ESRS GHG Removals and Carbon Credits: Gross Emissions, Claims and Disclosure Rules

Educational material. It does not replace the applicable delegated act, national law, legal advice or an assurance conclusion.

Climate reporting becomes misleading when accounting categories are used as marketing labels. A forest project can be an operational removal, a value-chain contribution, a carbon-credit project or a source of future units, depending on ownership, control, location and whether the environmental benefit has been sold. The same physical activity cannot be counted in several places merely because different teams describe it differently.

Revised E1 makes the separation explicit. E1-6 states that GHG emission-reduction targets are gross: removals, carbon credits and avoided emissions are not means of achieving those targets. E1-8 prohibits deductions from the gross inventory. E1-9 then provides a separate disclosure architecture for removal and storage projects and for carbon credits.

Source anchor: revised ESRS E1, paragraph 24 and AR 12-13; paragraph 30 and AR 20; paragraphs 32-35 and AR 27-28.

Figure 1. Five climate-accounting ledgers that must not be netted. Original LRA practitioner visual.

The E1-8 inventory records gross emissions generated during the reporting period. It is not a statement of the undertaking's final climate impact after compensation. Scope 1, Scope 2 and Scope 3 calculations include the relevant GHGs and activity emissions. They exclude removals, purchased or sold credits, transferred units and GHG allowances. Emissions associated with operating a removal activity - for example energy for capture, transport or storage - remain in the relevant scope.

A gross reduction target tests whether the undertaking is changing operations, energy, products and the value chain. If credits or removals are allowed to reduce the target numerator, a target can appear to be achieved without the underlying emissions pathway changing. Revised E1 therefore excludes removals, credits and avoided emissions from achievement of GHG emission-reduction targets.

An undertaking may also communicate a net-zero or neutrality ambition. That ambition should not be presented as if it were the same as the gross E1-6 target. The disclosure should distinguish the gross reduction pathway, the residual emissions expected after feasible reductions, the role and timing of removals, any separate use of credits and the assumptions on which the net outcome depends.

E1-9 applies when the undertaking has implemented removal and storage projects in its own operations or has actively contributed to projects in its upstream or downstream value chain. The disclosure includes a brief project description, the amount removed and stored for each project, how non-permanence is managed, assumptions for leakage and reversal monitoring, and any reversals that occurred in the reporting period.

Removal projects may be nature-based, such as afforestation, soil carbon or ecosystem restoration, or technological, such as direct air capture with geological storage, bioenergy with carbon capture and storage, or durable storage in products. The method should be appropriate to the physical process and should identify the period over which storage is expected to persist.

Revised E1 AR 27 points to consensus methods such as the EU Carbon Removals and Carbon Farming Certification Regulation. This reference does not mean that every project is automatically certified or that certification alone resolves every reporting judgement. The undertaking remains responsible for the boundary, calculation, double-counting prevention, associated emissions and reversal treatment.

Permanence describes whether stored carbon remains out of the atmosphere for the claimed period. The answer depends on the storage mechanism. A geological reservoir, a timber product and a forest have very different reversal risks. The disclosure should therefore describe monitoring, buffers or reserves, contractual protections, replacement obligations, expected storage duration and the triggers for recognising a reversal.

Leakage is an increase in emissions outside the project boundary caused by the project. For example, protecting one forest may move harvesting to another area, or a removal process may require emissions-intensive energy and transport. Leakage assumptions should be explicit and supported by the chosen method. A project should not be described as a gross removal of 100,000 tCO2e if material associated emissions or leakage are ignored.

Under E1-9, carbon credits relate to projects outside the undertaking's own operations and upstream and downstream value chain. The undertaking discloses credits verified against recognised quality standards and cancelled in the reporting period, credits purchased in the reporting period but not yet cancelled, and the share of the total credit volume that comes from removal projects, distinguishing nature-based and technological sinks.

Purchase establishes a contractual or registry holding. Cancellation or retirement is the step that takes a unit out of circulation for a stated use or claim. A credit that remains transferable cannot support a claim that it has already compensated emissions. The evidence pack should therefore reconcile purchase contracts, registry accounts, serial ranges, cancellation certificates, cancellation date, beneficiary or claiming entity and the reporting period.

Revised E1 AR 28 requires the amount of credits to be cancelled in the future to be calculated across existing contractual agreements. Future commitments should not be mixed with current-period cancellations. They should be described with the contract period, volume, delivery conditions, project or standard where known, and any uncertainty about issuance or eligibility.

E1 asks the undertaking to refer to recognised quality standards and any other factors needed to understand credibility and integrity. A due-diligence review should therefore look beyond the name of the programme. It should consider project methodology, baseline, additionality, quantification uncertainty, independent validation and verification, permanence, leakage, registry controls, double counting, social and environmental safeguards, vintage, host-country context and the intended claim.

Avoided emissions compare a product, service or project with a counterfactual baseline. Examples include energy saved by efficient equipment or travel avoided by a digital service. The result depends heavily on the selected baseline, functional unit, market substitution and time horizon. It is not the same as a reduction in the undertaking's own Scope 1, Scope 2 or Scope 3 emissions.

Revised E1 explicitly prevents avoided emissions from being used to achieve gross GHG reduction targets. If an undertaking voluntarily reports avoided emissions, it should place the metric outside the inventory, state that it is not deducted, explain the methodology and baseline, disclose material assumptions and avoid language implying that potential customer benefits cancel the undertaking's value-chain emissions.

When an undertaking has made public GHG neutrality claims involving carbon credits, E1-9 requires it to explain whether and how the claim and the reliance on credits neither hinder nor undermine its GHG reduction targets. It must also explain the credibility and integrity of the credits used or planned. This creates a direct link between sustainability reporting, climate strategy and public-claims governance.

What exact subject is claimed to be neutral - a legal entity, product, event, service, building or reporting period?

Which gross emissions are inside the claim boundary and how were they calculated?

What reductions were achieved before any use of credits?

What residual emissions remain and why are they considered residual for the claim period?

Which credits were cancelled, by whom, when and against which recognised standard and project?

What limitations, exclusions, future dependencies and risk of non-delivery should a reasonable reader understand?

Figure 2. Carbon-credit claim approval gate. Original LRA practitioner visual.

The undertaking should maintain a central register of climate claims across annual reports, websites, product labels, tenders, advertising and investor materials. Each claim should have an owner, boundary, period, supporting inventory, reduction evidence, credit evidence, legal review, approval date and expiry or reassessment trigger. This prevents a marketing statement from being published on assumptions that differ from the ESRS disclosure.

Legal and consumer-protection rules may impose requirements beyond ESRS. The reporting team should therefore not treat E1-9 disclosure as a blanket approval of a public neutrality or offsetting claim. ESRS explains the relationship between the claim, targets and credits; it does not make the claim lawful in every jurisdiction.

The biochar unit is controlled by Harbour Foods. Its verified removals are reported as an own-operations removal project under E1-9, while the unit's electricity, feedstock transport and process emissions remain in Scope 1, Scope 2 or Scope 3. The supplier soil programme is included as a value-chain removal project because the group actively funds and governs the project with participating farms. The allocation method prevents the same removal from being attributed to more than one buyer.

Harbour Foods also bought 30,000 credits during the year. Registry evidence shows that 18,000 were cancelled for the current claim and 12,000 remain in the account. The E1-9 disclosure presents those volumes separately and states that 40% of the purchased volume came from removal projects. A three-year contract for another 45,000 credits is presented as a future cancellation commitment, not as a current-period compensation.

The gross E1-8 inventory remains unchanged. The gross reduction target is assessed before the removals or credits. The public claim is narrowed to the defined operational boundary and reporting year, identifies the residual emissions covered by cancelled credits, describes the credits and limitations, and explains that the group continues to pursue its gross 2030 reduction target.

Why it is stronger: the wording protects the gross inventory, separates own-operation and value-chain removals, addresses associated emissions and reversals, separates cancelled from un-cancelled credits, explains the removal share and defines the public claim boundary. The undertaking would still need to name or describe recognised quality standards and material integrity factors relevant to its credits.