The Role of Carbon Offsets in Net-Zero Strategies – A Comprehensive Guide for Indian Companies

Introduction: The Net-Zero Imperative

India has committed to achieving net-zero emissions by 2070. Companies around the world are making similar commitments. But what does "net-zero" actually mean—and how do carbon offsets fit into the picture?

Net-zero means that any remaining emissions are balanced by removals. This is where carbon offsets play an essential role. But offsets are not a substitute for emissions reductions. As Shuchi Malhotra, lead advisor for carbon markets at the Environmental Defense Fund, emphasised: "Carbon credits are a complement to your overall decarbonization journey. They are not a substitute".

This distinction is critical. Companies that use offsets as a license to continue polluting are engaging in greenwashing. Companies that use offsets to address residual emissions while aggressively reducing their own emissions are demonstrating climate leadership.

India's corporate sector is at a turning point. With active trading under the Carbon Credit Trading Scheme (CCTS) scheduled to begin in the fourth quarter of 2026, industry experts and ratings officials at Mint's Sustainability Impact Summit 2026 said the regulatory architecture is falling into place. The upcoming CCTS would give companies a structured way to manage residual emissions while they continue reducing emissions through operational changes.

This guide examines the role of carbon offsets in net-zero strategies, what constitutes a credible offset strategy, and how Indian companies can avoid the pitfalls of greenwashing.

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What Are Carbon Offsets and How Do They Work?

Definition

A carbon offset is a reduction in greenhouse gas emissions—or an increase in carbon storage (e.g., through tree planting or soil carbon sequestration)—that is used to compensate for emissions occurring elsewhere.

How Offsets Work

Step	Description
1. Project Development	A project reduces or removes emissions
2. Quantification	Emission reductions are quantified using a methodology
3. Verification	Reductions are independently verified by a third party
4. Issuance	Carbon credits are issued on a registry
5. Purchase	A buyer purchases the credits
6. Retirement	The credits are retired to offset emissions

Types of Offsets

Type	Description
Avoidance Credits	Prevent emissions that would have occurred (e.g., renewable energy, avoided deforestation)
Removal Credits	Remove CO₂ from the atmosphere (e.g., afforestation, biochar, direct air capture)

The Offset Lifecycle

Stage	Description
Issuance	Credits are issued to the project developer
Holding	Credits are held in registry accounts
Transfer	Credits are transferred to buyers
Retirement	Credits are permanently retired

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The Abatement vs. Offset Debate

The Abatement-First Approach

For Indian corporations, decarbonisation strategies have so far prioritised direct operational abatement over market offsets. Nikunj Dube, chief ratings officer for ESG Ratings at CareEdge, said company disclosures under the Business Responsibility and Sustainability Reporting framework show firms have overwhelmingly focused on internal process changes rather than buying credits.

"Ideally what we have seen from the good level of disclosures around the companies, what they have till now relied on is abatement instead of offset till now," Dube said.

Why Abatement Has Been the Priority

Reason	Explanation
Cost Control	Energy efficiency measures often pay for themselves
Direct Control	Companies have direct control over their own operations
Risk Avoidance	Offsets have been viewed as risky due to greenwashing concerns
Regulatory Focus	Initial regulatory frameworks emphasised energy efficiency

The Limitations of Abatement

Limitation	Description
Hard-to-Abate Sectors	Some emissions cannot be eliminated with current technology
Cost Barriers	Deep decarbonisation can be prohibitively expensive
Time Constraints	Net-zero targets require faster action than abatement alone allows

The Shift to Offsets

With active trading under the CCTS scheduled to begin in the fourth quarter of 2026, companies that have largely relied on reducing emissions within their own operations are expected to increasingly use carbon credits to tackle residual emissions. Transition would be gradual, as coal dependence will continue in several industrial sectors because viable alternative fuels remain limited.

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The Hierarchy of Climate Action: Reduce, Influence, Offset

The Three-Tier Framework

Tier	Action	Description
1. Reduce	Reduce emissions within your own operations	The most important action
2. Influence	Influence suppliers, customers, and policymakers	Extend your impact
3. Offset	Purchase carbon credits for residual emissions	Address what you cannot eliminate

The Science-Based Targets Initiative (SBTi) Approach

The Science-Based Targets Initiative (SBTi) provides guidance on how companies can use offsets while maintaining credibility. SBTi recommends that companies focus on reducing their own emissions first and use offsets only for residual emissions.

The Voluntary Carbon Markets Integrity Initiative (VCMI)

The Voluntary Carbon Markets Integrity Initiative (VCMI) provides guidance on how companies can make credible claims about their use of carbon credits. The VCMI's Claims Code of Practice helps companies avoid greenwashing.

The SBTi and VCMI Timeline

Year	Development
2024	SBTi releases guidance on carbon credits
2025	VCMI releases Claims Code of Practice
2026	Companies begin implementing guidance

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The Role of Offsets in Net-Zero Strategies

The Net-Zero Definition

Net-zero means that any remaining emissions are balanced by removals. This is where carbon offsets—particularly removal credits like biochar and Enhanced Rock Weathering—play an essential role.

The Complement, Not Substitute Principle

Malhotra emphasised a critical distinction: "Carbon credits are a complement to your overall decarbonization journey. They are not a substitute".

What This Means in Practice

Principle	Application
Abatement First	Companies must reduce emissions internally
Offsets for Residual	Credits address emissions that cannot be eliminated
Continuous Improvement	Companies must continue reducing emissions over time

The International Consensus

International science-based standards are increasingly defining how companies can use credits alongside direct emissions reductions rather than in place of them. Governance bodies such as the Integrity Council for Voluntary Carbon Markets have established core principles covering additionality, permanence, accurate measurement and the avoidance of double-counting.

The Structured Approach

The upcoming CCTS would give companies a structured way to manage residual emissions while they continue reducing emissions through operational changes.

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The Quality Imperative: Buying the Right Credits

The Quality Gap

Not all carbon credits are created equal. Low-quality credits undermine the credibility of offset claims. The Integrity Council for the Voluntary Carbon Market (ICVCM) has established the Core Carbon Principles (CCPs)—a global threshold for carbon credit quality.

The Quality Checklist

Factor	What to Look For
Registry	Verra, Gold Standard, or CR-I
CCP Label	Does the credit carry the CCP label?
Additionality	Clear evidence of additionality
Permanence	Buffer pools, insurance, long-term monitoring
Quantification	Clear methodology, third-party verification
Co-benefits	SDG contributions, biodiversity protection, community benefits

The Price Premium for Quality

CCP-labelled credits maintain a significant premium over non-CCP credits. This premium reflects the market's recognition of the higher quality and integrity of CCP-labelled credits.

The Reputation Risk

Buying low-quality credits is a reputational and financial risk. Companies that purchase credits without due diligence face:

• Greenwashing accusations
• Reputational damage
• Potential regulatory action
• Wasted investment

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The ICVCM Core Carbon Principles (CCP)

What Is the ICVCM?

The Integrity Council for the Voluntary Carbon Market (ICVCM) is an independent global body that aims to improve the voluntary carbon market's integrity.

The 10 Principles

Category	Principles
Governance	Effective governance, tracking and transparency, independent third-party validation and verification, robust methodology development
Emissions Impact	Additionality, permanence, robust quantification, no double counting
Sustainable Development	Sustainable development benefits and safeguards, contribution to net-zero

What the CCP Label Means

Carbon credits that carry the CCP label must demonstrate a real and measurable impact on reducing emissions and meet the strictest criteria globally across governance, transparency, quantification, monitoring, and verification.

The CCP in India

The Kranti Clean Cooking Initiative in rural Madhya Pradesh is among the first projects worldwide to offer issued carbon credits with the CCP label. This makes Kranti the first cookstove project in India to issue CCP-labeled carbon credits.

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The Science-Based Targets Initiative (SBTi) and Offsets

What Is SBTi?

The Science-Based Targets Initiative (SBTi) helps companies set emissions reduction targets in line with climate science. SBTi has provided guidance on the use of carbon credits.

The SBTi Position

SBTi recommends that companies:

1. Focus on reducing their own emissions first
2. Use offsets only for residual emissions
3. Prioritise removal credits over avoidance credits
4. Ensure credits meet quality standards

The SBTi and Scope 3

SBTi has provided specific guidance on Scope 3 emissions, recognising that companies may need to use offsets for emissions in their value chain that are difficult to eliminate.

The SBTi Timeline

Year	Development
2024	SBTi releases guidance on carbon credits
2025	Companies begin implementing guidance
2026	Guidance is integrated into corporate strategies

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The Voluntary Carbon Markets Integrity Initiative (VCMI)

What Is VCMI?

The Voluntary Carbon Markets Integrity Initiative (VCMI) provides guidance on how companies can make credible claims about their use of carbon credits.

The Claims Code of Practice

The VCMI's Claims Code of Practice helps companies avoid greenwashing by providing a framework for making credible claims about carbon credit use.

The Three Claim Levels

Level	Claim	Requirement
Silver	Carbon Neutrality	Offset emissions through high-quality credits
Gold	Net-Zero	Offset emissions and contribute to climate finance
Platinum	Climate Positive	Offset more than emissions and contribute to climate finance

The VCMI and India

Indian companies are increasingly adopting VCMI guidance as they develop their net-zero strategies.

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Sector-by-Sector: Who Needs Offsets the Most?

Cement

Factor	Implication
Hard-to-Abate	Significant residual emissions
Process Emissions	60% from calcination
Offsets Needed	Significant for residual emissions

Steel

Factor	Implication
Hard-to-Abate	Process emissions from ironmaking
CBAM Exposure	35.1% export decline in FY 2025
Offsets Needed	Significant for residual emissions

Aluminium

Factor	Implication
Hard-to-Abate	Energy-intensive production
CBAM Exposure	Significant exposure
Offsets Needed	Moderate for residual emissions

Fertiliser

Factor	Implication
Hard-to-Abate	95% of emissions from ammonia
Green Hydrogen	Significant decarbonisation potential
Offsets Needed	Moderate for residual emissions

Refineries and Petrochemicals

Factor	Implication
Hard-to-Abate	Complex process emissions
Green Hydrogen	Significant decarbonisation potential
Offsets Needed	Moderate for residual emissions

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The Financial Case for Offsets

The Cost of Abatement vs. Offsets

Carbon credits can provide a cost-effective way to manage residual emissions when deep abatement is prohibitively expensive or technologically infeasible.

The Compliance Cost

Failure to comply with CCTS targets can result in significant financial penalties. Companies that fall short must purchase credits to make up the difference.

The Revenue Opportunity

Companies that outperform their targets can earn carbon credit certificates, creating a new revenue stream.

The Export Competitiveness Angle

Global standards recognise that companies must continue managing emissions even as they work towards long-term decarbonisation. For exporters, carbon credits can help maintain competitiveness in carbon-constrained markets.

The Market Size

The India carbon credit market is estimated to be valued at USD 5.90 billion in 2026 and is expected to reach USD 66.79 billion by 2033, growing at a CAGR of 41.4%.

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The Reputational Risks: Avoiding Greenwashing

What Is Greenwashing?

Greenwashing is the practice of making misleading claims about environmental performance. In the context of carbon offsets, greenwashing occurs when companies use offsets to claim climate action while continuing to increase their emissions.

The Greenwashing Risks

Risk	Description
Reputational Damage	Loss of trust among customers and stakeholders
Regulatory Action	Potential penalties for misleading claims
Investor Scrutiny	ESG ratings and investment decisions
Legal Liability	Potential lawsuits for false claims

How to Avoid Greenwashing

Action	Why It Matters
Prioritise Abatement	Reduce emissions internally first
Buy High-Quality Credits	Use CCP-labelled, verified credits
Be Transparent	Clearly communicate your strategy
Set Science-Based Targets	Align with climate science
Integrate Offsets	Offsets as complement, not substitute

The Corporate Reluctance

Corporate reluctance to buy carbon credits has reflected concerns that offsets could invite accusations of greenwashing. However, the growing governance framework and quality standards are addressing these concerns.

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How to Build a Credible Offset Strategy

Step 1: Measure Your Carbon Footprint

Action	Why It Matters
Calculate Scope 1, 2, and 3 emissions	Know your total footprint
Identify reduction opportunities	Find cost-effective abatement
Determine residual emissions	What remains after reduction

Step 2: Set Science-Based Targets

Action	Why It Matters
Align with SBTi	Ensure targets are science-based
Set near-term and long-term targets	Clear trajectory to net-zero
Commit to continuous improvement	Ongoing emissions reduction

Step 3: Develop an Offset Strategy

Action	Why It Matters
Determine offset needs	How many credits do you need?
Select credit types	Avoidance vs. removal
Choose registries	Verra, Gold Standard, CR-I
Set quality standards	CCP-labelled, verified credits

Step 4: Procure Offsets

Action	Why It Matters
Conduct due diligence	Verify credit quality
Engage suppliers	Identify trustworthy partners
Execute purchases	Buy credits at competitive prices
Retire credits	Ensure credits are retired

Step 5: Report and Communicate

Action	Why It Matters
Disclose emissions	Transparent reporting
Communicate strategy	Abatement and offsets
Avoid overclaiming	Be honest about your impact

Conclusion: Offsets as a Complement, Not a Substitute

Carbon offsets play an essential role in net-zero strategies, but they are not a substitute for emissions reductions. Companies must prioritise abatement, buy high-quality credits, and be transparent about their strategies.

Key Takeaways

Aspect	What You Need to Know
Core Principle	Offsets complement, not substitute, emissions reductions
Hierarchy	Reduce, influence, offset
Quality Standard	ICVCM Core Carbon Principles
SBTi	Science-based targets
VCMI	Credible claims framework
Market Size	USD 5.90B in 2026, USD 66.79B by 2033

The Choice Is Yours

Option	Outcome
Build a credible offset strategy	Protect your reputation, deliver real climate impact, gain competitive advantage
Ignore quality standards	Risk greenwashing accusations, reputational damage, wasted investment