How do companies set carbon targets?
A majority of companies in the world still do not set carbon targets. While many of the larger companies have taken on the challenge, SMEs are trailing behind. Moreover, understanding how serious a carbon target is and how ambitious a company’s commitment may be challenging. The below offers a simple overview. Environmentally conscious companies will work towards reducing their carbon footprint (i.e. the carbon emissions associated with its production). Depending on the level of ambition of the company, the company can set goals that differ in depth as well as in breadth:
The depth of commitment can be understood as the company’s ambition in terms of its stated goals. We can consider three levels of carbon target depth:
1) Relative carbon targets: A company promises to reduce the carbon intensity of its productive process relative to some unit of economic output, typically revenue. The company thus allows for an increase of its emissions when its revenue grows. This type of commitment focuses on efficiency and its effect on our heating climate is relative to what is being replaced. The main benefit of carbon intensity reductions depends on the counterpart. If a construction company makes such a commitment and does well in the market, it may replace other construction companies that do not have the same commitment. The net benefit is then a lower than BAU increase in emissions.
2) Absolute carbon targets: A more stringent ambition is to set absolute emission reduction targets, irrespective of growth. A company (or a country) can commit to reduce total carbon emissions by 50% liken to 2010 levels by 2030 and become carbon neutral by 2050. Ideally, carbon intensity and absolute emission targets are combined. Companies that only set absolute targets could freeride for years if their performance declines (Faria, 2015).
3) Restorative targets: While extremely rare for the moment, restorative targets are targets that go beyond carbon neutrality and seek to restore historical damage. Microsoft has committed to scrub all the carbon it is responsible for since its foundation from the atmosphere. Thus, going beyond buying offsets to balance last year’s emissions, Microsoft is setting a restorative target to undo its entire historical carbon footprint.
The breadth of commitment is related to the source of emissions that a company includes within its scope of responsibility. The Greenhouse Gas Protocol proposes three widening scopes of influence that coincide with widening carbon target breadth:
1) Scope 1: The emissions that occur by resources and assets owned and controlled by the company. These are typically high for manufacturing companies and those in the primary industries.
2) Scope 2: The emissions associated with electricity used by the company. Most companies do not produce their own electricity and thus source this from electricity companies. Yet, the emissions associated with the kWh consumption of the company are clearly the responsibility of the firm, as it can increase its internal process efficiency to reduce electricity consumption.
3) Scope 3: Emissions that stem from sources that are not owned nor controlled by the company but still cause emissions for which the company can be considered responsible. This includes upstream (supply) and downstream (consumption & product use) emissions as well as instream emissions like employee work-related travel and transportation and distribution losses from electricity
Companies that are truly ambitious in the fight against climate change are using the Science-Based Targets as their minimum target while going both broad and deep. By 10/01/2021, 1,128 companies had joined the Science-Based Target Initiative, but I have not found any that has set restorative targets from a scope 3 perspective. The figure below highlights the commitments of some companies. If you know of any companies making more stringent commitments do let me know.
There is plenty more companies can do but the way the carbon market works does not make it easy. That will be the topic for a next article.