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What Is Net Zero? What It Means and Why It Matters

Article Overview

Net zero is when greenhouse gas (GHG) emission removals balance out the amount of GHG emissions in the atmosphere.

It is an ambitious but necessary goal if we want to avoid the direst consequences of climate change. Failing to achieve net zero can result in rising sea levels that make areas uninhabitable, extreme weather that can have disastrous effects, and many other dangerous outcomes.

To keep the global temperature below 1.5℃, the Intergovernmental Panel on Climate Change (IPCC) says that we must reduce global net anthropogenic carbon dioxide emissions by 45% from 2010 levels by 2030 and reach net zero by 2050.

Unfortunately, the Earth is warming at an alarming rate. The IPCC’s Sixth Assessment Report, Climate Change 2021: The Physical Science Basis, found that global surface temperature was 1.09℃ higher from 2011–2020 (9 years) compared to 1850–1900 (50 years)

Businesses can also benefit financially by reducing and disclosing emissions now. Below, we cover what businesses need to know about what it means to be net zero.

What Emissions Does Net Zero Encompass?

Reaching net zero emissions means bringing the net production of all GHG emissions as close to zero as possible. For companies, this translates to reducing scope 1, 2, and 3 emissions as defined by the GHG Protocol. Net zero targets are especially important to align with the Paris Climate Agreement and related initiatives, like the UN’s Race to Zero campaign and the Net Zero Coalition.

What Does “Net Zero” Measure Vs. Similar Terms?

Net zero refers to all GHG emissions, while other terms may refer to strictly carbon or other emissions.

Businesses should understand the types of emissions these ESG terms refer to as it affects the actions needed to reach those goals. For example, businesses will need to measure all GHG emissions when committing to a net zero target, compared to a carbon-neutral target for which they would only need to measure carbon emissions (CO2).

GHG emissions primarily refer to gasses identified in the GHG Protocol: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulfur hexafluoride (SF6), and nitrogen trifluoride (NF3).

Each of these gasses retains heat from the sun, creating a greenhouse effect and raising the overall heat of the earth’s atmosphere. Carbon primarily refers to carbon dioxide.

Below are some common terms businesses may encounter:

  • Carbon neutral focuses on balancing carbon emissions generated with carbon emissions removed.
  • Carbon negative refers to more carbon being removed from the atmosphere than what is released.
  • Absolute zero emissions refer to zero emissions generated without using carbon offsets or other solutions.
  • Climate neutral focuses on balancing out the overall effect on the climate, including reductions in GHGs, water use, waste management, and more.
  • Net positive energy is commonly associated with buildings that generate more renewable energy onsite than the energy they consume.
  • 1.5℃ aligned is commonly associated with targets aligned with the UN goal to keep global temperatures below 1.5℃.

Awareness of these terminology differences is important for organizations committing to a target with full visibility.

For example, companies may exclude certain activities from their scope 3 calculations if they’re unable to obtain the data. This may seem small on the surface, but omissions of any size make it challenging to understand the full scope of an organization’s impact and how to make equivalent reductions.

equation to generally calculate emissions and determine net-zero

How Can The World Achieve Net Zero?

The actionable steps below can bring global society closer to its net zero goals.

Reducing Global Emissions

Together, consumers, corporations, and governments can combine their individual efforts to make sweeping global reductions.

Consumers must make lifestyle changes to avoid and reduce actions that lead to GHG emissions. This can include:

  • Using public transportation instead of driving a car
  • Installing energy-efficient appliances in homes
  • Reducing unnecessary air travel
  • Switching to renewable energy in homes

Action on the individual level is necessary. However, businesses and decision-makers can influence emissions reductions on a mass scale.

Businesses must also make emissions reductions

One study published in “Nature Climate Change” found that a fifth of carbon dioxide emissions come from global supply chains of multinational companies. The CDP’s Carbon Majors report also found that 100 fossil fuel producers are linked to 71% of industrial GHG emissions from 1988 to the time of reporting in 2017.

Decarbonization for businesses starts with reducing scope 1, 2, and 3 emissions. Actions can include using renewable energy to power facilities, improving shipping routes to reduce emissions, and supplying employees with energy-efficient equipment. Transparent and periodic reporting are key to staying on track.

Governments are responsible for enforcing policy requirements for emissions reporting and reductions in all sectors.

Requirements and regulations are essential for these changes to happen quickly and effectively. Below are some examples of new requirements and regulations globally:

The path to net zero for may look different per country or region depending on available funding and technology.

The UN places countries into three different parties based on their different commitments and abilities to address this disparity.

  • Annex I parties consist of industrialized countries that were members of the Organisation for Economic Co-operation and Development (OECD) in 1992 and countries with economies in transition (the EIT Parties).
  • Annex II parties consist of OECD members from Annex I only. These parties must provide financial resources to help developing countries pursue emissions reduction activities. They must also promote the creation and transfer of environmentally friendly technology to EIT parties and developing countries.
  • Non-Annex I parties mostly consist of developing countries that submit biennial update reports (BURs) on their progress toward meeting the goals of the Paris Agreement. However, they’ve also called attention to the need for technical and financial support to grow their efforts effectively.

Using High-Quality Offsets When Necessary

Many companies rely on high-quality carbon offsets to achieve their sustainability goals. However, carbon offsets alone cannot move the world to net zero. Examples include projects to capture and store carbon and projects to protect and enhance natural carbon sinks.

The Science Based Targets initiative (SBTi)’s net-zero corporate standard says that companies must plan to reduce emissions by 50% before 2030 and 90%–95% by 2050 with a base year no earlier than 2015 so that net zero targets are aligned with science. The standard suggests that companies nullify the remaining 5%-10% of emissions with carbon removals.

Currently, net zero is not an achievable goal for every industry. Aviation is an example of an industry that cannot currently reduce 100% of its emissions. While these industries move toward permanent solutions, high-quality offsets are necessary.

For a company to truly offset its carbon emissions, the project must permanently remove or avoid them. For example, some carbon offset projects simply delay emissions generated rather than permanently avoiding or removing them. The goal is to ensure that any natural or manmade actions don’t release offset carbon into the atmosphere again, thus nullifying the removal or avoidance.

Using carbon offsets doesn’t mean organizations are free from reporting on those emissions. According to the GHGP, organizations must report the entirety of their scope 1, 2, and 3 emissions, and offsets do not count toward that balance.

Companies can and should focus on reducing emissions, embracing renewable energy, and minimizing employee commute before turning to carbon offsets.

Investing in Solutions to Reduce and Avoid Emissions

New technology is needed to find permanent ways to reduce and avoid emissions. The solutions can either enhance natural processes or bring new developments that reduce emissions in novel ways.

The planet has several natural ways it absorbs or removes certain GHG emissions. For example, forests and the ocean are natural carbon sinks, which means they naturally absorb carbon from the atmosphere. Methane is removed in the troposphere and stratosphere when hydroxyl radical (OH) reacts with atmospheric methane during the methane cycle.

However, the planet currently produces more GHG emissions than its natural processes can absorb and remove. As a result, we have an excess amount of emissions in the atmosphere that is trapping heat and warming the earth.

We need to create new technological solutions to enhance our natural sinks and new ways to absorb and store GHG emissions.

Below are examples of companies doing just that:

  • Charm Industrial converts biomass to bio-oil to inject it back into the Earth for long-term storage. The fast pyrolysis process heats up biomass like corn stover, then produces a bio-oil and ash mixture that farmers can use as potash fertilizer.
  • Soilfood’s soil amendment efforts create soil amendment fibers using the byproducts of the paper and pulp industry. Pulp and paper mills would otherwise incinerate these materials, thus releasing carbon into the atmosphere.

Many solutions focus on carbon removal, but the world also needs solutions for removing other GHG emissions. The A-Gas V-1 project and the A-Gas V-2 project are examples of this. These projects focus on reclaiming used hydrofluorocarbons (HFCs) to avoid creating virgin HFCs in the future.

When Do We Need to Reach Net Zero?

The world must reach net zero emissions by 2050 if we want to keep the global temperature below 1.5℃.

IPCC’s Climate Change 2022: Mitigation of climate change report confirms that keeping global warming at or below 1.5℃ still requires the following:

  • GHG emissions need to peak by 2025 at the latest
  • GHG emissions need to be reduced by 43% by 2030
  • Methane needs to be reduced by about a third by 2030
  • The world must reach net zero emissions by 2050

At the time of writing, 2030 is less than a decade away, and there is much to do. UN Secretary-General António Guterres said that scenarios like extensive water shortages and unparalleled heat waves can happen if we do not take action soon.

The UN’s recent reports on National Determined Contributions (NDCs) under the Paris Agreement found that full implementation of current net zero plans would lead to 2.1–2.4 ℃ peak global average temperature by 2030. They also found that we’re on course to increase GHG emissions levels by 10.6% in 2030 compared to 2010.

However, achieving net zero is still within reach.

Comparing 2022’s report to 2021’s report shows that total projected GHG emissions level changes have decreased. Last year’s report predicted a 13.7% GHG emission increase in 2030 compared to 2010.

The change may result from progress made on NDCs highlighted in the report, like policy coherence and integrating NDC-related targets and goals into national legislation.

This is a positive sign that we are moving in the right direction. However, more aggressive action would propel the world forward toward net zero.

vertical bar chart depicting predicted greenhouse gas emissions increase in 2030 compared to 2010 levels for 2021 and 2022

How Can A Company Set A Net Zero Target?

Companies can follow SBTi’s Corporate Net-Zero Standard to set targets that align with climate science and the goal of limiting global temperature to 1.5°C.

Previously, there were many definitions for net zero and varying ways companies calculated their emissions and progress. The SBTi developed this standard to give corporations a single source of information they can rely on and a unified definition.

The SBTi provides the standards for net zero targets and validates that they align with those standards. The cost for validating targets ranges from $1,000 to $9,500 per target.

list of five steps to set a science-based net-zero target

Net zero commitments for companies require oversight on the executive level and execution throughout the organization. This can include changes as large-scale as improving manufacturing and small-scale as eliminating paper waste.

There are different types of near and long-term targets corporations can set.

The SBTi identifies the following types:

  • Absolute contraction target refers to the overall reduction in the amount of absolute GHGs emitted to the atmosphere by the target year relative to a company’s base year. This type of target is relevant for scopes 1, 2, and 3.
  • Physical intensity convergence target also known as the sectoral decarbonization approach (SDA) refers to a reduction in emissions relative to one of the company’s production outputs. This type of target is relevant for scopes 1, 2, and 3.
  • Renewable electricity target refers to targets to source renewable electricity actively. These can be used as an alternative to scope 2 reduction targets if targets align with the goal of securing 80% of electricity from renewable sources by 2025 and 100% by 2030.
  • Engagement target refers to the number of suppliers that have adopted science-based emission targets and is only relevant for scope 3.
  • Physical intensity target refers to GHG emissions reductions relative to production output and is only relevant for scope 3.
  • Economic intensity target refers to GHG emissions reductions relative to a company’s financial performance using the GHG Emission per Value Added (GEVA) method (with “value added” referring to sales revenue, gross profit, or operating profit). It is only relevant for scope 3.

Each type of target has its own pros and cons. For example, absolute targets are typically the most robust but do not allow companies to compare results to peers.

The SBTi also provides the following key requirements for the Corporate Net-zero Standard:

  1. Focus on fast and comprehensive cuts to emissions. Taking effective action now is the key to limiting global temperatures.
  2. Create targets for both the near and long term. Companies need to measure progress with reductions to help halve emissions by 2030 and bring global emissions down to nearly zero in 2050.
  3. Do not make net-zero claims until you’ve met long-term targets. Companies will only truly reach net zero once they’ve reached their goal, not before.
  4. Include more than just the value chain. In addition to making cuts in their value chains, the SBTi recommends going further to help diminish climate change outside of their targets.

The SBTi also has these additional resources for setting targets:

How Can Companies Stay On Track With Targets?

Companies should use interim targets to track progress, improve governance related to climate and sustainability, and use climate management and accounting platforms to track progress transparently.

Keeping these goals at the forefront of a business is its own rigorous undertaking that requires even more oversight. Taking steps to measure progress and remain transparent can help businesses make progress toward their goals.

Similar to setting KPIs and interim business targets, interim net-zero goals are important to measure a company’s progress toward net zero tangibly. It also allows companies an opportunity to see what is going well, what is not, and what they should adjust to reach their goal.

Improved corporate governance is necessary to make organizational changes to reach net-zero emissions targets. For instance, educating and empowering leaders to make impactful decisions can positively impact a company’s governance.

The Organisation for Economic Co-operation and Development (OECD)’s report on Climate Change and Corporate Governance highlights the following trends:

  • The need for standardized corporate disclosure also requires standardized definitions of materiality (financial materiality, double materiality, etc.)
  • Emphasis on board responsibility and finding a balance between shareholders’ financial interests, as well as the best interests of stakeholders and the public
  • Importance of shareholder rights and engagement to push companies to prioritize climate-related concerns in response to more investors funding sustainability and ESG-related funds

Today’s stakeholders want companies to be more sustainable and transparent with their progress. PwC’s Global Investor Survey of asset managers found that:

  • 79% consider how a company manages ESG risks and opportunities important in their investment decision-making
  • 76% consider a company’s exposure to ESG risks and opportunities when reviewing potential investment opportunities.

Carbon accounting and similar platforms are key to streamlining data collection and analysis. These software solutions will help companies to generate emissions reports aligned with globally-accepted standards. These platforms are also beneficial for sharing transparent data and calculations with stakeholders.

Frequently Asked Questions About Net Zero

Which Countries Have Net Zero Targets?

88 countries at the time of writing have communicated net zero targets, according to ClimateWatch. Many commitments to reach net zero results from joining the Paris Agreement.

Additionally, 194 parties (the EU and 193 states) have committed to the Paris Agreement. This legally binding international agreement requires all parties to reduce greenhouse gas emissions, submit updated NDCs, and provide financing for developing countries that are also working towards this goal.

Which Organizations Are Supporting These Efforts?

The Glasgow Financial Alliance for Net-Zero (GFANZ) and the Net-Zero Coalition are examples of collaborations that are focused on supporting net zero efforts. The UN’s Race to Zero campaign is an international effort to take action to cut global emissions in half by 2030.

What Will Happen If We Don’t Reach Net Zero?

Water levels will rise, extreme weather and natural disasters can lead to dangerous conditions, and the culminating effects of climate change can threaten our way of life.

The World Economic Forum’s (WEF) Global Risk Report surveyed global experts and leaders to gain insights on risks to our international community. Respondents identified climate action failure (42.1%), extreme weather (32.4%), and biodiversity loss (27%) as the top three severe risks on a global scale over the next ten years.

We are already seeing signs of climate change.

WEF’s report highlighted a record temperature high of 42.7°C in Madrid and a 72-year low of -19°C in Dallas. In 2021, global average sea levels grew 97 millimeters compared to 1993 levels. This was the highest annual average recorded between 1993 to 2021.

Drastic temperature changes also trigger increasingly frequent and devastating natural disasters. Hurricane Ian is just one example of how the effects of climate change can lead to stronger storms. Rising sea levels can result in heavier rainfall from a storm, which leads to an increased risk of flooding.

Scaling global GHG emissions to zero will help lower Earth’s global temperature and help us avoid the worst effects of global warming.

black and white photo of a home that was destroyed by a hurricane with debris and trees surrounding the home

It is crucial to take steps today if we want to reach net zero and combat climate change. A part of the net zero journey requires organizations to measure and report their emissions. Companies can use this data to establish a baseline, identify high-impact areas, and create a comprehensive decarbonization plan.

Carbon accounting software can make the data collection and analysis process much easier than keeping track of an endless number of spreadsheets. A robust platform can automate most data collection processes, provide actionable insights, and align data with globally-accepted reporting standards (like the GHG Protocol).

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