Concerns continue to grow around the staggering impact of carbon dioxide (CO2) and other greenhouse gasses (GHGs) on the climate. More regulatory bodies are implementing regulations to help curb the concentration of GHGs in the atmosphere. Why? Because global warming threatens business stability—supply chains, customer segments, investment risk—and the earth as a whole.
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Independent of regulation, many businesses are compelled by traditional market drivers—investors, competitors, and customers—to manage their carbon emissions (aka carbon footprint). Companies have been gravitating toward carbon neutrality, especially in the short term, when, in reality, net-zero should be the only acceptable solution.
What’s the difference between net-zero and carbon neutral?
Although the terms “net-zero” and “carbon neutral” both refer to the balance of emitted GHGs with avoided or removed emissions, the distinguishing factor between the two claims hinges on compensated emissions (aka offsets). A business can claim carbon neutrality by measuring its emissions and then offsetting the balance through financed projects outside of its value chain, without actually reducing its own emissions.
Net-zero, on the other hand, compels companies to more meaningfully reduce value chain emissions. Net-zero was formally defined in late 2021 by the Science Based Targets Initiative’s Corporate Net-Zero Standard. The standard states that net-zero must be achieved by abating at least 90% of emissions and that the remaining 10% may be reduced through permanent removals in a target year.
SBTi has yet to define the types of removals that will be acceptable and it should not be assumed that traditional offsets available today will be acceptable. In short, carbon neutrality means that you can compensate for your emissions (again, typically with offsets), while net-zero requires abatement of your emissions—you have to actually get rid of them through efficiency, electrification, renewables, and other means.
And then, of course, there is “zero emissions,” which is essentially a pipedream, because it’s an absolute elimination of all emissions from your operation. This ambitious goal does not allow for any financed removal and requires technology that has yet to exist at scale.
Reduction vs. offsetting
Companies with net-zero targets, by definition, strive to limit global warming to below 1.5°C to avoid the most catastrophic and irreversible impacts of climate change. Go one step further, and you’re in carbon-negative (aka climate positive) territory. This is not an easy target but is achievable, as demonstrated by the first and only carbon-negative nation: Bhutan. 72% of the country is covered by forests, which absorb more than 6 million tons of carbon every year—more than enough to counter the 1.5 million tons of emitted CO2. Thanks to Bhutan’s renewable energy exports, and the fact that it’s small and not industrialized means that no other country is feasibly able to achieve a carbon-negative state.
The path to net-zero emissions and carbon neutrality
To balance your emissions budget, you must first know where you stand by calculating an emissions baseline, a process known as greenhouse gas accounting, emissions accounting, or, colloquially, carbon accounting. The gold standard for corporate emissions accounting is the Greenhouse Gas Protocol (GHG Protocol), a framework to define and translate business activities into emissions figures.
With over 196 parties pledged to the Paris Agreement, the next step is to decarbonize by lowering consumption, electrifying, and transitioning to renewables. So far, the European Union, Japan, South Korea, and 110 other countries have pledged to achieve carbon neutrality by 2050. China has pledged to reach that goal by 2060. Some of the biggest polluters in the world, including Indonesia (coal’s biggest exporter), China (the largest crude importer), and the U.S. (the largest producer and consumer of gas and oil), have a larger gap to fill on the road to becoming carbon neutral.
We’ll see more legislation around emissions disclosure to achieve these national goals, like the SEC’s Climate Disclosure Rule, California’s Climate Corporate Accountability Act, and the EU’s Corporate Sustainability Reporting Directive (CSRD). Businesses will also incur financial penalties for failing to meet standards, like the U.S. Methane Reduction Action Plan, which targets methane, a GHG 25 times more powerful than CO2.
To this end, massive companies like Amazon, Microsoft, and Verizon have taken the Climate Pledge. Still, it’ll take every type of business, including small- and medium-sized ones, to make a dent in the emissions required to keep our planet on track.
Sources
1. Science Based Targets, “The Corporate Net-Zero Standard,” https://sciencebasedtargets.org/net-zero Accessed June 7, 2024
2. GVI, “How Bhutan became a carbon-negative country,” https://www.gviusa.com/blog/bhutan-carbon-negative-country-world/ Accessed June 7, 2024
2. United Nations Climate Change, “What is the Paris Agreement?,” https://unfccc.int/process-and-meetings/the-paris-agreement Accessed June 7, 2024
4. Statista, “The World's Biggest Coal Exporters,” https://www.statista.com/chart/20587/biggest-coal-exporters/ Accessed June 7, 2024
5. Statista, “Leading crude oil importers worldwide in 2022,” https://www.statista.com/statistics/240600/global-oil-importers-by-region-2011/ Accessed June 7, 2024
6. U.S. Energy Information Administration, “What countries are the top producers and consumers of oil?,” https://www.eia.gov/tools/faqs/faq.php?id=709&t=6 Accessed June 7, 2024
7. California Legislative Information, “SB-260 Climate Corporate Accountability Act,” https://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=202120220SB260 Accessed June 7, 2024
8. European Commission, “Sustainable finance package,” https://finance.ec.europa.eu/publications/sustainable-finance-package_en#csrd Accessed June 7, 2024
9. The White House, “Fact Sheet: President Biden Tackles Methane Emissions, Spurs Innovations, and Supports Sustainable Agriculture to Build a Clean Energy Economy and Create Jobs,” https://www.whitehouse.gov/briefing-room/statements-releases/2021/11/02/fact-sheet-president-biden-tackles-methane-emissions-spurs-innovations-and-supports-sustainable-agriculture-to-build-a-clean-energy-economy-and-create-jobs/#:~:text=The%20new%20U,across%20the%20country. Accessed June 7, 2024
