By: Meghan E. Gavin, Nicole Gotthardt, Anastasia O’Rourke, and Michael L. Oristaglio

This post is part of a blog series sharing the Carbon Containment Lab’s review of the Science Based Targets Initiative’s (SBTi’s) draft Corporate Net Zero Standard (CNZS) Version 2.0, currently under public consultation. Please see here for an executive summary of our takeaways.

SBTi has made valuable changes to its Corporate Net Zero Standard (CNZS), Version 1.2 with its draft CNZS V2.0 to incentivize some participation in carbon markets. These changes are commendable because both reductions and removals are needed to meet global climate goals. However, the CC Lab believes SBTi should enable its member-companies to purchase all types of high-quality carbon credits to account for a portion of their ongoing and residual emissions, including emission reduction targets. Doing so would send a demand signal that more accurately accounts for buyers’ needs and would spur the transformational change needed to keep global warming below 2°C

Carbon markets (both compliance and voluntary) are carbon pricing mechanisms that enable trading of greenhouse gas (GHG) emission credits to achieve climate targets. Well-designed carbon markets mobilize financing to innovative and impactful mitigation and removal solutions, helping to scale them at reduced costs and de-risk future investments. Meeting global climate goals in a timely manner will depend on successfully leveraging the potential of carbon markets. 

Three types of carbon credits are traded: reduction, avoidance, and removal. Reduction activities lower GHG emissions compared to prior practices, such as reducing reliance on fossil fuels by improving fuel efficiency. Avoidance methods prevent a carbon-emitting activity from occurring in the first place, such as preventing deforestation or capturing emissions at smokestacks or from mines. Removal activities and projects sequester carbon from the atmosphere, and these solutions can be engineered, such as direct air capture and storage, or nature-based, such as reforestation. CNZS V2.0 permits the use of all three types of carbon credits when addressing ongoing emissions, but only carbon removal credits when addressing direct (scope 1) “residual emissions.”^[1]

SBTi has taken two critical steps for incentivizing the early purchasing of carbon credits. CNZS V1.2 allowed SBTi’s member-companies to wait until their net-zero year to “neutralize”^[2] their residual emissions by purchasing carbon removal credits. Unfortunately, delayed purchasing sends a weak demand signal that’s unrepresentative of buyers’ anticipated needs. SBTi corrects for this flaw in CNZS V2.0, recognizing the need to incentivize development and deployment of carbon dioxide removal (CDR) solutions^[3] (beginning in 2030) so that high-quality credits from these nascent technologies will be affordable and readily available by 2050. CNZS V2.0 currently requires SBTi’s member-companies to set progressive, interim removal targets for their direct (scope 1) emissions and permits^[4] them to begin purchasing carbon removal credits based on a percentage of their projected direct residual emissions (Compare CNZS C17.1–3 (neutralization across all scopes) and C18.1–.2 (removal target setting)).^[5]

CNZS V1.2 also recommends member-companies exceed their science-based targets through “beyond value chain mitigation” (BVCM) but does nothing more to motivate the necessary actions to address the collective problem of global warming. SBTi takes a positive step in CNZS  V2.0 by formalizing the BVCM as a complementary voluntary tool for officially recognizing when its member-companies act as climate leaders, taking mitigation actions or making investments outside their value chain. Through the BVCM, SBTi encourages its member-companies to use high-quality carbon credits—reduction, avoidance, or removal credits—to address their “ongoing emissions” as they transition to net zero, even when direct emissions reductions in their value chain may not yet be possible (See CNZS C21.5).^[6] However, the full program for BVCM is still in its infancy and treated as somewhat of a sideshow to the serious business of target setting.

The CC Lab celebrates these revisions, though we believe SBTi should go farther in incentivizing its member-companies’ early participation in supporting carbon credit generating projects, in both compliance and voluntary carbon markets.

The CC Lab urges SBTi to revise CNZS V2.0 to include three major changes.

First, SBTi should not restrict the type of carbon credits that its member-companies can use to neutralize their residual emissions to only carbon removal credits.

Allowing member-companies flexibility to use diverse credit types can help, for example, facilitate short-term climate action against harmful climate pollutants that have outsized warming impacts in the near term, also known as “super pollutants.”^[7] Because super pollutants trap heat much more efficiently than carbon dioxide, reducing their rate of emission is one of the most effective and affordable—and high quality—near-term climate solutions available today. Projects like destroying hydrofluorocarbons (HFCs) in refrigerant gases or avoiding methane emissions at abandoned oil wells are highly credible, additional, and necessary. Credits for removing carbon from the atmosphere should not be prioritized over credits for reducing or avoiding super pollutants, given the scale of the crisis remaining, the high near-term impact of these activities, and the lack of volume of high-quality carbon removal credits.

Second, SBTi should encourage its member-companies to set targets and begin early purchasing of carbon credits (of all types) for their projected indirect residual emissions, not just their direct residual emissions.

SBTi’s rationale for excluding scope 2 emissions from its target setting requirement stems from its optimistic projection that no residual emissions will be associated with energy generation and, for scope 3, its acknowledgement that accounting is challenging given the dynamic nature of value chains and the overlap between one company’s scope 1 emissions and another’s scope 3 emissions. SBTi’s awareness of the challenges around including scope 3 emissions is fair; however, they can be addressed through proper and transparent accounting. Because scope 3 emissions represent the vast majority of emissions from most SBTi’s member-companies, and these emissions still must be “neutralized” at a member-company’s net-zero year, the marketplace will be unprepared for the sudden surge in demand for removals beginning around mid-century unless adequate financing begins to flow now to CDR as well as avoidance and reduction projects and activities. The CC Lab strongly suggests SBTi recommend target setting and the early purchasing of carbon credits for scope 3 emissions, if not also scope 2 emissions, to facilitate prompt investment in nascent climate solutions starting to scale. Without strong signals for scaling these solutions, we risk having insufficient high-quality projects available to help reach net zero.

Third, SBTi should reconsider its opposition to and nomenclature for “offsetting,” which it defines as “companies purchasing carbon credits that do not originate from activities in their value chain to meet emission reduction targets.”

Of course, SBTi means to keep its member-companies’ ambition high by not permitting them to lower their emission reduction targets below approximately 90%, but this objective can be accomplished with different terminology. SBTi’s dislike for the term “offsets” appears to be in name only because it requires residual emissions to be “neutralized” and encourages ongoing emissions to be “addressed” through BVCM—both meaning compensated for (or offset by) credits from projects occurring outside a member-company’s value chain that lower the amount of GHGs in the atmosphere.^[8]

SBTi’s preference for “neutralize,” “address,” and “BVCM” and claimed opposition to offsetting risks both discouraging its member-companies’ participation in carbon markets, which provide valuable finance for projects, and stirring the public’s confusion and distrust in them. For example, compliance carbon markets permit participating emitters to purchase carbon offset credits to account for a small percentage of their compliance obligation along their path to net zero and beyond. For example, California allows a participating company to offset 6% of its compliance obligation between 2026 and 2030. Washington state allows emitters participating in its cap-and-invest program to offset up to 8% of their GHG emissions (5% plus an optional 3% for credits purchased from projects on federally recognized Tribal lands).^[9] By opposing offsetting, and not even mentioned “insetting” as an option for work within a company’s own value-chain, SBTi risks undermining its member-companies’ efforts to decarbonize their value chains, which probably includes an emitter obligated to participate in a compliance carbon market. Clear and consistent terminology across the climate sector is needed to successfully build voluntary and compliance carbon markets and to scale the high-quality climate solutions needed to reach net zero. 

The CC Lab disagrees with the notion that companies must prioritize reductions at all costs at this time because doing so ignores lingering economic and technological challenges. It is unrealistic to expect companies to pay for expensive reductions under a voluntary program and may risk them not doing anything at all. The net result may be that certain sectors or geographies fail to timely decarbonize. If we do not collectively build, support, and scale the mechanisms needed to reduce, avoid, and remove carbon emissions and soon, we will likely reach critical tipping points after which everything will be much more expensive and contentious. Accordingly, SBTi should exercise flexibility around the types of carbon credits that its member-companies can purchase and how they use them, and send a clear signal that action is needed as soon as possible to mitigate emissions wherever they are.