Opinion from Mike Hatert, COO First Climate
The Science-Based Targets Initiative (SBTi), an organization that develops guidance for companies to set emissions reductions targets in line with climate science and international climate goals, released a statement last week announcing that it will publish new guidelines for the use of environmental attribute certificates for scope 3 abatement in July. While not yet clarifying the role of carbon credits in SBTi’s concept of corporate climate action, this statement triggered a debate on this topic. Mike Hatert, COO First Climate Markets AG, provides his opinion.
Background
It is crucial that companies have clarity on how they can best reduce their scope 3 emissions on their journey to net-zero. Which is why when the SBTi released a statement on “the use of environmental attribute certificates, including but not limited to voluntary carbon markets, for abatement purposes limited to scope 3” last week, the climate action sector was abuzz.
Part of the statement reads:
“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 SBTi is still undergoing the decision-making process on what these guidelines will look like, or which safeguards will be in place. However, it is clear that under certain conditions environmental attribute certificates, likely also carbon credits, are under consideration as an additional tool on the journey to net-zero in compliance with SBTi requirements.
The Difficulty with Scope 3
Because they are primarily outside of a company’s direct control, scope 3 emissions can be remarkably difficult to abate. When looking at the state of available decarbonization tools today, it remains extremely difficult for many committed companies to reach near-term scope 3 targets without using environmental attribute certificates and carbon credits as an additional tool. Data from voluntary climate disclosure shows that companies do indeed find it challenging to tackle them: CDP found that 92% of emissions disclosed by European companies in 2022 were scope 3 emissions, but that only 37% of these were being addressed with current decarbonization measures.
Just this year, more than 300 companies with commitments to the SBTi were even removed from the SBTi list for failing to be able to submit and validate their science-based targets, primarily due to difficulties with their scope 3 targets. In some cases, this demonstrates a lack of action. At the same time, it also indicates that even committed companies that go through the demanding process of committing to have ambitious targets with SBTi are still worryingly struggling with their scope 3 targets.
It’s time we take a more holistic look at corporate climate action and scope 3 emissions. These are clearly a huge challenge, and we need to actively find new technologies and methods to abate these scope 3 emissions. As an interim measure, financing climate projects by purchasing carbon credits is an important supplement to the development and implementation of technical decarbonization solutions within a company’s value chain.
With the ongoing discussions over improved safeguards for quality and integrity at the project level, I am convinced that project-based climate action should be given more importance in corporate climate action. For instance, by taking targeted measures to reduce emissions and supporting global climate action with carbon credits in the amount of their unabated scope 3 emissions, companies can make a much bigger positive impact than if they do nothing for scope 3. It is obvious to me that doing both together is far better than doing the one alone.
The potential that these SBTi guidelines could unlock is massive. With the climate finance gap currently in a dismal state, this could direct more finance streams toward impactful projects to help the Global South mitigate and adapt to climate change. For companies, it could provide refreshing clarity on how best to use carbon credits in alignment with science, and possibly even open new pathways for scope 3 targets.
The Role of Carbon Credits
I am aware that there are reservations over the use of carbon credits. The case against them, however, usually ends with the same tired argument: Companies use carbon credits as an incentive to not decarbonize further. This may happen in some cases—however there is evidence that in fact the opposite is closer to reality. Companies that engage with the voluntary carbon market are 1.8x more likely to be decarbonizing year over year.
To me, it remains clear that carbon credits cannot replace action within a company’s value chain, but it is an additional tool to supplement it.
These critiques against carbon credits over the past couple years, and now the resulting commotion surrounding this SBTi statement show that there is a clear break in opinion within the climate action sector regarding carbon credits. Despite much progress and healthy dialogue on carbon credit integrity, the carbon credit debate is in danger of devolving into two polarized camps, when instead we should be meeting in a healthy middle.
With the world currently on track for a 3.0° C warmer world, the current lack of sufficient action on scope 3 emissions is not only worrying, it is scary.
We must stick to our values without falling into the trap of being so idealistic that we lose sight of the bigger picture. I still look forward to the day in which we do not need carbon credits to finance impactful projects because we have succeeded in decarbonizing sufficiently.
That day is not today. We need to use all the tools, including carbon credits, to make that day possible for next generations.
It is crucial that companies have clarity on when to use carbon credits effectively, and in alignment with current scientific evidence. I look forward to the SBTi’s draft proposal in July regarding the use of environmental attribute certificates for scope 3, and hope that it takes the very real need for carbon credits into account.
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About the Author
Mike Hatert is Chief Operating Officer and Board Member at First Climate. He is responsible for the all the company's activities in the areas of voluntary CO2 management and renewable energies. Along with his team, Mike advises and supports corporate customers from all sectors in achieving their climate protection goals. A recognized energy specialist and engineer (Diplom-Ingenieur), he is a certified manager for energy economics and holds a certification as an energy manager from the German Chamber of Industry and Commerce (IHK).
Mike has over 15 years of experience in the energy industry and the voluntary carbon market. Before joining First Climate, he held key management and leadership positions at Deutsche Bahn, the energy supplier ENTEGA, among others.
