TI: Can a country buy its way to net zero?

Carbon credit as a means of to offset domestic emittions by funding green projects abroad

As we mark World Environment Day this week, the European Commission’s proposed target of a 90 percent emissions reduction by 2040 faces political, practical and ethical challenges. Germany's incoming coalition offers only conditional support, insisting on the inclusion of international carbon credits, which enable countries to offset domestic emissions by funding projects abroad, such as forest conservation. To secure agreement, the Commission is considering a compromise that could slightly lower the domestic reduction target while allowing international credits to make up the difference. A formal proposal is expected in July 2025.  

The concept isn’t new. Carbon credits are designed to channel private finance into climate solutions, often in developing countries. Critics warn that an overreliance on them could delay real decarbonisation, especially if offsets replace genuine emissions cuts. The risk? A climate strategy that looks good on paper but does too little in practice. 

To address credibility concerns, COP29 saw the finalisations of key rules under Article 6.4 of the Paris Agreement. These new standards introduced third-party verification, transparent public data, strong safeguards, and baseline emissions targets that must tighten over time. Mechanisms were also put in place to address ‘leakage’ or unintended emissions increases, with a buffer pool built to guard against project failures. Still, despite these improvements, the system’s flexibility raises questions about how robust it will be as the global carbon market evolves.  

Core risks remain. Carbon credits, especially in voluntary markets, are vulnerable to manipulation, fraud, and greenwashing. The complexity of carbon accounting, combined with weak regulation, leaves room for abuse: double counting, overstating climate impacts or selling credits for low-integrity projects.  Some credits have enabled companies and governments to delay hard decisions, fuelling climate-washing rather than climate action.  

A recent example highlights these vulnerabilities: in September 2024, investigators uncovered a major scandal involving 45 fraudulent carbon credit projects in China. Many were approved by German authorities and used by German oil companies to meet legal climate targets, revealing how easily flawed offsets can infiltrate even regulated systems. 

Transparency International’s analysis shows how these structural flaws expose the carbon market to corruption. Key dangers include fraudulent overestimation of emissions reductions, manipulated baselines and additionality claims, regulatory conflicts of interest and opacity, financial crimes like VAT fraud and phishing schemes, and policy capture by powerful industry lobbies. The voluntary carbon market is especially exposed due to its patchwork oversight, while loopholes persist in the compliance space, threatening environmental integrity.

Adding to these concerns, a joint report by the Grantham Research Institute and DLA Piper identifies three major corruption risks in climate solutions: misuse of funds – through bribery, money laundering and fraud; climate washing – where claims about emissions reductions or ESG credentials mislead investors and the public; and abuse of process – including failure to obtain free, prior and informed consent (FPIC) from local communities and conflicts of interest in approvals. These challenges undermine the fairness, credibility and effectiveness of climate action. 

Similarly, the Integrity in Climate Finance and Action report, following the Symposium co-organised by Transparency International, calls for urgent reform. With billions in climate finance flowing through fragmented and lightly regulated systems like the voluntary carbon market, the likelihood of corruption is growing. Cases like a Zimbabwean offset project overstating its impact fivefold, or companies using questionable credits to claim carbon neutrality, highlight the stakes.  

Without transparency, accountability, and strong oversight built into every tonne counted and every credit sold, carbon offsets risk doing more harm than good – masking inaction, distorting progress, and eroding trust in climate commitments. They must not become an escape hatch from climate responsibility. Real-world examples from Zambia and Pakistan demonstrate that reform is both possible and effective.  

In Zambia, civil society advocacy led by Transparency International secured legally binding safeguards and public disclosure requirements in the 2024 Green Economy and Climate Change Bill. In Pakistan, the country’s first national carbon credit guidelines now include integrity provisions shaped by Transparency International’s recommendations on equitable benefit-sharing, monitoring, and transparency. These cases show how strong governance, and public oversight can turn carbon markets into real climate action. – Transparency International