Carbon removal is one of the most talked-about tools in the global climate fight. Companies and governments are using engineered carbon dioxide removal (eCDR) projects. They aim to balance emissions that are hard to reduce. These projects are seen as a “safe haven” in the voluntary carbon market as they offer lasting, long-term carbon storage.
But a new report from Meta and Calyx Global warns of a critical blind spot. Many of these projects do not properly account for embodied emissions—the carbon “debt” created when building and running removal infrastructure. This includes the energy and materials used in construction, machinery, and infrastructure.
By excluding or amortizing these emissions, some registries allow carbon credits to be issued before any real climate benefit occurs. If projects stall or fail, the result is phantom removals—credits with no actual climate impact.
The report shows a need for quick reforms in these areas:
- Upfront accounting,
- Full transparency, and
- Better alignment across registries
With eCDR credit purchases growing at record speed, the stakes are rising fast.
The Boom in Engineered Carbon Removals
Engineered carbon dioxide removal, or eCDR, is a set of technologies. These technologies pull CO₂ directly from the air and store it safely for centuries.
eCDR approach differs from nature-based solutions like reforestation. It focuses on long-lasting carbon removal. It uses techniques like direct air capture (DAC), biochar, bio-oil, enhanced mineralization, and biomass carbon removal and storage (BiCRS).
These approaches are energy- and capital-intensive but are seen as critical for reaching net zero because they provide permanent storage.
Notably, interest in engineered removals has exploded. Purchase agreements for future eCDR delivery grew seven times from 2022 to 2023. Then, they nearly doubled again to 8.2 million credits in 2024, according to cdr.fyi.
Another 25 million credits have already been bought in 2025, with Microsoft leading the way. At the same time, traditional nature-based credits, like afforestation, have slowed down a lot. This increase in demand has opened up more interest in engineered options.
- SEE MORE: Microsoft (MSFT Stock) Tops Q2 2025 Record-Breaking Surge in Durable Carbon Removal Credit Purchases
Buyers see eCDR as more durable and technically verifiable. Yet without proper embodied emissions accounting, the credibility of these credits is at risk.
The report warns that if projects shut down early, the embodied carbon debt may never be repaid. This leaves the market with phantom credits or removals that never actually occurred.
How Embodied Emissions Get Overlooked
Carbon markets usually track process emissions, such as energy used in operations. These emissions are measured in real time. But embodied emissions are treated inconsistently. Some registries ignore them. Others allow developers to amortize emissions, spreading them over many years of the project.
This means projects can start issuing credits even when they are still net emitters. For example:
- A biochar project might have embodied emissions equal to 20% of its first year’s credits. If those emissions are spread out, the project sells credits as if it has already removed CO₂. But the atmosphere still has more CO₂.
- A DAC facility with heavy upfront infrastructure may take years to break even. If the project halts early, its credits will have overstated its climate benefit from the start.
This accounting gap creates a major risk for buyers who assume their carbon offsets are delivering immediate impact. The report stated:
“It makes it difficult for a buyer to understand when projects start to deliver actual atmospheric benefits…Until the amortization period is over, projects will issue more credits than the net removals they have delivered. The true benefit comes when those over-credited removals have also been paid back.”
How Registries Differ: A Patchwork of Rules
The white paper highlights wide differences among carbon standards:
- No Accounting: Registries like the Verified Carbon Standard (VCS), American Carbon Registry (ACR), and Climate Action Reserve (CAR) do not require embodied emissions accounting. This means credits are almost always overstated.
- Default Deduction: Some standards, like Carbon Standards International, apply only small default deductions—not tied to actual project data.
- Amortization Allowed: Gold Standard, Puro.Earth, and others require accounting but allow amortization, sometimes over decades. A project could issue credits for years before becoming truly net-negative.
- Upfront Deduction Option: Isometric is the only registry that allows—but does not require—upfront accounting. This method provides the highest integrity but is rarely chosen.
This patchwork approach undermines transparency and comparability, creating uncertainty for investors and credit buyers.
When Offsets Aren’t Real: The Phantom Removal Problem
The risk of “phantom removals” is not just theoretical. If embodied emissions are amortized and a project ends prematurely, the carbon debt remains unpaid. Yet the credits already sold continue circulating in the market, allowing buyers to claim offsets that never happened.
A theoretical eCDR project (represented in the chart below) shows how amortizing embodied emissions can misrepresent climate benefits. The facility removes 1,000 tCO₂ annually but emits 400 tCO₂ during operations and carries 2,000 tCO₂ of embodied emissions from construction.
By spreading these embodied emissions over 10 years, the project claims 400 tCO₂ net removals each year. However, the atmosphere initially sees a “carbon debt,” with the project acting as a net emitter for three years. Carbon credits issued during this period are overestimated by up to 300% before balancing by year 10.
This gap not only erodes trust in carbon markets but also raises reputational risks for companies using these credits to meet climate pledges. For firms that value credibility, like Microsoft and Meta, phantom credits can hurt their net-zero goals.
What Needs to Change
The Meta–Calyx Global paper calls for immediate reforms to strengthen eCDR crediting integrity:
- Upfront Accounting – Require all upstream embodied emissions to be deducted in the first reporting period.
- Lifecycle Transparency – Publicly report full life-cycle emissions, including upstream (construction), ongoing (maintenance), and downstream (decommissioning).
- Buyer Safeguards – Encourage buyers to be cautious. They should “right-size” claims to cover uncounted emissions or pair credits with others that offer durability.
- Registry Reform – Push registries to standardize approaches and eliminate amortization practices that delay real climate benefits.
Buyers should ask for more transparency. They can delay using credits until projects show net removals. Stacking credits can also help hedge risks.
Why Credibility Matters in a Net-Zero World
Engineered removals are central to global net-zero strategies. The Science-Based Targets initiative (SBTi) has emphasized its importance. And demand from corporations is rising rapidly. Because these technologies are often energy- and infrastructure-intensive, embodied emissions can represent a large share of their footprint.
The market cannot afford another crisis of confidence like past controversies in carbon markets. Fixing embodied emissions accounting now can help registries and buyers ensure eCDR meets its promise. This way, it won’t create more questionable credits.
Meta and Calyx Global’s report sends a clear warning: ignoring embodied emissions risks flooding the market with phantom credits. With eCDR purchases growing at record speed, there’s a need to ensure transparency and credibility. The path forward requires upfront accounting, registry alignment, and greater buyer diligence.
The post Meta and Calyx Global Warn Engineered Carbon Removal Boom Risks “Phantom Credits” appeared first on Carbon Credits.
The accounting differences that decide whether your nature investment shows up in inventory, in BVCM, or nowhere at all.
The question reaches a procurement team about three weeks before the next sustainability committee meeting. Someone has read about insetting. Someone else has just signed off on an offset purchase. The CSO wants to know if the two are interchangeable. The answer is no, and the GHG Protocol Land Sector and Removals Standard is the reason why.
This article walks through what each term means at audit-grade specificity, what the standards actually say about how each gets counted, and how to decide which tool fits which target. The insetting vs offsetting question is one of the most-searched in corporate climate strategy, and one of the most poorly answered. By the end of this piece, you should be able to brief a committee on the difference without notes.
The two definitions, in plain English
Offsetting means buying carbon credits generated outside your value chain and retiring them against your residual emissions. The reduction happens somewhere else, financed by you, and the credit is the receipt.
Insetting means investing in emission reductions or removals inside your own value chain, typically with suppliers, where the reduction is directly linked to the products and services you buy. The reduction happens inside the boundary of your Scope 3 inventory, and the accounting treatment is fundamentally different.
The shorthand from the University of Oxford’s Nature-based Insetting Initiative is useful: insetting is what you do with the supply chain you have; offsetting is what you do with the supply chain you do not have.
What the GHG Protocol Land Sector Standard actually says
The GHG Protocol Land Sector and Removals Standard, finalised in 2024 after a multi-year pilot, sets the rules for how land-based emission reductions and removals enter corporate inventories. The Standard distinguishes between inventory accounting (Scope 1, 2, and 3) and project or intervention accounting (a separate methodology for crediting).
For insetting, the practical implication is that supplier-level interventions, when properly measured and attributed, can reduce your Scope 3 category 1 (purchased goods and services) emissions in your inventory. The reduction is not a credit retired against the inventory; it is a lower inventory number, period.
For offsetting, the credit is retired separately. It can be reported as a contribution toward a net-zero claim under the SBTi Beyond Value Chain Mitigation framework or as part of a VCMI Carbon Integrity claim, but it does not lower the inventory number.
A practical consequence: if your Science Based Target requires a 50% absolute reduction in Scope 3 emissions by 2030, insetting moves you toward the target. Offsetting does not. This single point of difference reshapes the procurement decision.
When insetting counts toward Scope 3 (and when it does not)
Insetting counts toward Scope 3 only when several conditions are met:
- The intervention must occur with an entity in your value chain.
- The emissions reduction or removal must be measured against a defensible baseline.
- The reduction must be attributed to your share of that supplier’s output, not double-counted with other buyers.
- It must follow the inventory accounting rules in the GHG Protocol Land Sector Standard, not the project accounting rules used to generate credits.
The most common failure mode is double counting. If your supplier sells the same reduction as a credit on the voluntary market and also reports it to you as a Scope 3 reduction, the math breaks. The Standard requires you to address this risk, typically by purchasing and retiring the supplier-issued credit as part of your inventory or by contractual provisions that prevent the supplier from selling the reduction twice.
When insetting does not count toward Scope 3: when the intervention sits with a supplier you do not buy from, when the baseline is not defensible, when the attribution is unclear, or when the documentation does not survive audit. Those cases default to Beyond Value Chain Mitigation, which is still useful but operates on a different ledger.
The procurement and supplier engagement question
Insetting is harder than offsetting. That is the unfashionable truth most buyers eventually confront. Offsetting is a transaction; insetting is a relationship.
To run an insetting program, you need supplier mapping precise enough to know which farms or facilities sit at which Scope 3 boundary. You need an engagement model that gets suppliers to participate, which usually requires multi-year commitments and shared economics. You need an MRV architecture that measures the right things and produces audit-ready documentation. And you need a contractual structure that prevents double counting and protects both sides.
The trade-off you receive in return is significant. Reductions count against your inventory rather than your residual. Supplier relationships deepen, which protects sourcing continuity. Yield and quality improvements often follow regenerative interventions, which reduces your input cost over time. And the regulatory file, under CSRD, CSDDD, EUDR, and the SBTi FLAG Guidance, is materially stronger.
Choosing the right tool for the right target
A practical decision rule. If your target is a science-based Scope 3 reduction and you operate in a FLAG sector or source FLAG commodities, insetting is the structurally correct tool. If your target is a net-zero claim that includes neutralising hard-to-abate residual emissions outside your value chain, BVCM via high-integrity offsets is the structurally correct tool. Most companies with material Scope 3 exposure need both, in different proportions, sequenced over time.
The sequencing matters. Insetting takes longer to stand up but produces a permanent reduction in the inventory. Offsetting can be transacted faster but does not change the inventory and now sits under tighter claim restrictions. Treat them as complementary tools with different jobs, not as substitutes. The Accountability Framework Initiative and the IUCN Global Standard for Nature-based Solutions both provide useful guardrails for the insetting side, with biodiversity, human rights, and benefit-sharing requirements that go beyond carbon math.
If you are mapping a Scope 3 reduction roadmap and need to scope which interventions count toward your inventory versus which sit in Beyond Value Chain Mitigation, the carbon and sustainability experts at Carbon Credit Capital can help you structure a nature-based supply chain investment program that fits your FLAG exposure, your target architecture, and your audit horizon. Schedule a consultation.
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