Carbon Neutral vs Net Zero

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When setting and publishing decarbonisation targets, it is essential for companies to observe the difference between the terms “carbon neutral” and “net zero”, as they are not interchangeable and often applied incorrectly. Understanding the difference is key to avoid any potential claims of corporate greenwashing.

Carbon Neutral

Carbon neutrality, in principle, allows for an emissions profile of any size, and means that any greenhouse gases released into the atmosphere from a company’s activities is balanced by an equivalent amount being removed/compensated for (through the purchasing of carbon offset credits). Carbon offset credits are purchased to represent one tonne of carbon to be offset. It is therefore not mandatory for a company to directly decrease any carbon emissions through actual decarbonisation measures (e.g., energy efficiency, electrification, on-site renewables, Power Purchase Agreements etc) in order to become carbon neutral.

Companies can simply offset the same amount of carbon as emitted – although some companies will also try to reduce some emissions where possible. Carbon offsetting measures can include funding projects such as renewable energy generation in developing countries, providing clean cooking stoves and funding sustainable waste/water projects. Carbon neutrality is inconsistent with the science of achieving net zero, and so some consider it an intermediate step on the transition down to net zero emissions while developing strategic plans for reducing scope 1, 2 and 3 emissions.

Net Zero

Net zero, on the other hand, requires that a company reduces all greenhouse gas emissions across its entire value chain, while only offsetting limited emissions that cannot be decarbonised due to technical or financial restrictions (residual emissions). In line with the SBTi’s Corporate Net Zero Standard, and in order to support the target to limit global temperature increases to 1.5°C, companies must reduce carbon emissions by a minimum of 90-95%, and offset any residual emissions using neutralisation measures. Neutralisation requires the removal of carbon from the atmosphere and can include large-scale tree-planting or investment in direct air capture technologies.

Approach of the SBTi

The SBTi's Corporate Net-Zero Standard is designed to help companies set science-based targets to reach net zero, and has four key requirements (which prioritise rapid decarbonisation through implementing practical decarbonisation measures to the fullest extent possible):

  • Fast and extensive emission cuts in order to halve emissions by 2030.
  • Long-term targets in order to reduce all possible emissions (90-95%) by 2050.
  • Permanent carbon removal and storage to neutralise residual emissions.
  • Additional investments to fund climate change projects outside of the company's own operations.

Under the SBTi, companies are required to ensure an actual reduction in scope 1, 2 and 3 emissions in order to make credible and verifiable decarbonisation/net zero claims – with carbon offsetting only permissible for residual emissions.

How NUS Can Help

By focusing on reaching net zero rather than carbon neutrality, your business can achieve actual decarbonisation and avoid claims of greenwashing. NUS's Energy and Sustainability Services (ESS) team has the expertise and resources to take your organisation's sustainability objectives and develop a detailed strategic plan in line with the SBTi's Corporate Net-Zero Standard. Our experts can support in every step of the journey, from target-setting, strategy development, through to the implementation of recommendations.

More: Energy Market Commentary, Carbon, Carbon Credits, Carbon Offsets, Decarbonization, Energy and Sustainability Services (ESS), Net-Zero

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Ella Loven