28 August 2025
Carbon credits are an increasingly popular way for organisations to compensate for their hard-to-abate emissions, and often form a core part of broader decarbonisation strategy. The regulatory and administrative environment surrounding the carbon markets is fast evolving as sustainability becomes a core part of doing business. A few of the most recent developments are outlined below – read on to find out what you need to know for your UK operations and further afield in Europe.
Recently, there has been increased governmental support for carbon credits, both at the national and corporate level. While support for use of carbon credits towards national decarbonisation efforts has been implied via engagement with Article 6 of the Paris Agreement (which enables importing countries to purchase carbon reductions from exporting countries for use against their Paris Agreement aligned decarbonisation targets, and in doing so transfer finance to less developed countries to support their decarbonisation efforts), recent announcements mark a shift toward more explicit endorsement.
Both the UK and EU are creating frameworks to allow domestically generated carbon credits to be used within their Emissions Trading Schemes, and the EU have proposed allowing up to 3% of internationally generated credits to be used against its 2040 emission reduction target. Meanwhile guidance on the voluntary use of carbon credits for decarbonisation and product claims has been evolving in recent years. The growing governmental endorsement of carbon markets suggests a possible softening of restrictions around corporate credit usage by claims guidance bodies such as ICVCM and SBTi.
In the UK, the Climate Change Committee (CCC) has recommended initially integrating engineered greenhouse gas removals (GGRs) into the UK Emissions Trading Scheme (ETS), creating vital demand signals for durable removals and building a bridge between voluntary and compliance markets. GGRs, such as Direct Air Capture (DAC), physically remove CO₂ from the atmosphere and store it securely.
In April 2025, the UK government also launched a landmark initiative to strengthen voluntary carbon and nature markets. It aims to enhance trust and transparency by setting integrity principles for high-quality credits and sustainability reporting. It formally expressed support for the ICVCM’s Core Carbon Principles and the CCP label, endorsing them as a benchmark for carbon credit quality.
The UK government advises corporates to use carbon credits as a supplement to, not a substitute for, direct emissions reductions within their value chains. This approach aligns with the principle of Beyond Value Chain Mitigation (BVCM), emphasizing that carbon credits should complement, rather than replace, efforts to reduce emissions directly associated with a company's operations.
By giving corporates clearer guidance regarding how they can incorporate offsetting into their environmental claims, the UK government hopes to unlock private investment, targeting up to $250 billion in carbon markets and $69 billion in nature markets by 2050.
The French government introduced the Charter for Paris-Aligned and High-Integrity Use of Carbon Credits to ensure the credibility of domestic VCM use and align with global best practices. Announced by the Ministry for Ecological Transition at the ChangeNOW summit, the charter provides clear guidelines for responsible credit use. French companies are expected to first prioritise internal emissions reductions (Scope 1, 2, and 3), backed by a validated net-zero pathway and a time-bound transition plan. Offsets can then be used to address residual emissions, using high-integrity carbon credits compliant with Article 6.4 of the Paris Agreement and the ICVCM’s Core Carbon Principles (CCPs). Transparent reporting is also mandated—gross emissions must be disclosed separately from any offsetting to ensure clarity and accountability.
Germany’s new coalition agreement supports the use of high-quality international credits (capped at 3%) to help meet its national (and the EU’s) 2040 climate goals. The agreement promotes offsetting with Article 6 credits. Article 6.2 facilitates bilateral government-to-government trading of offsets through Internationally Transferred Mitigation Outcomes (ITMOs), while Article 6.4 establishes a new UN-administered crediting mechanism which can be traded openly by market participants.
Taken together, these actions reflect a clear, coordinated message: carbon credits are a legitimate, government-supported tool to complement internal emissions reductions at source when embedded in credible, transparent, and high-integrity frameworks.
We expect the release of further guidance on carbon credit use, both by covered entities within their compliance markets, and by corporates for beyond-value-chain and net zero purposes and will keep you updated!