Allow Near-term Net Zero

Allowing companies to reach near-term net zero targets matters more for CDR than anything else standards can come up with.

Next week, at in-person SBTi expert working group meetings, my main message on CDR & BVCM will be to allow near-term Net Zero.

I think it's more important to allow companies to use permanent CDR to reach near-term targets, than to create a very low requirement for them to start buying it for long-term targets. Today, the SBTi makes it functionally impossible to reach net zero well before the rest of society, requiring reductions of ~90% before CDR.

When I was in the 2021 SBTi net zero expert advisory group, I didn’t object strongly to this 90% “rule” because near-term corporate Net Zero is not optimal. The optimal approach would be for companies to set a credible internal carbon fee and allocate it where the impact is greatest, reporting it as a contribution to global climate targets. This is a BVCM approach. I have spent almost five years promoting it, managing the Milkywire Climate Transformation Fund, and co-writing one of the major guides on it. I still think it’s optimal, but I have realized that insisting on it and not allowing near-term Net Zero effectively lowers ambition.

Some vanguard companies have adopted BVCM, we have 20+ donors to the CTF, but most won’t fund projects that don’t count toward their targets. The other week, I spoke to a large company that planned to reach net zero by 2030, but is now scrapping it in favor of a 2050 SBTi target. They will spend some on BVCM, but not nearly as much as they would have spent on CDR.

Near-term net zero with permanent removal does not compromise integrity. If removals are permanent, additional, and verified, they are not a lesser form of mitigation. And paying for CDR creates pressure to reduce emissions. At >$150/t companies neutralizing their remaining emissions with CDR will have an extremely strong financial incentive to cut emissions as quickly as possible.

Allowing near-term net zero will only affect a small group of low-emission/high-profit companies. But their spending has a massive impact on the CDR sector. Just like niche electronics kept solar alive in the 1970s, corporate voluntary demand is realistically the only thing that can keep the CDR sector developing before compliance markets enter in the early 2030s. This creates learning and builds capacity that all will benefit from later on.

Allowing near-term Net Zero only solves a very small part of the problem. The major issue is that most of the largest emitters aren’t setting or acting on credible targets at all. Here, other solutions are needed. I am working on a paper on conditional targets, under which companies would set targets that articulate what share of emission reductions they can achieve on their own, and what share is conditional on strong policy. This would make it easier for hard-to-abate companies to commit to net zero, while highlighting what policy is actually required where, creating a stronger pressure on policymakers.

There is no one target that fits all companies. Let high-ambition firms with resources to do so reach net zero early. Continue to recommend BVCM for those able to convince their CFOs, and create new pathways for the biggest emitters that expose, rather than obscure, the role of climate policy.

A version of this post was first published on Milkywire.com