In 2022, greenhouse gas (GHG) emissions in the U.S. rose by 1.3% compared to 2021, pushing the U.S. further off track from meeting its Paris Agreement target of reducing GHG emissions by 50-52% by 2030. As we strive for net zero emissions by 2050, effective target setting is critical to ensure we meet that goal. Absolute targets and intensity targets are two strategies that businesses and governments have adopted to reduce emissions.
What are greenhouse gas emissions?
Greenhouse gases (GHGs) trap heat in the atmosphere, contributing to global warming. While carbon dioxide is the primary GHG emitted by human activities, others, like methane and nitrous oxide, are more powerful at trapping heat in the atmosphere. A GHG’s potency over a period of time (e.g., 100 years) relative to carbon dioxide is called global warming potential (GWP).
Carbon dioxide equivalent (CO2e) is a common unit used to express the amount of different GHGs. By multiplying an amount of GHG by its GWP, you can calculate the equivalent amount of CO2. For example, if a company emits 100 tons of nitrous oxide with a GWP of 30, the carbon dioxide equivalent is 300 tons of carbon emissions. CO2e is commonly used in net zero target setting, providing a standard metric for expressing reductions in different kinds of GHG emissions.
Absolute vs. intensity emission targets
An absolute target aims to reduce a set number of emissions, typically expressed in CO2e. An absolute target should also include a base year to measure against reductions in emissions. For example, a fossil fuel company commits to reducing GHG emissions by 30% by 2030 relative to a 2010 base year. An intensity target is an emission reduction target set relative to an economic or operational metric. For example, a company commits to reducing GHG emissions by 20% per unit of output by 2025.
Drawbacks of absolute targets
One of the drawbacks of absolute emission targets is that they can conceal efficiency improvements. If a company reduces emissions by 20%, this doesn’t necessarily signal improved efficiency. A company can reduce absolute emissions by scaling back production, for example. If a company reduces emission intensity by 20%, this indicates an improvement in emission efficiency – fewer emissions for the same output. In addition, intensity metrics can facilitate comparisons among industry peers. Comparing absolute emissions can be deceptive because all companies are not the same size. Intensity metrics make it easier to compare emissions efficiency, regardless of a company’s size, making it easier to identify companies taking steps to reduce their GHG emissions.
Shortcomings of intensity targets
While intensity metrics can be attractive, deep cuts in absolute emissions are critical to achieving net zero. Absolute targets are guaranteed to reduce a company’s GHG emissions. One of the problems with intensity targets is that they don’t necessarily reduce emissions. A company can improve efficiency per unit, but if production dramatically increases, emissions can increase. In contrast, a company with an absolute target has to reduce emissions to meet its target, even if production increases. Companies should only use intensity targets if they lead to reductions in absolute emissions, according to the Science Based Targets initiative.
Emission target-setting at financial institutions
America’s six largest banks (Bank of America, Citibank, JPMorgan Chase, Goldman Sachs, Wells Fargo, and Morgan Stanley) have developed interim 2030 emission targets to help achieve their net zero commitments. Last year, the Sierra Club published a report analyzing each bank’s net zero targets. Among the criteria for a “robust” interim 2030 target is that “...banks must set an absolute emissions reduction target for 2030.” So, which of the six banks met this criterion?
Looking at the banks’ 2030 oil and gas sector targets, only Citibank and Wells Fargo have committed to reducing their absolute emissions by 2030 (including Scopes 1, 2, and 3) by 29% and 26%, respectively. Conversely, Bank of America, Goldman Sachs, JP Morgan Chase, and Morgan Stanley have committed to reducing emissions intensity by 2030. Goldman Sachs, for example, has committed to a 17-22% reduction in emissions intensity by 2030.
Also cause for alarm is that despite pledging to reduce their emissions, the six banks continue to finance fossil fuel development. We’ve written about how banks contribute to climate change by lending our bank deposits to finance environmentally destructive fossil fuel projects. Without curbing finance to new oil and gas projects, achieving emission reductions in line with the Paris Agreement is unattainable.
Which approach is better?
Intensity targets can support a reduction in absolute emissions, but they should accompany absolute targets to maximize emission reductions. While intensity targets can aid in tracking efficiency improvements, reducing emissions intensity is not synonymous with reducing emissions. When you are reviewing a company’s emission reduction targets, consider whether they are using absolute targets, intensity targets, or both.
To date, many of the largest banks have yet to implement robust absolute targets for 2030. We hope to see banks take greater accountability for reducing their emissions, particularly emissions associated with their lending activities. In the meantime, check out our list of the best green banks in 2023.
More articles you'll find interesting
Disclaimer: GreenPortfolio aims to keep all information on the site current and accurate. However, you may find differences between information listed here and information listed on a financial product provider’s website. Opinions expressed here are not those of any bank, credit card issuer or financial institution, and have not been reviewed, approved, or otherwise endorsed by any of these entities. Please complete your own due diligence before making any financial decisions.
Advertising Disclosure: This article/post may contain references to products or services from one or more of our advertisers or partners. We may receive compensation when you click on links to those products or services but this compensation does not influence our reviews or opinions. Read about our methodology to learn how we choose financial products to include on our platform.
©2023 GreenPortfolio Inc.