KEY TAKEAWAYS: SBTi & BVCM
Only 12 of the largest 94 shipowners have committed to a Net Zero target according to the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping.
One reason for the shortfall in Net Zero pledges may be that sectors such as oil & gas and maritime shipping (in addition to steel and chemicals) still lack methodologies from the Science Based Target initiative (SBTi).
Setting Goals to Save the Climate
Norway's sovereign-wealth fund announced in September 2022 that it aims to have every company in its vast portfolio reach net-zero greenhouse gas emissions by 2050. In all likelihood, a large part of their portfolio companies will be compelled to use carbon removals to neutralize their hard-to-abate emissions to reach Net Zero, after mitigating and reducing their emissions where feasible.
The same pressure to set Net Zero commitments and meet them in a timely fashion applies to maritime shipping providers. Although at this stage, according to the Mærsk Mc-Kinney Møller Center for Zero Carbon Shipping, only 12 of the largest 94 shipowners have committed to a Net Zero target. But that hasn’t stopped Singapore headquartered trailblazer Berge Bulk from setting a target of becoming carbon neutral by 2025!
Four key elements
SBTi’s Net-Zero Standard sets out four key elements:
- Near-term science-based targets: Emission reduction plans for 5-10 years in line with 1.5°C.
- Long-term science-based targets: Most companies are required to cut emissions by at least 90% no later than 2050.
- Beyond value chain mitigation: Companies are expected to take action to mitigate emissions outside their value chains, such as purchasing high-quality, jurisdictional REDD+ credits or investing in direct air capture.
- Neutralize residual emissions: Remaining emissions, i.e. the final 10% or less, must be neutralized with permanent carbon removals.
More guidance from on beyond value chain mitigation (BVCM) is expected in 2023, but they have already offered a deeper dive into the subject with a BVCM FAQ.
We have extracted some of the main points below:
Need to act beyond value chains
The principle at the heart of the SBTi’s Net-Zero Standard is the mitigation hierarchy. This hierarchy says that companies must prioritize value chain emission reductions ahead of actions or investments to mitigate emissions outside their value chains to achieve net-zero. However, the Standard also explicitly states that “companies should go further and invest in mitigation outside their value chains now to contribute towards reaching societal net-zero”.
This means that while absolute emissions reductions must be prioritized, companies must also invest in BVCM to help the global economy align with 1.5°C and net-zero.
It is important to understand that BVCM includes but is not limited to carbon removals. While permanent removals are necessary to neutralize residual emissions at the net-zero end date (e.g. 2040, 2050), investments in reducing and avoiding emissions are critical right now.
Generally speaking, carbon credits can play two roles in science-based net-zero strategies:
- In the transition to net-zero: Companies may opt to purchase carbon credits while they transition towards a state of net-zero emissions (i.e., in addition to science-based mitigation of value chain emissions) to support society to achieve net-zero emissions by 2050.
- At net-zero: Companies with residual emissions within their value chain are expected to neutralize those emissions with an equivalent amount of carbon dioxide removals at their net-zero target date, and these removals can be sourced from carbon credits.
Why should companies support ‘beyond value chain mitigation’?
The SBTi believes that companies should invest in mitigation beyond their value chains because it will add to our chances of keeping 1.5°C within reach. According to the Intergovernmental Panel on Climate Change (IPCC), the remaining ‘carbon budget’ for a 50% chance of limiting warming to 1.5˚C is only 500 GT CO2. That budget is reduced to 400 Gt if we want a 2-in-3 chance of achieving the 1.5˚C goal.
Eliminating deforestation and restoring natural areas could yield over 7Gt in annual avoided emissions and removals per year, significantly addressing the emissions gap.
With cargo-owners already pledging to be carbon-neutral or Net Zero for their scope 3 emissions (i.e. transportation) within the next 3 to 8 years.
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