This is a common refrain among entities that are looking for ways to reduce scope 3 emissions instead of supporting reductions generated by projects developed to carbon offset standards. On the surface, it is an admirable position to take. Essentially, the emitter is saying, “We are not interested in just buying offsets. Instead we are going to invest in systems that reduce emissions in our supply chain.”
Yes, it’s a good idea (and necessary) to reduce scope 3 emissions.
Who would disagree? Anyone who has passed elementary math can tally up that emissions from my own factory plus emissions carried in from my supply delivery equals a sum of emissions which need to be reduced or removed in order to meet global climate targets. And companies that invest in climate action interventions “upstream” realize the benefits of a more sustainable and resilient supply chain.
Reducing scope 3 emissions is even specifically required by Science Based Targets. At Native, we couldn’t agree more that this is necessary. We are helping companies do it. We absolutely must reduce GHG emissions at every turn, including by means of scope 3 reductions. No one should be using offsets as a permission slip to pollute.
No, scope 3 emissions reduction is not always the most effective form of climate action.
If we limit ourselves to climate interventions which can be categorized as scope 3, we may be inadvertently inhibiting meaningful climate action.
Let’s have a look at an example:
Company A is looking to fund a scope 3 intervention in its agricultural supply chain but the scale of the intervention and volume of reductions that will result are greater than the company’s scope 3 reduction need for that specific activity and region. Is Company A going to take on the risk of funding the larger intervention and then work to recoup their excess investment by finding another company that is sourcing the same crop in the same supply shed that needs reductions that count towards the same reporting year? In most cases, no. This would be seen, by most, as an unreasonable risk. It’s even more of a stretch if the intervention is in a cropping system that has 4, 5, or more rotations and Company A only sources from one or two of them. Is the company going to find buyers for the other rotations that perfectly map with needed reductions ? Not only does this put Company A at risk but it puts these farmers at risk of not receiving payments for all of their reductions. There are laudable players in the system that are working to solve for these matching issues, but they are still asking the same questions of how this will all work.
Given these uncertainties, what we see happening is companies waiting to invest until this system is figured out, until they can adequately count their investments towards their scope 3 reporting. And thus this accounting gap prevents emitters from participating in meaningful climate action.
A project developer, like Native, may evaluate a similar intervention. But at this point, it often doesn’t make sense to take on the increased risks of a project that can only deliver scope 3 reductions when there is a larger, more rigorous,and more developed market (e.g. the voluntary offset market) for the same reductions with buyers actually ready to invest now. For nature-based projects, the offset market allows us to take a land-based, farmer-first approach where all climate interventions on the land are considered and accounted for rather than cherry-picked to meet a given company’s specific commodity-based accounting goals.
Both Scope 3 reductions and offsets reduce GHG emissions.
The underlying quantification of the change in emissions for both scope 3 reductions and offsets is quite similar. In both cases we are talking about interventions – actions taken to reduce emissions – that create validated and verified reductions or removals.
An offset methodology would use the same (or possibly even a more robust) methodology as a scope 3 intervention. Offsets and scope 3 interventions are subject to similar validation and verification protocols. Reductions developed under carbon offset frameworks have the additional burden of proving that they are additional.
This means that the reduction or removal that underlies a carbon offset could be creating an over-qualified scope 3 reduction if it was accounted for that way. After all, we are talking about the same validated and verified changes in emissions which really only become an “offset” (e.g. a disconnected reduction/removal) if they are pulled from one system and applied against another.
What then is the difference between the two?
What is different between scope 3 interventions and offsets is how they are accounted for by corporations. Accounting for the underlying change in emissions is an important topic. Scope 3 reductions require annual matching of an emissions volume with the reduction or removal. This is good because it pushes emitters to actually reduce their emissions in real time, but it creates a shelf life for the reductions that limits how they can be valued.
Scope 3 reductions also require matching the supply shed (the region where the emissions are occurring) and the emissions source of the commodity being produced with the reduction or removal being generated. This is also good – it pushes emitters to identify each emissions source and its drivers and then work to reduce them. But, it can create complications in systems that generate multiple products (e.g. a rotated cropping system).
On the other hand, in the voluntary offset market there are no formal limitations on when or where an offset can be counted against an emissions source. This creates flexibility and fungibility.
Again, we want to see companies reduce their scope 3 emissions and not just use external offsets, but we also don’t have the luxury of waiting for the scope 3 accounting rules (which have been in process for 7__+ years now) to be created when offset buyers are ready to take action, and often make upfront investments, now.
A better approach is support for reductions developed to offset frameworks AND scope 3 reductions.
We hope that in the near future, regulatory bodies will create the option for projects to produce credits that can be applied as either scope 3 reductions or offsets, depending on the context of the buyer. In this way, we could backstop scope 3 demand with the option to sell reductions as offsets. We could ensure that the on-the-ground generators of offsets –in many cases these are farmers and ranchers– have the ability to capture value for all their carbon and the highest value for each credit. We could accelerate action, or at least not slow it down.
Action needs to be in service of the planet rather than nascent corporate accounting rules.
All of this makes us wonder about what an alternative vision for the gold standard of climate action could look like, built upon foundations we know work.
What if we did not let what each company could ‘account for’ be the lens by which they selected where to invest? What if the most prestigious report a company could provide was its voluntary investments to address carbon at a scale matching or above its own emissions – in its supply shed – with every tonne of CO2e reduced or removed validated and verified?
What if our unrelenting focus was on rigorous baselines and meaningful interventions that initiated widespread change in our agricultural, infrastructure, and transportation systems? What if each company invested all it could in robust changes in the systems its business relies upon most, along with a full, transparent accounting of the change in carbon against a baseline?
There is strong alignment on the essentials that are needed to measure the impact of our work: a carbon baseline and resulting changes against that baseline. There is less clarity on the rules for accounting for that change in company GHG inventories. Given our shared goals for 2030, having the former provides all we need to make the changes we want and need to see in the way we do business. We know what to do, and we can get it done if we are willing to laser our sights on the goal of carbon reduction instead of carbon accounting.
We hope this provides some food for thought, and we’d love to hear what questions it sparks for you. If you’d like to continue the conversation, we’re all ears.