How Greenhouse-Gas Mix Will Influence Costs Under the SBTi’s OER

We previously introduced the SBTi’s Ongoing Emissions Responsibility (OER) framework and uptake in the voluntary pre-2035 phase. Here we examine the type of carbon credit a company must use — which has large cost implications.

Pre-2035, reduction credits are permitted. These currently trade at USD 3.6/tCO₂e, although there are significant variations by project type, from USD 1.0 to 6.8, with higher-quality credits at USD 8.6.¹

From 2035, only removal credits are expected to qualify. Critically, companies must ramp up the share of long-lived greenhouse gases (GHG) — e.g., CO₂ and N₂O — which must be neutralized with long-lived, rather than short-lived, removals; short-lived gases such as methane can always be addressed with short-lived removals. The SBTi has issued a call for evidence that could expand the role of short-lived removals in future iterations.

The distinction is storage durability.² A rough proxy is that nature-based removals (e.g., afforestation) are short-lived while engineered removals are long-lived. A nature-based removal paired with durable geological storage, or captured CO₂ used as a short-lived feedstock, can fall on the opposite side, however.

Long-lived removal credits currently trade at a minimum average of USD 130/t, while short-lived removals are around USD 15/t.³ Because we forecast a future rise in prices, coupled with the durability ramp, two companies on ostensibly identical emissions trajectories can face very different costs. Take two companies, each emitting 1 MtCO₂e in 2035, reducing to 200 ktCO₂e by 2050. Company A, a cement maker, emits almost 100% long-lived CO₂, so must cover more of its footprint with more expensive long-lived removals; Company B, a waste manager, emits 60% methane, so much of its obligation can be met with cheaper short-lived removals.

The emissions coverage and durability ramps, alongside forecast credit prices, push costs up over time, but falling emissions pull the other way, meaning annual costs rise to a peak before easing toward the net-zero year.

This results in a cumulative cost of roughly USD 700 million for Company A versus USD 420 million for Company B, demonstrating the different bills for the same emissions trajectory. For those complying with the OER, understanding emissions inventory, and the price of eligible credit types, will be crucial to managing costs.

1 Twelve-month average of MSCI Global Carbon Credit Price Index (USD 3.6), MSCI Global Renewable Energy Index (1.0), MSCI Global REDD+ Index (6.8) and MSCI Global Rated BBB and Above Carbon Credit Price Index (8.6).

2 Short-lived removals retain carbon for decades to centuries; long-lived for centuries to millennia.

3 12-month average of MSCI Global Biochar Carbon Credit Price Index (USD 130). MSCI Global Afforestation/Reforestation/Revegetation Carbon Credit Price Index (USD 15.0)