ANALYSIS: Getting to grips with SBTi's latest draft Corporate Net-Zero Standard proposals

Quantum Commodity Intelligence - The Science Based Targets initiative (SBTi) opened a consultation on the initial draft of its much-anticipated updated Corporate Net-Zero Standard (CNZS) last month, which includes consideration of interim CO2 removals (CDR) targets.

SBTi, the main arbiter of corporate climate targets, said the draft CNZS remains focussed on emissions reduction, but explores ways to incentivise the scaling of CDR and climate finance, as well as looking at how to deal with barriers to addressing "challenging" Scope 3 value-chain emissions. 

However, the new CZNS draft has had a mixed response from carbon market participants, with one broker noting that the document "seems to have divided opinion, for sure".

The draft examines three options for the interim CDR targets to address residual greenhouse gas emissions — emissions that are difficult to avoid or fully eliminate due to technological, financial, or other limitations.

One is a requirement for companies to set removal targets, including interim milestones, to address residual emissions. The second is optional recognition for companies that set removal targets, including interim milestones, to address residual emissions. The third refers to flexibility to address expected residual emissions either entirely through emissions reductions, entirely through removals or through a combination of both.

The three options on removals are restricted to Scope 1 direct emissions, because no residual emissions should result from Scope 2 (indirect from energy use), SBTi said. For Scope 3 value chain emissions the non-use is "in recognition of the uncertainties involved in projecting long-term residual emissions for Scope 3, given the dynamic nature of value chains and the challenges in estimating residual emissions for value chain counterparties", it said.

The proposed update "should drive near-term demand for CDR credits", said Lukas May, chief commercial officer of UK-based CDR standard Isometric. If the current draft is adopted, SBTi members will need to retire removal credits worth around 0.5% of their Scope 1 emissions by 2030, said May. 

CDR Demand

"Back-of-envelope calculations suggest an order of magnitude of 2 million tonnes of carbon removal needed by SBTi members in 2030," he said in a post on Isometric's website.

"It's not a game changing amount. But it's not nothing. It's roughly equivalent to having another Frontier or two enter the market," he said in reference to the $1 billion tech giant-backed Frontier CDR buyer's coalition. A "big chunk of that order book will need to be contracted within the next 24 months if deliveries are going to land on time", he added.

Elizabeth Lokey Aldrich, vice president of business development and head of voluntary carbon market sales at US-based developer Anew, noted some of the changes between the latest draft and an earlier version.

"Previously in V1 of the standard, removals could be used for 10% of Scope 3 and 5% of Scope 1 and 2 emissions; now removals can only be used for up to 10% of baseline Scope 1 emissions," she said in a social media post.

"Companies with large on-site direct emissions that comprise Scope 1 emissions aren't signing up in droves to SBTi given how hard it will be to comply. Also, Scope 1 emissions tend to be much less than Scope 3 emissions as McKinsey estimates that Scope 3 emissions are ~90% of companies' emissions," she said.

She also noted that SBTi is asking whether the removals procured should be "like-for-like (permanent direct air capture or bioenergy carbon capture and sequestration for fossil fuel emissions and forestry for land use change) or whether corporates could transition over time from less durable to more durable".

"The 'gradual transition approach' would allow nature-based removals to fill the immediate need for removals as these are available at scale and at a fraction of the cost (~$25-60/metric ton) of more expensive ($100-$1,000/metric ton) tech-based removals," Lokey Aldrich said.

Beyond Value Chain Mitigation

The draft's consideration of "formally recognising" companies that invest in 'Beyond Value Chain Mitigation' (BVCM) is also a sign of "progress," the broker said.

The SBTi said its proposals on BVCM "aims to provide a stronger incentive by recognising companies that not only set science-based targets to reduce emissions within their operations and value chain but take responsibility for addressing the impact of emissions released into the atmosphere as they undergo their net-zero transformation".

Anew's Lokey Aldrich said SBTi still will not allow for BVCM measures to count as 'abatement' or 'compensation' in the new draft. "However, it does entertain the idea of providing recognition for companies that do purchase offsets (aka invest in BVCM) in addition to meeting their SBTi goals," she said.

This type of "reward" is similar to what the Voluntary Carbon Market Integrity Initiative  is trying to implement "by providing a type of 'gold star' for those companies that went beyond SBTi to purchase offsets in varying amounts", she added.

"While greater recognition would be good, the devil is again in the details and will likely depend on what claims such a company can actually make by purchasing offsets. SBTI's BVCM hasn't gained much steam, and in the past, any activity not directly linked to SBTi compliance has not found its way into corporate budgets," Lokey Aldrich said.

Others in the market view the SBTi's focus on Scope 1 emissions as a missed opportunity. "We hope this is a stepping stone to a more rational stance towards using high-quality carbon credits to address residual Scope 2 and 3 emissions," said Tommy Ricketts, CEO and co-founder of UK carbon ratings agency BeZero Carbon. Scope 2 and 3 make up the majority of SBTi-aligned emissions and equate to billions of tonnes of CO2e, he said.

"We were disappointed to see both broadly ignored in this consultation, especially given the challenging global macro environment and the desperate need for private sources of climate finance, which carbon markets offer a ready-made mechanism to address," said Ricketts.

The 133-page document makes only four references to carbon credits. "Companies shall not count actions resulting in mitigation outcomes outside of the company's value chain toward progress and achievement of abatement targets unless otherwise stipulated," it said.

"This includes, but is not limited to, carbon credits, emissions avoided through sold products and the purchase of unbundled environmental attribute certificates originating from activities outside the company's value chain," it added.

Opposition from expert groups in the SBTi to a proposal by the Board of Trustees to widen eligibility to avoidance credits is thought to have prompted its previous CEO to resign last year.

Manvendra Yadav, CEO of carbon marketplace Hestiya, called the SBTi's continued stance on carbon credits a "bold move", in a social media post. "Despite mounting pressure, the Science Based Targets initiative refused to loosen its rules on carbon credits. This decision sends a clear message to companies worldwide about the future of corporate climate action," he said.

"What's particularly interesting is SBTi's new approach to Scope 3 emissions, giving companies fresh options to address their supply chain carbon footprint through targeted procurement strategies," he noted.

Scope 3

On Scope 3 emissions, SBTi said it aims to offer "increased flexibility" by offering "options to set targets for green procurement and revenue generation", rather than setting a reduction goal.

"In focusing on direct suppliers and/or those in emissions-intensive sectors to align with net-zero, this proposal intends to focus action in the most emission-intensive activities and those where companies have the highest influence," SBTi added.

"This creates genuine pathways for smaller businesses and companies from emerging markets to set science-based targets without compromising their growth," said Hestiya's Yadav.

Anew's Lokey Aldrich agreed requirements on Scope 3 offer more flexibility with a "focus on the most emission intensive industries and relevant sources of emissions, as well as choice of absolute emissions, emissions intensity, or alignment methods".

In addition, for Scope 3 there are "provisions for use of insets or even carbon credits that are within a value chain or supply shed (direct mitigation), as well as investments in interventions that are 'relevant' to the value chain, even if somewhat outside of a supply shed (e.g. book and claim used for sustainable aviation fuel and renewable natural gas)", she said.

"It remains to be seen what specific credits or activities will qualify, which quantification and verification methodologies will be used, and how closely tied to a corporate's value chain these need to be," she added.