New Carbon Credit use Guidance: SBTi.

SBTi, a corporate climate action organization that enables companies and financial institutions worldwide to play their part in combating the climate crisis, released more guidance on their position on the use of carbon credits after giving the green light earlier this year, only to back track a few weeks later.

This week, in four lengthy documents, the SBTi set out different scenarios under which companies may use carbon credits to reach their climate targets. 

The guidelines reiterate what many in the industry have been touting – that organizations must first do everything in their power to decarbonize their emissions. Once all that can currently be done is done, then carbon credits provide an opportunity for organizations to go above and beyond to abate residual emissions.

The Evidence Synthesis Report Part 1: Carbon Credits report discusses several scenarios in which carbon credits are recommended and highlights different use cases for carbon credits in corporate strategies for achieving net-zero goals. These are the key scenarios where carbon credits are recommended:

1. Offsetting: Companies can purchase and retire carbon credits from activities outside their value chain to offset their emissions. This involves compensating for their emissions by funding equivalent emission reductions elsewhere. However, the Science Based Targets initiative (SBTi) standards do not support using carbon credits in this way for achieving near- or long-term abatement targets​.
2. Insetting: This scenario involves purchasing and retiring carbon credits for activities within a company’s value chain, also known as insetting. Companies might use this approach to channel finance to their value chain partners and ensure that the greenhouse gas (GHG) reductions or removals from these activities are not sold to third parties. The SBTi does not specifically reference insetting in its standards due to the lack of consensus on its definition and best practices. However, it suggests that companies should only include emissions reductions or removals from insetting projects if they are wholly contained within their supply chains​.
3. Beyond Value Chain Mitigation: Companies are encouraged to purchase and retire high-quality carbon credits (permanent, additional, and managed to minimize leakage) to contribute to beyond value chain mitigation, which involves efforts to reduce emissions outside their immediate value chain. This approach supports the idea of making a contribution to global climate mitigation efforts rather than using carbon credits solely for offsetting their emissions. The authors suggest that contribution claims, rather than compensatory claims, are preferable as they avoid many pitfalls associated with offsetting.

Many in the industry have criticized the SBTi for releasing carbon credit use guidance that is difficult to interpret. Many expected and hoped for clear direction and leadership from SBTi that would have provided much needed assurance in the voluntary carbon market, but the guidance instead seems to have raised more questions than answers and it’s introduced a period of uncertainty until the final document is released in 2025.

The reality is most organizations won’t be able to fully decarbonize by 2030 and potentially even 2050 by simply reducing their emissions especially when factoring in Scope 3 elements like supply chains and employee-related emissions. While the assumption seems to be that organizations will divert funds away from decarbonization towards carbon credit purchases, the reality is it’s more than just a budget issue, with technology and product innovation simply not being ready. This week Air NZ dropped their 2030 emissions target citing a lack of regulatory support and supply of sustainable aviation fuel. For many organizations it’s not about diverting budget or support away from decarbonization goals, but rather a way to bolster what they can do this year to take further action. Removing barriers will only speed up the steps taken by organizations and any stigma around the methods chosen introduces confusion and fear of taking action.

From our perspective, the argument isn’t whether carbon credits can be used in place of reducing a company’s emissions, but rather whether organizations should be responsible for simply doing what they can, or ramping up their efforts and taking actions that will propel them further and faster towards their goals. There’s real good being done out there through carbon projects and the voluntary carbon market players are calling for clear, direct guidance on the use of carbon credits with standardization.

The SBTi noted this carbon credit use guidanceis an early step in the review of the Corporate Net-Zero Standard and their guidance remains unchanged until the process is complete. SBTi welcomes and encourages contributions from civil society, business, and government, and they will publish a summary of feedback received, respecting data privacy and data protection regulations, that will be considered by SBTi to inform the development of the standard. Stakeholders are also invited to share feedback on the scope 3 discussion paper via this feedback form.

Invert Insights.

💡 The VCM is in its early stages so it’s reasonable to see some adjustments as policy is developed and industry groups are still advocating for their voice. These conversations within the carbon credit space highlight the value of finding a credible and transparent project development partner with real project level experience to make sense of the ever changing guidance and help decipher the nuances of what’s being recommended.

💡 The expectation that organizations will be able to fully decarbonize without any help from carbon credits is impractical and a risky move that could see many organizations choose to abandon or reduce their targets because it’s not feasible to reach them.

💡 It’s safe to say that no carbon project is created equal and rather than discrediting all carbon credits as a functional tool, it would be more productive for the oversight bodies to release well thought out standardization and clear guidance for organizations who want to take proactive climate action.

💡 If organizations have already done what they can it seems needlessly reckless to not encourage them to take further action to accelerate their progress with support of projects delivering meaningful and measurable climate results

💡 It’s clear given the flipping between stances and the long delay before a formal recommendation is made that SBTi itself hasn’t even figured it out yet and the more technical and complicating SBTi makes it, the more companies are likely to shy away from making claims in the first place.