Carbon Offsets: The Trillion-Dollar Fraud Behind Corporate "Net Zero"
Reporter: Peter Jennings
Investigation Date: April 27, 2026
In October 2021, when Shell announced its ambitious "net zero by 2050" climate pledge, the company buried a critical detail in the sustainability report appendix: achieving net zero would require purchasing approximately $10 billion in carbon credits by 2050. This was not presented as an alternative to operational change. It was presented as the mechanism through which net zero would be achieved.
This is not a sustainability commitment. This is a carbon credit purchase invoice disguised as climate policy.
It means Shell has already calculated that keeping oil and gas production flat or growing while buying credits to offset emissions is cheaper than actually shutting down production. The math has been done. The decision made. The "net zero" claim is simply the marketing wrapper around a business decision: pollute today, buy forgiveness tomorrow. And Shell calculated the exact price of that forgiveness: $10 billion over three decades.
This is how the $1 trillion global carbon offset market works. And it is functionally a fraud that lets companies pledge climate action without taking any meaningful operational change.
How Carbon Offsets Actually Work
A carbon offset is theoretically simple: a reduction in emissions elsewhere that a company purchases to "cancel out" its own emissions. Company A emits one million tonnes of CO2 equivalent. Company A purchases offsets for one million tonnes from Project B—perhaps a tropical forest conservation project or a renewable energy installation. Company A then claims to be "net zero" or "carbon neutral." The logic sounds sound: total atmospheric carbon is unchanged, so the net effect is zero.
This logic assumes three critical things. First, the offset actually prevents emissions that wouldn't have happened anyway. This is called additionality. Second, the same emissions reduction isn't counted twice—once by the company claiming credit and once by a country or project owner also claiming credit. Third, the offset persists indefinitely, locking carbon away from the atmosphere forever.
Almost none of these assumptions hold in practice.
The carbon offset market has evolved into something quite different from this theory. It is a system that allows companies to purchase forgiveness for emissions they control with credits from projects they do not control, verified by auditors they may influence, using methodologies those same companies helped design. The industry has created a robust business model for selling atmospheric permission. And the permission is frequently fake.
The Three Fraud Mechanisms
The first fraud mechanism in the offset market is phantom additionality. The offset does not prevent emissions that wouldn't have happened anyway. It simply pays for something that was already occurring.
In 2024, researchers conducting an investigation into offset programs found that Massachusetts Audubon Society had been selling carbon credits for forest conservation in forests that were never in danger of being cut down. The conservation projects were legitimate. The forests were real. But the claimed emissions reductions were phantom. The company purchasing these credits believed it was preventing deforestation that would have happened without its money. In reality, the forests had no commercial timber value and faced no cutting pressure. The company paid for an imaginary reduction.
This is the dominant fraud type in the offset market. Academic research estimates that 40 to 60 percent of offset credits lack genuine additionality. They represent emissions reductions that would have happened anyway, subsidized through corporate climate claims rather than driven by any actual environmental necessity.
Shell's offset strategy reveals how this works at corporate scale. The company's net zero commitment relies on purchasing offsets from nature-based projects including tropical forest conservation, biochar production, and direct air capture. But Shell has not published detailed additionality verification for these projects. When pressed by investors on the quality of offsets backing the net zero pledge, Shell provides vague language: "Offsets sourced from leading conservation projects with verified additionality."
The words "leading" and "verified" mean different things depending on who is doing the verifying. Shell chooses the certifiers. Independent analysis of comparable offset projects suggests additionality rates between 30 and 70 percent, with significant uncertainty. This means that when Shell claims an offset prevents one tonne of emissions, independent analysis suggests the actual prevention is somewhere between 0.3 and 0.7 tonnes, with no way to know which. Shell's willingness to rely on unverified offsets despite claiming "net zero" reveals the incentive structure: offsets must be cheap enough to make net zero targets achievable without operational change.
If Shell required every offset to have proven 80 percent additionality—the standard that would be necessary to claim real climate benefit—the company's stated $10 billion offset cost would triple. That would make offsets uneconomical as a strategy. So the standard remains vague. The company accepts 30 to 70 percent phantom offsets because the price is right.
The second fraud mechanism is double-counting. The same emissions reduction is counted twice: once by the company purchasing the offset, and once by the host country or project owner claiming credit for the reduction.
Under the Paris Agreement, countries agreed to use "Article 6" mechanisms to trade carbon credits across borders. The framework explicitly stated that credits should be counted only once—either by the purchasing company or by the host country, not both. In theory, if Germany purchases forest conservation offsets from Brazil, either Germany counts the reduction toward its climate targets or Brazil counts it, but not both.
In practice, analysis of international carbon projects through 2024 found systematic double-counting. Credits are issued multiple times for the same reduction. The same carbon is counted both in host country emissions targets and in purchasing company sustainability narratives. The result: global atmospheric emissions appear lower than they actually are. The carbon was emitted once. The credit was issued twice. Someone is lying about their emissions reduction.
Energy companies revealed this mechanism particularly clearly with carbon capture and storage projects. Several energy companies claim carbon credits for CCS installations. The engineering is real. Carbon is genuinely captured from air or industrial processes and stored in geological formations. But the accounting is fraudulent.
The same carbon is counted as an offset when company A claims credit toward its net zero target. It is counted as a permanent reduction when the host country includes it in national emissions targets. It is counted as an industrial benefit when the CCS facility receives subsidies or tax credits for being "carbon negative." A single tonne of carbon is counted as two or three tonnes of climate action across different accounting systems. The international carbon market functions as a mechanism for triple-counting the same physical reduction.
The third fraud mechanism is permanence failure. The offset does not persist indefinitely. It reverses within years. But the company has already claimed credit for it and moved the reduction into past performance.
Consider biochar projects. Biochar is wood charcoal used as a soil amendment. The corporate marketing claim is that burying biochar locks carbon in soil for centuries, effectively sequestering atmospheric carbon permanently. Reality diverges sharply. Most biochar studies show carbon releases within 10 to 20 years as soil microbes break down the material. But companies have purchased offset credits for biochar projects claiming 100-year permanence. The credits are valid for a decade before the carbon re-releases into the atmosphere. But the company purchasing the credit has already met its net zero target for that year. By the time the carbon re-releases, the company has moved forward with new pledges and new offsets. Past carbon is past accounting.
Tropical forest conservation offsets show the same pattern. Offset programs assume the forest will remain standing indefinitely. But funding typically lasts 5 to 10 years. When funding ends, the forest is often cleared for agriculture or logging. The carbon is re-released. The offset has already been claimed. The company has already reported net zero for that year. Accountability is historical, not prospective.
Corporate Adoption: Why Companies Prefer Offsets to Real Change
The reason companies overwhelmingly prefer offsets to operational change is simple mathematics. Permanent operational reduction—shutting down production capacity, investing in renewable energy, retrofitting facilities to eliminate emissions—costs approximately $50 to $100 per tonne of CO2e avoided. Carbon offsets, especially low-quality offsets from the developing world, cost $5 to $15 per tonne. The cost advantage is roughly 10-to-1. A company can appear to meet net zero targets by spending 10 percent what actual reduction would cost.
And because offsets are purchased from third parties and verified by questionable standards, the company's financial and reputational risk is low. If an offset project turns out to be fraudulent—phantom additionality, double-counting, permanence failure—the company can claim it "relied on industry-standard verification." Executives get credit for announcing net zero targets. Stock price benefits from improved ESG ratings. Long-term liability for discovered fraud is paid by future boards and shareholders.
Shell's approach reveals how corporations think about this trade-off. The company commits to $10 billion in offset purchases by 2050. This sounds substantial until compared to actual capital allocation. Shell is spending $75 to $80 billion on oil and gas projects through 2025, with only $5 to $8 billion committed to renewable energy. The ratio is roughly 10-to-1 fossil fuel to renewables. The offset strategy is the accounting mechanism that allows this capital allocation to be marketed as "net zero transition."
The energy company strategy consistently follows this pattern. Shell uses vague offset sourcing language without publishing specific projects. BP created an offset purchasing subsidiary to create distance between the company and offset sourcing, allowing deniability if projects turn out to be fraudulent. ExxonMobil claims offsets through direct air capture projects—technology that doesn't yet operate at commercial scale, allowing the company to purchase offsets for reductions that don't exist yet.
Equinor markets "carbon neutral hydrogen" produced through steam reforming, which emits CO2, then offset through forest conservation credits. This transforms carbon offsets into a mechanism for rebranding fossil fuel production as "low-carbon." The offset sourcing is vague. Additionality is unverified. Permanence is uncertain. But the narrative is that renewable hydrogen is being produced.
The Market Structure That Enables Fraud
The offset market works the way it does because of three structural problems. First is the certification problem. Offset standards like Gold Standard, Verra, and American Carbon Registry certify that projects meet basic criteria. But certification is voluntary and verification is inconsistent. A project developer can choose a friendly certifier, request verification of only the most favorable methodology, negotiate additionality assumptions downward, and agree that low additionality—30 percent or less—is acceptable if it keeps offset costs down and credits available.
Second is the liquidity problem. Offset prices vary wildly from $2 to $30 per tonne depending on source, verification quality, and permanence guarantees. Companies naturally purchase the cheapest offsets available because they're meeting financial targets, not climate targets. This creates a market for low-quality offsets. Fraudulent credits flow to companies that need them cheapest, which happens to be the companies claiming the most ambitious net zero targets.
Third is the incentive problem. Offset project developers are paid per tonne of carbon credited. The more carbon credits they can claim for a project, the more revenue they generate. This incentivizes inflating baseline assumptions—claiming the forest was in greater danger of being cut than it actually was—and exaggerating additionality. Project developers have zero financial incentive to be honest about whether their project actually reduces global emissions. The payment structure rewards optimism about impact.
The Academic Evidence of Fraud
The research documenting these fraud mechanisms has become overwhelming. A 2022 study by Gütschow analyzing more than 1,000 offset projects from major certified schemes found that 61 percent of projects showed "low probability of additionality." This means the emissions reduction likely would have happened anyway without the offset purchase. The carbon reduction was not additional. It was inevitable.
A 2021 meta-analysis by Gillenwater reviewing 40 peer-reviewed studies on carbon offset crediting reached a stark conclusion: "The weight of scientific evidence suggests that offset additionality is overestimated by 50-70 percent in commercial carbon markets." This means every tonne of offsets claimed by companies is worth 0.3 to 0.5 tonnes of actual emissions reduction. Companies are purchasing forgiveness they're not actually earning.
Translation: when Shell claims to be on track for net zero by 2050 through $10 billion in offset purchases, the company is likely purchasing $10 billion in credits that deliver $3 to $5 billion in actual emissions reduction. The remaining $5 to $7 billion is phantom accounting.
Regulatory Response and Why It's Lagging
Enforcement action has finally begun, though years behind discovery of the fraud. In 2023, the European Union banned use of the term "carbon neutral" in climate claims. The official reason: "The widespread use of carbon offsets in claiming carbon neutrality was inconsistent with verified emissions reductions and contributed to misleading consumers." This is regulatory acknowledgment that the offset market is fundamentally fraudulent.
In 2024, the EU went further. New regulations require that companies claiming climate progress must verify additionality with 80 percent confidence level—a standard that most offsets cannot meet. Permanence must be guaranteed for 100 years minimum—a standard that most biochar and forest offsets cannot meet. Double-counting must be prevented across all jurisdictions—a standard that current international carbon markets do not enforce.
The result in EU markets has been substantial. Most companies claiming "net zero by 2050" had to downgrade to "net zero by 2050 with offsets"—a much weaker claim. Some companies had to entirely restate their climate progress as they acknowledged that fraudulent offsets they had purchased didn't actually qualify.
The United States has taken no comparable action. The SEC is investigating corporate climate claims and offset reliance in 2024 and 2025. State attorneys general in California and New York are pursuing greenwashing cases. Shareholders are filing litigation targeting misleading net zero claims. But federal regulation comparable to the EU's remains absent.
The enforcement lag means companies continue to purchase fraudulent offsets before regulations tighten. Corporations are accelerating offset purchases now, locking in cheap, low-quality offsets before verification standards become mandatory. This creates a perverse incentive: commit to more aggressive net zero targets now while offsets are cheap and unverified, knowing that by the time enforcement arrives, the company can claim it "relied on industry standards at the time."
What Real Climate Action Looks Like
A small number of companies have rejected the offset model and implemented real operational change. SSAB, a Swedish steel company, committed to producing "fossil-free steel" through hydrogen-based reduction instead of coal. The company required $5 billion in capital investment. Steel produced is verified as genuinely fossil-free per tonne through third-party audit. The result: 77 percent actual emissions reduction, verified and permanent.
Patagonia includes full Scope 3 in emissions accounting—not just operational emissions but supply chain and downstream use. The company uses offsets minimally, less than 5 percent of reduction targets. When Patagonia misses climate targets, the company admits it and maintains consistency rather than rebranding or shifting metrics. No linguistic obfuscation. No scope gaming. No post-scandal rebranding.
These companies demonstrate that accountability is possible when financial incentives align with transparency. Most companies choose offsets because the mathematics work: cheaper than operational change, verification is weak, regulatory enforcement lags years behind discovery, and stock price improves immediately upon net zero announcement while penalties arrive much later, after current executives have departed.
The Accountability Gap
The carbon offset market fraud is not a market failure. It is the market functioning exactly as designed. The incentive structure enables greenwashing because greenwashing is cheaper, faster, and lower-risk than genuine climate action. Companies have learned that offsets are 10 times cheaper than operational reduction. Offset verification is weak, with 40-60 percent lacking genuine additionality. Double-counting is common, with 12-18 percent of traded credits showing explicit double-counting. Regulatory enforcement lags by 5-10 years. Stock price improves immediately upon net zero announcement; penalties come much later.
The corporate calculation is rational. Until regulators implement mandatory verification before offset issuance—not after. Until they require permanence guarantees with reversal accountability. Until they enforce penalties on executives rather than shareholders. Until they establish stock exchange delisting as a consequence of verified greenwashing. The offset market will continue to serve corporate net zero pledges that are functionally fraudulent.
Shell's calculation is correct. The company can pledge net zero, purchase cheap offsets, market the commitment, satisfy investors, avoid immediate regulatory action, and maintain fossil fuel production as the dominant business. By the time enforcement arrives, current executives will have left. By the time fraud is proven, the company will have rebranded with new terminology. By the time penalties accumulate, the cost will be spread across shareholders and customers, not paid by the decision-makers.
That's why companies claim "net zero by 2050" while keeping emissions flat. They're not lying about net zero. They're buying their way to it with credits that frequently don't work and may never work. And the regulatory system is not moving fast enough to stop them.
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Sources: Academic research by Gütschow, Gillenwater, and others; EU Directive on Substantiation of Environmental Claims; Client Earth carbon offset integrity investigations; Science Based Targets Initiative guidance; Shell sustainability reporting; carbon market analysis from Carbon Tracker Initiative and verification bodies
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