The trouble with ‘net zero’

Offsets are a precious space and should be used sparingly—only in situations where reducing emissions is difficult.

By Mahua Acharya

The past few months have seen a furry of ‘net zero’ announcements. Countries, companies and even cities are announcing ambitious plans of achieving net-zero greenhouse gas emissions. What this term really means is unclear, or at best means different things to different people.

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In technical terms, net zero refers to a balance between the amount of greenhouse gases produced and the amount removed from the atmosphere. We reach net zero when the amount we add is no more than the amount taken away, where the ultimate intention is to phase out the emissions altogether. But the recent announcements neither make this assertion clear, not do they make the definition easy to access.

In early 2021, Brookfield Asset Management, a $600-billion investment firm, announced they were net zero. This announcement came after the firm acquired a renewable energy business, but remained vested in fossil fuels without the obvious effort at a phaseout.

Brookfield had to later take back their statements after pushback from the climate community, asserting that simply having a renewable energy fund does not mean emissions are net zero.

Companies as diverse as 3M, Shell or Tetra Pak have set ‘net zero’ goals for 2050. The lack of a standardised reporting framework makes it impossible to compare the goals of one entity with that of the others. Perhaps the IFRS (International Financial Reporting Standards) or a similar standard-setting body should consider instituting standardised reporting criteria for users.

Some goals even extend ambitions to 2060. Such far-off goals raise suspicion that management would like more time to figure out how to get there, or worse, are not actually serious about climate change and are simply buying time. Goals without short-term interim targets say little.

Then there is the question of scope. Some goals cover just operational emissions—for example, with oil companies, those produced from extracting and refining—or upstream emissions. Incidentally, this is only 15% of the emissions from oil and gas. Understandably, monitoring downstream emissions is outside the control of oil companies, but not addressing 85% of the emissions of a product would be a tragic, or perhaps even slippery, loophole to take advantage of.

And, more fundamentally, the question is, which gases? Carbon dioxide is the main cause of rising global temperatures, it accumulates and lasts for hundreds of years, and whose avoidance has commercially viable options. Methane, another greenhouse gas, lasts for decades. But eliminating them altogether is currently impossible.

And, what about offsets? Many targets are premised on the assumption that purchasing offsets would compensate for actual emissions. If the global climate community felt this was so easily acceptable, we may have all seen a larger share of compliance goals using offsets—it is, after all, cheaper to buy credits than invest in emissions reduction at home.

Offsets are important because they allow entities to make positive contributions towards climate change to negate the effect of emissions they are actually unable to reduce. The increased funding this creates can change the lives of people, make investments in technologies that are currently sub-commercial—and, while doing so, importantly invest in the making of a market for emissions trading.

But many are concerned that buying offsets allows companies to forgo making significant, and sometimes costly or difficult, changes to their operations.

Offsets are a precious space and should be used sparingly—only in situations where reducing emissions is difficult.
While setting net-zero ambitions is commendable and very welcome, unless the pathway to getting there actually involves a downward trend in actual emissions, these efforts could be wasted. After all, preventing catastrophic climate change means limiting the total amount of greenhouse gas emissions in the first place—a concept came to be known as the ‘carbon budget’.

So, what exactly should count as net zero? And what needs to happen?
The goal of net zero should mean cutting emissions down to zero as soon as possible. Understandably, there will be different pathways and different time horizons for different entities, and for that reason alone these pathways need to be clear and transparent. Targets must specify which gases are covered (all should be), when net zero will be achieved, and whether the intention is to reduce, remove or offset the emissions.

There is currently much confusion about the possibility for actually reducing emissions versus offsetting them until such time reduction or elimination is possible. Transparency and justification for using offsets would go a long way to dispel scepticism.

A global effort towards standard setting needs to be made. The rules around a credible net-zero target need to make clear that emissions will first be reduced, and that announcing entities carry clearly-stated and justified reasons for residual emissions. This is where offsets are the buffer.

This global effort could be made by the many international organisations coming together to create a de facto understanding. The timing for doing so is likely in their favour as well—the UK is working hard to pull together a successful climate COP, the US administration is aggressively rallying countries around climate change ambitions, and many developing countries, including India, are actually ahead of their climate commitments and have the moral authority to take leadership positions in international policy setting.

Unless this is addressed quickly, the international community risks threatening the political momentum generated and possibly undoing years of effort by many serious players towards establishing standards of credibility. Vague net-zero commitments serve nobody.

The author is MD & CEO, Convergence Energy Services Limited. Views are personal

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