Teresa Lang
Martina Simpkins
Good news for corporates taking climate action through market-based instruments: More clarity from SBTi on the use of certificates for low-carbon commodities, fuels, and gases officially enables additional levers to decarbonization.
The recently released Science Based Targets Initiative’s (SBTI’s) updated Corporate Net Zero Standard (CNZS) version 2.0 has the potential to unlock additional pathways to decarbonize their operations by leveraging the use of market instruments. These can be based on book-and-claim and mass balance chain-of-custody delivery.
This new flexibility includes RNG certificates and RTCs for low-carbon fuels and gases such as renewable natural gas (RNG) and remediated mine gas (RMG, also known as coal mine methane). SBTi has coined the umbrella term “commodity certificates” for these certificates. The term also applies to certificates for sustainable aviation fuel (SAF), as well as other potential certificates for low-carbon commodities such as steel and cement.
The 2.0 CNZS embeds these market instruments within a clearly defined “implementation hierarchy,” applicable to Scopes 1, 2,and 3. Companies must follow a stepwise approach:
- First, companies should prioritize direct reductions. But, if and when a company has documented that additional direct reductions were assessed and infeasible, it may move to the second option.
- Second, a company may take actions that reduce emissions in an “activity pool” such as an electricity grid, supply shed, or logistics network. This must reflect the smallest reasonable geographic or operational level. When a company can document “structural constraints” preventing action at this level within the target timeframe, it may move to the third option.
- Third, a company may take actions that reduce emissions within the sector level.
With the appropriate documentation, CNZS 2.0 opens the door to significantly greater flexibility for companies working to implement their ambitious climate targets.
In practice, many companies, especially in hard-to-abate sectors, will be able to avail themselves of this flexibility because they can document that a certain level of direct reductions is currently infeasible to exceed, and that significant structural constraints exist around the physical delivery of certain low-carbon commodities. Sustainable aviation fuel, available only in certain locations, is one example where structural constraints still exist across the sector. Physical delivery of low-carbon gases such as RNG and RMG is not usually feasible via a dedicated connection to its source, but it is possible and widely recognized via mass balance delivery through interconnected natural gas pipeline systems. SBTi now enables companies to procure certificates that reflect these mass balance deliveries.
A few examples of requirements to ensure rigor and integrity of action include that market instruments must use credible quantification methods, be verifiable, and uniquely attributed to a single actor. In addition, they must accurately reflect the real emissions of the commodity the certificate is tied to and use consistent, standardized accounting methods in line with GHG Protocol rules.
An important note for corporates purchasing low-carbon commodities: SBTI recommends “progressive acquisition” of market instruments. This means that corporates should purchase market instruments progressively over the target timeframe, rather than deferring procurement until the end of the SBTI target reporting cycle (e.g. procure annually, rather than waiting until December in a five-year SBTI target cycle).
Additional clarity and guidance are still needed and forthcoming from SBTi as well as the GHG Protocol:
- SBTI still plans to develop criteria and processes to recognize relevant third-party frameworks, standards, and programs, where applicable, as well as guidance regarding timeframes for allowing market instruments, and a Claims Policy in Q1 of 2027.
- The GHG Protocol’s Action and Market Instruments Guidance is not set to be finalized until 2028, despite its concepts being leveraged in the CNZS 2.0.
- Along with other stakeholders, we have called upon GHG Protocol to issue interim guidance prior to 2028 to better enable leveraging of low-carbon commodities like RNG and RMG today, with the full confidence that such action will be reflected in corporates’ Scope 1 inventory accounting.
Additional clarity is also needed on the recognition of the full impact of low-carbon fuels, inclusive of avoided emissions, which GHGP will address in a forthcoming update. Methane avoidance is one of the most critical near-term climate actions companies can take.
As SBTi and GHG Protocol continue to develop additional criteria and guidance, one thing is clear: corporates, low carbon fuel producers, and regulators all are converging on the importance and impact of market-based instruments for effectuating real emissions reductions.
Find out how CNZS 2.0 affects your decarbonization roadmap. Book a call with our team.