Carbon markets have always depended on a difficult promise: that one verified tonne can stand for a real climate benefit.
That promise becomes harder to defend when the carbon benefit is vulnerable to reversal.
A forest protected today can burn, be logged or degrade in future. Land management can change. Drought and pests can weaken ecosystems. Even avoided-emissions projects can face questions about whether the underlying climate benefit remains robust over time.
These are not marginal technical issues. They are central to whether a carbon credit can credibly support a climate claim.
A current dispute over proposed rules for the UN’s Article 6.4 carbon-crediting mechanism brings this problem into focus. The debate concerns how projects should account for reversal risk: the chance that carbon assumed to remain stored, or emissions assumed to remain avoided, is later released into the atmosphere.
For buyers, investors, developers and policymakers, the lesson is simple:
The quality of a carbon credit depends not only on what it claims to achieve at issuance, but on how it manages the possibility that the claimed benefit does not endure.
What is reversal risk?
Reversal risk is the risk that a credited climate benefit is later undone.
The clearest example is a forest carbon project. A project may generate credits because it claims to prevent deforestation or increase carbon stored in trees and soils. If wildfire, drought, disease, illegal logging or land-use change later releases that carbon, the atmosphere does not recognise the original credit as permanently secure.
The same underlying principle can apply more widely. Where a credit depends on a continuing assumption—such as sustained fuel switching, durable land protection, behavioural change or the survival of biomass—buyers need to understand what could make that assumption fail.
Carbon markets commonly address reversal risk through a buffer pool. Developers set aside a proportion of generated credits in a collective reserve rather than selling them. If credited carbon is later lost, credits can be cancelled from the reserve to compensate.
In principle, this functions like insurance.
In practice, its credibility depends on whether the reserve is large enough, how risk is assessed, who bears residual liability, and whether the methodology reflects a changing climate.
Why the UN debate matters
The Article 6.4 mechanism is intended to create a UN-supervised international carbon-crediting framework under the Paris Agreement. Rules developed there may influence how governments, companies and market participants think about integrity far beyond the mechanism itself.
The current discussion centres on a proposed approach that would use location-based risk values, informed by scientific research, to determine buffer-pool contributions. Supporters argue that this would move carbon markets toward a more empirical assessment of risk.
Critics—including some project developers, buyers and conservation organisations—have argued that the approach could rely too heavily on a single model, increase costs and reduce credit supply. Some also question whether certain project types, such as clean cookstove programmes, should face a reversal-risk requirement.
The policy details remain unsettled. But the underlying commercial issue will not go away.
If stronger risk controls reduce the volume of credits that can be issued, credit supply may fall and prices may rise. That can be uncomfortable for buyers accustomed to relatively low-cost offsets. But lower prices are not proof of value if they rely on underestimating risk.
The more relevant question is whether the market is pricing climate integrity honestly.
Cheap credits can carry expensive liabilities
A buyer that acquires carbon credits may believe the transaction is complete once the credits are retired. That assumption is increasingly unsafe.
The reputational, legal and commercial consequences of a weak credit can remain long after purchase. A company may have used the credit in a public climate-neutral claim, a net-zero communication, a sustainability report or a customer-facing product statement. If the underlying project later faces evidence of reversal, over-crediting, poor community safeguards or weak additionality, the buyer’s claim can become vulnerable.
The exposure is not limited to public criticism. It can affect:
Greenwashing and consumer-protection risk
Investor and lender due diligence
Customer procurement requirements
Audit and assurance processes
Internal climate-target credibility
Board oversight and directors’ decision-making
The cost and availability of future credits
For this reason, carbon-credit procurement should look more like long-term risk management than a transactional purchase.
A better buyer framework
Businesses considering voluntary carbon credits should separate three questions that are too often blended together.
First: What is the company doing to reduce its own value-chain emissions?
Credits should not be used to delay operational decarbonisation. A credible climate plan requires quantified emissions reductions, capital allocation, supplier engagement and governance.
Second: What is the intended claim?
The claim determines the level of risk a company is taking. There is a material difference between supporting climate finance beyond the value chain and claiming that a product, organisation or event is “carbon neutral”.
Third: What is the durability of the underlying climate benefit?
A tonne of fossil carbon kept out of the atmosphere through permanent geological storage is not equivalent to a tonne stored temporarily in a biological system. Both can have value, but they carry different reversal profiles and should not be presented as interchangeable.
This is where procurement teams need a clear decision framework.
Buyer question | Why it matters | Evidence to request |
|---|---|---|
What exactly is being credited? | Clarifies whether the project represents removal, avoidance or reduction | Methodology, project design document, monitoring reports |
How long is the carbon benefit expected to last? | Determines permanence and claim suitability | Storage-duration assessment, permanence plan, contractual terms |
What can reverse the benefit? | Identifies physical, operational, legal and social risks | Risk register covering fire, drought, land tenure, governance and leakage |
How is the buffer pool calculated? | Tests whether insurance is credible | Buffer methodology, contribution rate, reserve governance and cancellation history |
Who is liable if a reversal occurs? | Determines residual buyer and project risk | Registry rules, contractual remedies, replacement-credit process |
How is local consent protected? | Social failures can undermine project durability | Land-rights evidence, benefit-sharing arrangements, grievance mechanisms |
How often is performance monitored? | Supports ongoing verification rather than one-off assurance | Monitoring plan, satellite data, site audits and verification schedule |
Climate change makes historic assumptions weaker
The reversal-risk issue is becoming more urgent because climate conditions are changing.
Historical fire patterns, rainfall levels, pest outbreaks and land-use pressures may no longer be reliable guides to future project performance. An approach that looked reasonable a decade ago can become inadequate as extreme weather intensifies or local governance conditions change.
That makes static risk calculations increasingly questionable.
A credible carbon market needs methodologies that can be updated as new evidence emerges. It needs transparent assumptions, sufficient reserves, independent oversight and clear processes for dealing with losses. It also needs buyers to recognise that the costs of higher integrity are part of the cost of making a credible climate claim.
There is no zero-risk carbon credit. The objective is not to pretend otherwise. The objective is to identify, price, manage and communicate the risk honestly.
What this means for nature-based projects
None of this means nature-based carbon projects lack value.
Forests, mangroves, peatlands, grasslands and agricultural landscapes can provide substantial climate, biodiversity, water and community benefits. They can also support livelihoods and resilience when designed with robust local participation and long-term stewardship.
But their value should not depend on overstating permanence or treating nature-based storage as identical to permanent geological removal.
The strongest projects will be those that treat ecological condition, local land rights, benefit sharing, climate resilience and ongoing monitoring as core components of credit quality.
For buyers, that means looking beyond issuance volume and headline price. A cheaper credit with fragile assumptions may be less valuable than a higher-priced credit backed by stronger evidence, meaningful buffers and durable project governance.
From carbon accounting to carbon stewardship
The next phase of carbon markets will be defined by whether participants accept a more demanding standard.
Carbon-credit buyers should move from a narrow accounting mindset—buy, retire, report—to a stewardship mindset:
Understand the project’s risk profile before purchase
Use contracts that specify replacement and reversal procedures
Maintain a diversified portfolio rather than relying on one project type or geography
Review project performance after retirement where the crediting programme allows
Match the strength of external claims to the durability and certainty of the underlying benefit
Disclose material limitations transparently
The objective is not perfection. It is integrity.
Carbon markets will only retain legitimacy if a credit represents a climate benefit that is real, additional, monitored and resilient enough to withstand scrutiny. Reversal risk is no longer a niche methodological debate. It is the test of whether carbon claims can remain credible in a less predictable climate.