(Bloomberg) -- The world’s main verifier of corporate climate targets will let companies use carbon credits to reduce the broadest scope of their emissions, relaxing earlier guidance and galvanizing a controversial market for green finance.

The United Nations-backed Science Based Targets initiative said it will allow the use of credits to cut emissions from value chains, otherwise known as Scope 3, according to a statement on its website.

The market for carbon credits is still reeling from a period of turbulence, following revelations of projects that failed to deliver on emissions cuts. At the same time, the finance industry and carbon credit providers are positioning themselves to reap the monetary benefits of the growing market for offsetting reported emissions.

The decision could help boost the market, which currently is valued somewhere between $2 billion and $2.5 billion, to more than $1 trillion a year by 2050, according to Kyle Harrison, head of sustainability research at BloombergNEF.

“For Scope 3-heavy companies, working towards and achieving net zero under SBTi is a moonshot without some reliance on carbon credits,” he said.

Market participants were quick to respond to the move. Rich Gilmore, chief executive at Carbon Growth Partners, said the decision could be “massively consequential” for the future of carbon prices. Sonia Zugel, CEO of ESG Playbook, called the adjustment “a huge change” to SBTi’s framework.

Tej Virk, co-founder of NLX Capital, said the relaxed guidelines will “invigorate the demand for voluntary carbon credits.” SBTi’s decision “signals a crucial shift towards the acceptance of carbon credits in corporate climate strategies, promising to boost both the market and the efficacy of these credits in achieving real-world climate action.”

The new relaxed guidelines represent “a significant step forward in scaling carbon markets and climate action,” said Teresa Hartmann, chief ratings officer at BeZero Carbon. 

“For companies that aren’t currently able to meet their Scope 3 reduction targets, the flexibility to use credits will represent an opportunity to continue engaging with climate action meaningfully, and fund practicable climate solutions within the critical next decade,” she said.

SBTi had previously sought to limit the use of credits to residual emissions, or those that can’t be cut through other means. The organization says its revised guidelines follow a “wide” consultation over the past six months. 

Nevertheless, some experts closely affiliated with SBTi were caught off guard. Doreen Stabinksy, professor of global environmental politics at College of the Atlantic and a member of SBTi’s technical council, said “the statement came as a surprise.” She also questioned the climate science underpinning the move.

“It clearly contravenes governance procedures within SBTi, as the Technical Council has not engaged on this matter yet at all subsequent to the call for evidence in the fall of last year,” Stabinsky said. “A number of Technical Council members have raised concerns internally in the hours since the publication of the statement, on both process and content of the statement.”

Carbon Market Watch, a nonprofit and research group, went a step further and said it “strongly condemns” the decision by SBTi, noting that Scope 3 emissions often make up the “lion’s share of a company’s carbon footprint.”

Stephannie Galdino, a voluntary carbon market analyst with Veyt, warned of a “high risk of greenwashing” as a result of SBTi’s decision. 

SBTi, in its statement, promised to develop “specific guardrails and thresholds” to ensure proper use of credits. It also said it isn’t planning to validate the quality of carbon credits. Instead, it will give organizations that do so “clear access” to the rules that it will establish around the credits’ use. SBTi expects to issue a first draft by July setting out details of when credits may be used. 

“While recognizing that there is an ongoing healthy debate on the subject matter, SBTi recognizes that, when properly supported by policies, standards and procedures based on scientific evidence, the use of environmental attribute certificates for abatement purposes on Scope 3 emissions could function as an additional tool to tackle climate change,” it said.

Investors are increasingly demanding validation of emission-cutting plans by SBTi, which is a voluntary program. More than 5,000 companies and financial institutions have had their plans approved, with the number roughly doubling each year, according to SBTi.


(Adds BNEF comment.)

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