Intensity targets can help track a company’s emissions reduction progress, but they are not a substitute for absolute emissions reduction targets.
What’s new
As international disclosure standards are moving towards setting more stringent requirements for corporate emissions reduction targets, government bodies and international organizations have been clear that setting absolute emissions reduction targets—rather than intensity targets—are key to building credible climate commitments.
Yet, across the top 60 Canadian companies, a third have opted to only set intensity targets to cover part or all of their emissions. While it is common for companies to set intensity targets, it is in the best interest of Canadian companies to be aligned with best practices and for investors to recognize that reductions in carbon intensities may not always lead to reductions in total emissions.
HOw aRE absolute and intensity targets different?
Fundamentally, intensity targets focus on reducing emissions per unit of output (for example, emissions per million dollars of revenue, or barrel of oil produced), whereas absolute targets put the onus on companies to reduce their total emissions by a certain amount by a target year. Because they target different goals, companies often set a mix of absolute and intensity targets depending on their strategic objectives. For example, Telus Corporation has committed to absolute reductions in Scopes 1, 2, and 3 business travel emissions, and uses intensity targets for their Scope 3 purchased goods and services, capital goods, and use of sold products.
In general, setting intensity targets can be useful if a company aims to make their goods or services less carbon intensive while accounting for factors such as the market size and future projected growth. By setting an intensity target, comparisons can be made to gauge the competitiveness of a company relative to its peers in a low carbon scenario without worrying as much about the size of the company. Furthermore, a company would still be able to reduce their carbon intensity even if they project future absolute emissions to increase due to rising demand.
But as far as driving down emissions to net zero is concerned, the example above shows how meeting reductions in carbon intensities may not always translate into reducing total emissions. This is where setting absolute targets is more transparent and credible for a net zero commitment. If a company sets an absolute target of reducing emissions by 30 per cent below 2019 levels by 2030, the target provides all the information needed to track progress. It’s also a direct measurement of the core objective—lowering total emissions.
Keeping an eye on emissions reductions
Data collected from companies on the 440 Megatonnes Corporate Commitment Tracker underscores the risk of intensity targets diverging from absolute emissions. For example, Figure 2 plots emissions and revenue data from top Canadian businesses and shows the per cent change in absolute emissions and intensities compared to a five-year, 2017 baseline. While carbon intensities have decreased by 15 per cent compared to 2017, absolute emissions rose by roughly the same amount. In other words, what may seem like progress if we only look at emissions intensity is revealed as a growing problem when absolute emissions is the yardstick.
The example highlights how reductions in carbon intensities can serve as a smokescreen for rising absolute emissions. This is why organizations such as the Science-Based Targets Initiative insist that intensity targets be set only if they also lead to absolute reduction in emissions aligned with climate science. An absolute target therefore puts the focus on a company to report progress in their total emissions reduction goals. But this does not mean that a company can’t grow without increasing emissions. Rather, they need to be growing in a way that also actively addresses their total emissions.
Ultimately, if companies are concerned about reducing emissions and getting to net zero, setting intensity targets should be seen as a complement, but not a substitute to absolute emissions reduction targets.
Arthur Zhang is a research associate for the Canadian Climate Institute.