(Update Summer 2021: the proposition I've made at the end of this article actually doesn't solve the issue I pointed out at the beginning of the article. This is something I discussed in some more recent posts. However, I find it interesting to let this article unchanged as I think this highlights my approach, the mistakes I made and the way my thoughts evolve on this topic while trying to solve the issues I mentioned.)
Some companies will have their scope 1 to 3 emissions to increase, and that’s fine
Let's start off with a question that may first seem strange: as part of the fight against climate change, does a company necessarily have to reduce its Scope 1 to 3 emissions? Or in other words, if a company has its scopes 1 to 3 emissions to increase, is this necessarily bad for the climate? In my opinion, the answer is no: it depends on the business of the company, and more precisely on its contribution in terms of avoided emissions.
Let's be even more explicit: if scopes 1 to 3 emissions of companies like EcoAct, SNCF, Tesla, EDF, etc. (or any of their competitors) do not increase in absolute terms in the coming years, then this will be no good news for the fight against climate change. These companies must indeed grow economically in the future (and so must their induced emissions, which cannot reasonably be reduced if their economic activity grows strongly), because they all have a climate-friendly activity: they do "more good" (contribution in avoided emissions) than "harm" (induced Scope 1 to 3 emissions), one could say in a simplified way.
Therefore it seems to me that what a company must reduce, i.e. what the emissions reduction objective should focus on, is not its induced emissions (i.e. its scopes 1 to 3 GHG emissions calculated according to one of the carbon accounting standards), but its induced emissions deducted from its avoided emissions allowed by the sale of its products and services.
Any company that exclusively provides low-carbon services or products accounts its avoided emissions separately from its induced emissions, according to corporate standards.
Let's remind a somewhat technical point of current corporate carbon accounting: the avoided emissions allowed by the products and services a company sells are not systematically deducted from its induced emissions (scopes 1 to 3). This will only be the case if the low-carbon services and products sold are sold in substitution of existing and more carbon-intensive services and products.
For example, if Renault starts selling fewer internal combustion vehicles and more electric vehicles instead, then its induced emissions will mechanically decrease as a result of this substitution (since carbon accounting includes the emissions linked to the use of the vehicles sold, which are lower in the case of electric vehicles than internal combustion vehicles).
On the other hand, a car manufacturer - let's say Tesla, which sells exclusively electric vehicles, does not deduct the avoided emissions allowed by these sales from its scopes 1 to 3 induced emissions.
What is the link with the Science-Based Targets initiative?
This great voluntary initiative provides a framework for companies wishing to set "science-based" emission reduction targets and trajectories, i.e. supposed to be aligned with global trajectories that lead to limiting global warming to a certain level (e.g 1.5°C).
The whole technical difficulty related to this SBT initiative is to move from a macro to a micro scale: how to translate at a disaggregated level (i.e. at the scale of a company) an emissions trajectory that is known in an aggregated way, at the global scale?
Methodological frameworks have been designed for so-called 1.5°C or well-below 2°C targets, and Net-Zero targets methodologies are currently being developed by the initiative.
A critical and already well-identified issue with the existing SBT is how companies can engage regarding their Scope 3 emissions (“indirect emissions”): within the existing frameworks, companies have the option of not committing to an absolute reduction in their Scope 3 emissions (these Scope 3 emissions can remain stable over time). Their commitment can take other forms: a suppliers’ engagement, or a commitment to reduce the intensity (and not the absolute value) of their Scope 3 emissions, in physical intensity (e.g. a reduction in emissions per unit of product) or monetary terms (e.g. a reduction in emissions per euro of turnover). This latitude left to companies on their Scope 3 targets is extremely damaging from a theoretical perspective: it implies that even if all companies in the world were SBT committed, the aggregated curve of the individual trajectories of these companies would not be "aligned with science" and therefore the global warming would be greater than that targeted.
In fact, emissions would not fall sufficiently since the scopes 1 and 2 of all companies in the world, on which there is an obligation to reduce emissions in absolute terms, do not cover all global emissions - they exclude in particular consumer emissions linked to the use of the products sold, for instance oil consumption from cars.
The initiative just released its work on the methodology being developed for the Net-Zero targets, and it is stated that the 1st condition that a company will have to meet is the following : “To achieve a scale of value-chain emission reductions consistent with the depth of abatement achieved in pathways that limit warming to 1.5°C with no or limited overshoot.”
It is not clear at this point whether the emissions reduction along the value chain can be achieved (according to the initiative) in the same way as it can be achieved in the current 1.5°C SBT trajectories (i.e. with the possibility of intensity targets on Scope 3), or whether an emissions reduction in absolute terms will be imposed on everyone -possibly with sector distinctions, etc.
In the first case, such reduction targets would be unsatisfactory for the reasons already mentioned: the individual trajectories of companies, once aggregated, are not in line with the expected reduction trajectories at the global level.
In the second case, the problem is more subtle and related to the introductory statement: an emissions reduction target expressed in absolute terms is unattainable for companies in the green economy whose activity is growing rapidly. In my opinion, these companies would therefore be de facto excluded from the initiative - because they would not be able to reach the objectives, ... even though this initiative is supposed to reward the best companies from a climate perspective.
Even more serious: if one day the Science-Based Targets initiative were no longer simply a voluntary initiative, but were to be imposed by regulators on all companies or used for certain regulations (for example, to condition certain financial aid, which would be desirable if the theory were robust enough), then companies in the green economy would be jeopardized. To top it all off, it is the very companies who should be supported who would be disadvantaged.
Thus, with emissions reduction targets expressed in absolute terms, SBT targets cannot be extended to the whole economy: these targets actually only make sense from a climate perspective for economic players in the brown economy, those who indeed have to reduce their emissions in absolute terms - and have to arbitrate between a decrease in their volume of activity and a decrease in the carbon intensity of their activity.
What should be done then, for example, should separate targets be imposed on companies in the green economy and the brown economy, with intensity targets for the former and absolute targets for the latter? Should we use a taxonomy to distinguish ex ante between a green company and a company that is not green?
As stated in the introduction, the most elegant and rigorous theoretical solution in my opinion does not consist in imposing distinct targets on companies (or in leaving them the possibility of intensity objectives, as is currently the case, which is also unsatisfactory).
In my view, it would consist in imposing on all companies absolute reduction targets, not for their induced or gross emissions (scopes 1 to 3), but for their net emissions, i.e. their induced emissions minus the avoided emissions allowed by the products and services sold and that are not accounted yet.
Thus, a company's induced emissions could grow (along with its activity) if it manages to offset this growth by an even greater increase in its contribution in terms of avoided emissions by developing low-carbon services and products needed for the transition.
Such a theory could be extended to the whole economy without jeopardizing the green companies growth.
Such a revisited SBT theory will only be possible if robust methods for calculating companies' contributions in terms of induced and avoided emissions exist. This is not even the case for companies' induced emissions (and even less so for avoided emissions, for which calculation methods are more recent), since as I mentioned in a previous blog post, carbon accounting standards (GHG Protocol, Bilan Carbone®, etc.) are constructed in such a way that what is meant by "a company's emissions" is not their contribution in terms of induced emissions, but rather something (flawed) between their contribution and their carbon dependency.
Unsurprisingly (since one needs to start from a solid base to be able to apply a robust theory), rigorously calculating a company's contribution in terms of induced and avoided emissions seems to be a prerequisite for the definition of universal "science-aligned" emissions trajectories.
Failure to solve these problems related to current carbon accounting may sooner or later lead us to a dead end, and eventually slow down the fight against climate change.
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