The multibillion dollar question - SBTi rows back on carbon credits
The Science Based Targets initiative (SBTi) released research finding that carbon credits are largely “ineffective,” posing new challenges to the carbon credit market
The Science Based Targets initiative (SBTi) has warned that carbon credits have been found to be largely “ineffective” but left open the prospect for the limited use of such tools, in a bid to settle a public row. The findings pose new challenges to the carbon credit market.
SBTi, the world’s largest arbiter on corporate net zero standards, has revealed the much-anticipated findings of an in-depth study into the merits of carbon credits and set out its stance on target setting for Scope 3 emissions.
The publication of the carbon credit research marks an attempt to settle an ongoing debate, which was sparked by a surprise announcement by SBTi’s board of trustees in April that it would consider the use of carbon credits to offset Scope 3 emissions. This has caused a public row with staff members signing a public letter condemning the decision. The announcement was also condemned by the World Wildlife Fund, one of the founders of the SBTi, and clothing chain H&M, which warned of greenwashing risks.
Last month, SBTi CEO Luiz Amaral, who had been an advocate of the use of credits announced his departure from the group.
The voluntary carbon market surpassed $2.4bn last year and could exceed $1trn by 2050, if companies move towards a widespread adoption of credits to put their net zero strategies into action, and demand for them becomes inelastic, according to BloombergNEF. However, this scenario is crucially dependent on the industry overcoming concerns about the integrity of carbon credits, and SBTi recognition could have been a crucial factor to support this trend.
In contrast, if concerns about the integrity of carbon credits are not overcome and demand remains elastic, BloombergNEW predicts that the carbon credit market could reach some $34bn by 2050. Consequently, SBTi's endorsement or refusal to back carbon credits has the potential to morph into a multibillion dollar question for the still nascent carbon credit market.
“Inadvisable, illogical, damaging”
SBTi has now released further details from its in-depth study into the effectiveness of carbon credits for corporate net zero targets. These were published alongside a paper on Scope 3 target setting, another potential bone of contention between investors and corporations.
While the authors were careful in the wording of their conclusions, stressing that “more evidence was needed,” initial findings were damning.
The report found that emission reduction credits were largely “ineffective” in delivering climate mitigation outcomes. It also warned of “clear risks to corporate use of carbon credits for the purpose of offsetting, with the potential unintended effect of hindering the net-zero transformation and/or reducing climate finance.”
Even more damningly, it warned that most peer-reviewed literature (84%) found that “treating carbon credits as fungible with other sources, sinks, or reductions of emissions is inadvisable, illogical, or damaging to global mitigation goals.”
Yet despite these findings, SBTi did not rule out the use of carbon credits altogether, highlighting that there was still a role for commodity certificates in some hard-to-abate sectors such as low-carbon steel or cement.
A divisive issue
Industry responses to the announcement varied greatly, indicating the divisiveness of the issue. The report was welcomed by the NGO NewClimate Institute, which said that the revision of the SBTi standards, the GHG Protocol, and the development of an ISO net zero standard offered “an encouraging pathway for the evolution of corporate climate accountability in 2024.”
But the Institute also warned that “undue influence and pressure” remained a challenge for SBTi. It was also critical of the proposed use of commodity-specific certificates: “The key problems and challenges of the current standards cannot be overcome through flexibility to use carbon credits. Improved standards need to encourage companies to put a distinct focus on addressing key transitions for their sector. In contrast, offsetting allowances could offer a cover-up for the lack of progress on these key transitions,” it said.
In contrast, representatives of the carbon credit industry were scathing. Jennifer Jenkins, chief science officer at carbon credit management firm Rubicon Carbon, warned that more companies were pulling out from their voluntary commitments before the Corporate Net Zero Standard will be completed.
“If we are engaged in a process to revise the SBTi Corporate Net Zero Standard, then we should revise it to allow the flexible use of credits for firms struggling to meet their ambitious targets, especially in sectors with a shortage of decarbonisation options,” she argued, emphasising that carbon credits remained “a powerful complement” to reaching net zero targets.
