August 24, 2022
Five-Minute Brief: Net-Zero vs. Carbon Neutrality
Navigating the transition to the low-carbon economy with confidence
Against an unprecedented volume of climate pledges and commitments, net-zero and carbon neutrality are two concepts that are increasingly conflated and confused. While similar, these terms have different meanings and represent distinct organizational climate ambitions.
- Carbon neutrality is achieved by compensating for greenhouse gas (GHG) emissions by preventing or avoiding an equivalent amount of future emissions elsewhere via carbon offset credits. To be carbon neutral, organizations purchase credits and are not required to reduce their GHG emissions
- Net-zero is achieved by reducing GHG emissions to the greatest extent possible, followed with balancing any residual emissions by removing an equivalent amount of GHGs from the atmosphere via carbon dioxide removals (CDRs)
Carbon neutrality rose to prominence following the Kyoto Protocol (1997), which encouraged nations and companies to reduce emissions through market-based mechanisms, such as trading commodified credits. While useful at the time, carbon neutrality came of age amidst vague, voluntary commitments that lacked defined measures of success, rendering it anachronistic today. More recently, the concept of net-zero carbon emerged during the Paris Agreement (2015) and aims to reach net-zero by 2050, thereby limiting global temperature rise to 1.5°C by the end of the century. Net-zero is anchored in scientific understandings of the necessary emissions reductions to prevent the worst effects of climate change and reflects ratcheting expectations and scrutiny around corporate climate action.
What are Carbon Dioxide Removals?
CDRs remove existing GHGs from the atmosphere by either storing them in shorter-term natural carbon sinks, such as plants, soils and oceans, or in longer-term geological reservoirs or products, such as deep saline aquifers and cement. Organizations committed to net-zero who reduce their GHG emissions in line with climate science by their target timeframe but cannot fully eliminate them will need to purchase CDR credits. Currently, the supply of long-term CDR credits is limited and technologies are still emerging.
How to achieve net-zero GHG emissions
* Reduction measures are highly specific to the organizational activities that generate GHG emissions. For many companies, GHG reductions are achieved through energy efficiency upgrades, electrifying stationary equipment and mobile fleets, installing on-site renewables (e.g. solar panels), purchasing renewable energy certificates (RECs), entering long-term virtual power purchase agreement (VPPAs), etc.
Considerations when committing to net-zero
Although net-zero is conceptually simple, setting well-designed targets and charting pathways to achieve them involves several considerations:
- Data: Collecting accurate, complete data remains a persistent issue for most organizations, in particular for indirect scope 3 emissions across the value chain
- Transitioning: Organizations need to plan carefully over long-term horizons to decarbonize their business models and investment portfolios such that they thrive in the low-carbon economy
- Capital requirements: The investment necessary to transition to net-zero are highly variable and require careful capital expenditure planning
- Technological uncertainty: Continued technological advancement and diffusion are needed to reduce and remove GHGs at scale
- Carbon dioxide removal markets: Markets for CDRs are unregulated and not all removals are created equally. High-quality removals are permanent and have low risk of re-releasing emissions into the atmosphere, also known as reversal
Starting your net-zero journey
Climate change is one of the most significant, complex challenges facing society, and it also presents a remarkable opportunity. Achieving net-zero is a global imperative, and the implications of the transition to a low-carbon economy will be inescapable. To prepare, companies and investors must understand their current GHG emissions profile and how it will change in the foreseeable future. Once a GHG inventory is complete, you will be well-equipped to commit to net-zero, set science-based GHG targets with confidence and model emissions reduction pathways to achieve them. While ambitious, these climate actions are indisputably necessary, and the time to act is now.
Get in touch to get started on your net-zero journey and tap into our expertise.