What is Carbon Neutrality and How to Achieve It?
What Does It Mean To Be Carbon Neutral?
Carbon neutrality means achieving a balance between the amount of carbon dioxide (CO₂) emitted into the atmosphere and the amount removed, such that emissions are equal to or less than that removed.
This balance is accomplished through two main strategies:
Reducing emissions: Lowering carbon output by adopting sustainable practices, such as renewable energy or energy efficiency.
Offsetting emissions: Investing in projects that absorb CO₂, like reforestation or carbon capture technologies, to neutralize remaining emissions.
Why Does Carbon Neutrality Matter?
The urgency for businesses to adopt carbon neutrality is underscored by international mandates addressing climate change, changing consumer behavior, and rising investor interest in ESG (Environmental, social, and governance) focused businesses.
In 2018, the Intergovernmental Panel on Climate Change (IPCC) stated that to achieve the Paris Agreement's target of capping global warming at 1.5 degrees Celsius, we'd need to achieve net zero by 2050. Countries have committed to setting national climate plans known as Nationally Determined Contributions (NDCs), which include ambitious net-zero targets by mid-century. These commitments are critical for transitioning to a sustainable economy and reducing the risks associated with climate change. Many corporations have begun to adopt carbon-neutral pledges, recognizing their role in contributing to global emissions.
The United Nations has emphasized that the next few years will be critical to meeting carbon-neutral targets on a global scale. The 2023 Global Stocktake report highlighted that current emissions reduction efforts are insufficient to meet the Paris Agreement's goals. Without substantial action, the world risks surpassing the 1.5°C warming threshold by as early as 2030, leading to more frequent extreme weather events and biodiversity loss. The World Economic Forum has been hosting Sustainable Development Impact Meetings to bring stakeholders together to implement a plan to accelerate the path to achieving the Sustainable Development Goals (SDGs) as progress has been slower than expected.
Against this backdrop, it's evident that organizations and governments must play an active role in driving sustainable progress. Apart from being a global urgency, carbon neutrality and climate action initiatives are influencing consumers. Changing consumer behaviors are pushing businesses to walk on a path of sustainable development. For example, research by Bain's Global Consumer Lab indicates that 64% of global consumers are concerned about sustainability, with this figure climbing to 79% in developing markets.
Countries like China, Brazil, and the United Arab Emirates have seen pressure from consumers, trading partners, investors, regulators, and employees to provide verifiable backing to their sustainable claims. Research by BCG also found a high correlation between ESG) indexes and key financial and valuation metrics, indicating that better sustainable actions link to better performance through better investment opportunities, customer satisfaction, and coveted talent acquisition.
Several organizations are making pledges to become carbon neutral, which is essential to avoid worst-case scenarios. For instance, Amazon and General Motors have committed to carbon neutrality by 2040, and companies like Apple by 2030.
Carbon Neutral vs. Net Zero
While both aim to address climate change, carbon neutrality and net zero have distinct approaches and scopes:
*Scopes of Emissions:
Scope 1 Emissions: These are from sources directly owned or controlled by the company
Scope 2 Emissions: These are indirect emissions that are released from the use of purchased energy.
Scope 3 Emissions: These are all other indirect emissions across a company's value chain that are out of their direct control.
How To Be Carbon Neutral?
Here are some ways to lower carbon emissions and achieve carbon neutrality:
Reduce greenhouse gas emissions: Reducing energy consumption, switching to renewable energy, and improving energy efficiency are ways to get closer to carbon neutrality. Google has been carbon neutral since 2007 and operates entirely on renewable energy. It has invested heavily in renewable energy projects, including wind and solar, and has implemented AI to optimize energy usage across its data centers. The Air France Group is another company on the path to achieving carbon neutrality. The aviation group aims to reduce emissions per passenger kilometer by 30% by 2030 compared to 2019, with a 12% reduction in total CO₂ emissions. This goal, verified by the Science Based Targets initiative (SBTi), aligns with the Paris Agreement. To achieve this, the airline focuses on three key actions: fleet renewal with more fuel-efficient aircraft, the gradual adoption of sustainable aviation fuel (SAF) from non-fossil sources, and eco-piloting practices to reduce fuel consumption. These efforts are supported through close collaboration with partners across the aviation ecosystem.
Increase carbon sinks: Carbon sinks such as forests, soil, and oceans absorb more carbon dioxide than they release. As per the IPCC AR6, throughout the last 60 years, the land and ocean have absorbed about 56% of CO2 emissions created out of human activities per year. Protecting and enhancing these natural systems is essential to offset emissions. However, they must be carefully managed to avoid releases from forest fires or land-use changes. TotalEnergies entered a $100 million partnership with Anew Climate, an American climate solutions leader, and Aurora Sustainable Lands, a U.S.-based carbon-stewardship company and forest landowner. The aim is to invest in projects that protect forests from timber harvesting to enhance their ability to store higher atmospheric carbon.
Use carbon offsetting: Invest in projects that reduce or sequester carbon dioxide emissions elsewhere. Purchase credits from verified carbon offset projects like reforestation or renewable energy initiatives. Direct Air Capture (DAC) and Bioenergy with Carbon Capture and Storage (BECCS) are other projects that abate carbon emissions. Ensure the projects are certified by the Verified Carbon Standard (VCS) or Gold Standard. Buying one carbon credit is equivalent to one metric ton of carbon dioxide. This practice is most commonly seen in the airline industries, where emissions are exorbitantly high, like the airline, shipping, and cement industries. Microsoft has committed to being carbon-negative by 2030, not just neutral. They are investing in projects that increase carbon sequestration, such as a reforestation initiative in the Pacific Northwest and a soil carbon sequestration program.
Promote public-private partnerships: PPPs effectively accelerate the adoption of low- and zero-carbon solutions by leveraging private-sector resources and expertise alongside public-sector governance. The United Nations Development Programme (UNDP) is working to help organizations achieve climate action goals by setting up a Carbon Payments for Development (CP4D) Facility that catalyzes innovation-driven PPPs. The Facility will minimize risk and encourage private sector investments in initiatives that work directly on the countries' conditional NDCs (Nationally Determined Contributions).
Carbon Neutrality Frameworks
The Science-Based Targets Initiative (SBTi)
The Science-Based Targets Initiative (SBTi) provides a framework for companies to set science-based net-zero targets that align with the Paris Agreement goals. The initiative includes the guidance, criteria, and suggestions to create targets to limit global warming to 1.5°C. In 2024, over 6000 organizations worldwide are working with SBTi to advance their corporate climate action.
PAS 2060
PAS 2060, developed by the British Standards Institution (BSI), is a globally recognized standard for achieving carbon neutrality. It offers a comprehensive framework for organizations and products to calculate, reduce, and offset greenhouse gas (GHG) emissions. The standard follows a four-step process to demonstrate carbon neutrality:
Assess GHG emissions
Implement reduction measures
Offset remaining emissions
Document and verify compliance
By obtaining PAS 2060 certification, businesses can showcase their commitment to environmental sustainability to customers, investors, and other stakeholders.
Greenhouse Gas Protocol (GHGP)
The Greenhouse Gas Protocol offers the most widely adopted greenhouse gas accounting standards for businesses. It also provides standards and tools that assist countries and cities in monitoring their progress toward climate goals. The framework guides organizations on measuring, managing, and reducing GHG emissions throughout their value chain. In 2023, 97% of S&P 500 companies that reported to CDP, a not-for-profit charity that runs the global disclosure system, used the GHG Protocol.
Carbon Neutral Companies
Microsoft
Microsoft has been carbon neutral since July 2012. They implemented an internal carbon fee model to hold their business groups financially responsible for reducing and compensating for their carbon emissions. Since implementing the fee in July 2012, they have used the fund to buy more than 10 billion kilowatt hours of green power, reducing their emission by 7.5 million metric tons of CO2.
IKEA
IKEA is advancing toward its goal of operating entirely on renewable energy by 2030 through significant investments in renewable energy sources. IKEA is striving to become climate-positive by 2030, focusing on reducing greenhouse gas emissions beyond its entire value chain's output. The company is heavily investing in renewable energy, aiming to generate as much as it consumes. IKEA also emphasizes eco-friendly products, using materials such as recycled plastics and sustainably sourced wood, and actively promotes a circular economy by encouraging product recycling and sustainable manufacturing. Notably, as of 2020, IKEA had already invested €2.5 billion in renewable energy projects, owning more wind turbines than stores globally.
Global Progress Towards Carbon Neutrality
Global progress toward carbon neutrality is being led by regions like the United Kingdom (UK), European Union (EU), and United States (US), with ambitious goals. The UK has set a net-zero target to be achieved by 2050, and the EU's Green Deal commits to achieve carbon neutrality by 2050 and aims to lower carbon emissions by 55% by 2030, focusing on renewable energy and transportation electrification. The US aims for a 50-52% reduction in emissions by 2030 compared to 2005, supported by initiatives like the Inflation Reduction Act. This act also allocates $369 billion for clean energy and EV infrastructure.
While the developed world advances steadily, challenges remain in emerging nations, including financial barriers, technological gaps in carbon capture and storage, and inconsistent policy frameworks. At COP29, rich nations pledged to support developing countries in combating climate change by offering at least $300 billion annually. However, the nations claim the funds are insufficient as they had initially sought over $1 trillion in assistance to give them the right resources to solve the complexities of the climate crisis.
The Central African Republic's Measurement, Reporting, and Verification (MRV) system outlines the region's emission targets for 2025 and 2030 in sectors like energy, agriculture, and forestry while also highlighting acute challenges in a technical capacity. Mali also set ambitious renewable energy targets across sectors but stated that institutional coordination remains challenging. Mali showcased ambitious renewable energy goals and emissions reduction targets across energy, agriculture, and forestry sectors by 2030, emphasizing institutional coordination challenges.
As of May 2024, 148 countries have made neutrality commitments as per a report published by Tsinghua University, and 198 parties to the United Nations Convention on Climate Change have enacted laws to combat climate change. This progress must continue, if not intensify, to achieve global carbon neutrality.
A single zero-carbon roadmap is not sufficient for the resources, legal systems, development stages, and technological capabilities of different countries. For instance, with their economic and technological capacity, developed countries have an advantage in producing biodeisels and hybrid vehicles. In Southeast Asia, the strategies that have been working are biofuels and carbon sink technologies. This underscores the urgent need for collective action from businesses and policymakers to invest in technologies and public-private partnerships that help achieve carbon neutrality in their nations.
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