What’s the difference between net zero and carbon neutral?
Net zero and carbon neutral are not the same! Learn more about the differences between these two approaches to climate action.
By Asiyah Choudry
May 30, 2022
Organizations are increasingly setting net zero or carbon neutral climate action targets. Though net zero and carbon neutral are often used synonymously, they refer to two different strategies for decarbonization. But what do net zero and carbon neutral look like? And is one better than the other? Let’s take a closer look at the differences between net zero and carbon neutral!
What is carbon neutral?
According to the international carbon neutrality standard, the PAS 2060, a company is carbon neutral if they offset an amount of carbon equivalent to what they generate. Companies can effectively cancel out their emissions by purchasing carbon offsets. A carbon offset represents the removal or reduction of carbon emissions purchased to counteract emissions generated somewhere else.
Carbon neutrality typically refers to a company’s Scope 1 and Scope 2 emissions, including those resulting from sources it controls (e.g., furnaces, company vehicles) or from the purchase of electricity or steam. Organizations are encouraged to consider their Scope 3 emissions under this standard, though it is not required. Given that Scope 3 often accounts for the largest share of emissions, the focus on Scopes 1 and 2 is not truly reflective of an organization’s carbon footprint.
Under the carbon neutrality standard, companies are not required to achieve a specific level of decarbonization before purchasing offsets. In theory, an organization can increase its emissions but still be considered carbon neutral as long as it offsets its emissions. Another aspect of carbon neutrality is the wide range of carbon offsets that are permitted. Offsets do not necessarily have to remove carbon from the atmosphere. Carbon offsets may include those which sequester carbon, reduce emissions, or improve efficiency.
Though it achieved carbon neutrality in 2012, Microsoft admitted in a 2020 blog post that it primarily invested in offsets that avoided emissions (e.g., paying to reduce deforestation levels) rather than offsets that removed carbon from the atmosphere (e.g., reforestation). Microsoft’s shift in focus to carbon removal is based on an estimate by the Intergovernmental Panel on Climate Change (IPCC) that up to 10 gigatons of CO2 will need to be removed from the atmosphere by 2050 in order to achieve net zero.
What is net zero?
According to the IPCC, we will reach net zero CO2 emissions “when anthropogenic CO2 emissions are balanced globally by anthropogenic CO2 removals over a specific period.” Although this definition is very similar to the way that carbon neutrality is defined, net zero differs significantly in application.
The Science Based Targets initiative (SBTi) has developed a Net-Zero Standard, outlining best practices and guidelines for companies seeking to implement evidence-based net-zero targets. The standard differs from the PAS 2060 in that net zero targets must align with Paris Climate Agreement efforts to minimize global temperature increase to 1.5°C. Organizations must be committed to reducing their emissions by as much as 90-95% to meet the standard.
Unlike carbon neutrality, net zero includes the emissions produced by an organization’s entire value chain. This includes direct emissions (Scope 1 and Scope 2) in addition to indirect emissions (Scope 3), such as those resulting from the activities of suppliers.
Similar to carbon neutrality, organizations can use carbon offsets to neutralize emissions. The difference is that carbon offsets are used as a last resort after an organization has decarbonized its value chain to the maximum extent possible. In addition, there are restrictions on the types of carbon offsets that are permissible. Carbon offsets must remove carbon from the atmosphere, rather than achieving reductions through other means.
Carbon negativity takes net zero one step further
Some companies, including Microsoft and IKEA, have established carbon negative targets that surpass net zero in ambition. A company is considered carbon negative when it removes more carbon from the atmosphere than it emits. Microsoft has acknowledged that its carbon neutrality goal wasn’t sufficiently aligned with global climate targets and has shifted to a carbon negative approach with plans to be carbon negative by 2030.
According to Microsoft’s most recent sustainability report, to achieve carbon negativity, the company is undertaking efforts to mitigate its Scope 1, Scope 2, and Scope 3 emissions through renewable energy and fleet electrification. Microsoft’s carbon negative approach also relies heavily on large-scale carbon removal. The company has contracted 2.5 million tons of CO2 removal for 2021 and 2022. By 2050, Microsoft plans to remove its historical emissions dating back to as early as 1975 when the company was founded.
Net zero is a more meaningful indicator of climate action
Overall, net zero is more meaningful than carbon neutral when it comes to climate action. While carbon neutrality is a step in the right direction, it falls short compared to net zero due to the lack of firm decarbonization requirements. In addition, net zero is more rigorous because it has a broader scope, requiring deep reductions in emissions across the entire value chain.
If you’re thinking about investing in a company, consider examining whether they have a net zero or carbon neutral target. If you’re a climate-conscious investor, companies with net zero targets based on the SBTi framework might be a good fit.
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