A 2021 study estimates that companies whose equity shares trade on regulated exchanges account for about 40% of all planet-warming greenhouse gases (GHG) emissions. To prevent or at least reduce severe to catastrophic economic, environmental and social impacts from extreme weather events caused by climate change and slower moving climate trends, corporations must rapidly reduce their GHGs. In particular, they must cut Scope 3 (value chain) emissions, which comprise as much as 85% of total corporate emissions.
The Science Based Targets Initiative (SBTi) developed both a general net-zero emissions corporate standard and sector-specific standards that set specific reduction targets in 5–10-year contracts between SBTi and the corporation committing to follow the standard. To accelerate progress in achieving GHG emissions reductions within the reduction target, SBTi did not allow the use of emissions offset contracts to substitute for direct decarbonization. IATP contributed comments to SBTI’s Forestry, Land and Agriculture Group companies’ emission reduction standard and praised the exclusion of the use of offset contracts from the standard. In 2022, the Intergovernmental Panel on Climate Change reported, “In the [computer modeling] scenarios we assessed, limiting warming to around 1.5°C (2.7°F) [the Paris Agreement goal] requires global greenhouse gas emissions to peak before 2025 at the latest, and be reduced by 43% by 2030.”
The SBTi Board blindsides its staff and advisory groups
However, on April 9, the SBTi board of trustees announced that towards developing a new Corporate Net Zero Standard, “a first draft of basic rules, thresholds, and guardrails for the potential use of environmental attribute certificates for abatement purposes of Scope 3 emissions will be issued by SBTi by July 2024.” The new standard would allow the use of such credits by existing and prospective SBTi-committed companies to claim Scope 3 emissions reductions to achieve their targets. The Board further stated, “SBTi will not embark in validating carbon credits quality. Other entities are better positioned to deal with this activity.” Most prominent among those entities is the Integrity Council for the Voluntary Carbon Market (ICVCM). However, on April 12, in the face of a staff and advisory group revolt against the Board statement, the Board issued a “clarification” to the April 9 statement, effectively a tactical retreat.
According to the Financial Times and other sources, the SBTi board did not discuss this radical policy change with its technical advisory group nor with most of its staff. Dozens of staff responded by demanding the resignation of the SBTi chief executive officer and the board members who voted to release the April 9 statement. SBTi staff wrote an open letter to the Board of Trustees, stating, “Carbon credits are not permitted for emissions reductions according to the Corporate Net-Zero Standard nor the Financial Institutions Guidance. The SBTi relies on the input and expertise of our stakeholders to ensure the quality of our standards, and any revisions to the SBTi’s Corporate Net-Zero Standard must be preceded by appropriate consultation before consideration and approval by the Technical Council. This includes consultation with the public, the SBTi’s Scientific Advisory Group, and Technical Advisory Group.” According to Bloomberg Green, at a March meeting hosted by the Bezos Earth Fund just “two SBTi representatives were present and faced a barrage of implicit and direct requests to relax their position on carbon offsets from senior leaders of prominent carbon market standards.”
Thirty-one members of the SBTi scientific and technical advisory groups wrote to the Board of Trustees to call on them to retract the April 9 statement. They said SBTi violated its own procedures by not consulting with the groups prior to the April 9 announcement. They wrote, “During the last call of the technical advisory group, in February 2024, the TAG was presented with a proposed approach to address Scope 3 emissions. Neither carbon credits nor any other type of environmental attribute certificates were presented as a considered option during that call. . . We have not been presented with any specific analysis of the evidence received by SBTi following its call for evidence on the effectiveness of environmental attribute certificates, launched last year.” One member of the technical advisory group, Stephen Singer, has resigned and another said he would do so if the April 9 announcement is not retracted.
A staff letter to the SBTi board, cited by The Guardian, stated, “We stand ready to support any efforts aimed at ensuring that the SBTi does not become a greenwashing platform where decisions are unduly influenced by lobbyists, driven by potential conflicts of interest and poor adherence to existing governance procedures. In the event that our concerns are not addressed, SBTi staff will have no choice but to take further action.” This is not an idle threat because the staff are core to the SBTi mission. The staff helps to design emissions reduction targets and validates each committed corporation’s annual progress towards achieving its target. Major Scope 3 emitters, such as the global meat corporation JBS whose SBTi commitment was not validated by staff, could recommit to SBTi under a SBTi standard that would allow use of “environmental attribute certificates” to claim corporate claimed Scope 3 reductions.
Dumbing down SBTi standards to grow the voluntary carbon market
Again, according to the Financial Times, the Bezos Earth fund organized a two-day meeting of SBTi board members and funders that resulted in the board’s very controversial decision. An anonymous participant in the meeting said, “Many people believe the only way to create demand at scale for these [offset] projects is by getting SBTi to allow offsetting.”
Unfortunately for the climate fate of the planet and its inhabitants, the SBTi board decision to permit “flexibilities” regarding Scope 3 emissions and the use of offset credits is not an isolated decision. In addition to urging the SBTi board to reverse its decision, Carbon Market Watch wrote an open letter with five other organizations to the chief executive officers of the Greenhouse Gas Protocol, the Voluntary Carbon Markets Initiative and the SBTi. The NGO letter states, “While we understand the appeal of incentivising financial flows to mitigation action in the wider world, scope 3 flexibility is not the way to do it. Other frameworks, such as the main claims guidance put forward by VCMI in November, and the work that SBTI has done to develop recommendations on beyond value chain mitigation (BVCM), are more promising examples of this.”
The tragedy of the private standards initiatives is that they continue to embrace a carbon offset market model of climate finance that has failed to perform economically and environmentally, even though SBTi and VCMI have proposed more effective ways to finance direct emissions mitigation. SBTi had disallowed the use of offset contracts because they lack integrity and are susceptible to corporate greenwashing claims. Rather than advancing VCMI and SBTi standards for direct mitigation investments without offset claims or offset markets, these private standard setters have succumbed to the lobbying of financial actors to dumb down the standards to scale up voluntary carbon market trading, fees and profits.
Carbon trading standards proponent welcomes the SBTi board Scope 3 announcement
On April 10, the Integrity Council for the Voluntary Carbon Market (ICVCM) “welcomed” the SBTi board decision and looked forward to future cooperation with SBTi. The SBTi board decision should be understood as supporting the global scaling up of voluntary carbon credit (VCC or offset credit) as outlined in the ICVCM rulebook. (The Bezos Earth Fund is one of many ICVCM funders.) The SBTi near prohibition against using offsets to achieve Scope 3 emissions reductions within the corporate emissions reduction contracts was perhaps the last standards impediment to unrestricted trading of offset credits. ICVCM had announced several lobbying successes and cooperative agreements at the 28th Conference of the Parties of the United Nations Framework Convention on Climate Change. The SBTi board’s decision to permit the use of offset credits, despite SBTi staff and technical advisory group dissent, is one more funder-enabled lobbying success.
Despite the diplomatic achievements to advance offset markets, the realization of a global or at least interconnected voluntary carbon market faces challenging headwinds. IATP summarized two of them in comments to the U.S. Commodity Futures Trading Commission (CFTC) about its proposal to adapt ICVCM standards to fit the CFTC’s Core Principles requirements for the listing by exchanges of new VCC derivatives contracts. First, we emphasized that the IPCC consensus and climate science modeling showed an increasing asymmetry between fossil fuel emissions and the capacity of the land to sequester GHG emissions. Second, the increasing severity, frequency and scale of emissions reversal events, such as wildfires and floods, will undermine the carbon crediting programs that ICVCM is trying to improve.
ICVCM claims that its standards are aligned with those of the UNFCCC Paris Agreement, particularly the Article 6.4 “market mechanism.” However, more than one group of researchers have argued that a market mechanism structured by offsetting is no longer fit for the purpose of directing adequate, predictable and reliable finance to battle the climate crisis. Three researchers write, “To support the Paris Agreement’s commitment to limit global warming, climate policies must reach and sustain near-net-zero CO₂ emissions in perpetuity. Today’s carbon offsets are not only inconsistent with this goal, but the majority frustrate temperature stabilization efforts. A growing literature reveals that carbon offsets rarely achieve the climate benefits they claim.” They outline five major failings of offsets and propose policy and technology reforms to offsetting far beyond what the ICVCM contemplates, even prior to its support for the SBTi board’s Scope 3 loophole.
The authors conclude, “What matters most in climate mitigation is the rapid and deep reduction of CO₂ emissions. Today’s carbon offsets undermine that goal. To support the Paris Agreement, nearly everything about them must change.” A good first step would be for the SBTi board to annul its April 9 decision to allow corporations to use offsets to achieve their emissions reductions commitments.
