The Importance of Scope 3 Emissions in The Race to Net-Zero

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The pressure to seek net-zero pledges that include Scope 3 emissions is rising.

Here is an overview of the differences between Scope 1, Scope 2, and Scope 3 emissions.

CO2 emissions falling under Scope 3 include value chain emissions, and carbon footprint from suppliers, customers, business travels, company leases, and more.

Businesses with low Scope 1 and 2 emissions, but high Scope 3 emissions may soon face financial issues if they don’t pay attention to it. Why is that so?

Investors’ Focus Favoring the Importance of Scope 3 Emissions

Before investors were looking for companies to reduce only operational emissions (Scope 1) and indirect emissions from energy purchases (Scope 2).

But now, they are shifting their focus to the whole business supply chain.

ESG investors are looking for companies that are able to change and commit to achieving climate goals.

Thus, the main question they have concerns the entire activities that firms are doing or not relating to emissions. This means the importance of Scope 3 emissions is of high interest, too. In fact, it is where the largest carbon footprint is happening.

According to the Greenhouse Gas Protocol, there are 15 classes of Scope 3 emissions. GHG Protocol uses a world-renowned standard to measure and manage GHG emissions of companies and their value chains. It identifies “purchased goods and services” and “use of sold products” as most vital.

Take for instance the case of the oil and gas industry. O&G companies often have big Scope 3 emissions from end-product combustion.

Those value chain emissions are even much higher, 6x or more than the combined Scope 1 and 2 emissions.

In fact, many businesses have Scope 3 emissions that account for over 70% of their total footprint.

Why Dealing With Value Chain Emissions is Tricky?

As investors prefer a low emissions economy, a company’s climate plans have to align with it. But, companies with high supply chain emissions but low operational emissions may find it tough.

The financial challenge is due to various things. These include policy risks, carbon pricing, and shifts in end-product market demand.

Worse is that companies don’t have enough control over their Scope 3 emissions. This makes factoring in and managing supply chains emissions complex and burdensome.

Complicating the issue is a lack of regulatory guidance promoting the importance of Scope 3 emissions.

SEC had recently issued a proposed rule on emissions disclosure. Yet, while it has clear guidelines on Scopes 1 and 2 disclosure, disclosing supply chain emissions is left to the company to determine.

Is Scope 3 emissions “material” to disclose, too? It depends on the firm to decide.

For bigger companies that have been reporting all their emissions, it is a must. But for smaller ones that don’t have the capacity to do it, they are an exception to the SEC’s rule.

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IETA Releases Guidelines on Blockchain Use in Carbon Markets

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The International Emissions Trading Association issued guidelines on blockchain use in carbon markets.
 
IETA is the main lobby group for the international Voluntary Carbon Markets (VCM). It aims to establish a functional framework for trading in GHG emission reductions.
 
For years, the IETA is tracking digital innovations that can improve VCM performance. Just recently, it has issued a set of preliminary principles for using blockchain in VCMs.

What Prompts IETA’s Guidelines on Blockchain Use in Carbon Markets?

The IETA has observed the rapid emergence of digital carbon assets. And so, they decided to create the guidelines as a precautionary measure. They added that digital tokens must only be from recognized carbon standards.
 
Likewise, the IETA requested carbon registries like Gold Standard to make proper labeling. More so, they need to hold carbon credits in escrow accounts to prevent double selling.
 
Also, the body calls on all carbon standards to review blockchain providers. This is part of the industry’s Know Your Customer (KYC) and Anti-Money Laundering (AML) checks.
The following are some of the key points of IETA’s preliminary guidelines.

IETA’s Initial Guiding Principles on Blockchain

Credible standards: carbon-backed digital tokens should come from verified and registered projects. Only government-approved carbon crediting schemes or the Standards must endorse those projects.
Registry control: it is only the Standards that may permit carbon credits tokenization. And so, the Standards must have a system in place to perform this role.
Tokens: tokens that are for issuance and verified are valid for stamping. But unverified, canceled, and retired carbon credits are not qualified for tokens.
Transparency: all token issuers are subject to KYC and AML reviews. This is important for consumer protection and transparency.
Investor Safeguards: issuers must ensure that digital climate assets are fit for investors. This is crucial in cases where there is no direct link to the underlying carbon asset. 
IT Security: the use of proven methods of protection against cyber threats is a must.
Claims: only the removed and retired tokenized credits are permissible for claims. The mere holding of the credits, not retiring them, are not valid for compensation claims.

Impacts of IETA’s Principles on Blockchain

Right now, many items of the guidelines on blockchain use in carbon markets are not executed yet. This is because carbon-backed blockchain initiatives are a recent development in the market. In fact, they are not governed by carbon regulations.
 
According to IETA, if market players follow those set of principles, they can aid in market growth. The carbon crypto innovations will speed up market linkages and expand access in developing nations.
 
A word of caution, though, from the administering body. If not done right, incorrect blockchain use in carbon markets may threaten public confidence.

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Canada’s 2030 Emissions Reduction Plan: Clean Air, Strong Economy

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The Canadian government released Canada’s 2030 Emissions Reduction Plan.
 
It is the first plan describing the nation’s pledge to reduce its GHG emissions, drawing on the Canadian Net-Zero Emissions Accountability Act.
 
The Canadian Climate Institute’s President, Rick Smith, responded to the plan. He said, “This is a watershed moment for Canadian climate policy… For the first time, Canada has a detailed plan for meeting its emissions reduction goals.”

What’s in Canada’s 2030 Emissions Reduction Plan?

The Plan describes various actions that are already making notable emissions reductions. Better still, it outlines the new measures Canada needs to achieve its 2030 target and 2050 net-zero emissions.
Canada’s 2030 Emissions Reduction Plan entails $9.1 billion in new investments. It also includes measures sector-by-sector, covering all sectors, from agriculture to industrial businesses.

Canada will reach its 2030 emissions target by:

Helping to reduce energy costs for homes and buildings
Decreasing carbon pollution from the oil and gas sector

Empowering communities to take climate action

Powering the economy with renewables
Investing in nature and natural climate solutions
Supporting farmers as partners in building a clean, prosperous future
Maintaining Canada’s approach to pricing pollution

In particular, part of Canada’s 2030 Emissions Reduction Plan is to invest $2.9 billion to make buying zero-emission vehicles (ZEVs) more affordable.

It will also have a regulated sales mandate so that 100% of new passenger cars sold will be zero-emission by 2035. The interim targets for ZEV are 20% by 2026 and 60% by 2030.

Canada’s  Emissions Reduction Plan also reveals another $780 million to invest in the power of nature to capture and store carbon. These include the oceans, wetlands, peatlands, grasslands, and agricultural lands. Investments in this area will further explore the potential for negative emission technologies.

Even more crucial is reducing oil and gas methane emissions by 75% in 2030 while creating good jobs. The estimated contribution for the oil and gas sector alone is a 31% reduction from 2005 levels. This is equal to a 42% reduction from 2019 levels.

In 2019, Canada’s total national GHG emissions were 730 mt of CO2 eq, which is 9 mt lower than in 2005.
 
The biggest emitters are still the oil and gas and transportation sectors. Their emissions had increased more since 2005. Luckily, decreases in emissions by other sectors cover those increases.
 
But still, the country aims to drive its total emissions down from its 2005 levels by 40% in 2030. That means reductions to only 443 mt.
 
In perspective, the following chart represents Canada’s 2030 Emissions Reduction Plan per sector.
Canada’s 2030 Emissions Reduction Model and Framework
Canada’s Emissions Reduction Plan uses economic modeling to show its pathway to 2030. The model captures the potential for each sector to reduce its own emissions by 2030.
 
Many other governments are also using the same approach in charting their path to net zero.
As for the Plan’s framework, the Canadian Climate Institute is responsible for it.
 
To ensure the success of Canada’s 2030 Plan, the Institute’s Framework includes three core elements. These are the consistent path to net-zero, credible policies, and responsive processes.

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ACX Signs MoU with CarbonX to Build Indonesian Carbon Market

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AirCarbon Exchange (ACX) signed a partnership with CarbonX to help boost the Indonesian carbon market.

AirCarbon Exchange is a digital exchange seeking to speed up the globe’s journey to net zero. Whereas CarbonX is an Indonesian high-impact carbon asset developer.

They agree to develop the Indonesian marketplace via a memorandum of understanding (MoU).

How The Agreement Can Promote the Indonesian Carbon Market?

In general, the agreement will create a complete carbon infrastructure. Through it, participants worldwide can do business in an efficient and transparent fashion.

In particular, the MoU will enable the Indonesian carbon market to scale up. It will give carbon project developers access to ACX’s international carbon market. These include various participants from 30 different countries.

Indonesia’s Net Zero Emissions (NZE) Target

The signing of the MoU is very timely as Indonesia recently declared its commitment to net zero. During the COP26 Conference in Glasgow, it plans to reach its Net Zero Emissions or NZE goal by 2060 or sooner.

In fact, Presidential Regulation Number 98/2021 specifies Indonesia’s NZE target. This new rule on carbon trading created result-based payments for emission reduction projects. It also initiated the formation of a domestic carbon credit scheme to be set up by 2025.

To meet such targets, the nation needs huge investments in its marketplace of about 3.4% to 3.5% of its GDP each year.

And so, all Indonesian carbon market players have to work together to make the NZE plan a reality.

This is where the market platform created by the CarbonX-ACX collaboration comes in. It will help attract more carbon investments and funding.

The ACX-CarbonX Collaboration

CarbonX said that if things go as agreed, the market will yield large carbon offset supplies.

Meanwhile, ACX stated that the MoU is another milestone in its aim to be one of the premier carbon markets. They also believe that the partnership will boost Indonesian carbon asset producers.

Founded in 2019, ACX is a hybrid exchange that uses blockchain’s efficiency and speed. It operates through a traditional central order book architecture to perform its trading.

As such, the company bags one prestigious recognition in the voluntary carbon market (VCM). It won the Best Carbon Exchange in Environmental Finance’s 2021 VCM Rankings.

By leveraging ACX’s expertise, the CarbonX partnership will launch on a rapid scale. The Indonesian carbon market may begin to witness more carbon trading activities once the MoU takes off.

Earlier this year, Indonesia partnered with Singapore to advance its climate goals including carbon credits.

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LOT Polish Airlines Calls to Discard EU ETS for Aviation

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Poland’s biggest airline, LOT Polish Airlines, urged to cancel the EU ETS due to rising jet fuel prices.

LOT Airlines CEO stated that the “EU ‘Fitfor55’ (strategy) needs to be fundamentally reviewed… it is extremely idealistic and I am afraid it is going to kill a number of airlines”

After the outbreak of Russia’s invasion of Ukraine, jet fuel prices soared.
This affected the aviation sector so much, prompting LOT to demand the European Union Emissions Trading System be scrapped.

The Relationship Between EU ETS and Aviation

The EU ETS is the foundation of the EU’s policy to combat climate change. It is also the union’s key tool for reducing GHG emissions in a cost-effective way.
 
Under the EU ETS scheme, all airlines operating in Europe have to track their emissions. It is also required for them to report their emissions and buy carbon allowances against such emissions.
 
Since the outbreak of the war in Ukraine, jet fuel prices had surged along with the rest of the oil prices. Meanwhile, EU ETS futures have dropped from €95/mt before the war to only €78.22/mt after the invasion.
 
This affected the December 2022 contract but the amount is still higher compared to a year ago.
 
LOT’s CEO said that because of the big increase in fuel prices, the airline has to use economically and ecologically viable planes.
 
And thus, the aviation company calls out to the union to scrap the EU ETS for aviation.

LOT’s Reasons to Dump the EU ETS Scheme

LOT has been connecting Poland, Central, and Eastern Europe with the world for more than 9 decades now. The airline had flown around 12 million flights each year before the pandemic hit.
 
But the COVID-19 protocols forced the company to reschedule 13% of its flights. Worse is that it also has to cancel another 9% of its flights because of the war in the nearby country.
 
Not to mention the long flights to Asian destinations that need detouring to avoid the Russian airspace.
 
Also, Polish passengers’ demand to travel decreases as they are hesitant to leave their homes. Thus, the number of flights daily that the Polish airspace handles had dropped.
 
Add to this the fact that Europe is very dependent on Russian supply for distillates. Hence, with the lack of imports via the East of Suez because of the war, aviation fuel prices rose to multi-year highs.
 
According to the industry assessments, jet fuel cargoes increase by up to 42% since the eve of the war at $1,312.75/mt. This, and the very high levels of EU ETS certificates, have a big negative effect on all airline operators.
 
And so, LOT believes that it’s time to rethink the EU ETS for aviation as both the pandemic and the war put the sector under heavy financial stress.

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Gold Standard Suspends Russian Carbon Project

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Gold Standard has suspended a Russian carbon project from its marketplace.
 
Gold Standard is a popular Swiss-based carbon standard and emissions registry. But it also established a carbon marketplace where certain projects trade carbon credits.
 
The Russian KronoClimate project replaced the use of fossil fuels with biomass and was the only project in Russia to be on the marketplace.
The factory, Kronostar, used to generate energy using peat and heavy oil that emit high carbon. By replacing it with biomass, the project is cutting down GHG emissions in the factory.
 
The project is also avoiding methane emissions through a regional waste management system.
Now only 33 carbon projects remain on the Gold Standard marketplace. 
There was no comment yet from Gold Standard about its Russian carbon project suspension move.
But the decision happened during the wake of Russia’s attack on Ukraine.
 
The Russian invasion of Ukraine had caused so much chaos and fear in the two countries and among the people.
 
For the corporate world, the huge disruptions caused by the war have negative effects.

Impact of Russian Invasion of Ukraine on Carbon Market

Russia is not a significant player in the voluntary carbon market as it is not a big supplier of carbon credits.
Carbon prices have dropped because of the uncertainty in demand. The Russian carbon project suspension by Gold Standard makes things more unpleasant.
 
Worse is that dozens of Western big companies have cut their business ties with Russia. These include Ford, Toyota, Apple, Amazon, Facebook, IBM, Microsoft, Shell, TotalEnergies, and more.
 
The EU is also considering an oil embargo on Russia.
 
More so, the Russian invasion of Ukraine is the major cause of the rapid increase in gas prices worldwide.
Analysts see this as a driver for higher demand and use of coal, which in turn, would put pressure on carbon prices.
 
For Europe, which is so reliant on Russia for fuel supplies, the effect is a huge energy crisis.
The lack of liquid gas infrastructure means relying on coal as the short-term option. This threatens Europe, particularly the EU’s 2030 climate goal.
 
For the rest of the world, the economic sanctions on Russia made the energy and carbon market chaotic. Fossil fuel prices soared very high. Other commodities prices also went up so steep.
 
Hence, many countries are wondering if their emissions target will be on hold to keep the lights on.

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Nasdaq Adds 3 Carbon Removal Price Indexes

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Nasdaq launched 3 carbon removal price indexes, which are based on its Puro.earth Carbon Removal Certificates (CORCs).

CORC refers to the tradable digital asset representing a ton of carbon removed from the air.

With these indexes, Nasdaq promotes standardization and transparency in the carbon removal market. As such, the expected end result is the growth of the voluntary carbon removal market.

What Are Nasdaq’s New Carbon Removal Price Indexes?

These indexes track the price of removing CO2 from the atmosphere.

According to Nasdaq’s ESG Head, the indexes will create a price benchmark to better understand the costs of removing CO2.

So, they will help potential investors make an informed decision on where to put their money. This will also put forward carbon projects that are worth investing in.

There are three commodity reference price indexes involved here. And they all belong to the CORC Carbon Removal Reference Price Index family.

CORCX – the main index that monitors the price of all CORC transactions from all carbon removal methods. It is otherwise known as the CORC Carbon Removal Price Index.
CORCCHAR – or the CORC Biochar Price Index for biochar, a solid form of carbon generated by pyrolysis.
CORCWOOD – or the CORC Bio-based Construction Materials Price Index. It is the price index for removing CO2 in the form of bio-based construction materials like wood.

These indexes will provide insights into the trends of CO2 removal credit pricing. In effect, they are essential for the climate finance stakeholders out there.

The Value of The Indexes to Voluntary Carbon Market

The launch of the new carbon removal price indexes is pivotal for the voluntary carbon market (VCM). This is because the market is growing fast, capping $1 billion for the first time in 2021, as reported by S&P Global.

Better still, the estimates of the Taskforce on Scaling Voluntary Carbon Markets are even brighter. According to their projections, the VCM will reach as high as $30 billion to $50 billion by 2030.

As the market for carbon removal will be more transparent and fluid, the indexes will be more crucial. They will serve as a medium for creating new financial products that lead the way to net-zero.

In fact, Puro.earth’s CEO said, “The indexes will pave the way for the commoditization of CORCs.”

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Why India’s Path to Net-Zero is Different From Other Super-Emitters

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The picture of India’s path to net-zero looks very different from other emitters.

India has set a net-zero target for 2070, and if things go as planned, India will become the last among the biggest economies to zero out its emissions.

India’s Path to Net Zero Ends by 2070, not 2050

Most nations are targeting their net-zero goals by 2050 in line with the Paris Agreement. But why did India set it to 2070 instead?

The answer might have something to do with poverty levels. While other nations feel the need to tame climate change, India has to lift millions out of poverty first.

So, if India’s net-zero targets are sooner, access to basic services will be harder for Indians.

The country is well-known to be most vulnerable to heatwaves. Thus, the need for air conditioning is increasing, which drives up the demand for more fuel.

The closest comparison when it comes to India’s path to net-zero is China which also has a population over 1.3 billion. Yet, India does not have the capacity to make green technologies that China is capable of doing. By far, it only deployed solar panels and wind turbines, not electric cars.

What Does India’s Journey to Net-Zero Need?

With its unique economic conditions, India doesn’t have a role model to follow. It’s the only lower-middle-income nation among the five largest world super emitters.

Yet, it is the most affected part of the globe by worsening extreme weather conditions. Documented reports also showed increasing intensity and frequency of rainfall and droughts. Plus, falling agricultural productivity and growing food prices make things even worse.

And so, India’s path to net-zero demands enormous financial support from other countries. It needs at least $1 trillion in aid over the next decade, only for itself, before it can fulfill its 2070 commitment.

Sad to say, the promised $100 billion in Paris Agreement to help developing countries like India and Brazil wasn’t delivered.

Without outside support from developed nations, India has to rely on its own measures. But one major barrier to this is the high borrowing costs it will pay to access financial markets. There are other options though that it can try, according to analysts.

One is to get sovereign loans from the World Bank. Another is to boost ties with other green markets that will make it easier to pool funds for renewables. Some efforts in this area are already underway, only waiting for more push.

Best of all, proponents of India’s path to net-zero can think differently. They can consider building new cities and industries that have low emissions.

If these homegrown solutions materialize, India will be its own role model to look up to.

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Occidental ‘Net-Zero Oil’ Deal With South Korean Refiner

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Occidental Petroleum Corporation planned to sell net-zero oil with an Asian trading house.

Occidental signed a deal with SK Trading International to sell its net-zero oil. Under this agreement, Occidental offers SK Trading the option to buy up to 200,000 barrels of oil each year.

The deal covers a five-year period when the refiner can convert the oil into net-zero products.

What’s With Occidental Net-Zero Oil Deal?

The drive for carbon-free fossil fuels is a discomfort for the energy sector. This is because even if refineries reduce their emissions, the oil still produces GHG. Such GHG release refers to the so-called Scope 3 emissions.

In response, Occidental found out how to resolve this carbon emission problem. It plans to offset all its emissions, from crude extraction to consumption. This is through their Direct Air Capture (DAC) facility in the Permian Basin that would remove CO2 from the air.

DAC is Occidental’s low-carbon strategy towards its net-zero goal. The deal with SK Trading for the supply of Occidental net-zero oil will help ensure CO2 removal. This carbon sucking technology will go with an enhanced oil recovery (EOR ) process.

The SK Trading will then use the reconfigured oil from Occidental to create net-zero products. These include low-carbon aviation fuel.

The SK deal shows signs that the final investment decision is on its way. Meanwhile, Occidental said that it would make a decision early this year.

The Transition to Net-Zero Emissions

Same with Occidental, SK Trading also have net-zero goals by 2050. Through its “Carbon to Green” strategy, it seeks to transform its entire portfolio into a low-carbon business. It also pursues ways to curb its Scope 3 emissions or its customers’ emissions.

The company CEO noted that they want Occidental net-zero oil deal for a reason. They aim to be part of the world’s first carbon reduction efforts based on the oil’s life cycle analysis. And the DAC project of Occidental is a good initiative to try.

According to Occidental, they expect to pull as much as 1 million metric tons/year of CO2 emissions via DAC. The company will then store the removed emissions underground. As such, the DAC carbon removal process is permanent and verifiable.

The captured carbon is equal to the expected carbon emissions from the whole oil life cycle. This includes extraction, transportation, storage, shipment, refining, end-use, and combustion.

Occidental’s DAC project is ready to go online in the last quarter of 2024. It needs a capital investment of around $800 million to $1 billion.

The initiative is getting support from other companies wanting to offset their emissions. By injecting tons of CO2 into the ground, the Occidental net-zero oil deal will contribute to global carbon reduction efforts.

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