Given the challenges involved in reducing actual emissions, many entities are relying on carbon offsetting to achieve their stated targets.
While offsetting can be a legitimate tool for reducing emissions in hard-to-abate sectors, carbon credit markets are plagued with issues, and the credits themselves can be of such poor quality that they fail to reduce emissions at all. A 2017 European Commission report (see pg.11) found that 85% of credits available for purchase in the EU Clean Development Mechanism were unlikely to provide any actual emissions reductions. In Australia, scandal erupted in 2022 when a former carbon market watchdog blew the whistle on our own offset market, claiming 80% of credits were ‘markedly low in integrity’ and that the market itself had ‘degenerated to become a rort’.
Given their flaws, an overreliance of offsets puts the global economy at risk of failing to meet the reductions targets required to keep warming below 1.5⁰. An alternative approach to target setting exists, in which carbon offsets are not accepted as a reduction strategy. Rather, targets must be met by actually decarbonising business operations. These targets are formally recognised and administrated by the Science Based Targets Initiative (SBTi), who, as well as independently assessing and approving companies’ targets, work progressively to deliver target-setting guidelines for various emissions intensive sectors, including aviation, oil and gas, transport and steel.
In late September 2022, the SBTi launched their sector-specific guidance for companies working in, or adjacent to, Forest, Land and Agriculture sectors (FLAG), which contribute 22% of global GHG emissions each year. The new guidance is aligned to the 1.5⁰ Paris target (previously the target was “well below 2⁰”) and constitutes an additional target that FLAG sectors will have to include, on top of their non-land related emissions targets. FLAG sectors must also set a zero-deforestation target by no later than 2025. Furthermore, companies in other sectors who have land intensive activities in their value chain (defined as FLAG-related emissions totalling 20% or more of the company’s scope 1, 2 and 3 emissions) will be required to set a FLAG target. Importantly, the guidance focuses on the ability of FLAG sectors to not just reduce emissions, but to actively remove carbon from the atmosphere through improved management of plants and soils. This is the first time that a method and guidance has been available to include direct carbon removals into target setting.
September also saw the SBTi launch updated guidance for the cement sector. Urgent action is required in this industry, as cement production represents 7% of global emissions, and is projected to emit 20% more than that every year by 2050. Like the FLAG target, the new guidance has been updated to align with a 1.5⁰ warming scenario. The most important update relates to cement companies themselves, who must now set a Scope 3 near-term target (5-10 years) covering any cement and clinker purchases. This has been designed to prevent scope leakage, whereby a company that moves from producing most of its clinker to buying most of their clinker sees a Scope 1 decrease that isn’t balanced out by a Scope 3 increase, when not included in their target. The guidance also recommends cement companies include a scope 3 near-term target, covering upstream emissions from fuels.
There are multiple benefits to companies who adopt a science-based target, including resilience against regulation, boosting investor confidence, spurring innovation and competitiveness, access to sustainability-linked bonds, and demonstrating concrete sustainability commitments to increasingly conscious consumers. SBTi also provide tailored feedback to companies, which helps to clarify the specific nature of their footprint and motivates staff to act on the most efficient reduction pathways.
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