'Carbon Markets and UK Law' - Natasha Jackson and…

This article looks briefly at the UK’s legal framework relevant to carbon markets, at risks arising for UK corporates engaged in carbon markets and at what the future might hold for carbon markets in the context of the operationalisation of Article 6 of the Paris Agreement.

The legal issues affecting carbon markets in the United Kingdom sit at the intersection of corporate climate strategy, consumer protection, human rights and international law (primarily, Article 6 of the Paris Agreement). On the one hand, communities harmed by carbon projects abroad, including those which generate credits sold in the UK, are increasingly turning to the law to protect their human rights and rights to land. The operationalisation of Article 6 of the Paris Agreement is likely to bring welcome respite to these communities by setting up a complaints mechanism that will be accessible to those most affected or harmed by carbon projects generating credits sold on international markets.

On the other hand, and in light of recent trends in climate litigation penalising greenwashing, UK participants in carbon markets (primarily purchasers of credits) are under increasing pressure to avoid offsetting or to prioritise high‑integrity instruments to avoid legal risk. It is advisable for corporates purchasing credits to separate in‑value‑chain emissions reductions (i.e., actual emissions reductions achieved via the decarbonisation of operations) from beyond‑value‑chain compensation purchased via credits, ensuring that any offset use is narrow, residual, and high‑quality, and communicate with the precision demanded by the Digital Markets, Competition and Consumers Act 2024 (DMCCA), the Consumer Rights Act 2015 (CRA), the Competition and Markets Authority’s (CMA) Green Claims Code, and the Advertising Standards Authority’s (ASA) CAP Code. Litigation elsewhere in Europe indicates that legal risk exists for UK corporates making green claims on the basis of low-integrity credits.

The Architecture of Carbon Markets: Voluntary and Compliance

Carbon markets rest on a deceptively simple premise: that one tonne of carbon dioxide emitted can be cancelled out by one tonne of carbon dioxide removed or avoided elsewhere. In practice, this equivalence is often scientifically unsustainable. When fossil fuels are burned, for example, carbon that has been locked in geological storage for millions of years is released into the active carbon carbon cycle, where its warming effect persists for millennia. By contrast, the most common offset projects (reforestation, soil carbon enhancement, avoided deforestation) store carbon in biological reservoirs that are inherently impermanent: forests burn, decay, or are felled; soils are disturbed; and the sequestered carbon can be returned to the atmosphere within years or decades.

The climate effect of releasing permanently stored fossil carbon is therefore not neutralised by parking an equivalent quantity of carbon in a tree that may not survive the century. As Matthews and others have demonstrated, “replacing a unit reduction of CO₂ emissions with a unit increase of temporary land carbon storage would lead to increased total emissions over time and consequently more long-term warming,” because the value of temporary storage is “different from and not interchangeable with that of permanent storage or avoided fossil fuel CO₂ emissions.”[1] This asymmetry (between the geological permanence of the problem and the biological impermanence of the most widely traded solution) is the foundational weakness of carbon markets as currently constituted, and it is the reason that the mitigation hierarchy (discussed below) insists on deep emissions reductions first, with offsetting reserved only for genuinely residual emissions at the end of the decarbonisation pathway. However, modern technologies such as biochar provide some promise that carbon markets may operate more effectively in future. Similarly, adjustments in carbon accounting may allow for high-integrity markets by less permanent means (such as reforestation).

Carbon markets currently operate through two principal channels: voluntary markets, where companies purchase credits to compensate for emissions outside their value chains, and compliance systems, where reductions or allowances are mandated or governed by law (the most well-known of these regulated systems is likely the EU’s ETS system). Voluntary markets have expanded rapidly, but scrutiny has intensified around credit integrity, especially on additionality, permanence, and risks of reversal or inflated baselines. Corporate buyers drawn to voluntary markets for reputational or transitional reasons should therefore treat offsetting as strictly subordinate to in‑value‑chain decarbonisation, and when used, only for residual emissions at relevant target dates, with credits that are high‑quality, transparently accounted for, and supported by recognised verification frameworks.

Compliance mechanisms condition the environment in which UK market participants plan and report, and in aviation specifically, the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) has influenced corporate awareness of permanence, additionality, and accounting integrity, flagging the complexities inherent in any offset‑based approach. Although compliance regimes serve different purposes from the voluntary market, the technical issues raised by CORSIA[2] mean that carbon market actors are well aware of the difficulties and risks associated to engaging in these markets.

Voluntary standard‑setters have also shaped practice by clarifying the mitigation hierarchy[3] and drawing firm lines around offset use. The Science Based Targets initiative (SBTi) requires deep in‑value‑chain cuts and treats neutralisation as an end‑state tool for residual emissions, not a substitute for abatement, while Race to Zero (R2Z) aligns with that approach and cautions expressly against claims that rely on credits in lieu of decarbonisation.

Furthermore, two complementary (also voluntary) bodies now provide the governance architecture for voluntary carbon market integrity. On the supply side, the Integrity Council for the Voluntary Carbon Market (ICVCM) is an independent, multi-stakeholder governance body that has established ten Core Carbon Principles (CCPs) as a global benchmark for high-quality carbon credits, setting rigorous thresholds for additionality, permanence, robust quantification, no double counting, transparent tracking, independent verification, and sustainable development safeguards. Credits from programmes and methodologies that meet these principles can carry a CCP label in registries, giving buyers a credible and readily identifiable marker of integrity. On the demand side, the Voluntary Carbon Markets Integrity Initiative (VCMI) governs how companies may credibly use carbon credits as part of their climate commitments, through its Claims Code of Practice, which requires that credit use be additional to (not a substitute for) science-aligned emissions reductions and sets tiered claim levels (Silver, Gold, and Platinum) calibrated to the proportion of remaining emissions addressed through high-quality credits. Together, the ICVCM and VCMI operate as an end-to-end (albeit voluntary) integrity framework: the ICVCM ensures that credits entering the market meet a science-based quality floor, while the VCMI ensures that companies purchasing those credits do so within a disciplined decarbonisation pathway and communicate their use transparently and without overstatement.

The UK Legal and Regulatory Framework for Carbon Markets and Corporate Conduct

The UK’s legal architecture governing claims connected to carbon market activity rests on clear consumer‑protection rules, advertising standards, and reporting guidance, all of which converge on a simple proposition: do not overstate climate performance, do not confuse compensation with reduction, and ensure that any reliance on credits is accurate, limited, and clearly explained at the point of claim. The CMA’s Green Claims Code, while not creating new legal principles, distils how the Consumer Protection from Unfair Trade Regulations (CPUT, the relevant parts of which have been retained in the DMCCA) applies to environmental statements, emphasising that claims must be truthful, clear, and supported by robust, up‑to‑date evidence, and that where offsetting is used, the scheme should be based on recognised standards, capable of objective verification, and explained in close proximity to the headline claim. The ASA’s CAP Code requires that absolute environmental claims be supported by a high level of substantiation (Rule 11.3) and that the basis and meaning of all environmental terms be clear to consumers (Rules 11.1 and 11.2). The CAP’s supplementary Environmental Guidance of June 2023 goes further, specifically advising against using unqualified claims of carbon neutral" or "net zero" and noting that ASA research showed consumers tended to believe such claims implied that an absolute reduction in carbon emissions had taken place — meaning that where claims rely on offsetting, this must be clearly and prominently disclosed to avoid misleading..

In February 2023, CAP and BCAP updated their formal Advertising Guidance, The environment: misleading claims and social responsibility in advertising,[4] to include a dedicated section on carbon neutral and net zero claims, reflecting key principles of the CMA’s Green Claims Code. That Guidance, which is a standalone document sitting alongside but separate from the CAP Code itself, advises advertisers to avoid using unqualified carbon neutral, net zero, or similar claims, and states that advertisements referring to initiatives as a way of achieving net zero “should clearly contextualise those claims with information about the role that the initiative would play in that net zero plan, and how and when net zero emissions will be achieved.” Where claims are based on offsetting, marketers should provide information about the offsetting scheme and ensure that consumers are not left with the impression that products or their manufacture generate no or few emissions. The Guidance drew on ASA-commissioned consumer research, published in 2022, which found that participants “tended to believe that carbon neutral claims implied that an absolute reduction in carbon emissions had taken place or would take place” and that “when the potential role of offsetting in claims was revealed, this could result in consumers feeling that they had been misled.”[5] The ASA’s ruling against Lufthansa on 1 March 2023 illustrates the enforcement consequences: the ASA upheld a complaint against an advertisement claiming “Connecting the world. Protecting its future,”, finding that the absolute claim was likely to be understood as meaning Lufthansa had already taken significant mitigating steps, when in fact many of the airline's initiatives were “targeted to deliver results only years or decades into the future.” UK actors should therefore assume close interrogation of claims that imply present-tense neutrality or absolute protection, and they should expect that regulators will look askance at any communications that obscure the difference between reductions and compensation.

Government reporting guidance, including the Streamlined Energy and Carbon Reporting (SECR) framework, reinforces the need to report offsets separately from gross emissions, thereby preventing confusion between actual reductions and beyond‑value‑chain mitigation, and underscoring that corporate narratives should not collapse these categories. This separation has been mirrored in corporate disclosures over recent years, and it provides an objective yardstick against which marketing claims can be tested for accuracy and completeness. The confluence of these requirements means that UK corporates engaging with carbon markets must synchronise their internal reporting, investor communications, and external marketing so that each is consistent with the mitigation hierarchy and with the letter and spirit of consumer law and advertising codes.

CPUT (the relevant parts of which have now been assimilated within the DMCCC) provides a robust route for consumers to seek remedies where a trader’s misleading action was a significant factor in their transactional decision. The regime focuses on the likely effect on the average consumer, placing weight on the overall impression of the claim, the clarity and prominence of qualifying information, and whether the claim is substantiated. The right to redress functions in practice as a statutory consumer tort grounded in strict liability for misleading actions, with remedies including discounts and damages calibrated to the significance of the prohibited practice.

Alongside CPUT, the Consumer Rights Act 2015 offers potential, though more uncertain, grounds. Statements about a trader can become binding information for the purposes of section 50, but there is doubt as to whether a merely misleading, as opposed to factually false, statement constitutes breach. Claims framed as information about a service may face additional hurdles under section 49, as environmental marketing about offsetting is likely to be characterised as information about the trader rather than the service itself. These uncertainties make CPUT (now the DMCCC) the primary route in many scenarios, while leaving room for targeted CRA arguments where facts permit.

Finally, the Economic Crime and Corporate Transparency Act 2023 introduces a corporate offence of failure to prevent fraud that can be engaged where misleading sustainability statements amount to fraud by an associated person. In such cases, a relevant body may be criminally liable unless it can show reasonable procedures to prevent the fraud. Recent analysis underscores that greenwashing is not only a consumer‑protection and advertising risk but also a potential economic‑crime compliance risk, pressing companies to invest in rigorous claim‑governance, substantiation, and approvals.[6]

Lessons from the International Context

Two lessons emerge from the international picture: one that is already playing out, and one that is still to come.

First, the claim brought by Dutch campaigning organisation Fossielvrij against KLM before the District Court of Amsterdam (filed in July 2022 and decided on 20 March 2024)[7] offers a direct and instructive precedent for UK corporates. Fossielvrij alleged that KLM's “Fly Responsibly” advertising campaign, including claims about its “CO2ZERO” offsetting scheme, sustainable aviation fuel, and its professed commitment to a “more sustainable future,” were misleading and in breach of the EU Unfair Commercial Practices Directive (Directive 2005/29/EC), as transposed into Dutch law through the Dutch Unfair Commercial Practices Act. The court found the majority of the challenged statements to be misleading and therefore unlawful, holding that KLM had painted an “overly rosy picture” of the positive effects of its sustainability measures, that its carbon offsetting claims were factually incorrect and had a negligible impact on actual emissions reductions, and that the term “sustainable” as applied to aviation fuel was “too absolute and not sufficiently concrete.” Crucially, the UCPD is the same EU directive that the UK's CPUT transposed into domestic law, and whose substantive prohibitions on misleading actions and omissions have now been restated in the DMCCA. The analytic framework applied by the Amsterdam court mirrors the tests applied under UK consumer protection law. UK corporates making comparable claims should treat the KLM ruling as a clear signal that the same arguments are available, and likely to succeed, in UK proceedings.

Second, operationalising Article 6 of the Paris Agreement will bring much‑needed order to international carbon trading by establishing common rules, registries, and transparency systems that raise integrity across the market, while embedding safeguards and a grievance process that gives affected communities a clear voice. Under the Article 6(4) mechanism, once fully in force, a central supervisory body will accredit activities against robust methodologies, ensure corresponding adjustments to prevent double counting, and anchor sustainable‑development safeguards in a unified framework. Crucially for communities, the design includes structured local stakeholder engagement and a dedicated route to raise complaints about registered activities with an independent body capable of investigation and corrective action. For lawyers and environmental advocates in the UK, this architecture promises both legal clarity and a meaningful rights‑guarantee: higher‑quality units for buyers and a single, reliable channel for the people most affected to be heard and protected.

Disclaimer: The contents of this article do not constitute legal advice and should not be relied upon as substitute for legal counsel.

Margherita Cornaglia and Natasha Jackson

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[1] H Damon Matthews and others, 'Accounting for the climate benefit of temporary carbon storage in nature' (2023) 14 Nature Communications 5485 https://www.nature.com/articles/s41467-023-41242-5 accessed 4 May 2026.

[2] See e.g., Warnecke, C et al, 'CORSIA—A Feasible Second Best Solution?' (2022) 12(14) Applied Sciences 7054, available at: https://www.mdpi.com/2076-3417/12/14/7054

[3] The mitigation hierarchy means that “companies should address value chain emissions and implement strategies to achieve these targets as a first order priority ahead of actions or investments to mitigate emissions outside their value chains.” See: Science Based Targets initiative, Corporate Net-Zero Standard (Version 1.0, October 2021) https://sciencebasedtargets.org/net-zero accessed 4 May 2026.

[4] https://www.asa.org.uk/news/updated-environment-guidance-carbon-neutral-and-net-zero-claims-in-advertising.html

[5] ASA, 'Carbon neutral and net zero claims — where are we now?' (21 March 2024) https://www.asa.org.uk/news/carbon-neutral-and-net-zero-claims-where-are-we-now.html

[6] See Mishcon de Reya, ‘How does the failure to prevent fraud offence raise the stakes on greenwashing?’ (Mishcon de Reya) https://www.mishcon.com/news/how-does-the-failure-to-prevent-fraud-offence-raise-the-stakes-on-greenwashing accessed 4 May 2026.

[7] https://www.climatecasechart.com/document/fossielvrij-nl-v-klm_0145