What does the SBTi's draft Corporate Net-Zero Standard 2.0 mean for carbon credit strategies?

To be formally recognized under the tiers by SBTi, companies need to have a validated SBTi targets with reduction goals. However, in the same way as companies may align to the SBTi’s reduction targets without making a formal submission, the SBTi’s new recognition tiers provide a framework to engage with beyond value chain mitigation activities for all companies.

The GHG Protocol is an accounting standard. It defines how an organization should measure and categories its emissions. It gives the rules to produce a consistent comparable number, in the same way as financial accounting standards. It does not set requirements as to how an organization should reduce emissions over time.

The SBTi Net Zero Target sets out how an organization should define and set a reduction target consistent with limiting average global warming to 1.5 degrees in accordance with the Paris Agreement. It leverages the accounting rules from the GHG Protocol for companies to calculate their emissions as part of the target setting.

The Ongoing Emissions Responsibility program is separate to the requirement to progress against reduction targets. Climate projects supported beyond the value chain as part of OER do not contribute to achievement of reduction targets and are intended to demonstrate action beyond those targets.

OER’s recognition tiers are optional and recommended. Companies which choose not to follow one of the recognition tiers will need to opt-out to the SBTi. From 2035, the use of carbon removals becomes mandatory. Any OER activity before that date is optional.

We expect that companies following the OER framework, where a defined carbon budget is required,  will need to report information to the SBTi. While details have not yet been confirmed, we anticipate that some form of verification or audit process will be required.

The ‘Engaged’ tier requires a coverage of 1% unabated emissions, but does not have a carbon price requirement. The Advanced and Leadership tiers do have mandatory carbon prices applicable to the relevant emissions coverage, at $20 and $80 respectively. The resulting budget is to be used to finance climate projects, including carbon credits, rather than on top of.

The SBTi states that in setting the carbon prices it reviewed various approaches to setting a science-based price, which yields a wide range of uncertain estimates. The $80 per tonne price for the Leadership tier reflects the lower end of these estimates and will be subject to review in the future.

The SBTi is encouraging collaboration across supply chains, and has introduced a ‘shared-responsibility’ concept whereby companies may agree with suppliers which party will take responsibility for certain emissions under the OER framework.

The new standard comes into effect after 31 January 2027, at which point it will be available for new target commitments and submission. Until 31 January 2028, both v1 and v2 can be used, and after that date V2 becomes mandatory for any new or renewed target submissions.

For companies which already have their targets validated after the current version, there is no need to renew under the new standard until the existing 5-year review date applicable to your company.

V1 of the standard includes the requirement to match residual emissions from the net zero year with equivalent carbon removals, however the time-matching element is new to v2.0. The optional pre-2035 recognition tiers and mandatory post-2035 (but pre-net zero) removal requirement is also new to v2.0.

A company must consider its full Scope 3 footprint under the OER framework.

At net zero, all remaining emissions across Scope 1, 2 and 3 need to be neutralized with removals. This would take place once a company has reduced its emissions through internal abatement, which is an approximately 90% reduction, company dependent.

The SBTi states that when counted toward the Engaged recognition level, verified mitigation shall be surplus to regulatory or legal compliance obligations in place at the time of commitment. At the Advanced and Leadership levels, verified mitigation used for regulatory or compliance purposes may be considered, subject to integrity criteria.

SBTi is expected to rely on existing industry frameworks for quality rather than introducing its own quality criteria. Further guidance is expected in 2027, potentially pointing to Integrity Council for the Voluntary Carbon Market  (ICVCM) and the Core Carbon Principles (CCP) label, but this is not yet confirmed. There is also a five-year vintage requirement, credits must be retired before the recognition claim is submitted, and instruments used for one SBTi claim cannot be reused for a second SBTi claim.

All categories of carbon credit projects are eligible for recognition tiers, including avoidance, reduction and removals. Further guidance will be provided by the SBTi in 2027.

Under the recognition tiers, ex-ante units such as pending issuance units are recognized as eligible  climate action under a company’s contribution budget. For the Engaged and Advanced tiers, both ex-post and ex-ante instruments are valid. The leadership tier requires coverage of 100% of emissions using ex-post mitigation outcomes, with remaining contribution budget used for other climate action, which would include ex-ante instruments.

Post-2035, removals become mandatory for the required OER recognition tier. Above the minimum removals requirement, companies can use other project types, including avoidance projects or short-term removals, and that recognition tiers remain relevant post-2035. After 2035, a durability matching requirement is introduced between lifetime of emissions in the atmosphere and permanence of removals.

The use of RECs, vPPAs and similar instruments contributes to internal abatement efforts within a company’s value chain. As a result, these activities are not expected to count towards the recognition tiers, which are intended to recognize climate action and impact beyond the value chain.

The SBTi states that existing renewable energy contracts will be grandfathered in relation to Scope 2 target setting but does not include a position on grandfathering other instruments. Further guidance on eligibility of instruments will be provided in 2027.

More guidance from SBTi is expected in the next guidance document, likely in 2027.

It is unlikely that permanence would “double up”; however SBTi will release additional guidance in 2027.

Yes, the 5 year vintage applies to removals ahead of net zero, however the standard does not currently include any confirmation or lack thereof of existing agreements. Further guidance will be provided in 2027.

SBTi had stated a post-2021requirement in the V.2 draft standard, but this has now been to a five-year vintage requirement.

Further guidance is expected in 2027 in relation to eligibility and requirements of instruments. We expect that the recognition tiers which require a carbon price will be in accordance with actual spend in a given year.

Depending on the number of credits being purchased, if the company has already exceeded the required recognition tier percentages at a £125+ per tonne it is likely to be sufficient, subject to other quality criteria and broader SBTi requirements.

Poll results from the live webinar suggest that many organizations are already engaged with the Science Based Targets initiative (SBTi), with 42% having validated targets and a further 16% currently in the process of setting or validating them. An extra 16% is considering whether SBTi is right for their organization/

The OER structure is designed to phase in gradually, starting at a relatively low level, which gives companies time to plan, reduce emissions, build budgets, and secure access to high-quality removals. We expect many companies to reassess their pathway, ambition level, and procurement strategy to manage the implications over time.

Companies will likely need to provide their footprint, budget calculations and evidence of how the OER budget was spent. The verification/audit mechanism is not yet confirmed, we expect  there may be a process similar to target validation.

There are many factors which influence supply and demand of carbon credits. One important factor is the time taken to set up and operationalize projects, especially nature based solutions, which leads to a lag of supply behind demand. Additionally, some project types, especially engineered removals are nascent and not yet able to scale without significant investment.

As carbon methodologies are updated to reflect improving science and monitoring capabilities, they often lead to fewer credits being issued to ensure conservative carbon accounting. Combined with the emergence of engineered removals and the long development timelines associated with nature-based solutions, these factors could contribute to a future shortage of high-quality carbon credits.

Demand is expected to rise as recognition tiers create a formal pathway for companies to support climate projects before 2035, while supply may be constrained because removals projects take years to develop and durable removal technologies are still scaling. Companies are advised to plan early, secure access to quality projects and prepare for growing competition in the removals space.

Climate Impact Partners can support clients in three stages: a discovery session to identify the right SBTi pathway, designing a project portfolio and modelling costs/project availability/timelines, and preparing documentation so it is audit-ready for SBTi submission. Book a call with one of our experts.

Best practices for long-term carbon credit contracting include:

• Align purchases with your long-term climate and net zero strategy.
• Secure high-quality supply early through multi-year agreements and  project development.
• Diversify across project types and geographies to manage risk.
• Prioritize quality, robust MRV and strong project due diligence.
• Build flexibility into contracts to adapt to evolving regulations and business needs.
• Develop long-term partnerships with trusted carbon market experts, such as Climate Impact Partners, to secure high-integrity supply and navigate evolving market requirements.

A strategic, long-term approach can help you secure high-integrity supply, manage future market uncertainty and support the scale-up of climate projects. Discuss in more details with our global experts.