Net Zero vs. Carbon Neutral

What is the Difference Between Carbon Neutral and Net Zero?

Carbon neutrality signifies that an organization and its management team is responsible for removing the same amount of carbon dioxide (CO2) from the atmosphere as it is emitting; net zero, on the other hand, means the organization is removing an equal amount of all greenhouse gasses (GHGs) as it is creating.

CO2 is one type of greenhouse gas, albeit a very important one. All GHGs are expressed in tonnes of CO2e. CO2e represents carbon dioxide equivalent and it serves as the common measurement unit in carbon accounting and other climate-risk concepts like carbon markets and carbon credits. For example, even if measuring a different gas (like methane), for the purpose of comparability, the emissions are expressed using CO2e. 

Both carbon neutrality and net zero are climate pledges being made by management teams and government organizations. Each is considered a noble commitment with a similar end goal – to remove as much harmful pollution from the earth’s atmosphere as the organization is emitting.

What are Greenhouse Gases?

GHGs trap heat in our planet’s atmosphere, creating and compounding a warming of the earth’s surface commonly referred to as global warming.

CO2 is often cited as the main culprit but there are many other dangerous GHGs including nitrous oxide, hydrofluorocarbons (HFCs), methane, and sulfur dioxide. 

While some GHGs do occur naturally in our environment, the scientific community has long asserted that excess greenhouse gasses are the result of human activity. These include agricultural practices (like livestock production and other agribusiness functions), generating heat and electricity for commercial operations, and the burning of fossil fuels for transportation.

Why is Tracking GHG Emissions Important?

With the emergence of ESG (Environmental, Social & Governance) as a focal point in today’s business landscape, management teams are increasingly concerned with accurately tracking emissions in order to fulfill various environmental mandates (like mitigating climate risks, preparing public ESG disclosure, and managing stakeholder expectations).

Every organization emits carbon dioxide and other greenhouse gasses, both within its operations and across its supply chain. For example, fossil fuels are burned to support distribution, and electricity is used to power offices and other facilities; this aggregate emissions figure represents an organization’s carbon footprint.

Management teams generally first seek to reduce company emissions where practical, but it’s nearly impossible for an organization to eliminate its entire footprint. As a result, leadership teams are facing increasing pressure to make pledges about how they intend to address these residual emissions; carbon neutrality and net zero emissions are two such commitments.

How is Net Zero & Carbon Neutrality Achieved?

Net zero and carbon neutrality are both achieved using offset credits, which are traded on carbon markets. Carbon markets have emerged as a mechanism to support emission reduction efforts, particularly residual emissions that business leaders can’t eliminate through fundamental changes to their operations. 

The premise of a carbon market is that a unit of GHG/CO2 released through an organization’s core activities can be counteracted (or “offset”) by removing or sequestering an equal amount of GHG from somewhere else in the earth’s atmosphere and that stakeholders should be able to trade these GHG reduction “units” accordingly.

So, emission removal projects are undertaken; they may be natural (like wetland restoration, reforestation, etc.) or mechanical (like carbon capture technologies, green energy infrastructure, etc.). A project is initiated by a project developer and then verified by one of many standards (including Verra[1] and Climate Action Reserve[2]), at which point offset credits are generated according to the estimated amount of emissions that will be eliminated. 

Other stakeholders may then purchase these credits and retire them with a reputable registry, thereby “offsetting” their own emissions. 

If a management team retires enough offset credits to counteract the company’s residual carbon emissions they’re said to be carbon neutral; if they retire enough credits to offset the organization’s entire GHG emission footprint, they’re said to be a net zero emitter.

Who is Making Net Zero & Carbon Neutrality Claims?

There is much public discourse today about climate commitments being made in the corporate world, but for-profit corporations (and the management teams that run them) are not the only stakeholders that can leverage carbon markets to make net zero or carbon neutral pledges. 

Indeed, many NGOs and nonprofits are joining the fight against climate change, and governments (at all levels) are also looking to lead by example in making climate reduction pledges of their own.

Increasingly, many individuals (including celebrities and prominent public figures) are seeking to offset carbon emissions in their own personal lives as well. They often work off estimates of the emissions created by their daily commutes, package deliveries, or their family’s air travel, etc. 

Related Resources

CFI offers the ESG Specialization program for those looking to take their careers to the next level.  To keep learning and advancing your career, the following resources will be helpful:

• ESG Fund
• Greenwashing
• Corporate Governance
• Human Capital Management