As companies strive to decarbonize and meet ambitious emissions reduction targets, understanding the integrity and effectiveness of carbon credits is very important. Commissioned by the International Emissions Trading Association (IETA), our research sheds light on how carbon offsetting can contribute to companies' high-integrity decarbonization strategies.
Our Research Approach
We first sought to identify the magnitude of the decarbonization challenge by mapping out how much carbon dioxide companies are emitting, and what percentage of emissions are covered by an emission reduction target - and ultimately, what this means for the VCM.
Our approach involved the examination of companies emissions, focusing on the 6,378 largest publicly traded companies across 73 countries, representing $81 trillion market cap. Leveraging data on the company sector, annual revenue, and number of employees, we developed a model to estimate baseline greenhouse gas (GHG) emissions.
Key Findings
Our findings based on our extrapolated dataset unveiled that the total GHG emission baseline was calculated to be ~11G tCO2e, and that the majority (81%) of the largest listed companies have yet to set climate targets. Of the 11 gigatons (Gt) of scope 1 and 2 emissions,7.5 Gt remain uncovered by any emission reduction target. Without more companies committing to targets, we risk overshooting the Paris Agreement pathways, with projected emissions exceeding 4 Gt by 2030 and 6 Gt by 2050.
Even among companies that have set targets, there’s a significant risk of missing them, particularly for scope 3 emissions. Historical emissions data indicate that companies are off track to meet scope 1 and 2 targets by 26%, and scope 3 targets by a staggering 62%. This translates to nearly 1 Gt of scope 1 and 2 emissions surpassing targets by 2050, with scope 3 emissions poised to escalate further.
Hard-to-Abate Sectors
The Mission Possible Partnership identifies seven hard-to-abate sectors crucial for decarbonization: concrete, steel, aluminium, chemicals, aviation, shipping, and trucking. Our analysis applies decarbonization scenarios to these sectors, revealing a concerning gap between current trajectories and Paris-aligned decarbonization goals. Even under best-case scenarios, there remains a risk of emissions exceeding a Paris 1.5-degree pathway by 2.5 Gt by 2030, escalating to 7.5 Gt in a low-cost scenario.
The Role of Carbon Offsetting
Carbon offsetting can support the emissions reduction path by lowering barriers to increased climate ambition and bridge the gap between hard-to-abate sector pathways and Paris-aligned decarbonization; carbon offsets offer a pathway towards a more sustainable future.
By embracing high-integrity carbon offsetting practices, companies can help fulfil their climate commitments and reduce their overall emissions.
