Should offsets count towards supply chain targets?

Welcome back to the Net Zero Roundup from the Carbon Trust’s Net Zero Intelligence Unit.

Before we get started, we are delighted to welcome Chris Stark as our new CEO , who joined the Carbon Trust on Monday (29 April 2024) after six years as the Chief Executive of the UK’s Climate Change Committee.

In this month’s edition, we delve into the fierce debate sparked by SBTi’s statement on the use of Environmental Attribute Certificates for supply chain abatement.

We also provide our usual quick intelligence on key Net Zero developments in the worlds of policy, business and finance, and share a parting thought on the Net Zero transition in action.

?? Policy: Asia Pacific introduces climate-related financial disclosure requirements??

?? Business: Unilever takes a stand on aligning advocacy and memberships with Net Zero goals??

?? Finance: World Bank Spring Meetings call for finance ministers to play bigger role in national climate policy-making?

?? Parting thought: Germany races towards its 2030 climate target as it shuts down coal plants and decarbonises industry?

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Under the spotlight

SBTi ignites fierce debate about the role of carbon credits in reducing emissions from supply chains

On 9 April, the Science Based Targets initiative’s (SBTi) Board of Trustees issued a statement regarding the use of Environmental Attribute Certificates (EACs), “including but not limited to voluntary carbon markets”, for the purpose of Scope 3 emissions (supply chain) abatement. The statement has caused significant controversy, including letters issued by both SBTi’s staff and Technical Advisory Group responding to the statement and its impact on both corporate understanding of steps required for Net Zero and on SBTi’s commitment to technical governance processes.?

Given that Scope 3 typically represents the majority of a business’s greenhouse emissions, allowing the use of EACs, including (potentially) carbon offset credits sold through the voluntary carbon market, is not a decision to be taken lightly.??

The role and effectiveness of the voluntary carbon market in addressing the challenge of value chain emissions is highly contested. Carbon offset credits that fund avoided or reduced emissions projects have faced particular scrutiny and have been criticised for delivering limited climate impact. A 2023 investigation into carbon credit certifier Verra found that 94% of their rainforest protection offsets did not lead to genuine carbon reductions.???

International guidance on Net Zero, including the report from the UN High Level Expert Group, ISO’s Net Zero guidelines and the SBTi’s current Net Zero Standard, are clear that offsets should not replace the need to urgently slash emissions and cannot contribute towards value chain emissions reduction targets.??

Scope 3 decarbonisation is a huge challenge for businesses, not only from a data gathering and tracking perspective, but also due to the difficulties businesses face in influencing their extended and global value chains. However, the Carbon Trust firmly believes that businesses should continue to prioritise emissions mitigation activities, exploring all possible decarbonisation routes throughout the value chain, including through investment in innovation, and engagement with peers and value chain partners.??

If carried out alongside this comprehensive emissions reduction strategy, the purchase of carbon credits can help to channel private investment into the novel technologies the world will need to reach Net Zero, including those which remove carbon from the atmosphere, and help to support broader environmental objectives on biodiversity and nature. These technologies and natural resources will also help businesses to deliver the final stretch of their Net Zero transition plans as their target date draws near.??

Corporate climate action must be guided by the science of what is needed to preserve the international community’s ability to meet the terms of the Paris Agreement and limit global warming to 1.5C. It is right that the SBTi takes time and care over any decision to allow Environmental Attribute Certificates to be used for Scope 3 – the stakes for the planet couldn’t be higher.

Quick intelligence?

Policy: Asia-Pacific adopts stricter rules for sustainability reporting

Several jurisdictions in Asia are introducing mandatory reporting on climate-related risks and opportunities, in line with rules set by the International Sustainability Standards Board (ISSB). This should boost transparency, consistency and accountability of disclosures and will apply to over 32,000 mostly large businesses across Australia, Japan, Hong Kong, Malaysia, Singapore and the Philippines within the next few years.??

However, as this new process will be resource-intensive for many businesses, governments should explore ways to ease compliance, such as funding, training and providing access to data. Companies can familiarise themselves with ISSB disclosure requirements using our quick guide , but should consult local legislation for precisely what companies of their size, type and sector must disclose and by when.

Business: Unilever takes a stand on aligning trade association memberships with Net Zero goals

In line with international best practice on Net Zero, businesses should assess and disclose whether the trade associations they are part of are helping to secure the policies and regulations needed for Net Zero. Demonstrating good practice in this area, Unilever has identified eight trade associations it is a member of that are at odds with Unilever’s commitment to limiting global warming to 1.5C. Unilever will work with them over the next year to encourage greater action on climate policy, but will walk away if it doesn’t see any improvement.?

Advocating for an economy-wide transition to Net Zero is an integral part of a credible and sincere Net Zero pledge. Businesses depend on economy-wide changes to reach their Net Zero targets, such as grid decarbonisation or the removal of fossil fuel subsidies. As we recommended in our Net Zero Reality Check tool , businesses should engage peers, consumers, policymakers and shareholders to encourage action and communicate about the policies that would help them achieve climate goals. Unilever could be setting a new framework for achieving that in a collaborative way.

Finance: World Bank Spring Meetings highlight critical role of finance ministers in national climate policy-making

During the World Bank and IMF Spring Meetings, a coalition of climate-conscious finance ministers issued a call to action for finance ministries to be more involved in the creation of national climate targets and policies.?

This could help deliver on the COP28 Global Stocktake text’s recommendation to align climate plans more closely with long-term economic development strategies. Finance ministries can also ensure these plans, known as Nationally Determined Contributions (NDCs), are economically viable and contain coherent investment plans.?

Currently, 73% of the finance ministries represented in the World Bank Coalition are not involved in developing their countries’ NDCs. Despite this, they have a vested interest in limiting warming, particularly in the wake of new estimates that climate change will knock 19% off incomes and cost the global economy $38 trillion per year in damages by 2049. As countries prepare to submit new NDCs in 2025 (as required by the Paris Agreement), it is vital that finance ministries are engaged with this process.

From the Net Zero Intelligence Unit?

Catch up on the latest publications from the Net Zero Intelligence Unit:??

??? Can the aviation industry ever reach Net Zero? Are we on the brink of a green steel revolution? In our final podcast episode, we explore emerging solutions to big decarbonisation challenges with Faustine Delasalle , CEO of Mission Possible Partnership, Robert Trezona , Co-founder of Kiko Ventures and the Carbon Trust's Ross Bruton ????

?? Learn how your business can draw the links between nature and climate by exploring our new guide on the recommendations from Taskforce on Nature-related Finance Disclosure, in collaboration with the World Business Council for Sustainable Development’s The Climate Drive.????

? What’s holding businesses back on their journey to Net Zero? We surveyed 400 companies around the world to find out and shared our top tips for overcoming the most prominent barriers. Read the report in English, German or Spanish:???

?? To stay up to date with news and events from the Carbon Trust more broadly, click here to sign up to the Carbon Trust’s email newsletter. ???

Parting thought?

Germany races towards its 2030 climate target as it shuts down coal plants and decarbonises industry

Germany’s national environment agency, Umwelt Bundesamt (UBA), said in March that Germany is on track to meet its 2030 climate target of reducing emissions by 65% compared to 1990 levels . A significant drop in coal-fired power generation and a move away from coal and gas in industrial processes helped Germany to reduce emissions by 10.1% in 2023, and reductions are expected to continue in alignment with Germany’s 2030 target.

This data is a welcome reminder of the speed of change that can be secured through strong government intervention, and a commitment to phasing out fossil fuels while protecting energy security. The German government recently announced the permanent closure of 15 coal-fired power plants that were kept online for longer than anticipated in response to the Russian invasion of Ukraine, but can now be retired due to a significant expansion in renewables infrastructure. While Germany has further to go in terms of reducing emissions from buildings and surface transport, it’s encouraging that energy sector emissions are dropping faster than previous projections.

Thanks for reading. This edition of the Net Zero Roundup was written by Nina Foster and Chloe St George . To ensure you don’t miss out on future monthly Net Zero Roundups, click here to subscribe.