The Scope 3 challenge and SBTi

Lorem ipsum dolor sit amet consectetur adipiscing elit dolor

The Scope 3 challenge and SBTi Picture
Photo: Science Based Targets initiative

The Science Based Targets initiative (SBTi) has released four technical outputs as part of the initial phase of revising the SBTi Corporate Net-Zero Standard. This revision aims to align with the latest scientific advancements and address challenges in scope 3 target setting, which constitutes 75% of the average company’s carbon footprint. This move comes after the SBTi announced the timeline and published the Terms of Reference for the review in May 2024.

Outputs released:

  1. Scope 3 Discussion Paper: This paper outlines the SBTi’s preliminary thoughts on potential changes in scope 3 target setting, including underlying principles and concepts. It is informative and does not propose draft requirements or criteria.

  2. Evidence on Environmental Attribute Certificates: This output includes all evidence submitted during the open call for evidence from September to November 2023 on the effectiveness of Environmental Attribute Certificates (EACs), presented without SBTi’s assessment.

  3. Synthesis Report on EACs Effectiveness Part:1: This report presents SBTi’s synthesis of evidence on the effectiveness of carbon credits in corporate climate targets, the first of three planned reports.

  4. Findings from Independent Systematic Review on Carbon Credits: This statement summarizes an independent third-party assessment of peer-reviewed literature on the effectiveness of carbon credits as a substitute for direct abatement.

The findings from these publications are mixed, indicating that further work is needed to draw conclusive insights.

Next steps:

A draft Corporate Net-Zero Standard will be released for public consultation towards the end of Q4 2024. The SBTi encourages contributions from civil society, businesses, and governments, with a summary of feedback to be published while adhering to data privacy and protection regulations.

The discussion paper provides an overview of current practices and challenges in scope 3 target setting among companies with SBTi-validated targets. It acknowledges the limitations in greenhouse gas (GHG) emissions accounting and scope 3 emissions reduction targets, and introduces concepts that might form a basis for a more effective approach to managing GHG emissions in the value chain. The paper aims to stimulate engagement and collective development of a robust ecosystem for science-based decarbonization in corporate value chains.

Use cases of EACs and SBTi’s stance

The scope 3 discussion paper explores scenarios on how EACs, including carbon credits, may be used in science-based target-setting contexts. Three scenarios related to carbon credits are outlined, emphasizing direct decarbonization of the value chain and not using credits as a substitute for emissions reduction within value chains. The scenarios illustrate how credits might be used to demonstrate decarbonization within the value chain or permanently store carbon to counterbalance residual emissions. The scenarios also consider companies taking expanded responsibility for emissions beyond target boundaries, potentially incentivizing additional climate action finance without diverting resources from value chain emissions reduction.

Abatement of Scope 3 through a three-fold strategy: To address scope 3 emissions, SBTi proposes a three-fold strategy:

  • Value chain emissions reduction [blue]: Directly reducing emissions within the value chain remains a priority. This includes engaging suppliers, reducing absolute emissions, and using sectoral decarbonization approaches.
  • Beyond Value Chain Mitigation [red]: Companies are encouraged to finance mitigation activities outside their value chains to contribute to broader societal climate goals.
  • Neutralization of residual emissions [orange]: Companies must neutralize residual emissions through permanent carbon removal and storage activities, aligning with current Corporate Net Zero Standard requirements.
SBTi Figure6
Figure 1: Adapted from SBTi Scope 3 Discussion Paper

SBTi’s proposal on Scope 3 emissions target boundary setting

SBTi’s new proposal outlines an expanded responsibility for companies to address emissions not covered under current target boundaries. The proposal aims to incentivize companies to go beyond the minimum requirements for value chain decarbonization by covering emissions through additional climate action financing. This expanded responsibility ensures that companies contribute to global climate goals beyond their immediate value chains.

Summary of evidence synthesis report on carbon credits: The synthesis report on the effectiveness of carbon credits in corporate climate targets is based on three main themes:

  • Mitigation outcomes and conditions for effectiveness: The report reviews evidence on the attributes that impact the effectiveness of carbon credits, such as additionality, permanence, accurate estimation of emissions, and leakage. While some evidence suggests ineffectiveness under certain methodologies, other submissions highlight successful mitigation outcomes and emphasize the need for improved methodologies.

     

  • Corporate use cases and Implications for net zero transformation: The report examines different ways companies can use carbon credits and the implications for net-zero transformation and climate finance. While some evidence supports the potential of carbon credits to accelerate net-zero transformation, others highlight significant risks associated with using credits as offsets, emphasizing the need for better practices like BVCM

     

  • Claims: This theme evaluates the types of claims companies can make when using carbon credits. The majority of evidence challenges the legitimacy of offsetting claims, supporting contribution claims as a more credible alternative. The report underscores the need for further research to improve the scientific understanding and standardization of terms and claims related to carbon credits.

Our take: Based on the latest science and evolving best practices, we propose the following framework for addressing Scope 3 emissions:

  1. Mandatory 100% coverage: Companies should be required to account for and set targets for 100% of their Scope 3 emissions, not just 67% as currently mandated by SBTi.

  2. Aggressive abatement targets: Companies should aim to directly abate at least 80-90% of their Scope 3 emissions through changes in their value chain operations, technologies, insetting and partnerships along with BVCM efforts.

  3. Residual emissions compensation: For the remaining 5-10% of emissions that are hard to abate in the short to medium term, companies should be allowed to use high-quality permanent carbon removal credits or invest in BVCM projects.

  4. Adopt internal carbon fee: This incentivizes own emission reductions and provides a clear indication of a company’s level of climate ambition.

  5. Transparency and reporting: Clear reporting on the breakdown between direct abatement and compensation through credits should be mandatory to ensure accountability.

  6. Regular review: As technologies and best practices evolve, the threshold for direct abatement should be periodically reviewed and increased.

This approach ensures that companies take significant responsibility for their entire emissions footprint while providing a mechanism to address hard-to-abate emissions in the interim.

In conclusion, while carbon credits can play a role in corporate climate strategies, their use must be carefully managed to ensure they contribute effectively to global mitigation goals. The SBTi’s ongoing work aims to refine these practices and provide clearer guidance for companies in their journey towards net-zero emissions. 

advanced divider

Read same

Become planet’s partner.

Contact us!