What is the big fuss about Net-Zero Carbon?

Over the past couple of years, the phrase ‘net-zero’ has gone viral and has been thrown around by an increasing number of countries and companies, including the likes of Amazon, IKEA, Delta Airlines and the UK Government. The latest series of net-zero commitments have come from investment funds, including a coalition of more than 70 pension funds and investment managers with total assets worth $16 trn.

The growth of the concept of net-zero was first initiated by a 2013 report from the IPCC. It outlined the necessity of bringing global CO2 emissions to net zero by mid-century, in order to limit the rise in global-mean temperature to a 1.5-degrees Celsius. Since then there has been a tremendous growth in environmental awareness amongst the public and businesses and this reality is perhaps most starkly demonstrated by the following statement from former Bank of England governor Mark Carney.

 “Companies and industries that are not moving towards zero carbon emissions will be punished by investors and go bankrupt”. – Mark Carney 2019

But, since 2013 a lot of questions have been asked about what net-zero actually means in practice and many have pointed out the inherent difficulty in ensuring accountability from future heads of state or business executives for commitments that will likely have been made decades prior by their predecessors.

 Of course, the accounting of net-zero is the keystone of any successful target but quantifying the true flows of carbon is an inherently complex task.

The focus on net zero itself is because in the view of many, it is fundamentally unlikely that human systems could achieve absolute zero emissions in the timescales required. Therefore, net-zero can only be realistically achieved through balancing any remaining CO2 emissions with CO2 removals of the same magnitude. This of course, is carbon offsetting, the complexities of which are myriad, but a key criticism of this approach is that it might distract from the fundamental goal of reducing emissions by as much as is possible.

I’m sure you’re aware that certain companies have even been targeted with green-washing claims on this basis. Having been perceived to have based their net zero carbon goals too heavily on the purchase of carbon offsets. Aside from the PR damage, this is discouraged for the aforementioned reason and in any case, recent research has shown that the world does not have the capacity for natural solutions to offset all future emissions, so there are not enough offsets to go around.

The scope of net-zero targets is another key stumbling block in carbon accounting. For example, the UK basis for net zero carbon targets is currently its territorial emissions. These are based only on activities occurring in the UK and exclude emissions from international air travel, shipping and the production of goods and services imported from other countries. This approach has been heavily criticised by Greta Thunberg as she feels that the UK has overemphasised the improvements that have been made. Especially due to the UK only emitting 1% of the total global emissions. The government’s response to this has been the recent release of the resource and waste strategy with a revised methodology to calculate England’s “Carbon Footprint”. This aligns to a consumption-based approach covering any emissions created from any products or services consumed in the UK. An idea has developed that nations which have the greatest historical emissions need to be first to mitigate their emissions. It is comes from a first in, first out policy with those who benefited from the most carbon emissions in the past should end them as soon as possible.

Fortunately, at a company level there already exists credible and robust methods for emissions reporting and target setting in the form of the Science-Based Targets Initiative (SBTI). This initiative allows businesses (978 of them at the time of writing) to set emission reduction targets that have been verified to be realistic and in line with the pathway to limit global warming to 1.5 degrees above pre-industrial levels. The method for target setting considers the companies impact in relation to other companies in the sector or economy, then selecting the most ambitious target of either of them to reach. For the sector approach, the target is based upon dividing the global carbon budget by the size of the sector then emission reductions are allocated to individual companies based on the overall sector’s budget. This breaks down the process of measuring and tracking targets allowing easy alignment to long-term business models to ensure accountability throughout. Alternative methods include an absolute based approach, where targets are calculated by applying the same percentage reduction required to all companies equally and an economic based approach, where emission reductions are linked to a company’s gross profits.

Net-zero targets are increasingly becoming part of the business landscape and this has been an area that we have been watching develop and have taken particular interest in as of late. We believe that circular economy practices will play a key role in meeting many net-zero targets. The intention of this blog (aside from hopefully being interesting reading) is to state that the circular economy experts at Oakdene Hollins stand ready to support businesses to set and reach their net-zero ambitions. If you are interested in hearing more from us on this topic, or indeed working with us to meet your own ambitions, please feel free to get in contact at Daisy.Ash@oakdenehollins.com.