An increasing number of organizations, 46% of publicly listed entities as of 2022 (up ~4x from 2018 levels) have announced some form of net zero commitment. However, net zero commitments across entities are far from equal with greenwashing becoming an increasing concern. In this post, I’ll dive into what net zero commitments are and how I evaluate their effectiveness.
Before we can evaluate net zero commitments, it is important to define a few things.
What is ‘net-zero’?
Before we can evaluate net zero commitments, it’s important to define net zero. Per the IPCC, net zero is limiting warming to 1.5C over pre-industrial levels by 2100. However, only 16% of listed entities have committed despite the current scientific consensus on the importance of meeting this specific target. Therefore, we should question what the commitment is referring to.
What emissions are entities referring to?
Entities engage in a wide variety of activities that cause emissions. Therefore, it is important to think holistically about an entity’s emissions to ensure we are evaluating from the right base level.
So, how do we holistically determine an entity’s emissions? The scope concept as defined in the GHG Protocol is a great framework to evaluate emissions holistically. I’ve found the below infographic by South Pole to be informative. A quick glance illustrates why the measurement and reporting of Scope 3 emissions is a significant challenge.
What steps are entities taking to get to reduce emissions?
There are two steps to achieving net zero. First, reducing emissions (e.g. Google’s data center innovations). Second, purchasing offsets.
In terms of emissions reduction, I believe that the optimal approach is to invest in innovation that’s applicable to other entities or situations. However, any efforts to reduce emissions with a favorable return are great.
Achieving net zero via offsets is a bit more nuanced discussion and warrants its own section. Before diving into that, a quick explainer of what an offset is.
What are ‘offsets’?
An offset is when a company buys the claim to an emission reducing activity that another entity undertakes. The emission reducing activities can include planting trees, land conservation/restoration, and carbon capture.
How to evaluate offset effectiveness?
Offsets can have a wide degree of variance in cost and efficacy. They can range from $1 – $50+ per ton of CO2. The efficacy of an offset boils down to three key factors. First is accuracy, i.e. is the offset properly estimating emission reductions. Second is marginality, i.e. is the purchase of the offset leading to a benefit that wouldn’t have otherwise happened. The third is permanence, i.e. will the emission reduction sustain for a long period. Excellent educational material on what makes for a high quality offset here.
An entity may purchase offsets for a variety of reasons, but the two primary ones are regulatory and non-regulatory reasons. Non-regulatory reasons include mission alignment, CSR, marketing, branding, and product offering.
State entities (e.g. California) determine the offset quality required for regulatory reasons. We can assume a reasonable level of offset quality, despite some downsides.
However, there isn’t a required offset quality for offsets purchased for non-regulatory reasons. It’s important to scrutinize this bucket of offsets because it gives entities free rein to continue their emitting activities while purchasing ineffective offsets to claim emission reductions.
So, how might we go about understanding if the offsets are effective? Gold Standard and Verified Carbon Standard both offer rigorous, transparent, and widely used certification standards for offsets. Gold Standard also offers excellent educational material to understand the nuances of offsets.
(June 2023 update: Verra, the publisher of Verified Carbon Standard has come under increasing scrutiny due to questions over the efficacy of its certification, specifically for forest based offsets. Even more reason to evaluate the efficacy of offsets before purchase)
In addition, there are several startups that have emerged to introduce more transparency, improve measurement, and reduce friction in the offsets markets. A few examples include Pachama, Patch, Carbonx. It’s too early to gauge how much sustained impact these startups can have, but the space is benefiting from much needed innovation.
What data is available?
To be able to evaluate the above questions, it’s important for companies to publish their emissions data. This is the final criteria to evaluate net zero commitments: how well does the company’s reporting help address the questions above? A model example of a company that does this well is Microsoft.
What do I think is most effective?
I’ve previously written about my belief that innovation is a big driver in helping address climate change here and here. I continue to believe this to be true. This could mean reducing emissions via innovation. Or, it could mean making advance commitments to purchase offsets attained through nascent technologies like direct air CO2 capture or ocean sequestration. There’s potential to drive technology maturation and cost competitiveness through these investments.
Digression on Pragmatism & Fossil Fuels
One aside, I continue to think that the approaches to reducing emissions are very situation-dependent (excellent podcast diving into this). If you’re reading this, you’re likely extremely privileged. You likely live in a country that has contributed significantly to cumulative GHG emissions. It can be easy to forget that the poor bear the brunt of the negative consequences of climate change. Even in an affluent place like San Francisco, it could mean supporting more affordable housing so people can avoid living in wildfire zones.
In developing nations, continued investment in more efficient fossil fuels will very much be part of the solution (e.g. helping households transition from wood to LPG). Investing in more efficient use of fossil fuels, like less carbon intensive fertilizer production to address food insecurity, will form part of the solution too.
Most critically, it’s helping drive economic growth (even if partly powered by fossil fuels). This could mean having the ability to afford housing that protects against extreme weather events. This could also mean having the ability to invest in advance warning systems and infrastructure to protect from natural disasters. It could further mean having the ability to afford air conditioning during a heat wave.
As such, western countries (the largest cumulative polluters to date) should continue to lead the charge in investing in innovation to drive the energy transition. Western banks and UN entities should continue to invest in projects that focus on improved fossil fuel efficiency that can be a source of cheap power and drive economic growth in developing countries.
Parting Thoughts
As a stakeholder in companies claiming emission reductions, I hope this deep dive can help you be more informed about the legitimacy of net zero commitments. If this has piqued your interest, I highly recommend reading Science Based Targets content on net zero commitments.