The role of carbon markets in a credible approach towards net zero

Establishing firm foundations for net zero

The Science-Based Targets initiative (SBTi) gives organisations 24 months to establish and validate their targets. However, this year it has revoked over 200 – including high-profile corporations – due to expired commitments.

Predominately, these have been long-term or net zero targets. Whilst many still have near-term targets, this indicates the concern and uncertainty from businesses around the net zero agenda. The SBTi’s ‘Catalysing value chain decarbonisation’ report further underscores this, identifying scope 3 uncertainty as the main barrier to long-term targets.

Under current SBTi rules, organisations must achieve absolute reductions of 90 per cent to legitimately claim ‘net zero’ status (across all scopes). Notably, the use of carbon credits is not permitted to achieve these emission reductions.

With this now broadly accepted, the media has been rife with greenwashing accusations in recent months against organisations that claim to be ‘net zero’ or ‘carbon neutral’ through other means.

The approval of the EU Green Claims Directive adds weight to this standpoint, effectively banning claims on products and services that rely purely on carbon credits.

Is the SBTi rethinking its stance on carbon credits?

However, in an unexpected U-turn, the SBTi has announced plans to allow the “use of environmental attribute certificates, including but not limited to voluntary carbon markets, for abatement purposes limited to scope 3”.

In a further statement, the SBTi announced that it will “continue to secure that any potential use of market instruments will include guardrails, rules and thresholds that will ensure the global emissions decline, in the near and long term”.

While additional details won’t be released until July 2024 – and will need approval from the SBTi technical council before release – the proposal is already sparking controversy.

There are fears it is not ‘science based’ and could revert industry to business-as-usual, because it reduces the incentive to alter business models and cut absolute emissions.

Yet, as the latest IPCC report highlights, we are dangerously close to surpassing 1.5°C of global warming – and if we are to limit further warming, we need to reduce emissions fast.

What role does the voluntary carbon market play?

The voluntary carbon market provides private sector finance to climate projects around the world, contributing a global transition. Often, these initiatives deliver additional benefits, such as supporting communities and natural environments that are most vulnerable to climate change.

As our knowledge evolves, we are realising that to effectively address climate change, we need to adopt a multifaceted approach. And it’s not just carbon emissions that we need to tackle. Our water courses, biodiversity and natural environment are also in crisis.

Understanding and acknowledging the interconnectedness of our planetary boundaries could be the key to success – and the carbon market could be a lever.

So, what should organisations do now?

Remember, there are no changes yet. So, for now, keep going and don’t let the interference and uncertainty hinder your action!

Understand your impact.

If you haven’t already, take proactive steps to review your organisational GHG inventory. Consider aspects such as magnitude of emissions, levels of influence and risk, cost to the business and stakeholder interest.

Develop a credible climate transition plan.

Building from your foundations, consider where you can have the biggest impact and prioritise next steps.

Be flexible.

Your initial climate transition plan does not have to be perfect. Be willing to adjust your course as needed.