Carbon Insetting: How It Works, And Where It's Headed

Value chain decarbonization intervention, also referred to as "carbon insetting," is emerging as an important element of corporate climate strategies—and a potentially valuable opportunity for carbon reduction/removal project developers, renewable energy platforms, and investors. For many companies with large Scope 3 greenhouse gas (GHG) footprints, value chain decarbonization is essential to meeting their GHG emissions reduction goals. Additionally, companies purchasing carbon credits for voluntary or compliance purposes are increasingly focused on project integrity, which can be easier to ensure for projects within the company's own value chain.

Below, we explain what carbon insetting is, how it can support corporate sustainability and business objectives, evolving industry standards and practices, and how B&D can help companies capitalize on and de-risk insetting opportunities.

Key Takeaways

• There is no single definition or approach to insetting or supply chain intervention.
• Although there are various pending efforts to develop concrete standards (including draft standards and guidance developed by the GHG Protocol, the AIM platform, Verra, and SustainCert discussed below), most companies currently look to existing corporate value chain carbon accounting and reporting guidelines to develop sound, defensible insetting programs.
• Insetting projects can involve complex accounting and data-sharing arrangements among value chain entities; companies can reduce related legal risks through attention to supply chain contracting to ensure data integrity and ownership of relevant GHG reporting rights.
• US and international consumer protection and GHG disclosure laws and regulations may regulate accounting for insets and related claims, making accurate and transparent emissions accounting critical.

What is Carbon Insetting, and Why Might It Be Valuable for My Company?

Carbon insetting refers to projects within a company's value chain designed to reduce or remove GHG emissions. For example, companies that utilize agricultural inputs might work with farmers in their supply chain to invest in, and implement, regenerative agriculture, agroforestry, conservation, or restoration practices on their farms. Companies may also look for suppliers already undertaking these actions and interventions. Companies may then claim the benefit of emissions reductions achieved in their value chain – whether in relation to their corporate GHG inventory and/or to market specific products as having a reduced carbon footprint. They do so by acquiring the rights to the emission reductions achieved by the projects (similarly to other environmental attributes). These rights may (but need not necessarily) be creditized and termed "inset credits" when they occur within the value chain. If a company outside the value chain were to acquire these rights instead, they would be considered offset credits.

Over the past decade, carbon insetting (and supply chain/value chain decarbonization generally) has gathered momentum as an alternative or supplementary strategy to carbon offsetting. Companies in the agriculture, manufacturing, technology, and transportation sectors are the leading proponents of insetting, but engagement is broadening to other sectors (e.g., recycling).

There are multiple reasons for the growing interest in insetting, including:

• Pressure from stakeholders to invest in decarbonization interventions within company supply chains.
• Companies often have strong business relationships with suppliers, which can facilitate identifying decarbonization opportunities and ensuring integrity criteria (e.g., additionality and accurate data reporting) is met.
• Companies may wish to be more directly involved in decarbonization project implementation to ensure integrity, which can be easier to do for projects within the value chain.
• Insetting may allow companies to make marketing claims regarding the carbon footprint of their products that might not otherwise be permissible under emerging regulatory frameworks.(e.g., the pending EU Green Claims Directive would prohibit product carbon neutrality claims based on offsetting).
• Insetting projects can have co-benefits that help companies achieve other sustainability or corporate goals (e.g., improving feedstock quality or raising worker standards).

The Current Insetting Landscape

While there is no universal definition of insetting, key corporate climate frameworks now acknowledge the concepts of insetting and inset credits. The GHG Protocol's draft Land Sector and Removals Guidance (expected in 2025) defines an "inset credit"as "activities using the same quantification method as offset credits but that reduce emissions or increase removals within the reporting company's value chain." The Science Based Targets Initiative (SBTi) similarly describes insetting to include purchasing and retiring carbon credits that relate to activities that occur within a company's value chain.

To meet the need for additional clarity and accountability around insetting, several entities have issued and/or are developing standards and guidance. The International Platform on Insetting (IPI) published general criteria on standards for corporate insetting programs in 2017. More recently, in 2022, Verra launched an initiative to develop a Scope 3 Standard (S3S) to enable companies to credibly account for and report value chain interventions. Verra anticipates launching version 1.0 of the S3S Program in 2026. Version 1.0 will enable validation and registration of pipeline interventions anticipated to be listed on the Verra registry in 2025, and the issuance of Intervention Units (IUs) on the Verra Registry. Development of version 2.0 will also begin in 2026. Version 2.0 will include an assurance framework to "establish companies' 'right-to-report' by demonstrating an established supply chain link to the impacted product in the intervention," and "the possibility to issue Scope 3 Intervention Units) on the Verra Registry" to reporting companies.

Another initiative currently developing insetting standards and guidance is the AIM Platform, developed in collaboration with the Center for Climate and Energy Solutions, the Center for Green Market Activation, and Gold Standard. Launched in 2023, the AIM Platform aims to release its completed standard and guidance by early 2026. Public consultation on the AIM Platform Intervention Quality, Accounting, and Reporting (QAR) Standard and Guidance is open through November 21, 2025.

In addition, the Value Chain Initiative (VCI), which describes itself as a "peer-to-peer learning forum bringing together 500+ climate experts, developing solutions to implement and achieve value chain emission reductions and removals," is emerging as an important multi-stakeholder insetting-related initiative. The VCI has multiple working groups and programs focused on different elements of accounting and reporting on value chain climate impacts.

Inset registries are also being established, such as the Bloom Registry. Launched in April 2025, the Bloom Registry describes itself as "the world's first carbon registry specifically dedicated to the circular economy." The Bloom Registry issues "Circular Economy Certificates," "a new carbon inset certificate" representing avoided carbon savings generated through the re-use and recycling of electronic waste assets such as smart phones and computer hardware.

Insetting and Traceability

Tracing emissions reductions through the supply chain so that they may be attributed to specific downstream activities or products is critical to incentivizing interventions to decarbonize supply chains, and can pose a significant challenge. To address this, some frameworks incorporate the concept of a "supply shed." The VCI defines a "supply shed" as "a group of suppliers providing functionally equivalent goods or services within a fixed and spatially defined area that is demonstrably part of a company's supply chain. The Supply Shed includes all suppliers within designated boundaries, regardless of their practices or segmentation." The supply shed concept can enable traceability of emissions reductions achieved by an inset project, even when it is not possible to identify the specific supplier of the material sourced by the downstream company supporting the project. The supply shed concept is especially useful in commodities markets where fungible commodities are pooled for wholesale without direct traceability, but with the potential for volume-based attribution (e.g., a dairy wholesale marketer supplied by 100 farmers, each with known volumes of product delivered to the wholesaler).

The supply shed concept is included in the GHG Protocol's draft Land Sector and Removals Guidance. The draft guidance defines a "sourcing region" as "[a] predefined, spatially explicit land area that supplies harvested biogenic materials to the first collection point or processing facility in a value chain. Sourcing regions are also referred to as a supply shed or supply base."

SBTi's draft Net Zero Corporate Net Zero Standard (Version 2.0) (March 2025) similarly incorporates this concept in relation to Scope 3 GHG targets. The draft standard "allows for interventions at the activity-pool level (e.g. supply sheds) when direct traceability to specific emission sources is not feasible. Additionally, the standard recognizes the use of indirect mitigation approaches (e.g., book-and-claim commodity certificates) where direct traceability is not possible or persistent barriers prevent mitigation at the source." An "activity pool" is defined as "the set of emissions sources which may physically serve the reporting entity, but within which further traceability to the specific physical sources used by the reporting entity is not possible."

Carbon Rights Ownership and Attribution

It is essential for companies to clearly allocate ownership rights to GHG emissions reductions achieved through insetting. If ownership rights are not clearly allocated, there is a risk of misattribution or double-selling of the emissions reductions. To avoid disputes regarding ownership with insetting partners, and undermining the credibility of emissions reduction claims, companies should have contracts in place that secure clear and unencumbered rights to claim GHG emissions reductions in relation to their inventories or products.

Allocating carbon rights via contract may also be required under insetting standards. For example, under the draft AIM Intervention Quality, Accounting, and Reporting Standard (September 2025), reporting companies must have "definitive documentation that conveys the right to report intervention outcomes to the company." The draft standard also requires companies to "proactively manage double counting risks," including double-selling, double-issuance, and double-claiming. Emerging standards like AIM and the SustainCert-Verra joint Value Chain Intervention Framework also address key carbon accounting and attribution issues, which are important both to ensure the value of insetting transactions and interventions, as well as for risk mitigation.

Contracts are also critical to ensuring GHG emissions data is reported accurately and consistently from the inset project host upwards. With careful supply chain contracting, companies can flow GHG emissions calculation, verification, and reporting requirements up through supply chain tiers as needed to maintain data integrity. For example, a downstream company that finances the adoption of a process or technology change by one of its suppliers to reduce the carbon footprint of its finished products can contract to ensure that the supplier is calculating and attributing the emissions reductions resulting from that change in line with an agreed standard or methodology. Supply chain contracting is particularly important for carbon insetting projects outside of registries, which currently account for the vast majority of projects.

Looking Ahead

Companies considering developing value chain decarbonization projects and/or acquiring associated emissions reductions, should remain aware of these evolving and nuanced views on the treatment of carbon insets in corporate GHG emissions accounting and target-setting. A principled, consistent approach to GHG inventory assessment, supply chain GHG accounting, and inset transactions will help to ensure success and green marketing defensibility.

Additionally, there are multiple domestic and international legal frameworks that may apply to insets, including: consumer protection, green marketing, climate disclosure, and GHG accounting and reporting regulations. Examples include:

• California's recently enacted climate disclosure laws (AB 1305, SB 261, and SB 253)
• The EU's Empowering Consumers Directive (in force, but pending implementation by each EU Member State)
• The EU's Corporate Sustainability Reporting Directive
• The pending EU Green Claims Directive
• Canada's amended Competition Act

How Our Climate Team Can Help

Both insetting and offsetting can be valuable components of a company's sustainability strategy. B&D attorneys have deep expertise in setting up high-integrity carbon accounting practices and agreements to ensure the delivery of high-value carbon credits. Our team has advised on the structuring, implementation, and risk management of dozens of carbon offset and inset projects. We understand the legal and commercial complexities of project development in both compliance and voluntary markets. Our attorneys have worked on the ground in regions across the globe, advising on local regulatory compliance, stakeholder engagement, and international carbon standards like Verra, Gold Standard, and Article 6 mechanisms under the Paris Agreement.

Our team can:

• Help companies develop a sound decarbonization strategy, which may include insetting, offsetting, and renewable energy procurement.
• Provide contracts and legal support to attribute decarbonization from insetting to a specific product within a company and/or to ensure carbon reductions are properly accounted for between entities and subsidiaries in the supply chain.
• Identify and engage with potential inset partners.
• Help companies properly communicate their product's climate impact/capture good practices while ensuring compliance with legal frameworks for green marketing.
• Assist with reporting under voluntary carbon accounting schemes.
• Assist with preparing climate-related disclosures.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.