What’s been going on with the SBTi?

Apr 22, 2024 | 2024, MyCarbon, SBTi | 0 comments

Dr. Scott Christy

Dr. Scott Christy

Senior Carbon Consultant

In this blog, our resident Science-Based Targets initiative (SBTi) expert, Dr. Scott Christy provides a balanced summary of the ongoing controversey surrounding the latest announcement that the SBTi will be allowing Environmental Attribute Certificates (EACs) to count towards companies Scope 3 reduction targets. Is this a good or a bad thing, or is it being overblown in the media? Find out below.

 

In the last week, the Science-based targets initiative (SBTi) have announced some pretty big news – by allowing Environmental Attribute Certificates (EACs) to be counted towards companies Scope 3 reduction targets, which has led to significant controversy within SBTi staff as well as the wider sustainability industry.

The SBTi defines EACs as instruments used to quantify, verify and track the environmental benefits associated with climate mitigation activities or projects. These can include: 

● Energy attribute certificates for electricity.

● Other energy carrier certificates, e.g. green hydrogen, green gas, Sustainable Aviation Fuel Certificates (SAFc).

● Emission reduction credits.

● Certified commodities conveying a specific emission factor, e.g. green steel.

This is a huge change of direction from the SBTi, who have previously had a firm stance on not allowing EACs, offsets, or other certificates to be counted towards emissions reduction target progress. But what does this all mean, and have the SBTi lost the confidence of both their employees and the companies who already have validated targets?

This quote is taken directly from the news released by the SBTI:

"While recognizing that there is an ongoing healthy debate on the subject matter, SBTi recognizes that, when properly supported by policies, standards and procedures based on scientific evidence, the use of environmental attribute certificates for abatement purposes on Scope 3 emissions could function as an additional tool to tackle climate change."

The caveat to this piece is that we’re still waiting for the formal guidelines on this news to be published by the SBTi, which is expected in July of 2024. This guidance should set out the regulations companies must follow in using EACs towards target progress.

When the formal guidance is expected to launch (subject to change)

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How does this affect companies?

Currently, some of the largest global companies, including Unilever, Carlsberg, and Asda, have had their net-zero targets ‘removed’ from the SBTi website. It isn’t public knowledge why this has happened, but companies can have their targets removed if their emissions reduction progress isn’t in alignment with the requirements of the SBTi, and they haven’t formally updated their targets – which requires an additional fee to be paid to the SBTi for re-validation.

The nature of the operation of these large companies is that the majority of their emissions will be found within Scope 3, which by definition are emissions that are outside of their direct control. Reduction of these emissions requires significant effort across the whole supply chain – which for a multinational organisation will involve engagement with hundreds or even thousands of suppliers.

In the short-term, for a company to prove these reductions will entail significant resource from the supply chain to calculate emissions, begin to implement reduction measures, and provide the data back to the supplier. Not only is this process time-intensive, but it can also be costly, and for smaller suppliers, it may simply not be feasible.

Even once a sustainability strategy has been developed by a smaller supplier, or they can begin providing product-level life cycle assessment (LCA) data, it may take many years to implement projects and report the change in emissions. Therefore, the companies at the top of the supply chain will have to wait for many suppliers to act before they can begin to report emissions reductions.

It will become an increasingly regular occurrence that Company X asks a small supplier to conduct LCA’s of the products they purchase, where they may be met with answers such as “this is going to cost me £X, which will have to be reflected in the product price” or “We don’t have the finance or internal resources to conduct work like this”.

The challenge that both companies and the SBTi face is that if too many targets are ‘removed’ from the SBTi target dashboard then this could reduce the perception of the severity of the punishment, and could lead to a significant reduction in company engagement in the SBTi as an organisation. If every target on the SBTi website eventually gets ‘removed’, then targets will quickly lose their meaning.

This is where I feel, the introduction of the EACs has the potential to bridge the gap between short-term Scope 3 challenges and longer-term net-zero commitments, if managed correctly.

Where do we go from here?

I think this update from the SBTi, pending more detail, should overall be considered positive. It shows a willingness from the SBTi to adapt from their initial guidance, which when first set out was very strict. The guidance also should provide security to rapidly growing companies, or those who see large fluctuations in emissions profiles from year-to-year – by allowing annual increases to emissions to be ‘offset’ with the purchase of EACs. This will reduce the requirements to regularly conduct formal target updates and validations.

Companies will not be inclined to continue to pay the fee required to re-update targets annually when emissions increases have arisen in the supply chain, outside of their direct control. This, I feel, will have a significant bearing on the decision of the SBTi, as alienating companies through consistently requiring additional payment will quickly cause reduced engagement.

The use of EACs I see as a win-win situation if managed correctly. Either a company can prove reductions in their emissions year-on-year, which is obviously a benefit to the climate, or companies aren’t able to prove reductions but are able to fund valuable climate action through the EACs, and don’t become disenfranchised with the net-zero process or SBTi.

If I had an SBTi-specific genie, these would be my three wishes for the conditions of the upcoming guidance.

  • There MUST be strict control over the type of EACs companies can use. Ideally, the EACs should be based around carbon removals, rather than reductions (think direct air carbon capture as opposed to forestry protection).
  • There should be a limit on the proportion of total Scope 3 emissions that companies can use EACs to reduce. I’d set this at 10%, which is in alignment with the total allowance for offsetting at the net-zero target date (10% of base-year emissions with permanent carbon removal solutions).
  • The EAC proportion should slowly reduce over time. This ensures that companies will still be conscious of engaging with the supply chain on reduction projects for the more medium-term, while being able to support valuable reduction projects (as per my first wish!) in the short-term.

An argument that could be made is why don’t companies spend the money they would be spending on EACs on decarbonization projects. Firstly, as the bulk of emissions occurin the supply chain it is very difficult to directly spend money on decarbonisation, and the cost of doing this with thousands of suppliers will be significantly greater than the cost of procuring EACs. Secondly, companies are currently paying an additional fee to the SBTi for target updates, and I think funding any EAC could generate greater climate impact than simply paying fees for additional validation services. 

Conclusion

As I said at the top, all of this is very dependent on the actual guidance published by the SBTi and depending on what is published, my opinions on this could change. The important fact, however, is that we must ensure that the largest global companies remain engaged with the SBTi and are reducing emissions in line with reaching net-zero by 2050 at the latest. I believe that being able to employ EACs in tandem with other Scope 3 reductions will ensure companies to work in alignment with the emissions reductions set out by the SBTi.

 

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