SBTi have published their Corporate Net Zero Standard 2.0. I’ve followed the journey of this 100-page document over the last two years (previous write-ups here and here). And in February, Isometric announced its own plans to become net zero, so reading the guidance this time felt especially real.
In this post, I’ll summarize the Standard from the perspective of the biggest question currently facing the carbon markets: what will lead to new buyer demand?
Near-term impact: OER
The biggest shift in v2.0 is the positive recognition for companies that buy carbon credits now. The so-called Ongoing Emissions Responsibility (OER) program has three tiers of recognition: Engaged, Advanced, and Leadership.
- “Engaged” requires taking responsibility for 1% of total emissions (Scopes 1, 2, and 3). That means either buying an equivalent amount of carbon credits (reductions and removals both count), or setting a carbon price for those emissions and spending the amount raised on climate contributions. Those contributions can include but are not limited to buying credits. There is no mandatory level of the carbon price, but $20/t or higher is recommended.
- “Advanced” increases this to 10% of total emissions (which needs to include 100% of Scope 1 and Scope 2). This can either be met by buying enough carbon credits, or spending a minimum $20/t on climate contributions.
- “Leadership” is a significantly higher bar. You take responsibility for 100% of emissions. You must set a carbon price of at least $80/t, use it to buy enough carbon credits to cover your emissions, and then spend any leftover on further climate contributions (which could include more credits).
- Both Leadership and Advanced companies can use credits purchased as part of legal obligations (e.g. compliance markets) toward achieving their recognition tier (Engaged cannot).
When submitting your target, you are required to provide an explanation if you are choosing not to participate in OER. This creates at least an implicit assumption that companies ought to be taking action. The intended recognition tier is also published.
It seems plausible that companies will view Engaged as the bare minimum, and even though it’s not mandatory, they will pursue that recognition tier. After all, why join SBTi if you don’t care about public perception of your climate impact? This would bring thousands of new buyers into the market ahead of 2030, and likely tens of millions of tonnes in new credit purchases.
But little of that demand will reach durable carbon removal. Most companies will be setting a carbon price of around $20/t, so other than being more supportive of carbon credits, these changes are unlikely to benefit engineered CDR developers. Their best bet would be if Advanced companies use their fairly significant “climate contribution” budget to buy CDR, given that (unlike for Leadership) they do not need to offset their emissions on a tonne-for-tonne basis.
Long-term impact: mandatory credit purchases after 2035
An elegant feature of the final version of this Standard is that it neatly transitions the optional framework above into the mandatory one from 2035. The requirement in 2035 mirrors the Engaged status but gives it teeth: 1% of ongoing emissions (Scopes 1, 2, and 3) must be offset with carbon removal (not reduction). An explicit mandate is introduced for buying durable removal: 10% of the total credits bought must be “long-lived”.
Both the 1% total coverage, and the 10% share that goes to durable removal, must increase over time until companies are offsetting their full footprint with durable removal in their net zero year. This is clearly much better for the CDR industry than the previous position—no credits needed until the net zero year. It creates the ramp-up period that the industry was crying out for, but because it only kicks in from 2035, it will only become relevant in the 2030s, which is too late for many of today’s durable CDR suppliers.
Wild card: compensation for missed targets
There is now guidance to buy removal credits (regardless of durability) to compensate for missed targets. This is explicitly a recommendation rather than a requirement, but has the potential to create significant spot market demand given that many companies are likely to miss their targets. This demand could land as soon as the upcoming 2030 milestone year, and companies planning ahead may buy in advance of that.
Cui bono
I normally try to avoid using the infamous dichotomies of our industry: “nature vs engineered”, “removal vs reduction”. But I think it is a necessary distinction in summing up the impact of this guidance.
The Net Zero Standard 2.0 is great news for reduction credits and nature-based removals, thanks to the OER program. It has the potential to drive significant new, near-term demand. Most purchases will be anchored at around $20/t, or for the most ambitious, $80/t.
But even if buyers take a portfolio approach, this will do little for the more expensive pathways—engineered removals—until 2035. The growth of that industry therefore continues to rely on a deep-pocketed subset of the voluntary market, and more importantly, robust demand signals from policymakers.
That means many eyes will now turn to the forthcoming EU decision on integrating durable CDR into the ETS.
