With carbon credit markets in reputational disarray and no easing of Scope 3 emissions offsets in sight, companies are being increasingly advised to reduce emissions rather than merely offset them. While several efforts are underway to restore confidence in offsets tracking and trading, the UN-backed Science Based Targets initiative—the primary verifier of corporate emissions plans—appeared to throw cold water on using credits to offset Scope 3 emissions, which are many oil and gas companies’ largest source of climate pollution.
The SBTi’s board suggested in April that the body ease Scope 3 standards but backed off the proposition after it was attacked by environmental groups and some of its own technical staff, which hadn’t yet studied the option. In late July, the SBTi released technical publications examining the prospect and largely rejecting it, with a call for more study.
The standards currently allow offsets for up to 10% of emissions in company plans. It said its review of third-party studies showed “various types of carbon credits are ineffective in delivering their intended mitigation outcomes … The vast majority of evidence submissions (84%) argue that treating carbon credits as fungible with other sources, sinks or reductions of emissions is inadvisable, illogical or damaging to global mitigation goals.”
Its Scope 3 technical paper stated, “the priority remains the direct decarbonization of the value chain. Credits cannot be used as a substitute for this.” It suggests companies use credits to cover emissions outside their current target boundaries, ensuring they go above and beyond existing requirements. This could incentivize financing for climate action without diverting resources from emissions reduction. SBTi will release a draft net zero corporate standard for public consultation this fall before finalizing a revised standard next year.
Companies with large Scope 3 emissions, which originate from supply chains and customers using their products, contend they cannot reach climate targets without offsets. Proponents also argue offsets are critical to unlocking trillions of dollars in private sector financing to counter climate change. Many studies, however, have found using carbon credits ineffective, exaggerated and susceptible to manipulation.
An analysis by The Guardian, SourceMaterial and Die Zeit last year found more than 90% of leading certifier Verra’s rainforest offsets are worthless. An investigation by rating agency Renoster and non-profit CarbonPlan found BP-owned Finite Carbon handed out credits for Alaskan forests likely never in danger of being harvested. Based on satellite data analysis, they said many so-called “high credibility, high integrity projects” provided little to no climate benefits, concluding, “We consider this type of manipulation to be ‘cheating.’”
Shell was handed two credits for every tonne of CO2 sequestered at its Quest CCUS facility by the Alberta government, creating what one environmental group called “phantom” carbon credits. Brazil’s Minister of the Environment and Climate Change Marina Silva recently warned carbon credit buyers to beware of fraud following alleged criminal schemes in the Amazon. Billions of dollars in upstream emissions reduction credits in Germany are also in question. One industry insider told Handelsblatt several projects in China demonstrated “massive irregularities and even clear fraud.”
After viewing draft documents, the Financial Times reported in July that a UN task force proposed carbon credits not be counted toward a company’s emissions reductions when purchased in voluntary markets. UN Secretary-General António Guterres went even further last December, urging “genuine decarbonization with detailed targets for 2025, 2030 and 2035,” while “avoiding dubious offsets or carbon credits, in any scope of emissions.”
U.S. Treasury Secretary Janet Yellen had a similar tone in May when she proposed new guidelines to support voluntary credits, pressing companies to prioritize reducing emissions. “In recent years, researchers and journalists have found that a number of projects have not delivered the quality or quantity of emissions savings they claimed,” she said. “We want this market to succeed, but that requires a widespread commitment to integrity that instills market trust.” The U.S. Commodity Futures Trading Commission is also working on finalizing its guidance on credits, with a rulebook expected by year’s end. Similar efforts to enhance offsetting credibility are underway in the EU and U.K.
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