Patch Insights: April 2024

Patch Insights offers trends and takeaways from the voluntary carbon market, curated by the Patch team. From policy news to demand trends to project developer updates, each month we’re sharing what stood out as we work together to scale global climate solutions.

This month we’re zooming in on the major news for the voluntary carbon market (VCM) announced yesterday, which could unlock breakthrough acceleration in carbon removal and avoidance solutions.

SBTi’s Board of Trustees announced yesterday that they’ll accept the use of "environmental attribute certificates"?— including voluntary carbon credits — for the purpose of abatement of Scope 3 related emissions, with more specific guidance coming in July.

This means companies could be using carbon credits as part of their net-zero strategy much sooner than would have otherwise been the case, delivering the inflection point the VCM has been hoping for.

Why?

The problem with waiting to scale the VCM ?

The world’s largest companies have a problem: residual emissions. Those are emissions?left over after all efforts to decarbonize have been undertaken. For many companies, scope 3 emissions represent the bulk of these residual emissions. Until today, SBTi’s position was that companies had to wait until 2030 for near-term targets and 2040 or 2050 for long-term net-zero commitments to employ carbon credits to “zero” out those emissions.

Ultimately, that’s just been delaying action we know will be inevitably needed. Even under the most stringent reduction scenarios, we’ll still need the carbon markets to provide the financial incentives for the solutions that companies will turn to once they’ve met their science-based targets — assuming major companies hit their long-term targets. Under 2°C scenarios, the amount of residual emissions could be much higher —?7.9 Gt or more per year. And that’s just for the biggest corporations with emissions covered under a net-zero target.

When we talk to enterprise sustainability leaders, many of them are making progress on decarbonization as well as contributing to carbon removal and avoidance projects. In fact, there’s a known correlation between those two activities. When SBTi released its Beyond Value Chain Mitigation framework earlier this year, it offered a path toward credible contribution to carbon credit projects, but many companies still found themselves lacking incentives to take that kind of action today?— incentives like using carbon credits as part of your near-term target now, not in six years.

Why scope 3 emissions are hard to mitigate quickly ??

But those sustainability leaders can see the problem: not all abatement action within your value chain is created equal. Scope 3 emissions are an issue. It's hard to take quick action to reduce these emissions, since they’re indirect emissions encompassing the goods a company buys, downstream use of products, employee commuting, and other things outside the direct activities of the company. The largest companies can influence these activities over time, but it can be time and resource-intensive. Mid-sized companies might not have enough clout over suppliers to influence them, and competing options aren’t always easily available. That’s why sustainability leaders need more flexibility over how to meaningfully compensate for scope 3 emissions while they work to mitigate the most complicated emissions.

Following a wide consultative effort, SBTi is recognizing that carbon credits can be an important mechanism to tackle climate change in addition to reducing emissions. This is a big deal. It's becoming widely recognized, including now by SBTi — one of the world's leading authorities on credible corporate climate action — that we need both decarbonization and use of high-integrity carbon credits in tandem and at scale to rebalance the planet. Reduction and removal aren't mutually exclusive goals, but rather twin targets that we need to collectively work towards as rapidly as possible.

What’s next from SBTi? ??

There’s more to come on this from SBTi in July, including the definition of specific guardrails and thresholds, as well as the rules to be applied to guide the responsible use of environmental attribute certificates in target setting.

What will this look like? We expect to see more alignment with VCMI, whose scope 3 flexibility claim still requires reductions over time for these types of emissions and fewer credits used as compensation year over year. Likewise, VCMI has laid out criteria for the attributes of the credits themselves —?like permanence thresholds —?which we also expect to see incorporated into SBTi’s guidance.

But already corporate sustainability leaders should feel more confident in a strategy that incorporates both aggressive decarbonization work and best-practice purchasing of high-integrity carbon credits.

Patch is here to help you hit the ground running. Our head of corporate affairs and climate policy, Lucy Hargreaves, is a member of VCMI’s Stakeholder Forum which advises on the Claims Code of Practice. Our climate solutions team works with companies with SBTi net-zero targets and other climate commitments on a daily basis. Contact us to set up a strategy session today.