Carbon neutral or net-zero, what’s the difference?

With increased recognition of the need to act in the face of the climate crisis, governments and companies alike have taken to announcing ambitions to reduce their environmental impact and are setting bold net-zero targets to be met by 2050.

Although the terms “carbon neutral” and “net zero” are used interchangeably, they shouldn’t be. In the fast-moving world of ESG and Sustainability, here’s a reference guide to clarify this difference.

  • Carbon-neutral means purchasing carbon reduction credits equivalent to emissions released, without the need for emissions reductions to have taken place

  • Net-zero means reducing emissions in line with latest climate science and balancing remaining residual emissions through carbon removal credits. For investors and regulators, net-zero is becoming the benchmark for climate action

 

Types of carbon offsets

  • Carbon-neutral involves offsetting using carbon reduction or removal projects, which reduce the amount of CO2 released into the atmosphere

  • Net-zero involves offsetting using carbon removal projects which actually take CO2 out of the atmosphere

 

Project type

  • Carbon reduction/avoidance projects include renewable energy generations (e.g. solar and window projects)

  • Carbon removal projects involve CO2 removal technologies or matured reforestation (min. 10 years)

 

Level of ambition

  • Carbon-neutral allows for emissions to be created with no specified level of reduction required

  • Standards for Net-Zero are laid out in the SBTI Net-Zero Standards. Guidance varies across industries, but most companies are required to achieve a 90% reduction in scope 1, 2, and 3 emissions by 2050. The residual emissions can be naturalized through carbon removal projects

 

Scope

 
 

  • Carbon-neutral must cover direct emissions (scope 1 and 2)

  • Net-zero must cover direct and indirect emissions (i.e., supply chain emissions, scope 1, 2 and 3)

 

Existing Standard and certification

  • Carbon-neutral has an existing standard. PAS 2060 is the only recognized international standard for carbon-neutrality. Certification of this exists via bodies such as the Carbon Trust, NQA and ControlUnion

  • SBTi Net-Zero Standard has been developed to provide guidance and tools for companies to set science-based net-zero targets. The Standard also includes an SME Pathway to make Net-Zero more accessible to smaller organizations with limited resources

 

Boundary

  • Carbon-neutral can refer to a specific product or service, or the whole organization

  • Net-zero must encompass the whole organization, including value chain emissions

 

Time frame

  • Carbon-neutral is a short-term goal that can be achieved now

  • Net-zero is a long-term goal, which involves setting specific targets to work towards. The SBTi Net-Zero Standard outlines guidance on both near-term target setting by 2030 and long-term target setting by 2050

 

Consistency with 1.5°C pathway

  • Carbon-neutral is a good starting point for businesses, but on its own is not enough to achieve a 1.5°C pathway

  • Net-zero by definition requires emissions reductions in line with a 1.5°C pathway. This is what all businesses must do in order to achieve net-zero global emissions by 2050

 

What is carbon removal?

Carbon removal refers to technologies that remove already-emitted carbon dioxide from the atmosphere. According to the Intergovernmental Panel on Climate Change, all pathways that limit warming to 1.5°C with no or limited overshoot all use carbon dioxide removal (CDR) to some extent to neutralize emissions from sources for which no mitigation measures have been identified, and in most cases, also to achieve net-zero emissions to return global warming to 1.5°C following a peak over this.

 

Reaching net-zero

Net-zero is achievable in theory, and complex in practice. It can be estimated with carbon footprint calculations and should include 100% of Scope 1 and Scope 2 emissions and all Scope 3 emissions that contribute to more than 1% of its total footprint.

If an organization is not able to provide neutral or negative carbon balance within its process/product design, it can purchase carbon credits. These of course must be equivalent to emissions released and don’t require emissions reductions to have taken place, making them a last resort.

 

Greenhouse gas
accounting

The preparation of a greenhouse gas (GHG) inventory lays the foundation for any corporate climate action. It is the prerequisite for developing a climate strategy and expedient climate protection measures. It should be complete, consistent and accurate, regarding the full scope of climate impacts from all activities. A company’s climate strategy often comprises a mix of measures, depending on the long-term targets and technical, organizational and financial possibilities. Only reduction measures that really change operations and processes lead to a real reduction of a company’s footprint. As such efforts take time and until they show their full effect, many corporates decide to offset their emissions, as an intermediate measure. They can also do this for specific (unavoidable) categories such as their business travel emissions.

 

Emissions that are carbon negative or net negative

Once an organization has achieved net zero emissions, it may choose to go above and beyond and offset more than just its residual emissions. Thus, a corporation would be taking more carbon dioxide from the atmosphere than it emits, which would establish a net positive carbon dioxide balance on a worldwide scale.

 

Setting your net-zero targets?

If your organization is looking to set-its targets and develop a plan to implement its strategy, take a look at our other ESG resources and feel free to reach out to our team for additional assistance.

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