Is the Science-Based Targets initiative (SBTi) allowing offsets? What you need to know

Post Date
24 April 2024
Author
Emma Elbaum
Author
James Balik-Meacher
Author
Chloe Parkin
Author
Caroline Dolan
Author
Joanie Baczewski
Author
Joesph Payne
Read Time
7 minutes
  • Carbon & energy management
  • ESG advisory
  • Energy advisory

In a brief statement[1] on 9 April, the Board of Trustees for the Science-Based Targets initiative (the SBTi) announced that they are considering allowing reductions for Scope 3 emissions via “environmental attribute certificates” that, if finalised, it would represent a significant shift from previous standards. The magnitude (and mechanism) of the announcement sent much of the corporate sustainability world into turmoil; three days later, the SBTi issued a clarification on the original statement noting that no change has been made to current standards and that draft updates are expected to be released in July 2024.

A brief intro to environmental attribute certificates, offsets, carbon credits, beyond value chain mitigation, neutralized and avoided emissions


Environmental attribute certificates (EACs):
“instruments used to quantify, verify and track the environmental benefits associated with climate mitigation activities or projects,” as defined by the SBTi

  • EACs are usually tied to an activity that generates the benefit and reported in those units (e.g., MWh of renewable energy).
  • The most common form of EAC is renewable energy certificates (RECs).
  • There are also already established markets for sustainable aviation fuel, biodiesel and even biodiversity and plastic reduction credits.


Offsets/Carbon Credits:
a broad category of activities that have a measured Greenhouse Gas (GHG) mitigation benefit

  • Offsets are tied to the GHG reduction and are reported in terms of carbon dioxide equivalent; they must be reported separately from a company’s emissions inventory.
  • Various standards exist for validation of offsets, however they remain both inconsistent and controversial. There are ongoing projects from market enablers such as the Voluntary Carbon Markets Integrity Initiative (VCMI) and the Integrity Council for the Voluntary Carbon Market (ICVCM) to address these critiques.
  • EACs can be a type of offset.


Beyond Value Chain Mitigation (BVCM):
activities or investments that avoid, reduce, or remove (neutralize) GHG emissions outside the boundaries of an organization’s operations and value chain

  • BVCM does not count towards companies’ Scope 1, 2, or 3 emissions reduction targets as they are outside the boundaries of the GHG inventory, but it can drive additional mitigation in the wider economy.
  • SBTi has recently published guidance[2] on the use of BVCM

FAQ: What does all this mean for companies?

With the changing news and conflicting information, companies at various stages in their climate journey have been asking us questions.

Q: I already have an SBTi-validated target – what does this announcement mean?

Nothing yet. If you have a validated target, you likely already have an emissions reduction plan that does not rely on offsets or EACs. Should the SBTi finalise guidance related to the use of EACs in reducing Scope 3 emissions, you may have another tool to use to meet your targets. Companies with long-term net-zero goals should already be assessing the use of BVCM measures and may want to wait for the new guidelines before finalising any plans.

Q: I want to set an emissions reduction target – what does this announcement mean?

Setting an emissions reduction target is a big, and crucial, step for companies. In general, targets should be aligned with your broader strategic/sustainability goals, as well as the scientific basis of the Paris Agreement. The SBTi provides both tools and credibility to enable companies to set targets and this announcement doesn’t change that. Companies can continue to use the SBTi’s tools to develop targets and communicate that to stakeholders. Should making a formal commitment to a science-based target align with your broader goals, the process will remain the same until such a time that the SBTi has finalised new guidance, including any transition periods. Additionally, the SBTi’s guidance for setting Scope 1 & 2 targets has not changed, and it is unlikely to do so as a result of this announcement. If you do not currently have an emissions reduction target, this is a good place to start particularly since you are likely to have more control over these emissions sources.

Q: Should I just start buying offsets?

Probably not – none of the SBTi’s guidance has changed yet, and the emissions mitigation hierarchy[3] prioritises absolute reductions before offsets. The decision to buy offsets/EACs, as with anything, should be made in alignment with the overall strategy and goals of the organization. Emissions reductions targets are part of broader climate and sustainability strategies, the goals of which may be to reduce operational costs, reduce exposure to energy price volatility, increase goodwill or social license to operate. If offsets can contribute to those goals, it may make sense to purchase them however, it should not be expected that offsets on their own will meet potential SBTi standards (and they may bring their own set of risks).

Q: Why would EACs only apply to Scope 3?

In the SBTi Board’s statement, they indicated that the use of EACs would be limited to abatement of Scope 3 emissions. According to the SBTi’s current criteria[4], Scope 3 reductions are required for most companies, and those reductions must occur within a company’s operations and value chains without relying on offsets. This has led to some criticism since, by definition, Scope 3 emissions are outside the boundary of a company’s direct control and therefore more difficult to reduce. The SBTi currently addresses this by allowing targets aligned with well below 2°C pathway (compared to a 1.5°C pathway for Scopes 1 & 2), as well as multiple target-setting approaches[5]. By potentially allowing the use of EACs in meeting Scope 3 targets, companies may have another tool to address this critical category of emissions.

Q: If I have limited control over my Scope 3 emissions, why am I responsible for reducing those emissions?

Including Scope 3 emissions ensures companies cannot simply outsource emissions to their suppliers and avoid making genuine reductions, or avoid responsibility for downstream emissions from the products they sell (remember, everyone’s indirect Scope 3 emissions are someone else’s direct Scope 1 emissions). In addition, Scope 3 targets help drive ambition and emissions reductions from companies in the value chain that may otherwise avoid regulatory or investor pressures but still contribute significantly to global GHG emissions. Regardless of any changes to the SBTi’s approach to EACs, companies should prioritise actual emissions reductions within their operations and support their value chain to do the same.

Q: When will this be resolved?

According to the most recent statement from the SBTi, we are expecting a first draft discussion paper with proposed changes in July 2024. This is aligned with their Standard Operating Procedures and will lead in to the “Drafting” phase, which is then followed by a public consultation. Given the seriousness of this change and the pace of other recent standard developments (such as the process in developing BVCM guidance[6]), it could be over a year before any guidance related to the use of EACs is finalised. All other SBTi standards and guidance related to emissions reductions remain in place and companies should continue to prioritise emissions reductions, particularly as we near the 2030 milestone of halving global emissions[7].

Q: This is complicated, and I don’t have the time or resources to sort it out!

Our team of global experts can help you make sense of the rapidly changing landscape. We regularly help companies develop climate strategies, submit targets for SBTi validation, create detailed decarbonisation plans, and guide our clients through the many nuances associated with climate change mitigation.

Please reach out to our global experts to discuss further and for more information

Asia-Pacific:

Emma Elbaum and James Balík-Meacher

UK and Europe:

Chloe Parkin and Caroline Dolan

North America:

Joanie Baczewski

Latin America:

Joesph Payne

Footnotes

[1] Statement from the SBTi Board of Trustees

[2] An SBTi Report on The Design and Implementation of BVCM

[3] IEMA Greenhouse Gas Management Hierarchy

[4] SBTi Corporate Near-Term Criteria

[5] Getting Started Guide for Science-Based Target Setting

[6] SBTi Beyond Value Chain Mitigation Guidance

[7] The Intergovernmental Panel on Climate Change Global Warming of 1.5 ºC Special Report

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