Carbon Offsetting for UK Businesses: What It Is and Whether It's Worth It

Carbon offsetting gets a mixed reception, and the sceptics have a point. A series of investigations in 2023 found that a significant proportion of REDD+ forest protection credits were effectively worthless, protecting land that was never going to be cleared. UK businesses that had been buying them to underpin carbon neutral claims were left in an awkward position.

That does not mean offsetting itself is broken. What it means is that the way many businesses have been using it, buying cheap credits and claiming carbon neutrality on the back of them, has not withstood scrutiny. Done properly, as part of a programme that prioritises actual emission reductions first, it remains a legitimate approach.

This guide covers how carbon offsetting works, what it costs in practice, and how to use it in a way that holds up when customers or investors start asking questions.

What Is Carbon Offsetting?

Carbon offsetting means compensating for your own emissions by funding an equivalent reduction somewhere else. A business emitting 500 tonnes of CO2 equivalent buys 500 credits, each representing a tonne removed from or prevented from entering the atmosphere.

The key principle, and the one most often ignored, is that offsetting is for emissions you cannot yet eliminate, not for ones you could reduce but have chosen not to. That distinction matters. The businesses that have faced reputational damage over offsetting are mostly ones that reached for it before getting their own house in order.

How Do Carbon Offset Projects Work?

Credits come from projects that either pull carbon out of the atmosphere or prevent it from being emitted in the first place. Forest protection schemes, known as REDD+, fund the preservation of existing forest that would otherwise be cleared. Reforestation and afforestation projects plant new trees that absorb CO2 over their lifetime. At the other end, methane capture at landfill sites destroys a gas considerably more potent than CO2 before it reaches the atmosphere.

Renewable energy projects in developing countries are also widely used, though they have attracted more scrutiny than others in recent years. The argument is that generating clean electricity where coal would otherwise burn is additional. Critics point out that the energy transition in many markets has made this harder to demonstrate convincingly, and standards have tightened in response.

Soil carbon, blue carbon (mangroves and seagrass), and direct air capture projects sit at the higher-integrity, higher-cost end of the spectrum. They are harder to verify but represent a more durable form of removal.

High-quality credits are verified against established standards, chiefly the Verified Carbon Standard run by Verra or Gold Standard. Both require independent third-party review before credits are issued and registered on a public registry. That registry prevents the same tonne being claimed twice, which sounds basic but has been a real problem in less regulated parts of the market.

Voluntary vs Compliance: Two Different Markets

UK businesses interact with two distinct carbon markets, and it is worth knowing which is which.

If you are a large industrial operator or power generator, you are probably already covered by the UK Emissions Trading Scheme. That is a compliance obligation, mandatory, with penalties for non-compliance. Participation is not a choice.

Most SMEs and mid-market businesses are not in scope for the UK ETS. What they engage with is the voluntary market, where offsetting is a decision rather than a legal requirement. Quality varies considerably in the voluntary market, and the choice of provider matters more than it does in a regulated scheme.

What Does Carbon Offsetting Cost?

Prices vary depending on the project type, the vintage of the credit, and the certification standard. As a rough guide for the voluntary market in 2025/26:

Older or lower-specification credits can be bought for around £3-10 per tonne CO2e. Mid-range certified credits, VCS or Gold Standard, typically run £10-30 per tonne. High-quality nature-based or carbon removal credits are £30-100 or more per tonne.

For a business emitting 500 tonnes a year, a basic offsetting programme using mid-range credits might cost £5,000-15,000 annually. Go higher quality and the cost rises, but so does the defensibility of any claims you want to make against them.

The voluntary market was volatile in 2021/22, prices spiking sharply before falling back when questions about credit quality became public. The broad expectation among analysts is that prices will recover as demand increases and lower-quality supply is removed, particularly for high-integrity credits. Locking in at current levels, for credits you have properly vetted, is arguably sensible timing.

The Criticisms Worth Taking Seriously

Three criticisms come up consistently, and businesses should understand each before committing to any programme.

Additionality is the most fundamental. A credit is only valid if the project genuinely prevents or removes emissions that would otherwise have occurred. A forest that was never at risk of being felled does not represent additional action, but credits from it have been sold. This is what the 2023 investigations exposed, and it is why the standard of verification matters more than the headline price per tonne.

Permanence is a related problem. Physical carbon stores are not guaranteed. Forest can burn, flood, or be cleared under future land use conditions. Reputable registries manage this through buffer pools, setting aside a proportion of credits to cover future losses. The risk cannot be fully eliminated, but it can be managed if the registry is credible.

Greenwashing is the most commercially relevant concern for most UK businesses. Regulators here have been active. The Advertising Standards Authority has upheld complaints against brands whose carbon neutrality claims rested on offset schemes that could not withstand independent review. The Competition and Markets Authority’s Green Claims Code is explicit: claims must be accurate, not misleading, and supported by robust evidence. Enforcement is increasing.

UK Regulatory Context

The direction of travel from UK regulators is toward higher standards, and businesses making public claims based on offsetting need to know where the lines are.

Under SECR (Streamlined Energy and Carbon Reporting), offsetting does not change the emissions figures you are legally required to disclose. Scope 1, 2, and relevant scope 3 emissions are reported gross. Offsetting affects how you present your carbon position to stakeholders; it does not affect what goes in the annual report.

The Voluntary Carbon Markets Integrity initiative has published a Claims Code. The recommended framing is to report gross and net emissions separately rather than claiming outright carbon neutrality. This is more defensible, and it is increasingly what institutional investors, insurers, and large customers conducting supply chain due diligence expect to see.

A practical test worth applying: would you be comfortable with a journalist or an investor picking through the specific credits you have purchased and the claims you have made against them? If the answer is uncertain, it is worth revisiting the approach before publishing anything externally.

How Offsetting Fits Into a Net Zero Strategy

The sequencing that most frameworks recommend is reduce first, offset the remainder. Offsetting complements cutting emissions; it does not substitute for it.

In practice: measure your baseline across scopes 1, 2, and the most significant scope 3 categories. Set reduction targets and implement the highest-return measures first, typically energy efficiency, a lower-carbon energy contract, and fleet electrification. Once you have a clear view of what you can realistically reduce in the short to medium term, offsetting addresses the residual emissions that are genuinely difficult or expensive to eliminate quickly.

A year-one focus on measurement and quick wins, LED lighting, HVAC scheduling, and a renewable electricity contract, reduces both your actual emissions and the size of any offsetting bill. Year two gives you better data. By year three most businesses have a clearer picture of what is hard to abate and can direct credits specifically at those categories, rather than buying them as a blanket response.

Businesses that follow this sequence can make credible, substantiated claims about their carbon position. Those that purchase credits without a reduction plan are increasingly exposed to challenge.

How Catalyst Can Help

Carbon offsetting sits within a wider picture that usually starts with energy. Catalyst works with businesses across the UK on procurement and cost management, and reducing energy consumption alongside switching to a lower-carbon supply contract is typically the most cost-effective first step in any carbon programme. It directly reduces the emissions base that any offsetting needs to cover.

If you want to understand where energy fits into your carbon position, get in touch.

Speak to Catalyst about your energy and carbon strategy

Further Reading: What Is the UK Emissions Trading Scheme?, the mandatory carbon pricing mechanism that sits alongside voluntary offsetting and directly influences UK energy costs.