What is the Science-Based Targets Initiative and why does it matter for carbon pricing?

The Science-Based Targets Initiative (SBTi) was established in 2015 to align individual companies' decarbonization pathways with the goals set out in the Paris Agreement. When it was adopted, the document set a limit on the global temperature rise at “well below 2 degrees Celsius above pre-industrial levels”. SBTis provide clear guidelines on corporate emission reduction, ensuring they are all in line with the common standards of climate science. Companies within the EU Emissions Trading System (ETS) can voluntarily adopt SBTis, and academic research shows that those within the EU ETS framework show better performance compared to non-EU ETS companies setting SBTs independently. 

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• Why was the Science-Based Targets Initiative created? 
• What are Science-Based Targets? 
• What is the link between SBTis and the EU ETS? 

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Why was the Science-Based Targets Initiative created? 

What is the global carbon budget from the COP 21 agreement? 

During the COP21 in Paris, governments collectively committed to limiting global temperature rise to within 2 degrees Celsius above pre-industrial levels. Also, the Paris Agreement established a cap on the total Carbon Budget, which aligns with the desired maximum temperature rise. The remaining carbon budget to limit global warming to 1.5ºC, 1.7ºC and 2ºC is 420 GtCO2, 770 GtCO2 and 1270 GtCO2 respectively, equivalent to 11, 20 and 32 years from 2022. 2475 GtCO2 have been emitted since 1750.

Who sets climate targets and what are the different stakeholders? 

Establishing global uniform objectives is great, but implementing a universal framework presents challenges, especially because of the the diverse range of stakeholders involved—individuals, companies, institutions, governments... Following the introduction of the Paris targets, each entity has begun to take action at its own scale. For instance, in the financial sector, initiatives like the Glasgow Financial Alliance for Net Zero aim to accelerate the transition to carbon neutrality by 2050. While these initiatives may not yet directly affect all businesses, lenders may soon require clients to report emissions and align investments with decarbonization targets. 

Science-Based Targets for businesses

The Science Based Targets Initiative (SBTi) was established in 2015 to develop decarbonization pathways for individual companies in alignment with the Paris goals. These pathways not only help identify measures and actions but also establish concrete milestones - they offer a robust assessment of their impact on the carbon budget outlined in the COP21. SBTi offers a more rigorous approach to target setting compared to the previous arbitrary incremental targets. Since its inception, SBTi has become the standard methodology framework for target setting among non-state actors such as companies and NGOs. 

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What are Science-Based Targets? 

The definition of Science-Based Targets

The SBTi provide companies and financial institutions with clear guidelines on how much and how quickly they should reduce their greenhouse gas emissions to mitigate the effects of climate change as much as they can. These targets are "science-based" as they align with the latest climate science to limit global warming to well below 2°C above pre-industrial levels (and pursue efforts to keep below the 1.5°C threshold). The Science Based Targets initiative (SBTi) is a collaborative effort involving CDP, World Resources Institute (WRI), the World Wide Fund for Nature (WWF), and the United Nations Global Compact (UN Global Compact). 

How are Science-Based Targets computed?

The SBTi calculates science-based targets for individual companies based on the collective carbon budget allocated to high-emitting sectors globally by 2050. There are 2 methods for the SBTi computation: 

• The Convergence method: each company within a sector reduced its emissions intensity (meaning the emissions per output). This approach requires some companies to exert more effort than others, especially those needing to “catch up” from their initial starting points.

• The contraction approach: each company reduces its absolute emissions. 

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What is the link between SBTis and the EU ETS? 

The foundation of SBTis and the EU ETS: a carbon budget

In one of its publications, the EU Commission explains that Science-Based Targets Initiatives (SBTIs) are structured as follows:

• Establishing a carbon budget, which defines a limited amount of carbon emissions permissible into the atmosphere before surpassing predetermined temperature thresholds.
• Deriving an emissions scenario from this budget, representing a strategy for distributing the available carbon budget over time.
• Implementing an “allocation approach, determining how the carbon budget associated with a particular emissions scenario is apportioned among companies at different scales (regionally, by sector, or globally).
• Similarly, cap and trade schemes are founded upon the notion of a finite carbon budget allocated over a specified timeframe, just like the framework utilized for SBTIs described above.

 Science-Based Targets reinforced by the EU ETS

Certain companies falling under the scope of the EU ETS have the option to also commit to science-based targets for reducing their emissions. According to a 2024 academic paper, companies within the EU ETS framework that have voluntarily adopted SBTs demonstrate better performance compared to companies setting SBTs independently but not subject to the EU ETS regulations. So, even if the SBTis are in theory voluntary commitments to climate change, the legal burdens improve their effectiveness. 

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