Should Carbon Credits be Used Against Scope 3 Targets?

If we agree every company should contribute fairly to our collective journey to global net zero, then they should both account for, and take action to abate, all of their emissions. This includes scope 1 (direct emissions that are owned or controlled by a company), scope 2 (emissions that a company causes indirectly from the energy it purchases and uses), and scope 3 (emissions that are not produced by the company itself but by those that it is indirectly responsible for up and down its value chain).

Scope 3 emissions account for more than 70 percent of the carbon footprint of many businesses* and can be the most difficult of these scopes to account for and reduce. Despite this, to be compatible with a net zero world, companies must ultimately both reduce their emissions in line with science, and take responsibility for what they emit on that journey – no matter how challenging that is.

Should Carbon Credits be Used Against Scope 3 Targets?

There has been much debate recently over the suggestion we should allow companies to count carbon credit retirements against their scope 3 emissions targets.  At Gold Standard, our view has always been, and remains, that companies should not use carbon credits to claim they have met their within-value chain reduction (abatement) targets.

“Value chain abatement” involves reducing emissions from company operations throughout its value chain, including the emissions of its suppliers, vendors, customers, and any other intermediaries. Reporting results from actions outside a company’s value chain as if value chain progress is being made will be seen by many, including increasingly savvy consumers, journalists and governments, as greenwashing.

In cases where carbon credits target in-value chain activities there are challenges with mismatched forms of accounting, efficiency, practicality, and potential double counting.

The blanket recognition of buying carbon credits as meeting scope 3 reduction targets risks creating a false belief that responsibility can be bought off the rack, deferring the changes in business practices we need to achieve global net zero and diverting funding from more appropriate tools.

When Should Carbon Credits be Used?

High quality carbon credits, while not suitable for claiming within-value chain reductions, still play a crucial role in a company’s sustainability strategies as they take full responsibility for their unabated emissions, scopes 1, 2 and, yes, 3.

They can do so using the Beyond Value Chain Mitigation (BVCM) model. This involves actions that go beyond a company's direct and indirect value chain to contribute to global climate goals. High-quality carbon credits can be used to fund projects that generate real, measurable climate benefits, such as reforestation, renewable energy development, and community-based sustainability initiatives like clean cooking solutions or safe water access. By investing in these projects, companies can support broader environmental and social impacts, fostering resilience in vulnerable communities and ecosystems.

Models like the internal carbon fee/fund action approach, as outlined in Gold Standard’s Beyond Value Chain Mitigation (BVCM) Guidance, can help determine how much different companies should contribute to ongoing efforts – including through the use of high-quality carbon credits. This ensures that their contributions are significant and aligned with their overall sustainability goals. This strategic use of carbon credits demonstrates a company’s commitment to global climate action, complementing their internal emission reduction efforts and driving systemic change beyond their immediate operations.

Careful calibration is essential to ensure the climate crisis is taken seriously by business leaders, supporting them to uphold genuine responsibility and creating confidence in corporate action among their stakeholders, broader civil society, the media, and the public.

If we're serious about climate efforts being in line with science, we can't fall into the trap of asking companies to do only what we think they will be willing to do, or what can be done easily. We must instead be clear what must be done to meet the challenge of reaching global net zero. It is certainly true that scope 3 targets are difficult to achieve. This doesn’t change the science of what reductions are needed and where and how they should be enacted.

While solutions are being developed to address challenges related to traceability of scope 3 emissions, such as mass balance and book-and-claim for purchased goods and services or collective action in shared sourcing areas, it’s critical to remain true to the science.

Conclusion

This blog started by challenging companies to ask themselves: “if every company acted this way, would we solve the climate crisis?” To be able to answer that question with a firm “yes”, they must both reduce their emissions in line with science, including scope 3, and take responsibility for ALL their unabated emissions, including scope 3.

This begs the question: If Carbon Credit’s aren’t the answer to the scope 3 challenge what is? That is the topic of the next blog in this series.

This is the second blog in our series about how companies can do the right thing for the climate. You can read the first blog Navigating Corporate Responsibility in the Era of Net Zero.

*https://www.deloitte.com/uk/en/issues/climate/zero-in-on-scope-1-2-and-3-emissions.html