reforestation and nature-based restoration. Both partners provide transparent data on the projects they fund and clear reporting on the impact delivered. Alongside these, there are a growing number of **carbon accounting tools** that help businesses measure and manage their emissions before deciding how to act. Examples include: - **Sage Carbon Accounting** - **Sumday** - **NeoEco** - **Trace** These tools do not sell credits directly but are valuable for establishing an emissions baseline, tracking reductions, and ensuring data integrity. If you use an accounting platform such as **Xero**, check its App Store for integrations that connect emissions data to your financial systems. Automating data flow improves accuracy and builds confidence in any climate-related reporting. --- ## The Tax Treatment of Carbon Credits Carbon credits are also a financial transaction, and accountants should treat them accordingly. In the United Kingdom, **most voluntary carbon credit transactions are subject to VAT at the standard rate from 1 September 2024**. Certain exchange-traded transactions may still qualify for zero-rating under the Terminal Markets Order. Treatment varies by territory, so always check the latest tax guidance in your jurisdiction. For UK readers, HMRC’s guidance is here: [Revenue and Customs Brief 7 (2024) – VAT treatment of voluntary carbon credits](https://www.gov.uk/government/publications/revenue-and-customs-brief-7-2024-vat-treatment-of-voluntary-carbon-credits/revenue-and-customs-brief-vat-treatment-of-voluntary-carbon-credits) --- ## The Problem with “Carbon Neutral” “Carbon neutral” is one of the most misused terms in sustainability. It often implies equivalence, that a tonne emitted here is balanced by a tonne saved elsewhere. But equivalence is a flawed concept. - Emissions today are not reversed by a promise to protect a forest for a century - Buying low-cost avoidance credits while continuing high-emission activity is not neutrality, it is marketing That is why the **Science Based Targets initiative (SBTi)** focuses on deep emissions reductions as the priority. Its draft *Net-Zero Standard V2* continues to centre real reductions while consulting on how removals and finance mechanisms may play a supportive role. The direction of travel is clear: reductions first, contributions second. --- ## Responsible Use of Carbon Credits A credible approach follows four steps: 1. **Measure your emissions** Use a tool such as **Sage Carbon Accounting**, **Trace**, or **Ecologi** to estimate your footprint. 2. **Reduce what you can** Address energy, travel, and procurement. Focus on material impacts. 3. **Contribute responsibly** Purchase high-quality **removal** credits, framed as a **climate contribution**, not as cancellation. 4. **Report transparently** Avoid sweeping claims. Share your data, context, and next steps. --- ## A Word to Fellow Accountants Carbon credits are not a sustainability gimmick; they are a business, ethical, and reporting issue. We are trained to assess risk, materiality, and reliability, all of which apply here. You do not need to be a climate expert to help. You simply need to approach this with the same professional curiosity and caution that you bring to any other area of financial judgment. --- ## Final Thought Carbon credits are not a fix. Used well, they help fund global climate solutions and demonstrate responsibility. Used carelessly, they undermine trust. Clarity and integrity will define the next phase of this market. Our profession is uniquely equipped to provide both. 📘 *Catalyst* explores how accountants can lead with clarity and purpose in the climate transition. 👉 https://jameslizars.com/book 🔗 Follow me on [LinkedIn](https://www.linkedin.com/in/jameslizars/) for the next article in this series: **Rethinking Offsetting - Moving from Neutral Claims to Real Contribution.**