Whenever I’m asked about the key challenges in scaling up carbon removals, the one that looms largest in my mind is how to stimulate corporate demand.
The scientific case for requiring the urgent scale-up of removals is very clear – the IPCC forecasts that we will need 4-10Gt of CO2 removals a year by 2050.
That will best be achieved by a combination of Government and corporate action – corporates should be ramping up their purchases of carbon removals (CDRs) now, alongside their direct action to decarbonise; and in the early years this will need to be complemented by Government support to plug the funding gap for early carbon removals projects and make them investable.
The problem is – the signals for corporates to make early commitments just aren’t there.
The most forward-thinking corporates are purchasing removals because the science tells them it’s the right thing to do, and they want to play their part in developing the market for the benefit of others. The likes of Microsoft, JPMorgan and Frontier are making advance purchases, and also sharing their experience to shed light on the issues in the market and help others follow suit.
But we can’t expect every corporate to be so enlightened, or to have the resources to do that. If carbon removals are going to make it into the mainstream – and we need them to make it into the mainstream given the requirement for scale – there needs to be clear frameworks that tell corporates it’s the right thing to do, and help them to do it in the right way.
Those frameworks are lacking at the moment. The best-known climate targets framework is the Science Based Targets Initiative (SBTi). It provides corporates with a well-recognised route to set validated climate targets. It enables corporates to use carbon removals to neutralise their residual emissions, but only at the end of their decarbonisation journey, once they’ve achieved at least a 90% direct decarbonisation. Before that, carbon removals can be used for Beyond Value Chain Mitigation – but that’s seen as very much a “nice to have” – it is not a strong enough signal for corporates to take early action. And if corporates don’t purchase CDRs now, the market won’t develop, and removals won’t be available at scale when the SBTi framework suggests they’re needed. Moreover, we will have missed out on the opportunity to remove CO2 from the atmosphere in the interim.
The Voluntary Carbon Markets Initiative (VCMI) is a useful supplement to SBTi. It requires corporates to have, and be on track to meet, their SBTi targets, but it supplements that by recognising corporates that counterbalance some or all of their emissions by purchasing high integrity credits. It also has beta guidance on using credits to deliver Scope 3 targets, albeit in limited portions and for a time limited period. However, it doesn’t distinguish between reduction and removal credits so, again, there is no definitive signal to purchase removals. And it simply doesn’t yet have the traction in the market that SBTi has.
Not surprisingly, mainstream corporates find these overlapping frameworks very confusing. A recent survey1 of 145 corporates carried out by The Climate Board on behalf of VCMI found that, far from stimulating demand, current corporate claims frameworks are at best confusing and at worst positively deterring businesses from participating in carbon markets. That is restricting demand and means carbon markets are not delivering their full potential to channel corporate funding into much needed carbon removal projects. This mismatch between potential and delivery needs to be addressed urgently if we are to scale the market at enough pace to meet climate targets
Unfortunately, at present, it can feel to many corporates that the safest thing to do reputationally is not to engage in carbon markets. Corporates who participate can face accusations of “greenwashing”, and reputational risks if the projects they’ve purchased from come under fire.
We need a two-pronged approach to tackling this. We need to raise the bar for carbon credits and ensure there are stringent standards on the supply side of the market, and buyers can clearly identify high integrity credits. The Integrity Council for the Voluntary Carbon Market (ICVCM) is addressing the supply side of the market. At the same time, we need clear frameworks that tell corporates it’s the right thing to do to purchase high integrity CDRs now.
The joint initiative announced by ICVCM, VCMI and SBTi at COP28 is a step in the right direction. We will have succeeded when corporate are concerned about the reputational risk of NOT having high integrity CDRs in their portfolio, and feel equipped to go out and source them.
Regulators also have a role to play to support the deployment of permanent CDRs, by setting appropriate rules on climate claims. Companies should be allowed to make green claims based on high-integrity CDRs, provided these claims are transparent and do not interfere with absolute emissions reduction efforts and targets. This will encourage investment in the nascent CDR market and help support global negative emissions targets. It is important that these considerations are reflected in relevant policy (or legislative) debates, such as the EU Green Claims Directive.
Making investment in carbon markets easier and more attractive to corporates is critical if we are to deploy carbon removals at enough scale to meet global climate targets. Today Drax is publishing a position paper, which surveys the way in which corporate claims frameworks (including but not only SBTi and VCMI) deal with carbon removals. It recommends five principles that should underpin the treatment of carbon removals in corporate claims frameworks:
- Businesses that want to support Net Zero should invest in carbon removals today.
- The share of permanent removals in their portfolios should increase over time.
- All residual emissions should be abated by permanent carbon removals by the Net Zero target year.
- There should be transparent disclosure of corporate spending on permanent carbon removals.
- Climate claims should recognise interim achievements towards both decarbonisation and neutralisation.
We hope the paper will help to stimulate debate about how corporate claims frameworks can best support the early use and subsequent scale-up of high integrity carbon removals.
There is a real “win-win” here if corporates can gain appropriate recognition for doing the right thing and purchasing high-integrity CDRs. For that to happen, CDRs will need to be recognised in a meaningful way as an intrinsic part of corporates’ decarbonisation pathways – they can no longer be seen as a “nice to have”. We will have succeeded when corporates are more worried about not purchasing CDRs than purchasing them – because corporate claims frameworks make crystal clear that early and increasing purchase of high integrity CDRs is an expected part of corporates’ net zero pathways, and provide guidance on how to achieve that.
The full paper can be found here, We would welcome feedback on the paper, and in particular any suggestions for how we can move corporate claims frameworks in the right direction. Please contact me at [email protected].
1 https://vcmintegrity.org/climate-board-vcmi-research-january-2024/