SBTi: Driving Demand in the Climate Action Landscape

What is the SBTi?

The Science Based Targets initiative (SBTi) is a global body and corporate climate action organization that defines and promotes best practices in emissions reductions and net-zero targets. Using a climate science approach, it develops standards, tools, and guidance to enable companies and financial institutions worldwide to set ambitious, science-based emissions reduction targets aligned with what is needed to keep global heating below catastrophic levels and reach net-zero by 2050.

Their work is crucial in driving corporate action towards a net-zero economy. As a carbon trade analyst, I'm constantly tracking the shifts and accelerations within this space, and it's clear that SBTi's evolving influence is setting the stage for significant demand and volume changes in the climate solutions market. Let's delve into what we're seeing.

• Mandatory Targets and Increased Ambition:

SBTi is increasingly making ambitious climate targets, aligned with limiting global warming to 1.5°C, the new normal. Previously, a well-below 2°C alignment was acceptable, but now the focus is on the more stringent 1.5°C pathway. This necessitates deeper and faster emissions reductions across all scopes (1, 2, and 3), pushing companies to seek innovative solutions and adopt more aggressive strategies.

• Scope 3 Emissions Focus:

A significant portion of most companies' emissions lie within Scope 3 i.e indirect emissions linked to everything a company buys, sells, or uses, but outside its own direct operations. SBTi is putting greater emphasis on addressing these indirect emissions. For large companies (with over $450 million in revenue), Scope 3 targets are becoming mandatory, regardless of their percentage of overall emissions. This will drive substantial demand for solutions that help companies measure, track, and reduce emissions within their supply chains and the use of their products.

• Interim Carbon Removal Targets:

The SBTi's recent draft Net-Zero Standard 2.0 proposes mandatory interim targets for purchasing Carbon Dioxide Removal (CDR). Starting in 2030, companies would need to offset a percentage of their residual Scope 1 emissions with CDR, gradually increasing to 100% by 2050. This creates a direct demand for carbon removal technologies and solutions.

• Emphasis on High-Quality Carbon Removals:

The SBTi is emphasizing the importance of durable carbon removal solutions (storing CO₂ for over 1000 years) and is exploring a "like-for-like" principle where the permanence of removals should match the longevity of the emitted greenhouse gas. This focus on quality will likely drive demand towards more robust and verifiable carbon removal methods like Direct Air Capture and Storage.

• Beyond Value Chain Mitigation (BVCM):

The SBTi is formally recognizing and recommending BVCM, which includes activities beyond a company's value chain, such as purchasing high-integrity carbon credits or investing in nature-based solutions. This will further drive demand for credible carbon credits and projects that deliver co-benefits.

• Increased Corporate Participation:

The number of companies setting and committing to science-based targets has been growing exponentially. By the end of 2023, over 4,000 companies and financial institutions had validated targets with the SBTi, and over 10,000 businesses had targets or commitments. This increasing participation directly translates to a larger pool of entities actively working towards emissions reduction and potentially utilizing carbon removal and other mitigation strategies.

• Supply Chain Pressure:

As large corporations adopt SBTi targets, they will increasingly pressure their Tier 1 suppliers to set their own targets. This cascading effect will further amplify the demand for emissions reduction solutions throughout various industries.

Expected Volume of Demand: Our Projections

While precise figures remain fluid, influenced by policy evolution and corporate uptake, we can infer significant shifts based on current trajectories and proposed changes.

• Carbon Dioxide Removal (CDR):

Calculations based on the draft Net-Zero Standard 2.0 suggest that SBTi members alone could require an order of magnitude of two million tonnes of carbon removal by 2030 based on Scope 1 emissions. If Scope 3 is included in future requirements, this volume could be significantly higher. Some industry experts predict that annual demand for carbon offsets in a high-quality market could reach 1.37 gigatonnes of CO₂e by 2030, and 5.9 gigatonnes by 2050, although this broader market includes more than just SBTi-aligned companies.

• Carbon Offsets:

While SBTi emphasizes direct emissions reductions, high-quality carbon credits are expected to play a crucial role, especially for neutralizing residual emissions and through BVCM. The demand for these credits is projected to increase substantially, with the annual value of a high-quality voluntary carbon market potentially reaching $1.1 trillion by 2050.

• Renewable Energy and Energy Efficiency:

The push to reduce Scope 1 and 2 emissions will continue to fuel demand for renewable energy sources (solar, wind, etc.) and energy efficiency solutions across various sectors.

• Sustainable Materials and Processes:

Addressing Scope 3 emissions will necessitate a shift towards more sustainable materials and production processes, driving demand for innovation in these areas. This could include lower-carbon alternatives for materials like steel and concrete, as well as circular economy solutions.

• Verification and Certification Services:

The increasing focus on credible climate action and the use of carbon credits will drive demand for independent verification and certification services to ensure the quality and integrity of emissions reductions and carbon removal projects.

It's important to note that these are projections and the actual demand volume will be influenced by policy changes, technological advancements, and the evolving corporate landscape. However, the direction set by SBTi clearly indicates a significant increase in demand for a wide range of climate solutions and services. We at ProClime are closely monitoring these developments to best help you navigate this dynamic landscape.