What needs to change in the SBTi Net Zero Standard 2.0 to scale carbon removal

The just-published draft standard is unlikely to significantly increase demand for CDR. Crucially, Interim CDR targets must include the total CDR needs, not just for Scope 1.

The long-awaited draft of the Science-Based Targed Initiatives’ Net Zero Standard 2.0 was just published. I’ve seen first-hand how much hard work dedicated and smart people have put into it. They are trying to balance an enormous amount of input from all parts of society, creating a standard that is both science-based and actually adopted by companies. It is not an easy task by any means. The standard covers all aspects of corporate targets, but in this reaction I only focus on carbon removal.

The new standard currently includes a proposed requirement to set near and long-term targets for CDR as one of three options in the consultation, together with interim target-setting methods and a proposed scale-up pathway (see details in footnote¹) But only for Scope 1 emissions.

The reason near-term CDR targets are needed is to scale up removals so that there is enough available for companies to meet their net zero targets. It is a crucial part of credible net zero pathways. If only scope 1 were to be required, there is a big risk few companies would buy CDR, interim SBTi CDR targets wouldn’t make a major difference for the scale-up of removals, and net zero fulfilments would be jeopardised.

Scope 1 emissions are very unevenly distributed

Major Scope 1 emitters are less likely to have SBTi targets and are less able to pay². The overwhelming amount of SBTi-corporate residual emissions will be in Scope 3. Companies with high Scope 1 emissions also have a much lower ability to pay for CDR than other companies.

To illustrate, I analysed a dataset of the top 200 companies in the world. 43 of them had SBTi targets at the end of last year. Sorting by Scope 1 emissions (2022 data) the 25 top Scope 1 emitters represent 80% of Scope 1 emissions in the dataset, but among these only two had SBTi targets (Enel and Maersk).

Furthermore, these 25 companies only had an average profit per tonne emitted of $435 in Scope 1-2 and $85 in Scope 1-3. The rest of the dataset had an average profit per tonne of $78,000 in Scope 1-2 and $32,000 in Scope 1-3.

Scope 1 and 2 emissions will also be even more unevenly distributed at net zero. Most companies are expected to have zero Scope 1 and 2 emissions by then. The sectors expected to have significant remaining Scope 1 emissions, for which CDR is the best option are: aviation and maritime transport, some parts of heavy industry and mining, and those primarily relying on CCS³.

I would expect remaining Scope 1 emissions among SBTi companies to be very low by net zero, with almost all global Scope 1 emissions existing outside of the standard. SBTi companies’ main need for removals will not be their own scope 1 emissions but neutralising supply chain emissions from companies that haven’t covered them themselves.

Even SBTi companies with large Scope 1 emissions remaining at net zero are very likely to pass on the cost of CDR to their customers⁴. These companies are the least suited to scale up the CDR sector today since they both have a relatively low profit per tonne emitted and have large other investment needs to fund their emission reductions.

The downstream companies, especially in high-profit, low-emission sectors like finance, insurance, and tech, are needed to fund CDR efforts. They have a unique role to play in helping scale up CDR now and paying a green premium for zero-emission products and services at net zero. For more analysis on who can pay for carbon removal, see the Carbon Gap paper I authored on the topic.

Some have brought up double counting as a problem of having milestone targets for Scope 3. For example, both an airline company and their customer purchasing CDR individually for the same emission. But this can be solved through better accounting in the supply chain. The SBTi already proposed a change here saying “For residual emissions within the value chain (scope 3), Category A companies shall ensure that these emissions are neutralized either by the value chain partner responsible for the emissions or by providing support to enable their neutralization at the net-zero target year and thereafter.” This is a positive development.

The way I see this working is that companies estimate what their future CDR needs are in all scopes (including the need to finance value chain partners removals) and set interim CDR scale-up targets accordingly. This doesn't require new accounting frameworks to be ready now. There will be no overinflation of demand if companies estimate their CDR needs at net zero correctly⁵. (See more on this in our Milkywire white paper Corporate carbon removal targets in practice, page 11-12)

The CDR Sector is dependent on an SBTi CDR interim target requirement

The reason we need to scale up CDR is not to save CDR suppliers but to grow CDR in a way that allows for global climate targets to be met. The durable CDR sector does not look like it will take off without new incentives, and has mainly been left to the goodwill of a handful of altruistic buyers. Data from CDR.fyi show that the number of corporates willing to purchase durable CDR is very limited and not growing quickly. Only around 200 companies bought any durable CDR in 2024 with 80% of the volume coming from Microsoft, Google and the Frontier buyers group.

If only Scope 1 emissions are required to set interim targets for, then the durable CDR sector will likely fail to scale significantly in the coming decade.

The next wave of companies will only buy CDR if explicitly told so. I and others in the CDR field have had countless conversations with companies that say they are waiting for guidance from the SBTi on CDR. If only Scope 1 emissions are required to set interim targets for, then the durable CDR sector will likely fail to scale fast enough in the coming decade. This would risk giving us a lost decade ahead, jeopardising our ability to reach net zero.

I have also heard the argument that the supply of CDR is so limited that we can’t require companies to buy. But it is only demand that creates supply. A requirement for interim targets covering Scope 1-3 would not mean companies buying ex-post CDR credits immediately for a large share of their emissions, but setting milestone targets from for example 2030, making preorders today to create the supply. And the purchases won't start at the level needed at net zero but at a small subset of that, scaling up slowly.

As currently written, the SBTi Net Zero standard carries some risk of causing more harm than good for the CDR sector. Although it will increase demand among companies that estimate them having residual Scope 1 emissions, it may reinforce the notion that companies only need to care about Scope 1 and need not scale up CDR for remaining Scope 3 emissions at net zero. This could potentially hinder efforts within companies without large Scope 1 emissions to advocate for CDR purchases, as CFOs can reference the SBTi's stance that it is unnecessary. The guidelines should incentivize companies that want to support CDR but just need a push, not the opposite.

My concrete proposal for a change would be to make it mandatory for SBTi companies to estimate how much CDR they need at net zero, and to start scaling up CDR in a credible manner. What is credible can be kept flexible to allow for the fact that the ability to pay differs between companies. A minimum level can be set though. As proposed in our Milkywire CDR target paper monetary targets instead of volume targets is an option for the near term.

If the current text makes it to the final standard and the requirement to begin purchasing CDR is limited to just Scope 1, then at least a recommendation must be added to also start scaling up CDR to satisfy all CDR needs at net zero, not just for Scope 1.

In addition to this, it's also critical to advocate for making some level of CDR scale-up mandatory rather than optional, this is currently an open question in the consultation⁶

The like-for-like principle must also be maintained, only allowing permanent CDR for fossil emissions. CDR is not a means to atone for sins; it is what guarantees that continued fossil fuel emissions do not lead to increased warming. If removal methods with low permanence or high risk of reversals are allowed to cover fossil fuels, this principle is put in danger. Currently this is a question the SBTi is consulting on⁷.

The SBTi should also soften the limit that only a maximum of 10% of base-year emissions can be neutralized. Even if 10% is a reasonable estimate of the economy-wide need for CDR, many companies have greater direct, and supply chain emissions coming from activities that are hard-to-abate and where CDR may be the optimal mitigation choice.

A very positive development in the standard is the increased ambition for Beyond value chain mitigation (BVCM) where the SBTi plans to give recognition to companies that address the impact of ongoing emissions and support mitigation outside of their value chains. This includes taking responsibility for historic emissions. I will be returning to this topic.

The consultation period is open. Regarding CDR we now need a clear message from companies with SBTi targets, academics, civil society, and the CDR community asking for updates to make the interim CDR target guidance scale up CDR to meet the needs of net zero targets.

Disclosure: I’ve been a member of the 2023-2025 SBTi Technical Advisory Group, as well as the 2021-2022 Expert Advisory Group for the Net Zero Standard 1.0.

On Thursday, I will join Sebastian Manhart and Eve Tamme in a CDR Policy scoop discussion about the new SBTi draft standard. Register below to listen in and participate in the discussion.

Photo by Robert Tudor on Unsplash

1. The SBTi present the following three options for consultation.
1. Companies are required to set near and long-term CDR targets for Scope 1 emissions.
2. Companies are recognized (but not required) for doing so.
3. A flexible, undefined third option where both reductions or removals can be used.

In a supporting document, they outline removal target-setting methods (presumably for option 1 above). A very positive development is that they open up to having separate targets for CO₂ and other greenhouse gases and do not require them to be mixed together. For CO₂, they propose a scale-up of 5% of net zero CDR needs retired by 2030, 16% by 2035, 35% by 2040, 60% by 2045, and 100% by 2050.

None of the three options would enable CDR scale up to meet net zero needs though as laid out in this article. However the SBTi writes that “SBTi Sector Standards may consider scope 3 removal targets, depending on sector-specific considerations.”

One important question is how much demand a CDR-scale up for scope 1 requirement would lead to. But I think it would be very little. Most SBTi companies’ Scope 1 emissions will drop to zero. And the type of companies with remaining Scope 1 at net zero are less likely to be SBTi companies. The SBTi also defines residual emissions very narrowly (1.3 Gt by 2050 for CO₂) not fully taking into account cost-efficiency.

2. One of my major issues with the SBTi Net Zero standard is that it is to some extent set up as if all the world's companies were following it. If that was the case, and all companies were as likely to meet the targets we would not have a problem. In that case, net zero targets themselves would only need to be for Scope 1. But since this is not the case, both emission reduction targets and CDR targets have to include Scope 1-3.

3. CCS does not reach 100% capture, so CDR is needed for the remaining 5-15%. This includes some steel manufacturers, cement manufacturers and the part of utility generation that will still be natural gas.

4. Companies should be allowed to sell net zero products to finance these removals, e.g., a net zero airline ticket that can count against the purchasing company's Scope 3 emissions. Otherwise, SBTi companies in competitive industries may have a hard time fulfilling the requirement. We need to update the GHG protocol to allow for this. The EU Green Claims directive may also make product-level claims harder.

5. The SBTi argues that removal needs for Scope 3 emissions can’t be accurately estimated today. When explaining why the targets only cover Scope 1, they point to the expectation that there should be no remaining Scope 2 emissions at net zero, and “the uncertainties involved in projecting long-term residual emissions for scope 3, given the dynamic nature of value chains and the challenges in estimating residual emissions for value chain counterparties.”
I agree that it's very difficult to estimate, but since we know that for most companies, the majority or all CDR needs will be for Scope 3, we can’t ignore them. My preferred option here is to ask companies to estimate these emissions themselves and require that they scale up CDR towards that estimate. Even a rough estimate like “10% of today's” Scope 3 emissions would be infinitely better than nothing.

6. The standard presents three options for residual emissions (described in footnote 1) only the first one includes a requirement to start purchasing removals.

7. The SBTi presents two options here:
”Option 1. Using the gradual transition approach, so that the minimum durability threshold increases over time. Option 2. Using the like-for-like approach, based on the atmospheric lifetime of the GHG residual emissions being addressed.” They also say that “The approach for defining the durability of removals will be further explored and refined through the consultation process.”

Option 1 does not make sense to me since what is needed to be scaled up to meet net zero targets is permanent CDR, scaling up for example forestation creates climate impact today but does not help reach net zero targets.

The target setting appendix presents scenarios for options 1 and 2, where companies would choose between a target that separates GHGs or combines them into one target. The first is preferable. But if the second is chosen, companies should not be allowed to use low-durability removals to counterbalance CO₂. Currently, it looks like the proposal would create a loophole for this.