Net-Zero Emissions – Where do carbon credits fit in the global journey to climate action?
The process of decarbonizing your organization can seem like a daunting task. Luckily, there are frameworks and guidance in place that help create actionable steps to realize your organization’s climate ambitions. This blog explores these strategies, the targets you can set, and the role carbon credits play in decarbonizing an organization.
Setting the scene
In the summer of 2021, the UN's Intergovernmental Panel on Climate Change (IPCC) published part one of a six-part assessment report stating that global temperatures will rise 1.5 degrees Celsius by the early 2030s and continue to do so without mitigating action.
At COP26 later in the year, analysis by the Climate Action Tracker revealed that the planet is set to warm upwards of 2.4 degrees Celsius by 2100, which is a far more troubling forecast than the IPCC’s assessment showed. In either case, climate action is required more than ever.
Especially in the context of the Paris Agreement and the new global climate standards being set across the world, reaching net-zero emissions is a vital goal for companies to set today to safeguard our future.
However, the journey to net-zero requires considerable dedication on the part of internal and external players along value chains. If companies commit to net-zero emissions, they should understand how net-zero is defined in scientific terms, and how to act on decarbonization plans.
Getting to net-zero emissions – taking cues from the Science Based Targets initiative (SBTi)
Companies seeking to join the global cause to reach net-zero emissions should first define their ambition and targets, while ensuring they are grounded in science. As well, companies should learn the frameworks and standards that exist to help along the way.
To aid enterprises in achieving lofty emissions goals, the Science Based Targets initiative (SBTi) released the Net-Zero Standard in October 2021, in the lead-up to COP26. This standard gives corporates valid frameworks and scientific guidance, providing accurate benchmarking and goal-setting tools for setting and achieving corporate net-zero emissions targets.
While the pathway to net-zero emissions is complex, the SBTi’s standard breaks it down into two main timeframes and several complementary actions.
1. Set near-term science-based targets: 5-10 year emission reduction targets in line with limiting warming to 1.5°C.
2. Set long-term science-based targets: Most companies will reduce emissions by at least 90% by no later than 2050 (companies in the forestry and agriculture sectors will need to reduce emissions by at least 80%).
3. Move beyond value chain mitigation: Companies are expected to take action to mitigate emissions beyond their value chains; for example, by purchasing high-quality, REDD+ credits or investing in direct air capture.
4. Neutralize residual emissions: Any remaining emissions must be neutralized with permanent carbon removals.
While the Net-Zero Standard clearly states that carbon credits cannot be counted toward near-term and long-term emission reduction targets, companies are encouraged to finance climate mitigation projects and initiatives beyond these goals. Companies can use carbon credits to compensate and neutralize emissions and invest in projects that generate credits on longer-term bases to spark climate action.
As the Net-Zero Standard is a recent development, the expectation is that SBTi and other organizations will be providing more insight into the role of carbon credits in the future.
Committing to a plan
The first real step in transforming decarbonization ambition into action is to clearly define near- and long-term goals in line with the Paris Agreement and Net-Zero Standard.
To define an effective goal and start setting targets, companies need to understand their emissions and where they fit within the three GHG Protocol scopes. Understanding Scopes 1, 2, and 3 emissions helps define and manage the measures to reduce emissions.
For instance, companies can commit to near-term, five to 10-year emission reduction targets, focusing on Scopes 1 and 2 emissions. With this concrete goal set in stone, companies will be able to create a trajectory with strategic decision-making and move on to longer-term targets.
The most comprehensive way to designate goals is to sign up with the SBTi and set science-based targets (SBTs). This gives companies the right sector-relevant guidance and frames their targets under a common goal shared by over a thousand companies to date. This is especially helpful if many of your emissions fall under Scope 3, and therefore outside your immediate purview. The Net-Zero Standard’s guidance on this historically tricky scope makes following through on emissions goals that much easier.
Taking your first steps
When companies have a robust understanding of their emissions sources, they can start taking actions to reduce and eliminate them.
To achieve net-zero emissions by 2050 – or a more ambitious target year, if you set it as such – you must address internal emissions first and foremost. Based on your sector and industry, you will likely have to reduce 90% or so of your supply chain and operational emissions by your target year.
One viable option is to switch electricity consumption from fossil fuel electricity generation to renewable sources, reducing Scope 2. Improving your facilities’ energy efficiency to conserve energy helps lower Scope 1 emissions, while encouraging suppliers to abate their emissions results in Scope 3 reductions. The Net-Zero Standard includes guidance on reducing Scope 3, which historically has been challenging, as companies must deal with both upstream and downstream activities outside their immediate ownership.
While taking action to reduce emissions within your operations and along your value chain – both swiftly and incrementally, based on the goals you have set – you can compensate and neutralize your emissions by purchasing and retiring carbon credits. When you get closer to achieving long-term goals to more completely decarbonize, you will be able to phase in carbon removals to cover five to ten percent of your residual emissions.
Immediately funding high-impact climate projects that generate carbon credits will complement your internal actions. This will drive emissions reductions and removals outside your company’s scope, supporting other organizations and communities to have an impact while taking steps to lessen your own footprint.
How carbon credits complement your journey to net-zero emissions
While carbon credits cannot officially be used for emissions abatement through the SBTi, they are useful supplementary tools that support climate action. Carbon removal credits finance CO2 and GHG removal projects, while avoidance and reduction credits represent GHG emissions abatement compared to business-as-usual scenarios.
As carbon credits mobilize finance for climate action projects, purchasing them is a way to go beyond set ambitions. Carbon removal credits, for instance, support nature-based removal initiatives like afforestation, soil carbon sequestration, and wetland restoration. They also bolster technology-based projects like carbon capture and storage (BECCS) and Direct Air Capture with Carbon Storage (DACCS).
Avoidance and reduction projects avoid or reduce CO2 emissions via a variety of measures. Replacing coal plant electricity generation with a more renewable option, or providing more efficient cookstoves to developing communities, both generate these types of credits. Companies that purchase these credits can claim that they are compensating for residual or difficult to abate emissions.
These environmental, economic, and social benefits, in part, are driving the voluntary carbon market toward massive growth. Mark Carney, the UN's Special Envoy for Climate Action and one of the people responsible for launching the Taskforce on Scaling Voluntary Carbon Markets, estimated in October 2021 that this market could be worth 150 billion USD by 2023.
To reiterate, companies cannot use carbon credits and then return to business as usual. Taking meaningful action means making tangible changes to directly reduce value chain emissions. When internal reduction initiatives and private sector climate finance combine, though, that is where you get lasting contributions to the shared global ambition of solving the climate crisis.
Investing in lasting impact
Purchasing carbon credits, whether avoidance, reduction, or removal, helps you compensate and neutralize residual emissions, while supporting projects that lead to tangible impact.
A more comprehensive option is to directly support a high-impact climate action project from scratch. ACT partners with local implementers all over the world to develop projects. These include afforestation initiatives as well as campaigns to equip households in developing economies with improved cookstoves to optimize energy efficiency and reduce emissions.
Partnering with a project developer like ACT to build a high-impact climate project helps to hedge against the volatility of the voluntary market because it results in a secure stream of carbon credits year on year, and ensures you are making a considerable impact over an extended period.
Investing in project development also means you have more control over the impact you are able to have. You can choose technologies and methodologies that will yield more removals and reductions, and lead to more sustainable development in project regions. Though it does not address your internal emissions targets, this measure is a powerful signal to other companies. It showcases your commitment to net-zero emissions beyond what is required by supporting global ambitions to reach lofty climate action goals.