SBTi in preparation for the release of revised Corporate Net Zero Standard (1/3)

(1/3) Exploring the SBTi's evidence synthesis report on carbon credits

Some background

In the rapidly evolving landscape of corporate climate action, the Science Based Targets initiative (SBTi) has positioned itself as a crucial standard-setter, enabling companies to align their greenhouse gas (GHG) emissions reduction targets with the latest climate science. The SBTi’s Corporate Net-Zero Standard, launched in 2021, has already seen widespread adoption, with over 1,000 companies setting validated net-zero targets. As the initiative moves forward with the first major revision of this standard, it has undertaken extensive research to ensure that the guidelines remain aligned with the most current scientific understanding and best practices.

One critical aspect of this revision process is the exploration of how Environmental Attribute Certificates (EACs), particularly carbon credits (and commodity certificates), are being used by corporations to meet their climate targets. Carbon credits, which are instruments that convey the mitigation outcomes of an intervention-such as emissions reductions or avoidance-are widely utilized by companies seeking to offset their emissions. However, the effectiveness of these instruments has come under scrutiny, leading the SBTi to issue a Call for Evidence in 2023 to gather insights on their role in corporate climate strategies.

The recently published "Evidence Synthesis Report Part 1: Carbon Credits " marks the first in a series of reports that aim to synthesize the evidence gathered from this open call. This report delves into the effectiveness of carbon credits in delivering measurable emissions reductions and explores the implications of their use in the broader context of achieving net-zero targets.

Research methodology

The SBTi’s approach to synthesizing the evidence involved a comprehensive review process. The evidence was collected through an open call that invited a wide range of stakeholders to submit empirical data, research studies, reports, case studies, and other relevant materials. The SBTi received over 400 unique pieces of evidence, with 71 of these being directly relevant to the effectiveness of carbon credits.

To ensure a systematic and objective evaluation, the SBTi categorized the evidence into three tiers based on factors such as peer review status, publication source, and relevance. This tiered approach allowed the SBTi to prioritize evidence that was likely to be less biased and more directly relevant to the research questions posed.

Key findings

The report is organized around three main themes, each addressing different aspects of carbon credits' effectiveness and implications for corporate climate action:

1. Mitigation outcomes and conditions for effectiveness: This theme explores the extent to which carbon credits deliver their intended mitigation outcomes—namely, whether they truly represent one ton of CO2 equivalent (tCO2e) of emissions reductions or avoidance. The evidence submitted to the SBTi was mixed, with a significant portion of high-quality (Tier A and B) evidence suggesting that various types of carbon credits may be ineffective in delivering their intended outcomes. Issues such as additionality, permanence, and leakage were highlighted as critical factors that can undermine the effectiveness of carbon credits.
2. Corporate use cases for carbon credits and implications for net-zero aligned transformation and climate finance: Here, the focus shifts to how companies use carbon credits and the potential risks and benefits associated with these practices. The evidence indicated that using carbon credits for offsetting—where companies purchase and retire credits to compensate for their own emissions—could pose risks to achieving true net-zero transformation. On the other hand, alternative approaches such as beyond value chain mitigation (BVCM) and contribution claims were suggested as potentially more effective in accelerating climate finance and driving sectoral transformation.
3. Claims: The final theme addresses the types of claims that companies can credibly make when using carbon credits. The evidence reviewed pointed to a high level of confusion among corporates and other stakeholders regarding the validity of various claims, such as "offsetting" or "carbon neutral." The report underscores the need for clearer guidelines and stricter standards to ensure that claims made by companies accurately reflect the impact of their climate actions.

Conclusion and next steps

The findings of this report highlight significant challenges in the current use of carbon credits within corporate climate strategies. While carbon credits can play a role in reducing global GHG emissions, their effectiveness is highly dependent on the conditions under which they are generated and used. The report calls for more rigorous standards and better oversight to ensure that carbon credits contribute meaningfully to global climate goals.

As the SBTi continues its revision of the Corporate Net-Zero Standard, the insights from this and subsequent reports will be instrumental in shaping the next iteration of the standard. The SBTi plans to conduct further research, including systematic reviews of peer-reviewed literature, to deepen its understanding of the role that carbon credits and other EACs can play in corporate decarbonization.

For businesses and stakeholders invested in climate action, this report serves as both a wake-up call and a roadmap. It emphasizes the need for companies to critically assess their reliance on carbon credits and to consider alternative strategies that might be more effective in achieving real, long-term emissions reductions. The future of corporate climate action will likely require a shift away from simply offsetting emissions towards more transformative practices that drive real change within and beyond value chains.