Analysis / Carbon Offset Setback Risks Corporate Backtrack on Climate Goals

Reuters

18:07 JST, August 22, 2024

LONDON (Reuters) — Stalled efforts to expand companies’ use of carbon credits to offset greenhouse-gas emissions are raising the prospect that some will backtrack or abandon targets to shrink their carbon footprint.

Since 2015, when governments agreed in Paris to try to keep the world from warming more than 1.5 C, more than half of the world’s largest 2,000 publicly listed companies have announced targets to cut their emissions to zero on a net basis by 2050.

But environmental advocates are expressing concerns that companies are falling behind on those targets. Companies are in turn complaining that clean technologies are not being rolled out on time and that government policies are not doing enough to support the transition away from fossil fuels.

Proponents of carbon offsets argue they can help companies meet their targets when efforts to slash their emissions fall short. Companies buy the offsets, which are generated by projects that absorb carbon or reduce emissions, such as reforestation and switches to cleaner fuels for domestic cookstoves.

The Science-Based Targets initiative (SBTi), however, dealt a blow late last month to efforts to expand the use of offsets. The non-profit, which audits companies’ emissions targets, said its research found that carbon offsets are largely ineffective in reducing emissions because their climate benefits cannot always be verified. It delayed a final decision to 2025 on whether to allow companies to use offsets to meet emissions targets.

This represented a U-turn for the SBTi, whose board of trustees had said in April it wanted to allow companies greater use of offsets in target-setting. It currently allows companies to use offsets only after their targets have been met by directly reducing their emissions.

Nearly 6,000 companies use the SBTi to validate emission targets. More than 2,000 companies have committed to getting their targets validated going forward.

The SBTi is the largest independent, third-party validator of corporate net-zero plans and considered by many to be the gold standard given its focus on ensuring any strategy aligns with climate science.

Some companies are likely considering paring back their net-zero ambitions if they are not allowed to use carbon offsets more widely, said Tommy Ricketts, CEO of carbon-ratings agency BeZero Carbon.

“There are a lot of companies out there going, ‘we can’t deliver against our targets. We have two options. We look for another way of doing it or we quietly leave the building,’” Ricketts said. He declined to name specific companies.

An SBTi survey of companies published this year suggested cutting emissions from a company’s supply chain was the biggest barrier to setting a net-zero plan.

An SBTi spokesperson declined to comment on the impact of not allowing carbon offsets toward meeting targets and said its review of them was ongoing. “[The current framework] will remain unchanged until the revision process is fully complete next year,” the spokesperson said.

John Lang, who tracks net-zero goals for research group the Energy & Climate Intelligence Unit said that, as a result of the SBTi’s stance on carbon offsets, he expected more companies will pare back their near-term emission targets. They may, however, focus more on realistic actions to cut emissions, he said.

“Recalibrating targets doesn’t necessarily mean regressing on ambition.”

Thomas Day, an analyst at non-profit climate research group NewClimate Institute, said companies that are scaling back their efforts are often just abandoning unsubstantiated “lofty-sounding ambitions.”

Limited market

Offsets can come in particularly handy when it comes to companies’ supply-chain emissions, referred to as Scope 3. They make up the largest part of a company’s carbon footprint and are hard to slash, because companies often do not have control or influence over vendors and customers.

Broader use of carbon offsets could expand the market to $100 billion a year by 2030 from $723 million last year, according to carbon-offset broker, project developer and consultant South Pole.

South Pole CEO Daniel Klier said the lack of near-term clarity on validation could lead to carbon offset volumes stagnating.

“The fact [SBTi officials] say we may get some clarity in 2025 is a major problem, because that means there’s probably a year without investment in nature and carbon removals. Nobody will do anything until they have guidelines,” Klier said.