Scope 3 emissions reduction: claiming higher return in terms of GHG mitigation outcomes

This article is a summary of a whitepaper published by SustainCert in collaboration with Cargill and Soil Capital : “Challenges & Solutions for Allocating GHG Mitigation Outcomes: Contextualized in agriculture supply chain”‍

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1. Carbon accounting context

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Scope 3 emissions

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Companies aim to cut GHG emissions by reducing "Scope 3 emissions," which are indirect emissions from their supply chain. For instance, a flour producer might invest in eco-friendly farming methods to produce flour from crops grown with lower emissions.

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Standards

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Legislation and market pressures push companies to cut emissions in their supply chain. Clear standards, like those from SBTi (Science Based Targets initiative) and GHG-P (Greenhouse Gas Protocol), guide voluntary corporate action by helping set targets and track progress with international recognition and credibility.

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2. The problem the whitepaper seeks to solve

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Need of scaling up the supply chain decarbonization
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The whitepaper reflects on how to maximise the incentives a company has to decarbonize its value chain while ensuring that the outcomes are high integrity.

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A key terminology to understand here is GHG mitigation. It means reducing or removing GHG emissions, measured in CO2 equivalent (CO2e). CO2e compares the warming effect of GHGs to CO2. For instance, nitrous oxide (N2O) has a CO2e of 298, meaning it's 298 times more potent than CO2.

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Let’s continue the example of a company producing flour. That company is willing to decarbonize its value chain by investing in practice change at the farm level. The farmer earns more for delivering GHG mitigation by receiving carbon payments and the company producing flour can claim the related GHG mitigation outcomes as a reduction in their Scope 3 emissions.

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Two challenges in agricultural systems

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The whitepaper focuses on food and agricultural systems. It highlights two problems when an intervention is made at the farm level, which is where the majority of the food system’s Scope 3 emissions lie:
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• Crop rotations: Farmers need to adjust practices across their entire crop rotation for GHG mitigation, not just for the buyer's preferred crop. This means that the GHG mitigation outcomes achieved by the farmer are not all related to the one specific crop the company sources.This creates a mismatch: farmers invest across the rotation, but companies only see returns on a portion of it unless all crop buyers invest in decarbonization simultaneously.
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• Co-products: very often, the produce of a farm is processed into multiple “derivative” products (also known as “co-products”) which are then bought by different actors in the value chain. Think wheat that is processed into wheat gluten, wheat starch and so on. That means that the GHG mitigation outcomes achieved by the farmer at farm level are then diluted across all these co-products. The same type of mis-match can occur again; the farmer must invest to achieve GHG mitigation outcomes on the primary output of the farm (i.e crops or livestock), but a single company can only generate a return (in terms of GHG mitigation outcomes) on one of the derived co-products.
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The solution: claiming all the return on GHG mitigation investment is possible ! 
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In both of the above situations, the return on investment in terms of GHG mitigation outcomes that can be claimed is subject to a dilution effect, either across the rotation or across co-products. To tackle this problem, the whitepaper proposes to leverage an existing accounting structure that exists to resolve the lack of traceability in commodity supply chains, called the “supply shed” - defined by SustainCert as a group of farmers in a specifically defined geography and/or market (e.g., at a national or sub-national level) providing similar goods and services that can be demonstrated to be associated with the company's value chain.

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Since a company may be investing in farm-level GHG mitigation outcomes on only a subset of farms in a given supply shed, the whitepaper proposes a “supply shed re-allocation method” to generate a greater return in terms of GHG mitigation outcomes. The method works for both crop rotation and derivative co-product scenarios discussed.

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The core idea of the supply shed re-allocation method is to take the surplus GHG mitigation outcomes that would not normally be claimed by the company making the investment, understand the volume of crop or co-product to which they are assigned, and virtually exchange that volume for a quantity of crop or co-product from elsewhere in the supply shed that means the ratio of GHG mitigation outcomes to underlying product remains the same as on the original farms where the interventions happened. 
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The whitepaper presents full worked examples here.

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3. A promising new method

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It seems to us that the supply shed re-allocation method is a welcome addition of flexibility in carbon accounting that finds an appropriate balance between incentivizing companies to invest in value chain decarbonization  while also maintaining credibility on the GHG mitigation outcome claims. There are some limitations, and these are well discussed in the whitepaper together with safeguards to protect against clear risks. It is now incumbent upon market actors and standard setters to engage with these recommendations, try them in practice and share learnings transparently so that we can all build greater momentum in the vital work of decarbonizing agricultural value chains.