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Reuters
23-05-2025
- Business
- Reuters
New framework issued for tackling Scope 3 emissions gap
May 23, 2025 - The Voluntary Carbon Markets Integrity Initiative (VCMI) has released the Scope 3 Action Code of Practice, which provides guidance to companies on best practices to reduce Scope 3 emissions. Scope 3 emissions, which are indirect greenhouse gas (GHG) emissions that occur in a company's value chain, can account for a significant portion of a company's GHG footprint and continue to grow rapidly on a global basis. The Scope 3 Action Code of Practice is designed to promote credible GHG mitigation by companies and participation in high-quality voluntary carbon markets to further efforts to meet global climate change goals. Many companies measure their GHG emissions by assessing them within three different scopes. Scope 1 emissions are direct emissions from sources owned or controlled by a company, such as emissions associated with the boiler or furnace in one of its corporate offices. Scope 2 emissions encompass indirect emissions from the company's purchase of electricity, steam, heat, or cooling. For example, Scope 2 emissions include the generation of electricity that is used in one of its corporate offices. Scope 3 emissions cover all sources that are not within the Scope 1 or Scope 2 boundaries. Scope 3 emissions are indirect GHG emissions that occur in a company's value chain that are not produced by the company itself and are the result of activities from assets not owned or controlled by the company. These emissions may arise from upstream sources, such as the company's suppliers, and sources downstream of the company's own operations, such as the company's customers and product use. Although some progress has been made toward reducing Scope 3 emissions, they have not been reduced at the speed or scale to meet overall global climate change goals. Developed through a multi-stakeholder public consultation and road-testing process and collaboration with various groups and forums, the VCMI's Scope 3 Action Code of Practice was designed to provide a practical tool for companies that are making progress toward their near-term Scope 1 and Scope 2 emission reduction targets but have faced difficulties or are behind on achieving their planned Scope 3 emissions reductions. It is intended to promote credible, net zero-aligned GHG mitigation by companies and participation in voluntary carbon markets. The Scope 3 Action Code of Practice requires companies to set science-aligned near-term emission reduction targets for Scope 3 emissions and calculate the gap between a company's most recently reported Scope 3 emissions and where the company needs to be on their path to decarbonization to stay consistent with near-term science-aligned targets in that year, i.e., the Scope 3 emissions gap. It permits companies to use high-quality carbon credits to close this gap, subject to adherence to certain requirements and limits. The Scope 3 Action Code of Practice requires companies to publicly disclose the following: •Their current Scope 3 emissions gap; •Measures already taken to enable Scope 3 emissions reduction and the results obtained; •The main current and anticipated barrier(s) and an explanation of how they impede progress to targets; •A list of measures to overcome remaining barriers; and •The expected timeframe and emissions reductions to close the emissions gap. In addition to these disclosures, the Scope 3 Action Code of Practice requires companies to retire high-quality carbon credits in an amount at least equal to their Scope 3 emissions gap. However, the Scope 3 emissions gap to be closed by high-quality carbon credits cannot be more than 25% of the company's total Scope 3 emissions trajectory. The Scope 3 Action Code of Practice lays out a four-step process that companies must follow. They are required to comply with the Foundational Criteria, which require public disclosure of an annual GHG emissions inventory and science-aligned near-term emission reduction targets consistent with reaching net-zero emissions no later than 2050. Companies are also required to demonstrate progress toward meeting a near-term emission reduction target and that their public policy advocacy supports the goals of the Paris Climate Accords. Companies must assess whether they meet the Scope 3 Action Code of Practice requirements, which include those listed above. They are also expected to demonstrate progress toward meeting their near-term Scope 1 and Scope 2 emissions reduction targets through certain public disclosures. One of two calculation approaches must be applied to determine the Scope 3 emissions gap: the year-on-year approach or the carbon budget approach. The year-on-year approach calculates the limit of the emissions gap each year a company aligns with the Scope 3 Action Code of Practice (i.e., the company must ensure that the Scope 3 emissions gap is less than 25% of the Scope 3 trajectory emissions in the applicable year and that the Scope 3 emissions gap is eliminated by 2040 at the latest). The carbon budget approach calculates the limit upfront for the company's near-term target implementation period. The Scope 3 Action Code of Practice requires companies to retire high-quality carbon credits to close their Scope 3 emissions gap, subject to the 25% limit. Until Jan. 1, 2026, interim options for carbon credit procurement are available, after which only credits labelled by the Integrity Council for the Voluntary Carbon Market (ICVCM) Core Carbon Principles (CCP) or Article 6.4 credits may be used. Companies are expected to transparently disclose information to demonstrate that the Foundation Criteria requirements and Scope 3 Action Code of Practice requirements have been met. They are also expected to transparently disclose key information related to the high-quality carbon credits used to comply with the Scope 3 Action Code of Practice guidance, including the quality and number of credits retired. The VCMI Scope 3 Action Code of Practice provides a helpful tool for companies to continue their efforts to reduce and mitigate their Scope 3 emissions and demonstrate their commitment to climate action. It supports global mitigation efforts by encouraging the use and retirement of high-quality carbon credits while companies continue to work toward achieving their decarbonization targets. Its support for the use of carbon credits to address Scope 3 emissions gaps deviates from the methodology of the Science Based Targets initiative (SBTi), which only permits the use of carbon credits to address residual emissions that remain after a company has achieved its long-term science-based target and cut emissions by more than 90%. Although the additional flexibility in addressing Scope 3 emissions may be welcomed by many companies, the difference in the rules and guidance has created some concern in the industry on the use and reliance on carbon credits to achieve emissions reduction targets. However, the industry may see enhancements to the Scope 3 target-setting framework in the future, with SBTi recently issuing a proposal that would permit companies to prioritize action on the value-chain activities that generate the most emissions and set separate targets for those sources. As companies continue to reduce and mitigate their Scope 3 emissions, they should ensure that they document their Scope 3 emissions and reduction plans and ensure that any carbon credits used and retired are high-quality credits. Pamela Wu is a regular contributing columnist on energy and decarbonization issues for Reuters Legal News and Westlaw Today.
Yahoo
21-04-2025
- Business
- Yahoo
UK enhances carbon and nature credit markets to boost green finance
The UK government has initiated plans to strengthen voluntary carbon and nature credit markets, aiming to mobilise climate finance and support British businesses in diversifying their revenue streams. These markets facilitate the trading of carbon credits, enabling businesses to invest in eco-friendly projects, such as deploying electric vehicles and planting trees, to offset their emissions. The new initiative is part of the UK's Plan for Change, designed to position the country as a global hub for green finance. This move is expected to drive growth and investment while simultaneously addressing the climate crisis. However, the current state of these markets is not reaching their full potential due to unclear guidelines for businesses and some ineffective practices. The UK is creating a global framework with a set of principles to guide businesses in using carbon credits responsibly to improve market effectiveness. This framework aims to build trust, ensure environmental benefits, and promote transparency in sustainability reporting. The carbon and nature markets have the potential to be worth up to $250bn and $69bn, respectively by 2050, under optimal conditions. By bolstering confidence in these markets, British businesses, including farmers and land managers, will be able to tap into new revenue streams and investment opportunities. Nature Minister Mary Creagh said: 'It is why increasing trust in these markets will ensure that they benefit both people and our planet, ensuring money flows towards genuine environmental improvement projects and creates new sources of finance for farmers and land managers in the UK.' The UK's commitment to green finance is further demonstrated by the £43.7bn ($57.8bn) of private investment in clean energy industries since July and the net zero economy's growth rate, which is three times faster than the overall economy. The government's consultation is aligned with a regulatory approach that supports growth, including a recommendation from the Corry Review to launch a Nature Market Accelerator. Voluntary Carbon Markets Integrity Initiative (VCMI) executive director Mark Kenber said: 'Businesses need clarity and confidence to invest in voluntary carbon and nature markets that help meet global climate goals. This consultation from the UK government plays a vital role in delivering this. 'VCMI welcomes the proposal to recognise our Claims Code as international best practice, as well as the global leadership shown by the UK's proposal to incentivise greater action by companies to address their unabated Scope 3 emissions through the inclusion of our forthcoming Scope 3 Action Code of Practice. The Code of Practice will enable companies to go further, faster and with integrity on climate action.' Earlier this month, the UK government shortlisted 27 hydrogen-powered projects in its second Hydrogen Allocation Round (HAR2). "UK enhances carbon and nature credit markets to boost green finance" was originally created and published by Energy Monitor, a GlobalData owned brand. The information on this site has been included in good faith for general informational purposes only. It is not intended to amount to advice on which you should rely, and we give no representation, warranty or guarantee, whether express or implied as to its accuracy or completeness. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content on our site. Sign in to access your portfolio
