Carbon Credits Under SBTi Net-Zero V2 and Article 6: When Companies Can and Cannot Use Offsets

On Sunday, it becomes unlawful in the European Union to tell a consumer that a product is carbon neutral because you bought offsets against it.

Not misleading. Not risky. Prohibited, as a per se unfair commercial practice, with no substantiation defence available.

That deadline, 27 September 2026, is the sharpest edge of a wider repositioning of carbon credits that has been running for three years and largely settled this summer. The short version: credits have been pushed out of the places companies most wanted to use them and into two much narrower functions. Getting the distinction wrong is now a legal exposure rather than a reputational one.

The Claim Ban Arrives On Sunday

Directive (EU) 2024/825, the Empowering Consumers for the Green Transition Directive, amends the Unfair Commercial Practices Directive and the Consumer Rights Directive. Member States had to transpose it by 27 March 2026 and apply it from 27 September 2026.

Annex I of the UCPD lists practices that are unfair in all circumstances. The directive adds to that list any claim that a product has a neutral, reduced or positive impact on the environment in terms of greenhouse gas emissions on the basis of emissions offsetting. "Carbon neutral", "climate neutral" and "CO2 neutral" on a product, where the basis is purchased credits, all fall inside it.

Two points get misread constantly.

The ban is about the basis of the claim, not the word. A product that is genuinely low-emission can say so with substantiation. A product that is carbon neutral because credits were retired against it cannot say so at all, however good the credits are.

And it is product-facing and consumer-facing. A company describing its own operational climate strategy in an annual report is governed by different rules, though not by none.

The Green Claims Directive, which would have added a general substantiation and verification regime, is not coming to rescue anyone. The Commission announced its intention to withdraw the proposal on 20 June 2025 after pressure from the EPP, and the final trilogue scheduled for 23 June was cancelled. The formal position remains unsettled because the Commission's power to withdraw unilaterally is contested, but nobody should plan around its arrival. What is left in force is the amended UCPD, the Ecodesign Regulation, the Batteries Regulation and national consumer law, which is a patchier regime with the same prohibition sitting in the middle of it.

SBTi V2.0 Keeps Credits Out Of Targets Entirely

The Corporate Net-Zero Standard Version 2.0 was published on 11 June 2026. The validation portal is expected to open in Q1 2027, both V2.0 and V1.3.1 will be accepted until 31 January 2028, and SBTi is advising companies renewing targets during 2026 to submit under V1.3.1.

The architecture on credits has not loosened. Scope 1, Scope 2 and Scope 3 targets are met by reducing emissions. Credits do not count toward them, and they are never netted from the greenhouse gas inventory. A company that buys a million tonnes of credits and reduces nothing has made no progress against any SBTi target.

Credits appear in exactly two places.

Ongoing Emissions Responsibility

The first is a mechanism new to V2.0: Ongoing Emissions Responsibility, which addresses the emissions a company is still producing while it works toward net zero.

Between 2027 and 2035 it is voluntary, structured as a public recognition scheme with three levels. Engaged requires addressing a minimum of 1 per cent of ongoing emissions. Advanced covers 100 per cent of Scope 1 and Scope 2 against a contribution budget benchmarked at USD 20 per tonne of CO2 equivalent. Leadership covers 100 per cent of Scope 1, 2 and 3 at USD 80 per tonne.

From 2035 it becomes mandatory for larger companies, defined in the standard by size and by the income classification of their country. The obligation starts at a minimum of 1 per cent of ongoing emissions and rises linearly to 100 per cent by the company's net-zero target year.

Here is the provision that will surprise most credit buyers. Once the mandatory phase begins in 2035, avoidance and reduction credits no longer qualify. Only verified carbon removals count toward the mandatory element, with long-lived removals scaling from a minority share at the outset to the whole of it by the net-zero year. Portfolios built today around avoided deforestation and cookstove reductions satisfy the voluntary recognition levels and satisfy nothing after 2035.

Credits used for OER cannot also be counted toward the post-2035 removal requirement, cannot count toward scope targets, and cannot be netted from the inventory. One tonne, one use.

Neutralisation At The Net-Zero Year

The second place credits appear is the end state. At the net-zero target year, a company must have cut emissions to residual levels and must neutralise what remains with eligible carbon removals.

The matching rule matters. Residual emissions of long-lived greenhouse gases require long-lived removals. Other residuals may be neutralised with a combination of removal types. Storing carbon in a forest for forty years does not neutralise a tonne of CO2 that will be in the atmosphere for millennia, and V2.0 now says so in a way the previous version left softer.

Responsibility is not evenly distributed. A company retains direct responsibility for neutralising all of its Scope 1 residuals. Scope 3 neutralisation responsibility can be shared with value chain partners, which is realistic and also a governance question most procurement functions have not thought about.

The integrity bar for a verified mitigation outcome runs to several criteria: ex post rather than forward-crediting, independently assured by a third party, supported by documented project-level due diligence carried out by the purchasing company, safeguarded for human rights and biodiversity and the rights of Indigenous Peoples and local communities, free of carbon lock-in, and transparent on methodology, additionality and reversal risk.

The phrase carrying the most weight is project-level due diligence by the purchasing company. Buying from a well-known registry is not due diligence. The obligation sits with the buyer.

Article 6 And The Corresponding Adjustment Problem

The Paris Agreement Crediting Mechanism is now operational. The Article 6.4 Supervisory Body has adopted its first methodology and approved the first credits for issuance, and accreditation, registration and issuance processes exist. Five per cent of issuance proceeds flows to the Adaptation Fund.

The mechanic that matters to a corporate buyer is the corresponding adjustment.

When a host country authorises a credit for use toward another country's nationally determined contribution or for other international mitigation purposes, it applies a corresponding adjustment: it adds that tonne back to its own emissions account so the reduction is not counted twice. Authorised units carry the adjustment. Unauthorised units do not.

Most voluntary market credits are unauthorised. That is not a defect and it is not fraud. It means the host country still counts the reduction toward its own NDC, and the corporate buyer is claiming a benefit that a government is also claiming. Whether that constitutes double claiming depends entirely on what the buyer says about it.

Three practical consequences.

Authorised units price at a premium, and the gap is widening as more governments work out that authorisation costs them NDC headroom.

Claim language has to match unit type. "We have contributed to climate mitigation" is defensible with an unauthorised credit. "We have neutralised our emissions" is much harder to defend when the tonne also sits in a national inventory.

And whichever you hold, you will shortly have to publish the split.

ESRS E1-7 Makes The Portfolio Visible

ESRS E1-7 requires carbon credits to be disclosed separately and never aggregated with emissions figures. Gross emissions under E1-6 stay gross. Targets under E1-4 are stated before credits. The credits sit in their own disclosure where anyone can see exactly what they are.

For credits cancelled in the reporting year, the breakdown includes the share from reduction projects versus removal projects, whether removals are nature-based or technological, the share under each recognised quality standard, the share issued from projects inside the EU, and the share qualifying as corresponding adjustments under Article 6 of the Paris Agreement.

For credits intended for future cancellation, the disclosure is lighter: quantity and contractual status.

A company that makes a net-zero or carbon-neutral claim has to go further and evidence the credibility and integrity of the credits behind it.

The Article 6 line is the one that produces uncomfortable meetings. For most corporate portfolios the honest answer is zero per cent, and it will be printed next to a net-zero statement in an assured report.

Where Credit Claims Actually Fail

The failure modes are consistent across the cases that have gone wrong.

Product-level neutrality claims founded on offsets, which become per se unfair in the EU this Sunday regardless of credit quality. Netting credits against the inventory, which no framework permits and which assurance will find. Describing avoidance credits as removals, which is a category error V2.0 turns into a compliance failure from 2035. Claiming a reduction that a host government also claims, without disclosing that the unit is unauthorised. Timing mismatches, where credits are retired in one period and the claim is made about another. And the most common of all, relying on the registry's reputation instead of doing the project-level diligence the standard now puts on the buyer.

What To Do About It

Audit your consumer-facing claims before Sunday if you sell anything into the EU. Product packaging, ecommerce listings, point of sale material and advertising all sit inside the UCPD. A claim made before the date but still on a shelf afterwards is still a claim.

Split your existing portfolio into reductions and removals, and the removals into durable and non-durable. That is the axis on which both V2.0 and E1-7 cut, and most companies do not currently hold the data in that shape.

Find out how many of your credits carry a corresponding adjustment. If the answer is none, decide now what you will say when the number appears in your E1-7 disclosure.

Move the diligence file in-house. The standard asks what the purchasing company did, not what the registry did.

The shift underneath all of this is that credits have been demoted from an accounting instrument to a financing instrument. They no longer change your emissions number anywhere that counts. They fund mitigation, and you disclose what you funded. Companies that have already made that mental switch will find the next two years administratively tedious. Companies still treating a retired credit as a deducted tonne are going to find them expensive.

Position as of 23 September 2026. Directive (EU) 2024/825 applies from 27 September 2026 and is implemented through national law, so specific prohibitions and enforcement vary by Member State. SBTi Corporate Net-Zero Standard V2.0 thresholds, recognition tiers and phase-in dates are as published and remain subject to further guidance. Article 6.4 mechanism infrastructure is still being built out. ESRS requirements are subject to the ongoing revision of the standards. Confirm current requirements against SBTi, the UNFCCC, EFRAG, the European Commission and your national consumer authority, and take professional advice for your circumstances.

Sources

Science Based Targets initiative, SBTi Corporate Net-Zero Standard Version 2.0, Unfair Commercial Practices Directive, European Commission, European Financial Reporting Advisory Group, ESRS E1 Climate Change, Article 6.4 Supervisory Body, Integrity Council for the Voluntary Carbon Market, Voluntary Carbon Markets Integrity Initiative, Latham and Watkins, Cooley, Official Journal of the European Union

This article is intended for general professional information and does not constitute legal, financial, or investment advice.