Whilst governance failings at the Science Based Targets Initiative (SBTi) have generated many pious headlines just recently, in our view this detracts from the detailed work ongoing at SBTi to determine the suitability of ‘environmental attribute certificates’. Back in November 2023, SBTi released a statement recognizing that there is debate around the use of environmental attribute certificates (EACs), including - but not limited to - carbon credits. After gathering viewpoints through a Call for Evidence, SBTi indicated that this evidence would be considered through the existing governance process for standards development. Then in April 2024, a storm of controversy arose after a statement from the SBTi Board, and a subsequent update to attempt to clarify the position.
The Board statement indicated the intention of SBTi to permit the use of EACs for the purpose of abatement of Scope 3 related emissions. This would be achieved through the definition by SBTi of specific guardrails, thresholds and rules for these certificates to be considered valid for Scope 3 emissions abatement purposes, respecting the principles of mitigation hierarchy. A first draft of these rules would be available by July 2024.
“Environmental attribute certificates are used in different chains of custody models with varying traceability, e.g. from models where the activity issuing the certificate is traceable throughout the value chain to models where the certificate is traded separately from the underlying activity, not allowing traceability of the activity issuing the certificate to the value chain. Trading of these certificates may allow buyers to make claims, while also providing financial incentives to interventions that reduce greenhouse gas emissions, promote renewable energy or achieve other sustainability objectives.
Environmental attribute certificates can include:
SBTi, September 2023
These certificates are one tool companies can use to quantify the effect of carbon reduction activities on specific products - resulting in scope 3 benefits for their customers. The lower carbon intensity of these products can be reflected in a higher price for these products, generating some return on investment and incentive for further decarbonisation measures. The immediate reaction to the SBTi’s announcement focussed almost exclusively on the fear that this will create a back door for dubious offsetting, where companies purchase emission reduction credits instead of working to decarbonise their own operations.
But looking at the other types of EACs (not including offsets), our experience of working with companies to generate EACs has been that this type of market mechanism can be effective. It is clear that EACs are incentivising the types of carbon savings that companies can achieve by making changes to their own operations in the short term, where ‘step-change’ emission reductions will take much longer and require wholescale transformation. We see companies investing significantly in substantial carbon saving measures within their own operations, and working with assurance providers like ourselves to check and validate impacts at a product level. What we believe is needed now is a common set of rules that ensures scientific rigour in measuring and reporting these types of carbon emission reductions. There are also important links to be made with existing standards for claims relating to the traceability of product characteristics, most notably in the ISO22095 Chain of Custody Standard. Our team have worked with a range of companies in interpreting how this Standard can be applied to claims around the carbon intensity of products within an EAC approach. There is however considerable scope for interpretation even when using ISO 22095, and there are important credibility pitfalls to avoid in developing EAC schemes. If you would like to know more, please get in touch.
Standing back from the recent furore, SBTi has long been facing challenges to the credibility of its approach, both from the perspective of the ‘scientific’ nature of its approach to approving corporate targets, and the context of ever-increasing evidence of failures to achieve emission reductions. Whether SBTi can deliver a rulebook on EACs that is acceptable to both the commercial interests of companies, and the wider range of sustainability stakeholders remains to be seen. It is vitally important that SBTi ‘follow the science’, but we should not jump to conclusions before the proposed rules have received proper technical scrutiny.