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Net zero carbon versus carbon neutral – what is your ambition?

Oct 16, 2020
4 MIN. READ

Carbon neutral and net zero carbon. We hear these terms all the time. But what do they mean, and how does their difference define your ambition?

The term ‘carbon neutrality’ grew in prominence after the Kyoto Protocol (1997), which established market-based mechanisms to encourage both countries and private companies to reduce emissions. It established greenhouse gas reductions as a new commodity where emission-reduction (or removal) projects earn credits (each equivalent to one metric ton of carbon dioxide) that can be measured, tracked, and traded. With this, the carbon offset was born.

In comparison, ‘net zero carbon’ is linked to the Paris Agreement (2015), which aims to limit the rise in global temperatures below 1.5°C. To meet this target, global carbon emissions will need to reach net zero by 2050. Many governments have this target in their sights as a policy position, pledge, or statement of intent, with six ratifying it into legislation (Denmark, France, Germany, New Zealand, Sweden, and United Kingdom).

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Business-as-usual versus global ambition

Ideally, carbon neutrality sits within a robust carbon management strategy. An organization would achieve the highest cost-effective amount of emissions abatement internally before considering external carbon offsets to cover the remaining emissions. Since the approach is voluntary, however, the level of ambition varies across companies and is dependent on available investment, technology, workforce capacity, and governance. Thus, many companies have defaulted to an offsetting regime; it is easier and cheaper to purchase carbon credits (based on both certified carbon reduction and removal-based credits) than to identify and implement carbon reduction opportunities within the business. Prices for carbon reduction credits can vary from just over $1 (wind) to over $400 (biogas) per metric tons of CO2 depending on project type, size, vintage, location, certification standard, and the generation of co-benefits. The price a company is willing to pay is dependent on its objectives. For example, some look for the cheapest value available while others seek out a project closely linked to their supply chain or Corporate Social Responsibility (CSR) commitments. Regardless, carbon neutrality is typically based on a company continuing its business-as-usual activities. Therein lies the challenge, and the weakness.

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The net zero carbon concept is more complex. At the global level, the ambition is clear. Distilling high-level targets to corporate, city, or regional levels is harder to quantify. For starters, it requires sustained policy interventions across several sectors – many of which will be complex, costly, and time-consuming. For example, the UK government estimates over £1 trillion of investments by 2050 to achieve net zero carbon. For a business, this strategy requires an ambitious 1.5°C aligned science-based target for emission reductions across its full value chain. Remaining emissions should be offset only by certified carbon removal credits (i.e., projects that remove carbon emissions from the atmosphere, such as carbon capture technology and forestry). These are more costly than carbon reduction projects due to the higher investment, longer time horizon, greater permanence risk, and the complexity of the technology required.

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Currently, numerous companies have defined carbon neutral objectives and use carbon offset credits to achieve it. However, there is a growing band of companies aiming to support a net zero carbon economy through science-based targets. To date, nearly 500 companies have committed to reduce direct (i.e., from sources that are owned or controlled by the company) and indirect (i.e., purchased electricity, heat, or steam) emissions in line with either a 2oC or 1.5°C trajectory.

What next?

A truly sustainable future can only be achieved through knowledge, behavior change, and action. Words matter, and the difference in scope between carbon neutral and net zero has the potential to change our world. It is important to address different levels of ambition and process – such as science-based targets – as well as different offsetting solutions and costs as companies formulate their carbon strategies.

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A net zero carbon ambition provides the most radical approach for any company that genuinely wants to build back better as it recovers from the pandemic. Carbon neutrality is an important first step, which should not be underestimated. However, to truly tackle the decarbonization of our economy – and safeguard the next generations’ future – companies will need to transform themselves. As such, translating a science-based commitment into reality will require a tailored net zero carbon strategy and roadmap designed through reassessing the company’s business model, its value chain, and governance structures – and engaging with stakeholders to create relevant solutions.