Recent research published in Science by an international team led by Utrecht University, which includes Imperial College London, asserts that prioritizing emissions reduction targets disadvantages emerging green companies. The authors advocate for adopting broader metrics and regulations to incentivize innovation and genuine climate action.
Image Credit: Mark Dixon
Assessing the climate ambition of companies based only on their emissions reductions may not be meaningful for emerging companies working on green innovation.
Dr. Yann Robiou Du Pont, Study Lead Author, Copernicus Institute of Sustainable Development, Utrecht University
Skewing the Field
Businesses, akin to national governments, often establish their own climate objectives, typically centered around reducing greenhouse gas emissions stemming from their operations. These voluntary commitments can be assessed for ambition through validation as “Paris-aligned” under the Science Based Targets initiative (SBTi), a collaborative effort inaugurated in 2015.
This validation implies that the SBTi recognizes these targets as in line with the Paris Agreement's objectives. The agreement strives to cap the global temperature increase at well below 2 °C above preindustrial levels, with efforts made to limit it to 1.5 °C.
According to the new paper, this method might inadvertently benefit larger, established companies, potentially impeding innovation and creating an unfair advantage against emerging competitors. The issue arises because Paris-aligned targets for these larger companies often presuppose that they can maintain their current market share of emissions, thus leaving no room for emissions generated by the operations of emerging enterprises.
For instance, a new solar panel manufacturer aiming to expand its emissions over the next decade while implementing a new, highly efficient production method might face market exclusion. In this scenario, their operations could surpass the Paris-aligned climate target, disadvantaging them within the current framework.
These voluntary corporate targets may have been useful to achieve some progress on emissions reduction in the largest companies. But our paper shows that this approach is not sufficient to guide the corporate sector and cannot be the sole basis for regulations assessing if businesses are Paris-compliant.”
Dr. Yann Robiou Du Pont, Study Lead Author, Copernicus Institute of Sustainable Development, Utrecht University
New Targets
The researchers propose that corporate climate targets could incorporate metrics beyond emissions reductions, such as emissions intensity per unit of economic or physical output. However, aligning these targets with the Paris Agreement goals presents challenges as they do not set absolute caps on emissions.
The study further emphasizes that simply adopting a target does not automatically reduce actual emissions, as voluntary targets remain just that - voluntary. The authors underscore evidence indicating that corporations are leveraging these voluntary targets, often with questionable credibility, to rationalize diluting or postponing mandatory regulations.
Companies setting their own individual targets risk complacency that we can’t afford. The window to keep the planet to 1.5 °C warming is rapidly closing, and even for keeping warming well below the upper Paris limit of 2 °C we need concerted action to reduce greenhouse gas emissions now. Voluntary corporate emissions targets alone are not enough for rapid global decarbonization and certainly not a substitute for regulation.
Joeri Rogelj, Study Co-Author and Professor, Centre for Environmental Policy
Joeri Rogelj is also the Director of Research at the Grantham Institute at Imperial College London.
Encouraging Best Practice
The researchers advocate for governments or intergovernmental organizations to establish legal frameworks founded on a variety of indicators that promote best practices and innovation. They also stress the necessity for stringent transparency requirements in any assessment process.
The authors contend that the tools necessary for constructing such frameworks already exist, encompassing carbon pricing, green subsidies, and demand-side measures. Additionally, regulators should assess the value of products generated by companies during the green transition, not solely their emissions.
Within a restructured framework, the more efficient solar panel manufacturer would not face production constraints, fostering necessary innovation with potential spillover effects in the future.
“Our research underscores the urgent need for robust regulatory frameworks and transparent oversight to guide corporate climate action. Voluntary targets, while commendable, are not a substitute for mandatory regulations that ensure accountability and drive innovation across all sectors,” concludes Co-author Professor Detlef van Vuuren, also from the Copernicus Institute of Sustainable Development at Utrecht University.
Journal Reference:
du Pont, Y. R., et al. (2024) Corporate emissions targets and the neglect of future innovators. Science. doi.org/10.1126/science.adl5081.