SBTi presents pathways for carbon credits in net zero standards

Yesterday, the SBTi, the world’s leading standard setter for corporate net zero journeys, released several documents on the role of carbon credits in the net zero journey. They put forth several practical proposals that would help expedite emissions reductions while increasing investment into real climate action. ‍

While the releases stop short of including these in actual guidance, they provide clear frameworks, grounded in the leading practices recommended by the likes of the Oxford offsetting principles. This represents a gradual but meaningful shift towards a pragmatic, mainstream position on the use of high quality carbon credits, as set out by the US Federal government in May.

The potential scenarios

The SBTi released four documents that set out different scenarios, which would allow companies to use carbon credits against up to 33% of their scope 3 emissions. Here are some of these clear scenarios and positions outlined by the SBTi on the use carbon credits against Scope 3 emissions:

1. Beyond Value Chain Mitigation (BVCM)

Beyond Value Chain Mitigation is a mechanism through which companies can accelerate the global net-zero transformation by going above and beyond their science based targets.
The SBTi’s discussion paper states that up to 33% of Scope 3 emissions could be addressed through carbon credits, decreasing annually until 2050, in line with Oxford Offsetting Principles.

Starting in 2030, companies are expected to begin neutralizing emissions through permanent removals.
They have identified integrity risks associated with using carbon credits.‍

2. Insetting

Insetting refers to the financing of climate protection projects along a company's own value chain that demonstrably reduce or sequester emissions and thereby achieve a positive impact on the communities, landscapes and ecosystems associated with the value chain.
Insetting is currently allowed in the Agriculture, Forestry and Other Land Use (AFOLU) sector, with a proposal to extend to other sectors under specific conditions.

3. Neutralization

Neutralization refers to permanently removing and storing carbon from the atmosphere to counterbalance the impact of “scientifically-defined residual emissions”.
It is required for all residual emissions (~5-10% of total). This has long been a stance taken by the SBTi but they have now gone into further detail on this highlighting:

(i) Matching emission types with suitable storage (biogenic or geologic).

(ii) Aligning atmospheric lifetime with storage duration, allowing temporary storage for short-lived GHGs.

(iii) Establishing flexibility between removal methods to balance short-term and long-term climate impacts.

Risks and mitigation

The SBTi also highlights the potential risks and mitigation measures for allowing the use of carbon credits, well-known risks every carbon buyer must navigate, including:

Impact dilution, which occurs when additional demand does not lead to new low-carbon activities but merely reshuffles attributes of existing ones, potentially limiting the effectiveness of unbundled certificates.
Finance dilution, or the risk that spending on these certificates results in less funding for actual mitigation compared to direct sourcing of low-carbon activities.
Mitigation deterrence involves reduced incentives for companies to switch to low-carbon procurement, as reliance on certificates might delay necessary changes.
Emissions lock-in is the danger that unbundled certificates could reduce incentives for upstream suppliers to decarbonize, as downstream partners may prefer purchasing certificates over implementing sustainable practices.

The risks in the carbon markets are well-known, and increasingly new data and tools are available to help buyers mitigate them and direct more funding to effective climate solutions. From more accurate carbon measurement to a robust Project Catalog to access the entirety of the carbon market, from biochar to REDD+, innovation in the carbon market has proliferated the past few years to mitigate risk and find high-quality projects, invest in them, and monitor their impact over time.

Prioritizing quality

Through all of the pathways the SBTi has outlined, one thing is clear – investors need to prioritize credit quality above all else. With increasing transparency that standards and technology have brought on, we know not all credits are created equal and buyers now have the tools to confidently invest.

If after reducing as much emissions as possible, businesses consistently investing in a portfolio of quality credits and monitoring their performance and impact over time, they can be sure they’re fulfilling their ‘net’ in net zero and driving much-needed investment to effective climate solutions that would otherwise go unfunded.

With Sylvera’s end-to-end carbon platform, investors can access unparalleled market expertise, the most trusted ratings, superior data visibility and tools, to ensure their carbon investments drive measurable progress towards their net zero goals.