Many companies have made pledges to reach Carbon-neutrality or Net-zero by 2050 or 2030, whilst others claim to have already done so. But what does that actually mean? Although Carbonary commends those companies that are making progress, this insight will explain how these terms may only be adding to the confusion around climate claims, whereas there may be a simpler way of tracking progress. Read on to discover how. 

A lack of standardised definitions creates confusion

Carbon neutral and Net-zero - we’ve all heard of them at some point. These terms have gained significant traction in recent years due to growing environmental awareness and the urgency to address climate change. By incorporating them into their marketing strategies, companies aim to capitalize on the positive associations with sustainability, demonstrate their commitment to environmental responsibility, and appeal to environmentally-conscious consumers. Many companies genuinely work towards achieving these goals and this should be encouraged. However, others have been accused of “greenwashing”, or deceptively using environmental claims to give the false impression of being more environmentally friendly than they actually are, which has led to growing public distrust in many cases. 

Looking at the concepts more closely enables us to understand why this has been occurring. As there is no standardised definition of Carbon neutrality or Net-zero, different organizations and initiatives have specific criteria or guidelines for how they define and measure these terms, so their exact definitions seems to vary. This consequently creates confusion surrounding when exactly a company can claim to be one or the other either, indeed, it is a common misconception that the two terms are actually interchangeable. But the devil is in the details. 

Carbon offsetting provides the foundation for both terms

Human beings have been pumping out GHG emissions ever since the dawn of the industrial revolution. The idea behind carbon offsetting is the balancing out of these emissions through avoiding or reducing emissions somewhere else in the world. This is seen as a last resort - both Carbon neutrality and Net-zero seemingly advocate that companies decarbonise to the extent possible, and offset the total remaining emissions. Carbonary takes into account two types of offsetting, the first of which is by way of contractual instruments that offset Scope 2 location-based emissions (using the market-based amount instead of the location-based amount). The second way is by cancelling* carbon credits. This works as follows:

• A company emits X tonnes of CO2eq emissions. It’s trying to decarbonise but it’s costly and takes time so it needs to emit to be able to function.

• So, it purchases X carbon credits (1 tonne of CO2eq per credit) and retires them so that they can’t be resold or the benefit be claimed by anyone else.

• Now, the Company’s emissions have been effectively “neutralised” by the avoidance or removal of emissions somewhere else in the world (depending on the particular carbon credit). 

*Cancelling, sometimes referred to as retiring.

Admittedly, there are flaws in this mechanism, and a question mark remains over the quality of certain types of carbon credit on the market. But even before they begin, how do companies know how much they’re required to offset? There is no standardised calculation method that explains how companies can reach Carbon neutrality or Net-Zero, which leaves room for interpretation. Both the GHG Protocol and the Intergovernmental Panel on Climate Change (IPCC) provide similar definitions that both terms refer to balancing anthropogenic emissions with the amount of GHG removed from the atmosphere, but there is no clear guidance on what is included in the calculation. Does a company need to offset the entirety of its Scope 3, for example? In most cases, companies that claim to be Carbon neutral (and not Net-zero) have offset only a fraction of their Scope 3 emissions, if any. Moreover, it is also unclear which types of carbon credits are permitted to reach these goals. Both the GHG Protocol and the IPCC seem to indicate that Net-Zero permits only removal credits and not avoidance credits, but this is not explicitly stated, and most companies who claim to have reached Net-Zero have done so through a mix of both types of credit. 

Not reinventing the wheel, simplifying it

It’s crucial that carbon data is as transparent as possible and that there are no misrepresentations, be they intentional or not. As a result, Carbonary has decided to use simpler terminology to refer the two major milestones against which carbon offsetting and company progress can be measured, as follows:

1.  Core residual emissions offset

   The company is required to offset the following emissions:

   • Scope 1

   • Scope 2

   • Business travel and Employee commuting from Scope 3

2.   Total residual emissions offset

   The company is required to offset the following emissions:

   • Scope 1

   • Scope 2

   • Scope 3 (all categories across the value chain)

When calculating a company’s Total residual emissions, all 15 categories in Scope 3 should be included. However, Core residual emissions is not as extensive as only two categories from Scope 3 are included, namely, Business travel and Employee commuting. Although these are Scope 3 categories, they are considered Core residual emissions because they stem from a company’s activities and reflect its travel policies and practices. The remaining 13 categories in Scope 3 do not need to be offset for the purposes of reaching Core residual emissions.

Core residual emissions only include a fraction of value chain emissions

In most cases, the only Scope 3 categories that must be offset to reach the milestone of Core residual emissions offset - Business travel and Employee commuting - are far from being the most pollutant of the 15 categories and therefore cannot be said to represent the true extent of Scope 3 emissions. In fact, compared with others categories such as Use of sold products, these two categories are minimal. In a study of over 1900 companies, Business travel accounted for an average of just 0.08% of Scope 3 emissions per sector and Employee commuting for 0.2%. This means that around 99.72% of Scope 3 emissions are not included in Core residual emissions, hence why companies can only achieve a maximum rating of C if they have only offset this amount. 

A stepping stone

Behind all of this, there is a conceptual question that still needs to be answered - who is responsible for Scope 3 emissions? There can be some apathy among companies towards offsetting their Scope 3 emissions in full as those emissions are, technically, someone else’s Scope 1 and 2 emissions. But is that reason enough for a company not to offset them? After all, they do result from that company’s value chain, in which they play a pivotal role, and it wouldn’t be there were it not for the company’s existence, so they should take responsibility for it. Arguably, they are in the best position to drive decarbonisation efforts and therefore can push for energy efficient changes among internal and external stakeholders. On the other hand, some may counter-argue this by saying that even if the company did not exist, another would step into their shoes and those Scope 3 emissions would be still there - but if everyone thought this way, it would be almost impossible to decarbonize at the scale that is needed.

Either way, it is important to keep Core residual emissions as a milestone as many companies have only just begun, or have yet to begin, their journey to improve their Carbonary ratings. Although this is not the ideal scenario, it’s still far better than not acting at all. that being said, it is also crucial to recognise that companies must not become complacent once they have reached this milestone and should continue to strive to progress further.

Concluding remarks

In conclusion, the discourse around achieving carbon neutrality and net-zero emissions has been muddled by a lack of standardized definitions and varying approaches to measurement. The commendable efforts of companies aiming to reduce their environmental impact are often overshadowed by inconsistencies in how terms like "carbon neutral" and "net-zero" are interpreted and applied. This has given rise to both genuine progress and instances of "greenwashing," eroding public trust in environmental claims. The foundation of these goals rests on carbon offsetting, a mechanism that balances emissions through activities elsewhere. While carbon offsetting is a step in the right direction, its flaws and questions about the quality of offset options raise concerns. The absence of a uniform calculation method leaves room for interpretation, fostering confusion about the extent of emissions that need offsetting and the types of credits allowed.

Amid this complexity, the need for clarity and transparency is paramount. Therefore, Carbonary's decision to introduce simpler terminology, focusing on "Core Residual Emissions Offset" and "Total Residual Emissions Offset," provides a more straightforward approach to tracking progress. This method defines specific emissions categories that need offsetting, simplifying the goals while still acknowledging the complexity of Scope 3 emissions. By emphasizing Core Residual Emissions Offset, companies are encouraged to take a critical first step in reducing their impact. While some may argue about the responsibility for Scope 3 emissions, it is essential to recognize that embracing these milestones is a vital stride towards meaningful change. It signifies the recognition of a problem and the initiation of corrective actions. However, reaching these milestones should not mark the endpoint but rather a stepping stone in the continuous journey towards greater sustainability.

In the end, simplifying the terminology and refining the metrics helps in fostering a clearer understanding of progress, reinforcing the imperative for organizations to take action, and encouraging the ongoing pursuit of sustainability beyond mere compliance. In a world striving for meaningful climate action, a transparent, accountable, and simplified approach could pave the way for genuine change, helping us collectively address the urgent challenge of climate change.