SBTI says further research needed to approve use of carbon credits for scope 3 emissions

The Science Based Targets Initiative said July 30 that further investigation is needed to make a firm decision on whether carbon credits can be used by companies to reduce their scope 3 emissions.

However, the body -- which sets the standards on corporate net-zero targets -- presented third-party scientific evidence that advocated the inefficacy of carbon credits in delivering intended mitigation outcomes.

SBTi confirmed that the draft of its flagship Corporate Net-Zero Standard, which will include further details on the use of environmental energy certificates and carbon credits, will be released for public consultation towards the end of this year, with a final version to be published in 2025.

Documents released by SBTi showed there is "empirical and observational evidence" suggesting "that various types of carbon credits are ineffective in delivering their intended mitigation outcomes."

But SBTi also concluded that further investigation was needed to "assess whether robust evidence exists under different methodological conditions."

"While the evidence submitted and examined reveals some trends and provides insights, the findings of the publications are mixed and further work is needed in the next stage of the process to draw conclusions," SBTi said in a statement.

Market reactions

Reaction in the voluntary carbon market to the new SBTi statement was muted, with many saying that certainty and clarity that corporates wanted on the use of credits was still missing.

"The focus on technical offsetting alone ignores so much of what's happening in the carbon market and the ways in which carbon credits positively contribute to the planet and to communities," said Tommy Ricketts, CEO ratings agency BeZero Carbon.

"Businesses are once again left without clarity and firm guidance, and because of this, I expect the trend of companies leaving SBTi to accelerate in the next 12 months."

Dana Agrotti, a lead carbon analyst at S&P Global Commodity Insights, said the latest statement by SBTi is unlikely to stimulate a carbon market still reeling from intense scrutiny.

"Much remains to be defined, including, importantly, a clear definition of the use cases for [carbon credits], which is only expected to come in 2025," Agrotti said.

"This, coupled with a synthesis report that remained critical of carbon credit use for achieving corporate climate targets, is unlikely to clear the market uncertainty that continues weighing on the market, but may in fact contribute to harboring it."

SBTI furor

This comes after a tumultuous few months for the body. In April, SBTi said the use of carbon credits by corporates to reduce their scope 3 emissions was valid and could function as an additional tool to address climate change.

Many in the voluntary carbon market welcomed this move as they hoped it would provide a significant boost to the trading of carbon credits. But this change in stance also caused a massive backlash, with many nongovernmental organizations lambasting SBTi over the statement.

The body later said it regretted that the statement was "open to misinterpretation." This controversy was also followed by its CEO Luiz Amaral resigning on July 2, citing personal reasons.

Scope 3 covers all other indirect emissions that occur in a company's value or supply chain. These normally account for the bulk of a company's emissions and hence play a critical role in achieving climate goals.

The prices of carbon credits have endured a tough few months amid the growing scrutiny, and the voluntary market is currently seeing low liquidity amid concerns over the quality of some carbon projects and credits.

Platts, part of S&P Global Commodity Insights, assessed current-year nature-based avoidance carbon credits at $4.25/mtCO2e July 29, up from a record low of $2.70/mtCO2e seen in February.