Today, the Science Based Targets Initiative (SBTi) released several long-promised reports. The reports cover: (1) the results of an assessment of peer-reviewed literature; (2) a synthesis of the evidence they received from third parties; and (3) their latest thinking on scope 3 target setting. Unfortunately, these reports let the perfect become the enemy of the good to the detriment of the climate. They exhibit a decision-making pace that is too slow and demand a level of scientific certainty that is too strict for the exigency of the current climate circumstances. Additionally, they fail to address the hardest questions and tradeoffs that are critically important to the companies that are their target-setters.

Nonetheless, they do leave us with a glimmer of hope as they set out at least one scenario in which companies can reasonably use high-integrity carbon credits as a complement to their scope 3 decarbonization efforts. Unfortunately, we are unlikely to know more about what SBTi permits even in this regard until late 2025. In the near-term, companies are left with continued uncertainty and confusion.

Background

The SBTi Corporate Net Zero Standard was first introduced in October 2021. It allows individual corporate actors to set emissions targets that are aligned with the global goal of limiting global warming to 1.5℃. The initial Standard does not permit companies to use avoided emissions carbon credits in service of their emissions targets, and companies may utilize "permanent carbon removal and storage" to counterbalance only the final 10% of their emissions that cannot be reduced. Permanence is not currently defined. At the same time, SBTi does encourage companies to engage in Beyond Value Chain Mitigation (BVCM) like that achieved by carbon credits. It simply does not give those companies any credit toward their emissions targets.

There has been significant drama inside of SBTi this year about potential changes to the current stance on carbon credits. A statement by their board of directors in April expressing new openness to the usage of credits was then walked back in the face of apparent staff opposition. Following that internal turmoil, SBTi promised updated guidance by the end of July, resulting in the three reports issued today.

What SBTi Released Today

The first report issued by SBTi was an independent analysis of peer-reviewed scientific literature on the effectiveness of corporate use of carbon credits. At CNaught, we were very excited about this report because it held the promise of neutrality and scientific rigor. Unfortunately, the report focused solely on the impact of purchasing carbon credits in lieu of direct emission abatement. Even worse, the report came in at a mere two pages, stating that there are not enough peer-reviewed papers on this topic to analyze. Rather than analyzing the research that exists (and acknowledging its limitations), there was no review at all.

The second report issued by SBTi represents their synthesis of third-party submissions in the fall of 2023 in response to a call for evidence. The report sets out three key themes: (1) At least some carbon credit types are ineffective in delivering mitigation outcomes, and there are no systematic indicators that consistently identify effective versus ineffective carbon credit types. (2) There could be risks to allowing companies to use carbon credits for the purpose of mitigating or offsetting a portion of their emissions; and (3) There is significant uncertainty and confusion about the variety of claims that carbon credit purchasers can make–including about whether such purchases offset emissions one-to-one.

The third report issued by SBTi is a discussion paper on scope 3 target setting and evolving best practices. Of particular interest to those focused on carbon credits, this paper suggests a potential scenario in which up to one third of corporate Scope 3 emissions could be addressed through carbon credits, with that proportion reducing each year as abatement and permanent carbon removal increase. 

Our Thoughts

We agree with some of SBTi's points, but those points are also largely uncontested in the broader sustainability community. Unfortunately, SBTi fails to take on the pressing questions that we need to answer and further fails to provide the actionable guidance that we need to create effective climate mitigation strategies. We are operating in a quickly-warming world where (1) corporate action is urgent, (2) in-value-chain mitigation measures simply do not exist for significant sectors of the economy, and (3) there is a dire need to finance activities that avoid emissions all over the world and particularly in the global south.  Rather than setting up guideposts for how to use carbon credits effectively in circumstances where they may be the only viable option, SBTi punts their guidance into the future and fails to account for the incentives of the corporate actors whose action they are trying to spur.

Slow and uncertain: The guidance SBTi has provided thus far on carbon credits is unclear and unactionable. And their pace of improving that guidance is far too slow for the climate crisis that is upon us and the community that relies on them.  If we want to reach Net Zero goals by 2030 or even 2050, we cannot wait until 2025 to have clear guidance on critical tools like carbon credits.  Although we recognize the benefits of relying on peer-reviewed papers, waiting for peer-reviewed science that does not yet exist is impractical and harmful in this circumstance. This is not a critique of the science: peer review and deep rigor are time consuming. It is a recognition that we do not have that time to burn: 2024 is on pace to be the warmest year on record, and many companies have unanswered questions about how they can hit their fast-approaching 2030 climate goals.

Avoiding the hardest question: SBTi appears primarily focused on the strawman question of whether companies should be able to use carbon credits instead of reducing their own emissions. But this is not a question that needs answering as there is already broad agreement that companies should not use carbon credits instead of achievable reductions. The harder question is what companies should do when there exists no feasible means for in-value chain reductions. This applies to a broad swath of the economy today like transportation, the built environment, heavy industrial, and business travel. When put up against the choice of achievable reductions, carbon credits do not look like an appropriate option. When they are the only feasible option, however, carbon credits look very different.

Failure to incentivize action: SBTi’s apparent approach on carbon credits ignores the incentives that are driving corporate action. Companies set targets–and hit them–both because doing so is the right thing to do and because companies seek to receive recognition that they have reached net zero from their customers, investors, employees, and other constituents. While SBTi recognizes the value of BVCM and encourages companies to undertake it, it does not give participating companies any credit toward their net zero targets for doing so. More importantly, SBTi has no current answer for what companies operating in industries that have no foreseeable path to full emissions reduction should do. Companies are not going to be willing to endorse targets they cannot hit. As a result, many companies will never set targets at all–or eventually drop their targets, as Air New Zealand did yesterday.

A glimmer of hope: There is, however, some reason for hope buried deep inside SBTi’s third report, which lists potential changes it is considering for scope 3 target setting. In that report, SBTi sets out a scenario in which companies could use carbon credits to mitigate a portion of their scope 3 emissions, with that proportion reducing each year as abatement and permanent carbon removal increase. Even this proposal is imperfect and too limited: for instance, it does not address how high-emitting industries with no clear path to full abatement should use carbon credits. But it would be a reasonable starting place that recognizes how carbon credits can complement in-value-chain decarbonization. What remains to be seen is whether SBTi will implement this practical and actionable proposal in 2025 or if they will again kick the can down the road to the detriment of the climate.

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Our deep disappointment with SBTi’s work on carbon credits to date is not because we believe carbon credits are perfect. Instead, we believe that SBTi is prioritizing the pursuit of the perfect over recommending actionable ways that companies can appropriately use carbon credits–currently one of the best and only decarbonization options available for broad swaths of the economy. We hope that SBTi engages in this deeper discussion over the upcoming year.

In the meantime, if you want to discuss any of the above implications with our team, reach out to us here.