The Role of Carbon Markets in Achieving Net-Zero and Just Transition

The SBTI announcement on the inclusion of “offsetting” for scope 3 emissions will be recognized under the SBTI Net-Zero guidelines got me thinking of how internal corporate climate action and carbon markets work. Their focus generally is on direct emissions from scope 1 and indirect emissions from scope 2 and cherry-picking emissions from scope 3.

Climate change

We all acknowledge that we're facing an epidemic on a scale that would put COVID-19 to shame. This epidemic, however, is much more cunning; instead of killing us quickly, it's killing us softly (pun intended).

Industrialization

Let’s face the facts: only 40 – 60 countries enjoy the privilege of being advanced economies with high standards of living and well-established industrial and technological infrastructures. This development has been driven by the unsustainable use of Earth's resources, such as fossil fuels. If we pause to reflect, over 140 countries are home to 6.8 billion people or 85% of the world’s population. I believe we can all agree that everyone has the right to live in an advanced and sustainable economy. Advanced economies rely on imports from less advanced economies, there we have emissions lying in scope 3 for the advanced economies.

Paris agreement

The Paris Agreement means more than just doing our best to reduce our emissions to align with a 1.5°C temperature rise internally. It also encourages collaboration. It's not only about how governments meet their targets, but how we can collectively reduce and remove anthropogenic emissions globally, across borders. “This Agreement will be implemented to reflect equity and the principle of common but differentiated responsibilities and respective capabilities, in the light of different national circumstances.”
Yes, different responsibilities and capabilities.
Different responsibilities and capabilities are often reflected in (National Determined Contributions (NDC’s). While developed countries set ambitious targets for reductions, and slogans like "fit for 55", developing nations have different agenda. They project business-as-usual emissions and set targets for emitting less through more sustainable technology.

Net-Zero

Of course, we need to achieve equilibrium between emissions and removals, but who are truly aiming for Net-Zero? The aforementioned 15%. The other 85% are striving for a more prosperous life for themselves and their descendants—a life that privileged nations currently enjoy. Reaching this goal doesn't mean that less advanced economies are ready to sacrifice it all for Net-Zero. Instead, they focus on developing their local economies in the most cost-effective way.

Actions

We urgently need to mobilize financing for technology solutions that address emissions in developed countries, covering both emissions and removals. Simultaneously, we must support less advanced economies in advancing their economies through sustainable development. We cannot ignore the need for industrialization in the global south, and the global north has a responsibility to support this, irrespective of history. Whether industrialization is sustainable or not is up to industrialized countries to decide in what capacity they want to contribute.

Responsibility

We need to change the narrative. We need to stop focusing solely on Net-zero, whether at the organizational or national level. We need to broaden our agenda and mindset to include:

Net-zero

Reduce emissions.
Increase sequestration.

Focus on value chain emissions and beyond value chain with

Sustainable development
Just transition.

Corresponding adjustment or not

Nations and responsible companies not only need to consider how they reduce and remove their significant emissions (covering scope 1, 2 and 3). They need to consider how they can best contribute to Net-zero, sustainable development and just transition. When considering partnering with a developing nation, nations need to consider how corresponding adjustments will impact their contribution to the Paris Agreement and where funds are flowing.
At the organizational level, organizations need to understand their contributions when using carbon credits.

Are they supporting the host-country to meet their targets.
Are they supporting their country meeting their targets (ITMOs)
Are they going beyond national targets.
For points 2 and 3 the organization needs to understand the underlying economics of the ITMO transfer, is it truly in line with the goals of the Paris Agreement focusing on Net-Zero emissions and just transition. If the answer is no, the organization should not ask for corresponding adjustment.

2050

Being realistic, we’re not going to transition 140 nations to becoming advanced economies before 2050. However, by shifting our focus from narrow to broad, we can hopefully achieve the best of both worlds: significant reductions in emissions and carbon sequestration, while transferring technology to developing nations to ensure their transition to industrialization is sustainable.