The Science Based Targets initiative (SBTi), the leading authority on corporate climate goals, has released new research that suggests carbon credits may not be effective for offsetting value chain emissions. This marks a significant shift from earlier plans, which had proposed a broader role for carbon credits.

The SBTi’s review, based on various third-party studies, finds that many carbon credits fall short of delivering the intended environmental benefits. This revelation suggests that reliance on carbon credits might hinder decarbonization efforts and limit the flow of climate finance.

The report’s findings could significantly impact the carbon offset market, which has been scrutinized for its effectiveness in delivering promised emissions reduction. 

SBTi’s New Findings Challenge Carbon Credit Market

Founded in 2015, SBTi’s mission is to establish science-based target setting as a standard for corporate climate action. It provides guidelines and validation for companies aiming to meet net zero targets, initially requiring 90-95% decarbonization by 2050 and neutralizing remaining emissions.

Earlier this year, SBTi proposed revising its Corporate Net-Zero Standard to include carbon credits for managing Scope 3 emissions, which are the most challenging to control and often represent the majority of a company’s emissions. This proposal led to controversy within SBTi, resulting in staff concerns and calls for leadership changes.

The SBTi board later clarified that any changes regarding carbon credits would be evidence-based and that a discussion paper would be published before finalizing the new standard.

Recent research by SBTi indicates that many carbon credits are “ineffective” in achieving meaningful climate impact and could potentially hinder net-zero progress and reduce climate finance. The research acknowledges the limitations of existing studies but calls for more evidence to better assess the effectiveness of carbon credits.

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The SBTi report highlights that 84% of evidence submissions argue against treating carbon credits as interchangeable with other emission reduction methods, deeming it illogical or counterproductive to global mitigation goals.

Around half of the submissions support contribution claims over offsetting or compensation claims. The SBTi received 111 unique evidence pieces, including research studies and white papers, which will inform updates to its Corporate Net-Zero Standard—a framework guiding corporate decarbonization.

SBTi’s Game Plan: Revising Corporate Net-Zero Standard

The report’s findings are expected to reinforce SBTi’s credibility within the industry, according to experts. They praised the review’s focus on the science of carbon credits, suggesting it restores the SBTi’s relevance in guiding corporate climate action amidst significant external pressures.

Sue Jenny Ehr, the interim CEO of SBTi, stressed that the findings should be viewed within the context of the reviewed evidence, without making broad generalizations. Ehr also said that:

“Targets are the first step to decarbonization and it is important that the SBTi conducts a comprehensive process to revise the Standard to help companies take the lead on climate action and drive down emissions.”

Interim CEO Sue Jenny Ehr stressed the importance of a thorough revision process to support effective climate action and emission reductions.

Alberto Carrillo Pineda, SBTi’s Chief Technical Officer, stated that the review aims to provide a nuanced understanding of the carbon credits debate, which has become highly polarized. Pineda further remarked that the standard-setter stresses the importance of prioritizing direct decarbonization for climate action. 

The SBTi plans to release a draft of the revised Corporate Net-Zero Standard for public consultation in late 2024. 

A Carbon Credit Market Shake-Up: A Call for Rethinking Emissions Strategies

Ideally, a carbon credit represents a ton of carbon dioxide emissions that have been either removed from or prevented from entering the atmosphere, often through projects like reforestation or renewable energy. It’s also called carbon offsets in voluntary carbon markets.

The carbon credit market, estimated by BloombergNEF to potentially expand from $2 billion to $1 trillion with right rules, is driven by the recognition that companies will struggle to achieve the required emissions reductions to meet the 1.5°C target set by the Paris Agreement.

These market instruments can be valuable if used correctly and if they incentivize the right outcomes, according to Pineda. 

Efforts are underway to address the risks associated with carbon credit trading. For instance, new US guidelines aim to restore trust in the voluntary carbon market (VCM), with Treasury Secretary Janet Yellen noting its potential as a powerful tool against climate change if properly regulated. The US Commodity Futures Trading Commission is also preparing to finalize its carbon credit guidance by the end of the year.

READ MORE: US Government Releases New Voluntary Carbon Credit Market Policy Guidelines

In conclusion, the SBTi’s report calls for a more stringent evaluation and application of carbon credits. The initiative’s renewed emphasis on science and rigorous standards aims to ensure that carbon credits contribute meaningfully to climate goals and do not undermine broader decarbonization efforts.

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