The Activity-Based Carbon Budgets Method for Setting Corporate Climate Targets

Abstract

Companies are increasingly setting science-based targets informed by the temperature ceiling of the Paris Agreement. However, existing methods for calculating corporate carbon emission reduction targets have only been tailored to a handful of sectors or fail to accommodate growth, recognize past abatement, capture cumulative emissions, or link to national climate goals. We introduce the Activity-Based Carbon Budgets (ACB) method, which aims to address these limitationsThe ACB method allocates emission budgets based on a company´s activity level (e.g., physical production or transportation). The remaining cumulative carbon budget of the company is then calculated using average emission factors representative of the activity in a given country or region. Hence, companies with the same activities and activity levels receive identical target budgets, independent of current emissions. Targets can be set for any base year and are expressed as cumulative carbon budgets over time, while companies can define their own corresponding reduction pathways. This provides companies with flexibility in their investment planning towards net-zero. The emission budget can be adapted over time as a function of the relationship between the company’s economic value added and the national or regional gross domestic product, ensuring alignment with the temperature limit of the Paris Agreement when national targets are set accordingly. The method can be applied to all direct (scope 1) and indirect (scope 2 and 3) emission categories and can be adapted to national or sector specific targets. The relevance of ACB targets depends on the availability and quality of national statistics and emission data.

Keywords: Science based targets, carbon budget, National Climate Targets, Growth adapted targets, Benchmarking, Sector independent modeling