SBTi recommended methods: comparing methods and carbon budget conservation
The text and table below compare the different science-based target setting methods in terms of the absolute emissions reductions they lead to and explain why the Science Based Targets initiative recommends companies use either the Sectoral Decarbonization Approach or the Absolute Contraction Method to set their targets.
Different methods will yield different results in terms of absolute emissions reductions. For example, the Absolute Emissions Contraction method will always result in absolute emissions reductions whereas the purely intensity-based methods GEVA (Greenhouse gas emissions per unit of value added), CSI or CSO may not. The table below shows the possible impact on absolute emissions for each method/allocation mechanism. For more information on the methods and allocation mechanisms please refer to the Science-Based Target Setting Manual.
Absolute emissions are always reduced if the emissions scenario used has a decreasing trend. In some peak and decline scenarios (e.g. ETP 2DS), emissions increase until around 2020, and thereafter start rapidly declining. All scenarios lead to an absolute reduction in the long-term.
The higher the activity growth rate of the company, the greater the portion of the sector budget it is allocated and the larger the reduction of physical intensity required. However, if the company growth rate is higher than that of the sector, absolute emissions may increase for the company. Essentially, this means that the most efficient companies that are gaining market share will increase their capacity and in this process, acquire emissions from their competitors. Thus, there cannot be an overall increase of emissions in the sector but rather a redistribution between companies. The SDA tool includes a cap for the market share parameter to ensure the carbon budget is conserved.
The more a company contributes to economic output, the more emission allowances it receives since targets are expressed as emissions/value added. While intensity reduces, absolute emissions can grow if activity growth is high. Therefore, absolute emissions are not necessarily reduced. There is no cap on this growth as there is in the SDA tool.
As seen in the table, with economic-based methods absolute emissions may be allowed to increase increase, not only at the company-level but also at the sector and global-level. Thus, with the use of economic-based approaches, there is a risk of exceeding the carbon budget available in scenarios that keep global warming below 2°C.