Why Companies Should Stop Targeting Carbon Neutrality

Why can’t a company achieve carbon neutrality?

Carbon neutrality is a rigorous scientific concept. It refers to the balance between carbon emissions and absorption in the Earth’s atmosphere, but can only be achieved after a massive decrease in CO₂ emissions. In order to achieve true worldwide neutrality, all greenhouse gas (GHG) emissions need to be counterbalanced by sequestration (removing carbon from the atmosphere). According to the Intergovernmental Panel on Climate Change (IPCC), in order to achieve neutrality, anthropic emissions – or emissions caused by people – must decrease by around 85% (from 42 billion tons per year to 6 billion) by the year 2050. Then, and only then, the residual emissions can be fully absorbed by either natural or technological solutions.

There is no established scientific framework or model to determine what constitutes carbon neutrality at the company level. Essentially, it’s up to each company to decide what makes them carbon neutral, meaning that the definition changes from Company A to Company B. For example, one company might only consider CO₂ emissions and not all greenhouse gasses in their definition. Or they might only count direct emissions, but not indirect (Scope 3) emissions. Based on these different definitions, each company can take a vastly different approach and claim they are carbon neutral.

“Carbon neutrality” at the company level requires a significant amount of CO₂ offsetting, which can be a questionable practice that is sometimes criticized as greenwashing. Assuming that offsetting works perfectly, there are physical constraints. The IPCC estimates that the total global offsetting potential is 367 billion tons of CO₂ (nine years of anthropic emissions). In other words, if we offset 100% of global emissions, no more offsetting would be possible after nine years, and then our emissions would need to be at zero for the planet to be carbon neutral.

Therein lies the limits of the model. In practical terms, there is not enough space on Earth to absorb 100% of all emissions indefinitely. Think of a glass of water; if I fill the glass to the top, it is impossible for someone else to fill the same glass. Once it is full, there is no space for any more water. The same is true for carbon offsetting.

Beyond the semantics, what is the risk?

There are several risks for a company claiming carbon neutrality. First, and paradoxically, the closer an organization gets to carbon neutrality (as defined by companies today), the less impactful change it tends to make. Today, the pressure to be “green” is everywhere. However, the race to net zero will force companies to offset large amounts of carbon to become “neutral.” But if offsetting did not exist, they would have to implement more impactful, structural changes. Today, a company that triples its emissions can easily claim they are net zero, providing they offset all of those emissions, which is counterintuitive. Carbon offsetting sometimes delays or prevents necessary changes, even among companies that genuinely want to make an impact.

Second, claiming carbon neutrality can limit meaningful climate action from employees by preventing internal initiatives or introducing behavioral bias. Why look for innovative environmental solutions if the company is already at net zero? Why fly less if the department is carbon neutral?

Finally, there is significant risk in terms of image or reputation. People are becoming more aware of environmental issues and are better able to distinguish real initiatives from greenwashing. Companies are increasingly being criticized when they engage in offsetting activities, and it’s likely that carbon neutrality will be the next concept to be called out for greenwashing.

Furthermore, since there are no global standards, if a company reduces emissions by three times and offsets residual emissions, they are “carbon neutral.” At the same time, another company can triple emissions and offset everything, and they are also “carbon neutral.” But only one of those companies is making a concerted effort towards global carbon neutrality.

What is the solution for a company looking to reduce emissions?

So, what can a company do if they truly want to make an impact? On a topic so important and complex as climate change, a wise approach is to start with science. The two most important initiatives that are fully based on scientific recommendations are the Net Zero Initiative (NZI), founded by French company Carbone4 and several NGOs, and the Science Based Target Initiative (SBTi).

The methodologies are not identical, but the fundamental principles are the same. Most importantly, they assert that the priority should be an immediate and immense decrease in CO₂ emissions. To shed light on the magnitude of the problem, the IPCC recommends a 50% decrease in 2030 vs. 2019 and 85% in 2050. This is an annual decrease of 5-7%, which is similar to what we saw globally in 2020 as a result of the pandemic. To paraphrase Jean-Marc Jancovici, co-founder of Carbone4, we need the equivalent of ‘one Covid per year’ in emissions reductions to reach the IPCC goals. Therefore, setting a target is crucial, but defining a path is also essential. For instance, increasing emissions until 2029 and suddenly decreasing them to reach -50% is not the same thing as a regular and consistent decrease.

Both the NZI and SBTi exclude CO₂ offsetting from carbon decrease targets, meaning it’s impossible to simply offset emissions and not reduce them and still claim carbon neutrality. The SBTi allows for offsetting as part of a net zero strategy, but then the company can only claim they have a net zero target, but not that it is actually net zero (this will be possible only after a huge decrease in emissions in line with the IPCC recommendations).

The NZI goes further and simply does not allow any reference to net zero or carbon neutrality. The model still encourages offsetting, but in no way can this cancel out emissions. The term “offsetting” should be replaced by “contribution,” in that emissions are not offset, but a contribution is made to the general effort to reach global carbon neutrality. Therefore, two separate forms of reporting should be used, one for emissions decreases and one for offsetting/contribution.

By focusing on emissions decreases, it is therefore possible to distinguish those organizations making a real difference, from those claiming carbon neutrality based on a carefully selected set of criteria.

Beyond the semantics, claiming carbon neutrality can quickly become risky for a company, delaying necessary structural changes, and creating risk in terms of image and reputation. While offsetting is the cornerstone of most companies’ current “net zero” strategies, it should be counted separately from their efforts to reduce emissions. It’s not a magic wand to cancel out an organization’s environmental footprint. Rather than targeting company-wide net zero initiatives, organizations all over the world should focus on making impactful structural changes to reduce their GHG emissions – working together towards the goal of true global carbon neutrality.

This piece originally ran as a guest post in The Beat.