Yesterday, the Science Based Targets initiative (SBTi) released its proposed revision to the Corporate Net-Zero Standard.
This is an important development that should drive near-term demand for carbon dioxide removal (CDR) credits—despite a lot of “ifs and buts” in the proposal. If the current draft is adopted, SBTi members—most of whom have never bought CDR—will need to retire removal credits worth ~0.5% of their Scope 1 emissions by 2030.
Setting the scene
This update was widely expected to introduce mandatory milestone targets for SBTi members to buy carbon removals. Under the previous version of the Net-Zero Standard, SBTi members were already required to use removals to offset all residual emissions by 2050. But in theory they could sit on their hands until 2049. So the logic of this update was to clarify that SBTi expected companies to ramp-up purchases before then.
The good
That basic expectation has been met in the new draft. If adopted then SBTi members would, for the first time, need to set interim targets for purchasing CDR. These would start out in 2030 as 5% of what the company assumes will be its eventual residual amount of Scope 1 emissions. Using 10% of their current emissions profile as a reasonable short-hand, this would require companies to offset 0.5% of their current Scope 1 emissions by 2030. 5% in 2030 increases to 16% in 2035, 35% in 2040, 60% in 2045 and then 100% of any residual emissions in 2050.
Back-of-envelope calculations* suggest an order of magnitude of 2 million tonnes of carbon removal needed by SBTi members in 2030. It’s not a game changing amount. But it’s not nothing. It’s roughly equivalent to having another Frontier or two enter the market. A big chunk of that order book will need to be contracted within the next 24 months if deliveries are going to land on time. That is meaningful for an industry that likely faces a ~5 year wait for government-mandated CDR buying to kick in (e.g. through the EU’s Emission Trading Scheme).
The not-so-good
A lot of the promising outcomes of this change are predicated on “Option 1” being selected. Two other options were included in the update, both of which would make the interim CDR targets optional. The SBTi appears to be neutral on the proposed options, however the updated Standard was written under the assumption Option 1 would be chosen. If Options 2 or 3 are chosen, some buyers—especially those with net-zero targets before 2050—may still act early to purchase CDR, but the overall impact will be smaller than with Option 1.
Limiting offsetting to residual emissions from Scope 1 shrinks the potential impact significantly. The biggest chunk of most SBTi members’ emission profiles sits in Scope 3 (supply chain emissions). There are logical reasons why the SBTi have excluded Scope 3:
- Firstly, it is very hard for a company to forecast ahead to what their residuals will be, since much of this depends on the actions of others and broader questions—such as whether planes will still use fossil fuels in 2050.
- Secondly, it is in theory redundant if enough companies join SBTi—one company’s Scope 3 (say a bank’s emissions from air travel) is another company’s Scope 1 (an airline). But as Robert Höglund points out, in reality SBTi represents only a very small slice of the corporate world.
The slightly unclear
There are some parts of the update that can leave the reader a little puzzled.
SBTi has presented two options for the durability requirements of CDR credits purchased. This is an important topic, one where the EU, for example, has drawn a simple line in the sand at 200 years. Frontier set it at 1,000. The Integrity Council for the Voluntary Carbon Market (ICVCM) at 40.
SBTi instead sets out a formula, which amongst other variables draws on Intergovernmental Panel on Climate Change (IPCC) Scenarios that project the expected share of durable versus non-durable removals. This results in precise-looking calculations but sacrifices simplicity and rests on assumptions that have a very high degree of uncertainty. The substance of the options they presented are a choice between like-for-like (which would generally favour permanent CDR) and a ramping up of the durability threshold over time (which would be more beneficial for shorter-term removals).
Finally, there is an interesting new provision that paints a more nuanced picture to the Scope 1 restriction. In their net-zero year, companies “shall ensure that [Scope 3] emissions are neutralized either by the value chain partner responsible for the emissions or by providing support to enable their neutralization at the net-zero target year and thereafter”.
So whilst they do not need to secure credits themselves—it seems like they need to get their suppliers to do so. If that is the case, then the same logic for a company having interim removal targets would presumably apply for their supply chain partners. This seems inconsistent with the narrow focus on Scope 1 in interim removal targets as currently drafted.
What next?
A lot will become clearer over the coming weeks as more people and organizations properly digest the proposed changes and share their thoughts. If you care about these issues, make sure you respond to the consultation.
*There are a little over 1,000 large companies with validated SBTi net zero targets. We took a random sample of 100 of these companies and calculated mean Scope 1 emissions, which came out at a little less than 400,000 tonnes (the median was much lower). Extrapolating that across all the SBTi companies gets to ~400 million tonnes. Multiplying this by 0.5% (5% of the assumed 10% residuals) gets you to the 2 million. I accept this method has extremely large error bars! Thanks to Robert Höglund for helping kick this around (any errors are all my own).
