Discredited: Corporate Climate Watchdog SBTi Says Carbon Credits Are ‘Ineffective’

The world’s leading judge of corporate climate goals has described carbon credits as largely “ineffective” in a key study, although it leaves the door open for limited use.

The pushback against carbon credits as a viable net-zero solution continues, but this time with the top arbitrator of corporate climate targets putting their efficacy into question.

The Science Based Targets Initiative (SBTi), the de facto regulator of corporate net-zero goals, has described carbon credits – a tool used by many of the world’s largest companies to support their emissions claims – as mostly “ineffective”.

Backed by the UN, the WWF and the World Resources Institute, SBTi is regarded as the “gold standard” for assessing the net-zero plans of the private sector. But the organisation has been under scrutiny after it proposed allowing companies to use more carbon credits to meet their climate goals, sparking protests from its staff, who called on the board and CEO to resign.

In response, the watchdog promised a review of third-party literature on carbon credits. In its findings published last week, SBTI said that “various types of carbon credits are ineffective in delivering their intended mitigation outcomes”. It suggested that using such offsets poses “clear risks” for companies, could reduce the flow of climate finance, and potentially hinder the net-zero transformation.

“The outputs released today are a critical step in understanding how the SBTi can develop a more sophisticated approach to scope 3 to help more businesses set targets,” said SBTi CTO Alberto Carrillo Pineda.

Carbon credits ‘inadvisable, illogical, damaging’

The much-awaited report – which analysed evidence from 111 submissions – concludes a tumultuous few months for SBTi, which seemed to indicate that it could allow the use of carbon credits in companies’ scope 3 emissions reduction targets in April.

One staff member quit in protest, a formal complaint was filed with the UK’s Charity Commission, and the technical council of experts who monitor its work warned of lasting reputational damage. And last month, its CEO Luiz Amaral departed for “personal reasons”.

SBTi suggests that the April statement was misinterpreted, and that the new review was “an opportunity for us to continue to move forward, to work together constructively with our internal and external partners, and try to really bring forward real value to the climate community”, according to interim CEO Sue Jenny Ehr.

“This paper… is a clear rebuttal of the Board’s April statement, where specific individuals tried to bulldoze through a proposal that did not have any internal support from SBTi staff or advisers,” said Gilles Dufrasne, lead expert on global carbon markets at Carbon Market Watch. “Some certificates can play a positive role in corporate decarbonisation, but carbon offsetting is not one of them.”

In theory, each carbon credit represents one tonne of carbon emissions removed from (or not added to) the atmosphere, which is usually generated from reforestation or green energy projects. The popularity of this tool has taken the value of the voluntary carbon market to $2B, and according to BloombergNEF, this could cross $1T in 2050.

But most experts agree that carbon credits are fruitless, with offsets particularly linked to greenwashing. It’s a topic that, in Pineda’s words, has attracted “very entrenched, very polarised positions”. The review by SBTi, which has verified the climate pledges of almost 5,800 companies and financial entities, stated that none of the submitted evidence “identified characteristics or operating conditions associated with effective carbon credits and projects”.

“The vast majority of evidence submissions (84%) argue that treating carbon credits as fungible with other sources, sinks or reductions of emissions is inadvisable, illogical or damaging to global mitigation goals, with the other submissions not providing a strong view,” it read.

“Around half of the evidence submissions explicitly support the use of contribution claims over offsetting/compensation/ counterbalancing claims.”

SBTi doesn’t shut the door on carbon credits

SBTi’s review was part of a broader group of research intended to inform its Corporate Net-Zero Standard, a blueprint for decarbonisation in the corporate sector. This included analysis and advice on scope 3 emissions target-setting – the organisation explored whether metrics beyond aggregate scope 3 emissions (like aligning revenue generation with global climate goals) are better metrics of corporate climate performance.

But despite the damning initial findings of SBTI’s study, the watchdog didn’t completely rule out the use of carbon credits altogether. Stressing that “more evidence was needed”, it said commodity certificates could still play a role in sectors where it’s harder to reduce emissions, like steel or cement.

SBTi outlined potential uses for carbon credits: companies could use these to show supply chain emissions cuts, offset residual emissions (around 10% of unabated emissions), or mitigate emissions outside their supply chains. Crucially, though, it didn’t commit to incorporating any of these scenarios in its upcoming draft policy update later this year. And until then, its guidance remains unchanged.

The report was welcomed by NGO the NewClimate Institute, which said it offered “an encouraging pathway for the evolution of corporate climate accountability in 2024″. However, it warned that “undue influence and pressure” still represented major challenges that couldn’t be “overcome through flexibility to use carbon credits”.

Study after study has proven that carbon offsetting is a flawed solution for companies to reduce emissions and meet their net-zero goals. One investigation, for example, found that 49 of the top 50 carbon offset projects (which make up nearly a third of all the credits retired in offset schemes globally) are likely or potentially “junk”.

“Improved standards need to encourage companies to put a distinct focus on addressing key transitions for their sector. In contrast, offsetting allowances could offer a cover-up for the lack of progress on these key transitions,” said the NewClimate Institute.

Doreen Stabinsky, a member of SBTI’s technical council, put it best: “The evaluation of evidence of carbon credit effectiveness reinforces what many academics have been saying for decades: carbon credits of any sort should not be used to compensate for fossil emissions.”