Make it Climate-Radical, Business-Friendly, Socially Just, and Fully Transparent.
The piece below is co-authored by my friend Peter Ebsen. Peter and I recently put forth this submission to the Science-Based Targets Initiative (SBTi). We admire the SBTi, and we share their goal of “driving ambitious corporate climate action.” To that end, we see room for improvement in their guidelines to corporations on reaching net-zero targets.
The SBTi submission inspired us to co-author a two-part series exploring some of the thoughts and ideas behind our suggestions to SBTi. In short, we suggest shortening timeframes for corporate net-zero commitments, treating carbon removal as equivalent to emission reduction, prohibiting deforestation, and enhancing disclosure/transparency. We understand that some of our proposals may be counter to views of environmentalists whom we respect. Accordingly, we welcome feedback and believe discussion and debate on these important topics will be helpful.
Disclosure: Neither Peter nor Mark are neutral on this topic. Peter has spent his entire career thinking about, and getting directly involved in, carbon markets to achieve climate goals. Most recently, he co-founded SilviCarbon, a carbon dioxide removal aggregator. Mark is the former CEO of The Nature Conservancy (2008–19) and is an advisor to and investor in several companies in the carbon removal business.
The March to Net Zero
There’s been a lot of good news in the world of corporate climate commitments recently. We’ve reached a consensus around net zero as the desired end goal. This clarity has led to even more commitments. Almost everyone, it seems, is getting in formation as the private sector drives inevitably towards our shared vision. It’s a clear-cut victory that proves optimists like us right. Right?
We initially thought so. But after taking a closer look, questions arose for us.
Here are the two concerns about corporate net-zero commitments that we’ve been grappling with:
A. Timeframes for net-zero commitments are often vague or very long.
Time is not on our side.
Most environmentalists agree with the Intergovernmental Panel on Climate Change (IPCC). The world needs to reach net-zero by 2050 and get at least halfway there by 2030. But — we shouldn’t deceive ourselves — progress on reaching global net emission reduction goals has been poor. We’re on track for just a 0.5% net reduction from 2010 levels by 2030. That’s compared to the 45% net reduction needed by 2030 to reach net-zero by 2050. Clearly, we need to accelerate our effort by many orders of magnitude.
Given this bleak trajectory, we don’t believe we should encourage or reward vague long-term pledges, however well-intentioned they may be. We should insist on clearer near-term commitments.
- If you are a large corporation with the means and the desire to be viewed as a climate leader, you should reach net-zero much sooner. As early as next year.
- If you don’t have the financial capacity to do so, commit to doing as much as you can now and give an explanation as to why you can’t do more immediately.
- And for all companies, if you want credit for setting the goal, you need to show your plan. Improve your disclosures so we can better understand your roadmap. What are your current net emissions, how will you reduce them, what are the costs of the net emission reductions you make, and what would be the costs of those you choose not to make?
B. There is some undue ambiguity about what net-zero actually means.
There are two points of some contention worth zeroing in on.
- Net-zero means net zero.
Net zero’s meaning should be clear. Any entity that wants to be net-zero — whether it is a country, a company, or something else — must have its anthropogenic greenhouse gas emissions balanced by its anthropogenic carbon dioxide removals. The inflows and outflows of greenhouse gases into and out of the atmosphere within a given time period (e.g. a calendar year) must be in balance. That’s the IPCC definition. Each company is responsible for ensuring that its greenhouse gas emissions are balanced with carbon dioxide removals.
2. In a net-zero framework, carbon removal is equivalent to emission reduction.
Given this definition, the climate emergency, and the lack of progress we’ve made thus far, we don’t agree with the SBTi that emissions reductions are always better and that carbon removals should only be used as a last resort.
This should be good news for companies who are ambitious about reaching net-zero ASAP. Removal presents a major opportunity to achieve progress quickly and cost-efficiently (costs per ton of net emission reduction).
Many environmentalists don’t agree.
They believe the focus should be entirely or mostly on absolute emissions reductions (as opposed to net emission reductions). We worry that’s not realistic given the urgency of the situation. We believe we need to be as pragmatic as possible. And we need to remember that the initial climate goal as defined by the IPCC is to balance anthropogenic greenhouse gas emissions with anthropogenic carbon dioxide removals. We need to move towards that goal by reducing the difference between greenhouse gas emissions and carbon dioxide removals each and every year. But progress on reducing net emissions has been very poor so far.
We believe that encouraging carbon removal will accelerate immediate progress. Activities that lead to the reduction of absolute greenhouse gas emissions have a cost per ton. These costs per ton are different for each greenhouse gas emission reduction activity. The same is true for carbon dioxide removal activities. They also have a cost per ton which is different for each activity.
If in 2021 all greenhouse gas emission reduction activities and all carbon dioxide removal activities are carried out which cost less than say USD25 per ton, then this would lead to more progress on net emission reductions than if only greenhouse gas emission reduction activities are carried out which cost less than USD25 per ton.
We know from many other examples in the marketplace that a surge of demand for carbon removal would likely result in more supply, lower costs, and innovations all leading to opportunities for further net emission reductions in the future. That is equally true for encouraging demand for activities that reduce absolute emissions. But again, we are likely to see more progress with net emission reductions in the future if we encourage demand not just for greenhouse gas emission reductions but equally for carbon dioxide removals.
There is an important social justice component that is partly addressed by equally encouraging activities which reduce absolute emissions and carbon dioxide removals. We need to move quickly towards the initial climate goal of balancing anthropogenic greenhouse gas emissions and anthropogenic carbon dioxide removals. This has a cost.
The total cost of this is the aggregate of (i) the costs of all activities which reduce absolute emissions, (ii) the costs of all carbon dioxide removals, and (iii) the administrative costs of managing and monitoring these tasks.
The vast majority of these costs are likely to be passed on to consumers. This will disproportionately impact low-income households. For low-income households compared to high-income and wealthy households, the same absolute increase in costs of consumption represents a much higher increase as a percentage of disposable income and wealth.
Keeping the aggregate costs of achieving the climate goals as low as possible is partially addressing this issue. This is not sufficient. Further accompanying measures will be required to ensure that achieving the climate goals will not impact low-income households more, as a percentage of disposable income and wealth, than high-income and wealthy households. But keeping the overall costs of achieving the climate goals as low as possible is a first step.
Other considerations about removals:
- We acknowledge that not all carbon removal efforts are created equal. We will only condone the highest quality ones. This will require more investment in monitoring and verification. But there’s no reason this can’t be accomplished.
- Critics say that capacity for nature-based removals is likely limited and that costs for technology-based removals are prohibitive. However, this is a chicken and egg problem. We anticipate that market demand for removals will change that outlook dramatically.
- Critics appropriately worry about the permanence of nature-based removals. Fires wiping out forests are commonly cited as an example. We believe the entity that used the removal to balance its emissions in the first place should be responsible for balancing any “re-release” of emissions with new carbon dioxide removals. This ensures that at all times the inflows of greenhouse gas emissions into the atmosphere are balanced with outflows of carbon dioxide removals from the atmosphere. Because that’s the environmental goal according to the IPCC. Further, such ongoing accountability should improve the performance of removals over time.
- Critics point to damaging side effects of some nature-based projects such as threats to biodiversity, livelihoods, etc. We agree that such outcomes need to be avoided to the extent possible, but note that the same standard should be applied to emission reduction initiatives and those activities which cause greenhouse gas emissions in the first place. There should be no higher standard for carbon dioxide removal and greenhouse gas emission abatement activities compared to greenhouse gas emitting activities. Such a double standard impedes climate progress.
What would this look like?
The world of corporate climate commitments would be very different on the basis we recommend. The goals would be:
- Aligned with the IPCC. The IPCC is the independent body of experts that we have empaneled to assess the latest climate science. It makes sense to align our practices and expectations with their definitions and guidance on net-zero.
- Focused on near-term actions. First and foremost, we need to know what companies are doing to improve now and in the near-term. If they can’t do much yet, they need to be clear about the conditions in which they will be able to make changes and their projected timeline for achieving those conditions.
- Comparable across companies. Right now, companies are giving us apples and oranges (and bananas and kiwis and a whole fruit salad). It’s impossible to compare different companies’ efforts. They use different terms, measurements, and ideas. This framework would give us a basis for comparison.
- Free of marketing claims. Cut the PR budgets. We don’t want fancy campaigns — they mostly just obfuscate. We want disclosures. Clearly disclosed actions will be a company’s best advertisement.
- Visible for stakeholders. With companies aligned and disclosing, we would more clearly see who is leading the pack and who lags behind. Stakeholders who care about a company’s climate commitments — shareholders, customers, employees, etc — will be able to decide for themselves whether the company is doing enough quickly enough.
- Able to translate into best practices. With greater disclosure on the costs of carbon emission abatements and carbon dioxide removals, both for those activities realized and those not realized, we’d have a much clearer view on how best to move forward, and companies could learn from one another, accelerating best practices.
- Encouraging innovation. When carbon removal efforts are universally lauded, there will be increased demand, which in turn should spur innovation and more supply in addition to more effective monitoring and verification.
- Make removals a tradable commodity. Yes, this will help bankers and commodity traders. But it will also help with carrying out the lowest cost net emission reduction activities, and this is particularly important for disproportionately impacted lower-income households.
Digging into an example
Microsoft is appropriately viewed as a relative climate leader compared to other companies. They have pledged to reach net-zero by 2030 with a climate framework that is far more detailed and clear than that of any other company we know. They also are ahead of the pack when it comes to disclosure and in investing in innovative removal projects. There is a lot to admire here.
But remember, it’s an emergency. We need a lot of movement fast. Companies out in front of this issue are getting a real benefit from being seen as not just ahead of the others but as a shining example. Let’s make sure they are truly earning it. After all, these leading corporations are setting the bar that others will strive to meet. We need to make sure it’s high enough to deal with the crisis at hand.
Under the climate framework we suggest, Microsoft would be called upon to:
- Accelerate their net-zero deadline, maybe even to the end of 2021. They are profitable enough to be able to do so. So they should put their money where their mouth is or explain why they are not able to do so.
- Disclose much more about their emissions. What are they? How much does it cost to reduce them further? How much does it cost to balance them with removals? How much are they able to balance with removals at a time? What’s blocking them not to balance all of them? Are they taking on the responsibility to balance the potential future re-release of these removals with further removals?
- Set the rules in stone. Right now, Microsoft’s climate pledge is voluntary. A change in board or management could mean the end of its commitments. Instead, Microsoft should treat its climate pledge the way it would regulatory compliance.
Microsoft could set a very high standard for what it means to be a net-zero climate leader. Everyone could learn from them and, hopefully, many peer companies would choose to match them.
We have tried to make a case for a climate framework that is climate radical, business-friendly, socially just, and fully transparent. As stated at the beginning, we understand that some of these proposals may be counter to the views of environmentalists whom we admire. Accordingly, we welcome feedback and believe discussion and debate on these important topics will be helpful.
Next, we will address where the carbon dioxide removals could come from and how we can put structures in place that give us confidence that the removals are helping with achieving the climate goals and are not harmful in other ways. We will also address the issues of prohibiting deforestation in companies’ supply chains and improving funding for natural habitat conservation projects. We will also look at what implementing a climate framework as suggested by us would mean for other companies.