Companies might be allowed some flexibility when it comes to buying voluntary carbon credits to offset the carbon footprint of their supply chains under an upgraded guidance by UK-based international standard setter the Voluntary Carbon Markets Integrity Initiative (VCMI).
While this flexibility has attracted criticism from environmental group Greenpeace, the VCMI said it will mobilise urgently needed climate finance otherwise not available.
A beta version of a new scope 3 emissions flexibility claim was announced on Tuesday by VCMI for companies to road-test, as part of an upgrade of a set of guidelines it issued last June for companies to follow when using credits to offset their emissions.
The upgraded guidelines permit companies to make limited use of quality carbon credits to close the gap between their scope 3 greenhouse gas target emissions and their current emissions in a given year, as long as they have taken other steps to reduce their current emissions. Scope 1 refers to emissions emitted by facilities controlled by a company. Scope 2 emissions arise from bought energy, while scope 3 emissions relate to activities of its suppliers and during the consumption of its products.
The new guidelines will unlock demand for carbon credits from companies that are currently unable to fully meet them but are making progress towards targets aligned with the global goal of containing global warming at 1.5 degrees Celsius, VCMI said.
“Through surveys and analysing the performance of companies towards their targets, it is very clear that many companies all over the world are having challenges with both measuring and reducing their scope 3 emissions,” Mark Kenber, VCMI’s executive director, told reporters ahead of the upgrade guidelines’ announcement.
“So we are launching a beta version of a scope 3 flexibility claim, which will allow companies to use carbon credits to make up some of the gap between where their emissions are and where they should be in any year.”
VCMI said the proposed scope 3 flexibility required “further fine-tuning” and the examination of relevant legal issues. Companies will only be allowed to make such flexibility claims after such work is completed, it said, adding it aims to “fully operationalise” it next year.
Globally, the gap between companies’ scope 3 emissions reduction targets and their current scope 3 emissions is estimated at around 1.4 billion tonnes of carbon-dioxide equivalent, rising to more than 7 billion tonnes by 2030, Kenber said, citing a study by MSCI Carbon Markets.
Allowing the extra flexibility to use carbon offsets could potentially bring US$15 billion of additional investment to the voluntary carbon credits market, he added.
This flexibility has implications for Hong Kong, which has big ambitions of bridging international funds and the world’s biggest climate mitigation market in China.
Affected by media reports of the poor quality of carbon credits generated from forests protection climate-mitigation projects, corporate demand for carbon credits fell last year for the first time since the mid-2010s and has remained soft this year, according to a report by research firm Sustainable Fitch last month.
The flexibility introduced by VCMI is “dangerous”, especially for oil and gas companies that have 80 to 90 per cent of emissions coming from scope 3 sources, said Greenpeace East Asia’s Beijing-based project lead, Li Jiatong.
“Now, this is [another] licence to keep emitting greenhouse gases while parading carbon offsets around and trying to pass them off as real climate action,” she said. “Companies need to reduce emissions at the source and stop burning fossil fuels.”
The flexibility introduced should increase the demand for high-quality carbon credits in the longer term, said Grace Hui, CEO of carbon financing firm Net Zero Asia.
In the short term, however, most companies – including those in Hong Kong – are not expected to be able to take advantage of it, because they do not meet VCMI’s foundational criteria, she said.
This criteria includes disclosing current scope 1, 2 and 3 emissions, setting near-term targets to reduce them and showing progress in financial allocations, governance and strategy towards meeting them.
While the new flexibility is expected to increase demand for carbon credits, addressing concerns around the quality of climate mitigation claims will require immutability and the ability for third parties to verify the origin of the emissions data, said Kelvin Yuen, head of North Asia and chief financial officer of Hong Kong-based decentralised climate data technology developer Allinfra.
Separately, bourse operator Hong Kong Exchanges and Clearing announced a new commitment on Monday to achieve carbon neutrality by next year, through efforts that include the purchase of high-quality certified carbon credits to offset its emissions. It also announced a pledge to achieve net-zero emissions by 2040, 10 years ahead of its original target.
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