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You may have heard the term “net-zero.” It is rather trendy these days.
But what exactly is it?
Net-zero signifies a balance between greenhouse gases (GHG) released into the atmosphere and those removed from it. This entails that entities, whether companies, organizations, or nations, do not increase GHG levels in the atmosphere, preventing further global warming. Achieving global net-zero is crucial in the battle against climate change, necessitating a 50% reduction in GHG emissions by 2030 and their complete elimination by 2050. In essence, it’s a monumental undertaking with far-reaching climate implications.
Claiming net-zero is the easy part. Achieving net-zero? Now, that’s the hard part.
All of those entities proudly declaring they’ll reach net-zero by 2030, 2040, 2050, etc. have the support in doing so via the Science Based Targets initiative (SBTi).
Established in 2015, SBTi is a collaborative initiative between the Carbon Disclosure Project (CDP), the United Nations Global Compact (UNGC), the World Resources Institute (WRI), and the World Wide Fund for Nature (WWF).
SBTi assists companies in setting and achieving scientifically grounded targets to reduce GHG emissions in line with the Paris Agreement objectives. Their work involves providing guidelines and criteria for businesses to establish emissions reduction targets aligned with the latest climate science, thus making them “science-based.” By promoting science-based targets, SBTi encourages companies to take meaningful action in combating climate change and transitioning to a low-carbon economy. By doing so, the companies are contributing to efforts to limit global warming to well below 2°C above pre-industrial levels and aiming for warming of no more than 1.5°C.
SBTi offers services for companies across the whole spectrum of sectors including retail, manufacturing, finance, infrastructure, oil and gas, power, steel, and much more. Currently, 6,194 companies are engaged with SBTi. The number of validations climbed last year by 87%, and SBTi anticipates that the total number of companies will exceed 10,000 by 2025. Crucially, companies validated by SBTi are achieving faster reductions in scope 1 and 2 emissions compared to their counterparts, with an average annual reduction of 12%. This surpasses the 7.6% annual reduction rate needed to reach the 1.5°C target.
As many of our readers are aware, Gordian Knot Strategies is deeply involved in the Voluntary Carbon Market (VCM). So, how do SBTi standards impact the VCM?
SBTi standards are explicit – science-based emissions reduction targets cannot be achieved through the use of offsets in any form.
Both the SBTi Corporate Net-Zero Standard and the SBTi Corporate Net-Zero Standard Criteria specify that only emissions reductions within a company’s value chain are considered when calculating progress toward near- and long-term reduction targets. In short, offsets do not count towards emission reductions. If a company uses offsets, it needs to be reported separately in their annual GHG inventory. Furthermore, offsets are only considered to be an option for companies wanting to finance additional emission reductions beyond their science-based targets.
However, SBTi states: “Companies must reduce emissions by >90% before neutralizing the final <10% of emissions with permanent removals.” So, offsets can be used for that final 10%, as long as they: “permanently remove carbon from the atmosphere. Removal activities include direct air capture (DAC), bioenergy with carbon capture and storage (BECCS), and a number of nature-based solutions (NBS). These activities focus on carbon dioxide removal and not avoided emissions.
On one hand, SBTI’s emphasis on substantial emissions reductions before considering offsetting aligns well with the broader goals of mitigating climate change. It encourages companies to take more effective and accountable actions to reduce their carbon footprint which is essential. It also means that companies seeking to participate in the VCM must prioritize high-quality removal-based offset projects that contribute to emissions reductions. This approach can be argued to improve the VCM’s overall integrity, and is aligned in this regard with the meta-standards VCMI and the ICVCM, who are also trying to improve the integrity of the market with their respective principals and guidelines.
On the other hand, this slams the door on the majority of the VCM. Carbon credits fall into two primary categories: avoidance projects, which prevent GHG emissions altogether, and removals projects, which actively extract GHG from the atmosphere. While companies like Amazon, JPMorgan, and Microsoft have recently committed to buying removal credits worth hundreds of millions of dollars, the VCM composition as of last year consisted of 93% avoidance credits and 7% removal credits – a tiny share of the overall pie.
Importantly, removal credits can be as much as 100 times more expensive than avoidance credits which is a massive barrier for companies that do not have the same budgets as rich corporations. And although removal credit purchases surged by 437% in the first half of 2023 compared to all of 2022, out of the total 4.7 million contracted credits, only 2.4% have been delivered. Consequently, by adhering to SBTi’s standards, most of the VCM becomes inaccessible to companies, raising significant concerns for the future of the VCM.
In September, SBTi announced that it is splitting into two distinct units, one dedicated to standard setting and the other to target validation. SBTi also recently initiated a “Call for Evidence” to evaluate the effectiveness of Environmental Attribute Certificates in supporting corporate climate targets. The goal is to assess whether various instruments (like carbon credits) can credibly drive decarbonization and aid in corporate emission reduction claims.
This call aims to understand how companies achieve their climate targets and what parameters should be considered for transparent reporting of target progress. VCM market actors have the opportunity to voice their opinions regarding SBTi standards; for example, the exclusion of using avoidance credits in achieving the final 10% of emissions. SBTi states the findings could potentially contribute to their standards and governance considerations.
Stakeholders are invited to submit evidence for review between September 21 and November 24, 2023. More information can be found here.
We are curious – has your organization committed to an SBTi pathway to decarbonization? And does it use carbon credits to reduce residual emissions?
We would love to hear from you!
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