Carbon Ratings
Policy

The role of voluntary carbon credits in science-based targets

by
Polly Thompson
January 31, 2022
The role of voluntary carbon credits in science-based targets
The role of voluntary carbon credits in science-based targets
When making credible corporate net-zero plans and claims, science-based targets (SBTs), specifically, the Corporate Net-Zero Standard by the Science Based Targets Initiative (SBTi), has become the definitive guide. But what role should voluntary carbon credits play in these targets? We argue, they’re essential, but only if they’re high-quality.

Science-based targets (SBTs) for emissions reductions, such as those developed through the Science Based Targets Initiative (SBTi), have become a critical tool in the fight to avert the climate crisis. They enable organizations to make transparent, credible, evidence-based decarbonization commitments, and then showcase their progress. In the space of a few years, they have moved to the heart of corporate decision-making, as well as the emerging global policy architecture. And rightly so.

SBTi has been especially successful in emphasizing the central importance of companies reducing the emissions of their own operations, and by extension those of their suppliers, customers and product end-users. However, much of the debate about the SBTi’s standards — such as their recent Net-Zero Standard —  has gone slightly awry in one important area: carbon credits

For SBTs to maximize our chances of avoiding the worst of the climate crisis they must include an important and immediate role for high-quality carbon credits — as a complement to, not a substitute for, in-house emissions reductions. 

This article:

  1. sets out what the SBTi is
  2. explains the SBTi’s Corporate Net-Zero Standard
  3. suggests what’s missing from the Standard
  4. advances carbon credit quality as a central requirement for responsible corporate action

What are SBTs, the SBTi and the SBTi Corporate Net-Zero Standard?

What are science-based targets (SBTs)?

Science-based targets are emissions reduction targets designed to align with the latest climate science from the Intergovernmental Panel on Climate Change (IPCC) and the goals of the Paris Agreement. These are to hold “the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels”. 

What is the SBTi?

The Science-based Targets Initiative (SBTi) is a partnership between the CDP (formerly the Carbon Disclosure Project), the United Nations Global Compact, World Resources Institute (WRI) and the World Wide Fund for Nature (WWF). Its goal is to assist corporations with setting science-based targets by providing a rigorous, science-based framework within which to set targets and then report against them. To date over 1000 of the world’s largest companies have set SBTs through the SBTi, with more doing so every month.

What is the SBTi Corporate Net-Zero Standard?

The SBTi’s Corporate Net-Zero Standard was launched in October 2021, and for the first time outlines how companies can set out a pathway to reaching scientifically verifiable net-zero targets. Some elements of the new Standard will be defined in more detail this year. 

How does the SBTi Corporate Net-Zero Standard work

In order to be defined as “net-zero” companies are required to eliminate, by no later than 2050, at least 90% of the emissions associated with the production, distribution and use of their products and services. Any remaining residual emissions must be neutralized through the purchase of permanent emissions removals.

Figure 1, from the SBTi’s Net-Zero Standard, sets out the four elements of this corporate transition to net-zero emissions. We’ll discuss each of these elements below.


Figure 1

  1. Near-term abatement of emissions within the value chain: This refers to interim targets of 5-10 years to decarbonize all activities associated with the production, distribution and use of the company’s products and services. These must be aligned with global 1.5°C pathways.
  2. 1.5°C-aligned net-zero target: This refers to the final net-zero target which for most companies means a 90% reduction in all emissions by 2050 at the latest.
  3. Abatement of emissions beyond the value chain: This refers to companies paying for additional emissions reductions beyond what they are achieving within their own operations and value chains. In short, this refers to buying and canceling carbon credits. The SBTi has termed this beyond value chain mitigation (BVCM).
  4. Removals: Once they have achieved their final emissions reduction target, companies “neutralize” any remaining emissions within their value chain through projects that permanently remove greenhouse gases from the atmosphere. The SBTi has yet to define this in detail.

What does Figure 1 imply about the role of carbon credits in the SBTi Corporate Net-Zero Standard?

In the above diagram, steps #1 and #2, relating to decarbonizing operations, and #4, relating to carbon removals once net-zero is reached, are visually emphasized with bold bar graphs and lines. 

But step #3, mitigation of emissions beyond value chain decarbonization, is clearly de-emphasized in Figure 1’s pale, faded area. Does this imply that there should be less of a role for carbon credits? We argue no.

How can Figure 1 be improved?

The concern with the SBTi’s Standard is that it has been presented in a way which suggests that BVCM is an optional afterthought, as exemplified by the pale and fading gray shadow under the line in Figure 1.

Although the language in the Standard itself makes a stronger case for BVCM, stating that companies “should” invest in BVCM, once they have invested in their own “deep emission cuts”, this lack of clarity and consistency has caused confusion. 

The global emissions curve must be bent downwards, urgently and aggressively, in this decade. Funding further emissions reductions and removals through the voluntary carbon market is not only a cost-effective way to offset emissions, it is also essential to facilitate a global pathway that will not exceed 1.5°C. 

Taken together, countries’ national emissions reductions targets, known as Nationally Determined Contributions (NDCs) under the Paris Agreement, are currently not sufficient to limit global temperature increases to 2°C, let alone 1.5°C. As a global community, we need to increase ambition and accelerate emissions reductions and removals. The private sector is well-placed to lead this. In addition, many NDCs are conditional on financial, technical and other support. The private sector can play a key role here too.

Examples of projects that could be funded through voluntary carbon markets include:

  • Reducing deforestation by paying local communities to protect their local forest — making forests more valuable to communities standing than cut down. This is known as reducing emissions from deforestation and forest degradation (REDD+).
  • Reducing the use of fossil fuels by funding renewable energy projects.
  • Removing carbon dioxide from the atmosphere either by regenerating natural ecosystems or through technological removal and geological storage.

To be absolutely clear, carbon credits are not a substitution for emissions reductions within companies or an excuse to reduce the ambition of net-zero pathways. They are an essential complement to these activities.

To visually reflect this, we edited the design of Figure 1.

Figure 2

Of course, these BVCM activities only have value if the carbon credits purchased are high-quality. This means that they achieve the emissions avoidance or removals that they claim, that the money spent on them allows impacts that would not otherwise have been achieved, and that this impact lasts.

This is an issue that we at Sylvera care deeply about. To learn more about key considerations when assessing carbon credit quality read our article here.

Conclusion

We won’t avoid the climate crisis if companies do not decarbonize their own operations, products and services. The Net-Zero Standard provided by the SBTi provides a very useful framework to guide companies in these activities, and encourages high-ambition targets aligned with science-informed pathways.

However, one aspect that lacks clarity and therefore risks falling short is BVCM, broadly referring to carbon credits. In order to ensure we do not exceed 1.5°C, the SBTi should explicitly require the inclusion of carbon credit purchase and cancellation before the final net-zero target is achieved, to compensate for emissions released during decarbonization. These credits must be high-quality, and the Net-Zero Standard should also reflect clear requirements for this.

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