Net zero heroes scrutiny

The need for addressing the looming climate crisis seems to be grasped more broadly than ever before. In the 2015 Paris Agreement, aimed to strengthen the global response to the threat of climate change, countries agreed to hold the increase in global average temperature to well below 2°C above preindustrial levels; pursuing efforts to limit the increase to 1.5°C during this century. But pledges alone are not enough!

National laws are enforcing action, the financial sector is demanding action and the private sector is accelerating action. With peers already in the game, businesses have no choice but to consider climate change to respect the law, to attract investment, to respond to clients’ expectations and to remain competitive. Businesses have direct interests in considering climate change. Firstly, to understand their exposure to climate risks, and secondly, to identify their opportunities in a low carbon economy.

The road to net zero

To meet the Paris Agreement signatories need to bring their net balance (the netting of greenhouse gases sources and sinks) of greenhouse gas emissions to zero by the middle of the century. In order to do so, every single piece of the world economy needs to follow a trajectory that is aligned with that global goal. In the last few years, the phrase ‘net zero’ has gone from being a somewhat obscure scientific concept to center stage.

From a scientific perspective, the meaning of net zero is without ambiguity, removing as much CO2 annually as the emissions that are produced is the only way to stop climate change.

From a real-world perspective, the meaning of net zero is a big blur.

From a real-world perspective, the meaning of net zero is a big blur. The actual practices of countries, regions, cities, and companies are most of the time operationally specific when put into practice. Net zero targets are not all created equal. Investors obviously need to know if such a commitment is made but also to what extent this commitment is robust and credible. Furthermore, setting long-term goals aligned with science can be an important driver of action; but without immediate action, long-term goals will remain forever out of reach.

As of now, most of the commitments to net zero emission are voluntary pledges. Gauging if such a pledge is just a public declaration in a press release or on the corporate website, or if it’s embedded in corporate strategy and management KPIs, as well as understanding what’s the scope of the pledge (direct/indirect, emissions GHG scope 1/2/3) is key. In practice, how we get to net zero, the way the pledge is operationalized is prerequisite to understanding how relevant and concrete it is.

In essence, net zero pledge should come from the head of the organization, the pledge should be to reach net zero GHGs as soon as possible and by midcentury at the latest, interim targets should be set to be achieved in the current decade, annual progress should be reported and targets must cover all GHGs, including scope 3 emissions¹.

Using carbon credits, the practice of paying for emission cuts or carbon removal, presents risk to effective mitigation actions.

Offsetting methods

If not related to the pledge in itself, offsetting methods are also controversial. Part of emissions are likely to be unavoidable or too expensive to abate. But using carbon credits, the practice of paying for emission cuts or carbon removal, presents risk to effective mitigation actions.

Offsetting is part of the solution, but offsetting is, by definition, limited at scale. Offsets are to be used as a last resort if we do not want to commit suicidal extinction. 3 methods of offsetting currently coexist: afforestation and reforestation; bioenergy with carbon capture and storage (BECCS, the process of extracting bioenergy from biomass and capturing and storing the carbon); and direct air carbon capture with storage (DACCS).

Both planting trees and BECCS are in direct competition with crop-growing land while DACCS is highly energy intensive². And while nature-based offsetting is becoming increasingly popular, there are limits on its availability. A recent Greenpeace report found that just two companies, Eni and International Airlines Group, could ‘exhaust up to 12% of the available total of carbon dioxide offsetting through new forests. Since anthropogenic emissions far exceed the amount of “offsets” available worldwide, this concept is not universally applicable and therefore cannot be considered a viable solution on a large scale.

Best practices in offsetting are still being established. As of now, it’s extremely difficult to give precise estimates of carbon sequestration by nature-based offset schemes, an unregulated market that is growing under growing scrutiny. In the absence of rigorous assessment mechanisms, it’s likely that many of them capture far less carbon than they claim, while the low prices of offsets make the claim too good to be true³.

We need to make sure that companies can’t claim to be neutral on paper, while continuing to heat the planet in real life.

It is important to encourage companies to do something rather than doing nothing. But we need to make sure that companies can’t claim to be neutral on paper, while continuing to heat the planet in real life. Supporting contributors’ anesthesia and slowing down creativity to solve problems could not be a winning strategy. Everyone understand that a company could never be carbon neutral but at best contributes to carbon neutrality. The quest should not be individual but collective.

Net zero tracker initiative

To make it clear, there is no modelled pathway to achieve the Paris objective without rapid emission reductions. The bottom-line is that zero carbon pledge should also state clearly how much of the target is to be achieved by offsetting and by what mechanism. What I take for granted is that accounting for climate change and carbon emissions need to be tackled in an audited way. In that perspective, the launch of the net zero tracker initiative, publicly available since October 2021, is an important milestone. The tracker aims to record not only the quantity but also the quality of net zero targets and is filled with terms to bring absolute clarity to net zero pledges, promises and commitments, making sure commitments to net zero have real science based meaning and robust framework.

Facing the explosion of net zero commitments, any investor should visit zerotracker.net as a source of independent verification of the credibility of net zero targets. The project is hosted by 4 different organizations with funding from the European Climate Foundation: Oxford University, the Energy & Climate Intelligence Unit (a UK non-profit organization), the New Climate Institute and Data Driven Envirolab at North Carolina University with the idea of empowering everyone to check what are the parts on track to meet the Paris Agreement.

¹ Greenhouse gas emissions are categorized into three groups or ‘Scopes’ by the most widely-used international accounting tool, the Greenhouse Gas (GHG) Protocol. Scope 1 covers direct emissions from owned or controlled sources. Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company. Scope 3 includes all other indirect emissions that occur in a company’s value chain.

² The logistic chain which goes from CO₂ capture to storage in a geological tank, not to mention pressurized gas transport, requires a further energy contribution compared with a no-CCS chain. It is estimated that a power station with a capture system produces 15 to 30% less energy than a power station that emits its CO₂ into the atmosphere. The energy penalty variable depends on the type of power station and capture system.

³ According to Bloomberg, Total paid less than $3 per ton of estimated carbon sequestration for offsets when delivering its “first carbon-neutral liquified natural gas cargo” in 2020. This is about 1/20^th of the rate that companies pay on the European carbon cap and trade market.