EDITORIAL: SBTi gives the VCM a boost with decision on carbon credit use for Scope 3 GHG emissions

Quantum Commodity Intelligence – The debate over what to do about companies' Scope 3 greenhouse gas emissions has continued in recent weeks, culminating with the Science-Based Targets initiative's (SBTi's) statement this week on the use of carbon credits. SBTi, after a six-month consultation, said that it has decided to extend beyond the current limits the use of environmental attribute certificates such as carbon credits for abatement on scope 3 greenhouse gas (GHG) emissions.

"While recognising that there is an ongoing healthy debate on the subject matter, SBTi recognizes that, when properly supported by policies, standards and procedures based on scientific evidence, the use of environmental attribute certificates for abatement purposes on Scope 3 emissions could function as an additional tool to tackle climate change", SBTi said.

"This will entail the definition by SBTi of specific guardrails and thresholds as well as the rules to be applied for these certificates to be considered valid for Scope 3 emissions abatement purposes respecting the principles of mitigation hierarchy", it said. "SBTi considers this step a way to accelerate the decarbonisation of value chains with compensation logic while companies make their way to eliminate carbon emissions at the root through innovation and technology improvements", it added.

The latter statement is surely a 'no brainer', although not everyone thinks it is. In March, several NGOs argued in an open letter that corporates should not use carbon credits as a mitigation tool for value chain emissions. The letter – signed by Carbon Market Watch, NewClimate Institute, Greenpeace, The European Consumer Organisation, Changing Markets Foundation and Oxford Net Zero – is directed at Voluntary Carbon Markets Integrity Initiative (VCMI), the SBTi and the GHG Protocol for their work in dealing with corporate climate claims.

"We are greatly concerned by the growing narrative and attempt by VCMI and others to legitimise the use of carbon credits to 'address' scope 3 emissions, or otherwise give the impression that buying carbon credits is equivalent, or even relevant, to meeting a scope 3 reduction target," the letter said.

Common sense

VCMI's 'Scope 3 Flexibility' claim – launched in November last year – allows a company to make limited use of 'high-quality' carbon credits to close the gap between its estimated scope 3 GHG emissions reduction target level and its current scope 3 emissions in a given year, as long as it has already taken other steps to reduce its current GHG emissions.

The guidance includes "guard rails" to ensure that these claims represent high-integrity actions and do not replace, but rather supplement, what companies are doing to meet their near-term targets. But "this approach is counterproductive, and is largely backed by actors with direct financial interests in allowing this flexibility", the NGOs said.

However, with SBTi's move, it seems common sense has prevailed. As we know, Scope 3 accounts for the emissions a company is indirectly responsible for because they are linked to its full value chain, rather than the emissions produced by its direct operations. Therefore, their scope, for want of better word, can be different from company to company and even as an outsider looking in I can see the inherent difficulties for companies having to determine these emissions, let alone cut them.

SBTi itself noted in a separate report last month that the difficulty in factoring in Scope 3 emissions for companies is the major factor in many of the latter not setting net zero targets. "Relatively few companies are ready to adopt long-term deep decarbonization targets for their value chain (scope 3), which could be due to too many unknowns in the future and/or doubts about their ability to meet their targets", SBTi said.

There is also the economic aspect to this. In order to exist, companies need to turn a profit to keep existing and/or satisfy shareholders – that is a fact of the global economic system. The cost of decarbonisation and the lack of emissions reductions technologies available at the necessary scale, together with engaging the supply chain in emission reduction efforts, were cited in a VCMI survey earlier this year as the main challenges facing companies.

The SBTi is likely to boost demand for credits in the voluntary carbon market, another piece of good news for the VCM in 2024.