The What, Why, and How of Net-Zero

2015’s Paris Agreement set a lofty- but necessary- goal: limit global warming to 1.5˚C by 2050. Scientists argue that if we keep to this goal, the harsh effects of climate change will be limited to a manageable degree. Achieving “net-zero” emissions by 2050 is the minimum hurdle to reach this goal; necessitating a fundamental rethink of how the global economy operates.

What is Net-Zero?

Net-zero will be achieved when the amount of environmentally degrading greenhouse gasses (GHGs) we emit matches the amount of GHGs that are removed from the atmosphere (known as negative emissions), whether naturally or artificially. The result is a society that doesn’t spout more harmful gasses into the air than the Earth can healthily handle.

There are two key components of net-zero action. Creating negative emissions, which get much more airplay, is one piece of the net-zero puzzle. Negative emissions are GHG emissions that are absorbed, whether by nature-based solutions like forests and oceans or artificial sources such as carbon capture technology. Reducing gross GHG footprints is the other critical component. Negative emissions are a band-aid but alone are insufficient to curtail the effects of our massive emissions profile. Different stakeholders all have a role in reducing our collective footprints so that net-zero can become a reality.

Source: https://www.economist.com/special-report/2021/10/27/why-the-world-needs-negative-emissions

The purpose of this blog is to quickly explain why net-zero is a worthwhile goal and then to explicate the role of different stakeholders in making net-zero a reality rather than a far-off target. Finally, I shall discuss some weaknesses of the current net-zero concept and discourse and urge corrective action.

Why Net-Zero?

On our current path, emissions figures point to 2.7˚C of warming by 2050, almost double the 1.5˚C goal set by the Paris Agreement. There is no way to sugarcoat it: we need to bolster our emissions-reducing capabilities immensely to reduce emissions by 45% relative to 2010 levels, and this push needs to begin immediately to avoid great harm to the triple-bottom-line of people, planet, and profit.

It is estimated that $23 trillion in global GDP will be lost annually by 2050 if climate change advances unchecked, with risks ranging from crop loss to the costs of tackling severe weather events. Some of the world’s poorest countries will be hit the hardest. The bottom line is that net-zero is the right thing for humanity to strive for. Our future survival and the survival of Earth’s natural systems rely on bringing our emissions down to manageable levels to stop a catastrophic climate event.

But net zero is as well a smart thing to strive for. If businesses do not act to curtail their emissions, they are not only hurting the planet and its inhabitants but also disadvantaging themselves. “Almost 80 percent of the S&P Global 1200, which includes the world’s largest companies, will be exposed to moderate-to-high physical risks from climate change by 2050.”

With demand expected to grow for sustainable technology and products, both on the B2C and B2B fronts, those pioneers in combating climate change can position themselves as industry leaders for decades to come. Meanwhile, laggards will be fighting for market share as they will be forced to play ‘catch up.’ Research suggests that companies who are quick to adopt net-zero aligned technology and business models see financial success as they often gain a competitive advantage. Additionally, companies that score highly on net-zero tracking measures such as the Climate Transition Index have been shown to financially perform better than companies that do not score well on these types of indices.

In short, the “doing well by doing good” phenomenon is very much at work here: it pays to reduce emissions.

How To Achieve Net-Zero?

A successful transition towards net-zero will require action by a variety of stakeholders. Corporations, the government, and consumers all must help drive big, sweeping action and systemic change. We discuss the role of each key stakeholder below.

Role of Corporations

Climate Tech to Reduce Footprints: Much of the technology (e.g., electrifying transportation, buildings, and industry, reworking power grids to supply clean electricity, etc.) that is needed to reach net-zero has already been developed but needs to be scaled. In Europe, for example, McKinsey estimates that “climate technologies that are already mature could, if deployed widely, deliver about 60 percent of the emissions abatement” and that an additional 35–45% reduction can be driven by technology that is still being developed. (For more climate technology research see: here and here). Corporations are in a strong position to utilize technological advancements to drive real change towards net-zero and they should invest in such technologies now. Some climate technology solutions, like electric vehicles, will drive change on a macro-level as they will drastically shift how the whole world operates, while other solutions will work on a relatively micro-level to fix industry-specific emissions problems.

Tailored Action, Right Now: While broader, societal level technology advancements will no doubt help drive a push to net-zero, we cannot procrastinate and rely on such technology alone to get us out of the climate crisis. Corporations need to act now to reduce their footprints and set this great change in motion via innovation and emissions tracking in their specific contexts — e.g., greater energy efficiency and reduced waste not only help the environment but also lead to lower operating costs. In line with materiality, net-zero action will no doubt vary across different industries and businesses, the challenge for companies is to be purpose-driven and work dedicatedly to transform their business models to be more sustainable.

Improved Emissions Tracking: One major challenge in reducing emissions is knowing where they come from and the differences between scope one, scope two, and scope three emissions are important to note in this regard. Scope one emissions come directly from company facilities and vehicles, and scope two emissions come from electricity, heating, cooling, and steam used by a company. Scope three emissions take all other types of emissions relating to the business into account. While companies have a good handle on tracking scope 1 and 2 emissions, scope 3 emissions are difficult to identify and measure and therefore are often underreported or not reported at all. No wonder that while gross scope one and two emissions are declining, scope three emissions (which make up the largest portion of emissions) increased 84% from 1995 to 2015. Better tracking and reporting standards by businesses on scope three emissions is a necessary first step towards reducing such emissions and taking a big step in the transition towards net-zero, as companies such as Intel have done.

Source: https://www.greenbiz.com/article/state-net-zero-now#:~:text=Scientists%20say%20the%20world%20needs,worst%20impacts%20of%20climate%20change

Science-Based Targets: One concrete action that businesses can take is to adopt science-based targets in planning their footprint reductions. Science-Based Targets (SBTs) is a standards organization made up of climate organizations helping businesses cut emissions. The organization sets targets and standards to make climate data more actionable and relevant.

According to Ernesto Ciorra, an executive at Enel, a member company of the Center for Sustainable Business that I direct, “setting science-based targets supports an ambitious decarbonization roadmap, clarifying the alignment with the Paris Agreement, and promotes a global net-zero energy system.” Often, SBTs are more stringent than what is called upon by governments and thus hold businesses to higher standards. Businesses that follow SBTs are taking more meaningful action to slash their emissions and progress towards net-zero.

Financial Sector Driving Change: On a positive note — some financial institutions have begun accounting for the carbon footprint of their investments. JP Morgan’s Carbon Compass, for example, sets a standard for measuring the emissions of the businesses JP Morgan invests in, while considering the future actions these businesses pledge to take to reduce their footprint. Other financial institutions have taken similar measures (ING Bank’s Terra approach and Barclay’s BlueTrack). By withdrawing funding from environmental laggards and supporting businesses that behave sustainably, financial institutions can do their part to work to promote a low carbon economy. Companies not working towards a net-zero-aligned model risk losing investor support as we move forward, providing yet another reason for businesses to act now.

Role of Governments

While businesses and financial markets will drive much of the net-zero change, governments also play a significant role. Currently, a core provision of the Paris Agreement requires countries to set Nationally Designated Contributions (NDCs) describing the amount of GHGs they plan to emit over time and the mitigation strategies they will enact, to achieve this figure. Countries are required to resubmit their NDCs every 5 years.

The problem with this system is that many countries have set weak emissions targets or targets that look too far in the future. The UN has found that only 20% of net-zero targets represent an action that is strong enough to truly become carbon neutral. Critics of net-zero have pointed to the lack of urgency created by this system and have called for NDCs to be reported every year instead. Stricter regulation, infrastructure spending, and better business incentive structures for sustainability are all needed urgently as we don’t have time to waste.

Recently, the American Securities and Exchange Commission (SEC) proposed a change that would require enhanced reporting measures by businesses on their climate action and footprint. Similar efforts are urgently needed globally to force corporate transparency on their environmental impact, allowing investors and the public to support truly sustainable organizations. Regulators should also look at countries such as Finland which has taken some of the strongest climate action in the world, with a pledge for net-zero by 2035.

Role of Consumers

Consumers play a key role in achieving net-zero as well, though progress in this area is slow. A study found that while consumers acknowledge they will need to change their habits to help us reach net-zero, the issue is either not deemed important enough or it is too costly to significantly change their habits.

As sustainable technology progresses, there is hope that the cost of sustainable living will go down. For now, consumers need to strive for responsible consumption (a topic I wrote a blog about recently). This entails buying fewer items and buying better quality items that will last a while to reduce the gross demand for consumer goods. Consumers should also evaluate the footprints of the companies they buy from and choose the most sustainable option, if possible. Supporting politicians with strong environmental track records is yet another way that the masses can bring about change on this issue.

Criticisms

While the concept of net-zero is well-intentioned, it is not without its flaws. The first is that the long time horizon of the initiative give businesses and governments the ability to delay their action when we need to be making progress right now. When companies and governments delay action on net-zero yet tout their plans, it is apparent that net-zero faces a greenwashing problem. Currently, there are few checks and balances stopping companies from reporting false figures to claim they are making progress on the issue, while many are gaming the system in place designed to promote net-zero. We need more transparency and accountability.

These fears go hand-in-hand with claims that net-zero is simply not a strong enough target, and that the emphasis on removing emissions from the air rather than curtailing them in the first place by producing and consuming responsibly is misplaced. Critics of this train of thought argue that our current economic system is too big to coexist with a healthy atmosphere and that we need systemic changes in the way we do business to limit climate change’s harsh effects.

Kate Raworth points out that net-positive, rather than net-zero, should be the end goal. While net-zero acts as a benchmark, we should continue striving for a global economy that continually improves the health of our planet by staying inside the limits of what the Earth can support. Raworth’s theory of Doughnut Economics outlines an economy where humanity operates within this limit, while still meeting the physical and social needs of its people. To achieve this, we need an economic system that values stability rather than constant growth.

Another criticism of net-zero is that many plans to reduce emissions or become carbon positive depend on technology that may or may not be feasible. Carbon capture innovations are lauded as tomorrow’s solution to today’s problem, but scaling this technology remains a problem due to significant infrastructure and financial barriers.

Nature-based solutions also sound good on paper, with promises of large areas of forested land that will absorb all the carbon we emit. While this idea sounds like a win-win, how it is implemented has a big influence on whether nature-based solutions will do what they are intended to. Problems of land rights, biodiversity loss, cost-effectiveness, and limits to effectiveness are questions that need to be answered before large-scale nature-based solutions can be a practicable plan to combat climate change.

To be clear, these pitfalls of net-zero solutions do not mean they can’t be parts of a wider action plan, but they are not without flaws. Any action that reduces emissions or helps absorb GHG pollution is progress towards a more habitable world. Nature-based solutions and carbon capture technology certainly do have a place in our net-zero plans, but they can’t be relied on as cure-alls or implement-and-forget solutions. They are merely some of the diverse ammunition in our arsenal to help achieve the goal of a decarbonized economy.

Implications

Action towards net-zero, whether on the business or governmental level, needs to begin now. Longer-term net-zero targets that do not have specific short-term goals (within this decade) will be missing a golden opportunity to act while we can still make great progress. Net-zero pledges need to utilize science-based targets that confirm that climate action will lead to meaningful results.

Better tracking and reduction measures for scope 3 emissions will also be a vital piece of the puzzle. The action we take in the next few years will greatly affect how successful our long-term climate goals are. If we can quickly promote widespread collaboration, funding, and data-backed action, we will still be able to move the needle on climate action to ensure our world is habitable for future generations. It is a great challenge, but one that our future survival hinges upon.

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Volume 2, Number 4. Copyright © CB Bhattacharya, 2022. All rights reserved. Research assistance for this blog was provided by Nathan Dobb.

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