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What does net zero mean? Debates drag on amid greenwashing worries

01 December 2021 Max Tingyao Lin

Many countries and companies have promised to achieve net-zero emissions later this century. What do those pledges mean, exactly, and why do they matter?

According to the Paris Agreement, the world needs to limit global warming to well below 2 degrees Celsius and pursues a 1.5 degrees Celsius increase above pre-industrial levels to avoid climate disasters. UN scientists say the 1.5-degree goal can be reached with a global balance between anthropogenic emissions by sources and removals by GHG sinks before 2050—and describe the emissions status as "net zero."

And the term has come into fashion amid growing environmental awareness. Net Zero Tracker, a data project developed by the Data-Driven EnviroLab, the Energy & Climate Intelligence Unit, NewClimate Institute, and Oxford Net Zero, revealed that 136 countries and 681 firms set net-zero climate goals as of end-November.

When it comes down to individual pledges, each nation and company often has its own interpretation of emissions and removal methodology, though. Their cumulative climate benefits are thus in doubt, according to policy experts.

Thomas Hale, an associate professor in public policy at Oxford University, suggested the challenges lie in measuring the pledges' merits and implementing them.

"We've reached the 'end of the beginning' of net zero. Net zero targets have become universal in a remarkably short period of time, but now we are in the messy phase of operationalization," Hale who specializes in climate policy told Net-Zero Business Daily.

Net Zero Tracker's project lead John Lang said he observed "an information vacuum on what constitutes a credible net zero target," which resulted in "a wide range of targets largely devoid of scrutiny."

Many believe the varied definitions are due to a lack of common standards and greenwashing by some players.

"There is indeed a lack of standardized definition in relation to…net-zero claims, and that provides the space for messaging that may not add up to a correct interpretation of the concept," said Pedro Martins Barata, senior director of climate policy at non-profit Environmental Defense Fund (EDF).

Hale called on governments and the private sector to establish carbon accounting rules to ensure the integrity of climate pledges. "Unless clear standards are established, there is a risk that this greenwashing will discredit the scientific idea of net zero overall, which would represent a serious setback," he said.

Governments under scrutiny

At the national level, a joint study by the Organisation for Economic Co-operation and Development (OECD) and International Energy Agency (IEA) on 51 net-zero pledges found countries tend to describe their targets with vague, inconsistent terms.

For example, France uses "carbon neutrality" in its law to refer to net-zero GHG emissions, while other countries generally prefer "climate neutrality" or "net-zero emissions".

China's carbon neutrality means net-zero CO2 emissions in its policy document, but the country leaves open the possibility of including other types of GHGs in its target in some public announcements.

"The terminology used in some cases is misleading or confusing," the OECD and IEA said.

Sometimes, national governments opt to exclude specific GHGs from their targets. New Zealand has a separate target for biogenic methane to protect its farming sector.

Most climate goals cover economy-wide emissions and exclude emissions from international aviation and shipping. But there are exceptions: for instance, Sweden does not factor in emissions from the land use, land use change and forestry sector, with much of its land covered by forests.

"The lack of a common, easily understood set of standards has important implications for the strength of net zero targets and whether they're likely to contribute to the temperature goals of the Paris Agreement," Lang said.

Also, in terms of timelines, rich nations generally aim to reach their targets by 2050 or earlier. Some developing countries like China and Indonesia set a deadline of 2060.

Kate Levick, associate director for sustainable finance at think-tank E3G, said a uniform approach on reaching net-zero goals could risk being counterproductive as countries have disparate economies that are in different developmental stages.

However, she agreed that national governments should present their plans in a consistent and comparable way for the global community to forecast emissions reductions and assess climate efforts.

IHS Markit's Executive Director for Climate and Sustainability Paul McConnell estimated around 91% of global emissions are now covered by some kinds of net-zero pledges. "But they differ significantly in strengths, scopes and timings… About the only real commonality is that they are 'net' zero not '[absolute] zero'," he said.

Debates on carbon offsets

In theory, countries with net-zero goals are supposed to enter deep decarbonization before offsetting residual emissions with carbon removal projects.

But national governments have yet to agree on what the carbon removal projects should be and how much emissions can be offset under the UN Framework Convention on Climate Change (UNFCCC).

Aside from the EU and a limited number of countries like Sweden, Switzerland, and the US, nations have refrained from specifying how they will reach the final net-zero goals or only provided sketchy details.

"Greater clarity on the scope, coverage and detail of countries' net-zero targets, in particular how countries plan to meet their net-zero commitments, is important to better understand countries' net-zero targets, how they interact with each other, and their overall implications for reaching net-zero at the global level," the OECD-IEA report said.

During COP26, UN member states agreed to reform carbon reporting guidelines via the Enhanced Transparency Framework and adopt common accounting standards from December 2024.

While this is expected to provide clarity on governments' climate pledges, also known as nationally determined contributions, most observers do not think countries have the appetite to define net zero for now.

"I think it would be excellent for the UNFCCC to establish at least guidelines on this front, but this is unlikely to happen soon," Hale said.

Governments are dragging their feet partly because of a lack of consensus over offsetting standards. The Paris Agreement's Article 6 allows countries to generate carbon credits from additional emissions cuts and sell those to nations with excess emissions, so all can meet their climate pledges. But there are no common international criteria for such credits.

For example, Australia can issue credits from carbon capture and storage projects linked to fossil fuel production facilities. In other countries, such projects are generally deemed domestic emissions reduction efforts rather than offset activity that can generate credits.

The OECD and IEA said in their joint paper that opinions on removal credits from nature-based solutions are often divided, and suggested that credits from avoidance activities—like deforestation prevention projects—should not be on a country's net-zero pathway due to the risk of emissions leakage.

In contrast, they said technology-based approaches—such as direct air capture—could play an increasingly important role.

NewClimate's Frederic Hans suggested that national government should aim to establish a common standard on net-zero targets under the UNFCCC eventually, even though this may not be achievable in the short run and interim goals should take priority.

"Comprehensive, ambitious, and transparent long-term targets can provide a useful vision and framework on where a society aims to transition towards," he said.

Wild, Wild West

Governments aren't the only ones struggling to define net-zero goals. While the private sector has seen an explosive growth in the number of companies pledging to reach net zero, the commitments come in different shapes and forms.

Some are willing to provide detailed decarbonization proposals, set interim and midcentury Scope 1, 2, and 3 targets, and work with third-party assurers to monitor their own progress. But many are vague in their commitments and accused by environmentalists of greenwashing.

"For many corporate actors, we currently see various poorly designed targets with multiple loopholes to avoid real emission…and a lack of transparency. This includes incomplete information on emissions covered by the target and the use of offset credits claiming 'neutralization,'" Hans said.

"While better standards and guidance can help actors to improve their target setting and achieve ambitious action on the ground, independent analyses will be essential to identify and call out corporate greenwashing activities around misleading net zero claims."

In late October, the Science Based Targets initiative (SBTi) launched what it described as the world's first Net-Zero Corporate Standard, which aims to verify whether a company's climate pledge aligns with the Paris agreement. At least seven companies, including AstraZeneca and Ørsted, have become early adopters.

The SBTi, launched by non-profit CDP, the UN Global Impact, World Resources Institute, and the World Wide Fund for Nature, believes companies need to halve emissions before 2030 and cut emissions by 90%-95% by 2050 to avoid climate disasters. But the standard also allows corporates to offset the remaining emissions with technological removals and nature-based solutions.

Alberto Carrillo Pineda, managing director at the SBTi, told Net-Zero Business Daily that this was only the initial step to enhance the integrity of corporate net-zero claims.

"We see the enthusiasm in the business sector around net zero, but also the diversity and inconsistency in which net zero is currently being approached," Pineda said. "Our criteria are not intended to be prescriptive…they need to be further developed [as technologies evolve]."

So far, industry initiatives like the Task Force on Climate-related Financial Disclosures and the Impact Management Project (which is transferring its activity to the Impact Management Platform) have largely focused on enhancing reporting standards for companies that want to achieve net zero.

There are also examples of industry participants taking initiatives to strengthen climate claims in the private sector.

The International Standards Organization, which publishes nearly 24,000 standards across various sectors, has promised to ensure its standards to meet climate criteria aligned with the Paris Agreement.

In November, the International Group of Liquefied Natural Gas Importers unveiled an emissions framework to improve the climate credentials of carbon-neutral LNG shipments, demand for which was growing from Northeast Asian importers.

Role of regulators

During COP26, UN Secretary General Antonio Guterres announced his plan to establish an expert group to propose clear standards to measure and analyze net zero commitments from companies.

"There is a deficit of credibility and a surplus of confusion over emissions reductions and net zero targets, with different meanings and different metrics," Guterres said. "We must now zoom in on the quality and implementation of plans. On measuring and analyzing. On reporting, transparency and accountability."

The expert group is due to recommend net-zero criteria for the private sector next year. However, some policy experts suggested national governments could be better positioned than the UNFCCC to regulate private trades.

"The option is always available for countries to regulate companies in relation to these [climate] claims and there is emerging pressure by civil society, in light of the disparity of claims, for national governments to do just that," EDF's Barata said.

"Whether or not governments will be called to regulate depends in large part on how successful the efforts at standardizing and self-regulating [are] in avoiding glaring misrepresentations of 'net zero'," he added.

NewClimate's Thomas Day said national governments might need to establish common and robust standards for the private sector by themselves even though an international guidance could be beneficial.

"The courts and advertising standard watchdogs in various countries are receiving increasing volumes of complaints about companies' climate claims, and do not have a consistent framework against which to make judgements," Day said.

"We would clearly not propose to just leave this to the private sector to self-regulate," he added. "This has been the approach to date, and leads to the continued emergence of new narratives, approaches and loopholes, that consumers and observers cannot keep track with."

Many countries, including South Korea and the UK, have been tightening climate reporting rules for listed companies. There have also been discussions among central bankers on adopting monetary policies that can promote green transition, but nothing definitive has come out yet. A number of central banks have already started engaging in stress tests to test the resiliency of financial systems against climate-induced shocks.

With countries yet to define net zero clearly themselves, some expect governments to provide checks on corporate climate claims via the financial sector rather than establish direct regulations.

"What we are now starting to see is a shift towards the enforcement of integrity being in the hands of the financial regulators which supervise financial firms and listed companies," Levick said.

McConnell said it could be a long way off before governments can clearly define net zero in legislations for the private sector. "I think common standards—or at least definitions—will start to emerge. But it will take time. Net zero is a pretty new concept, and there's no real formalized definition or approach yet," he said.

Outlook for net-zero governance

Despite all the pitfalls, Lang suggested net-zero pledges by governments and corporations are overall positive to climate efforts. The key is to continue exerting pressure on them to improve emissions disclosures and refine decarbonization plans, he added.

"In some quarters, net zero targets are undoubtedly being set for PR [public relations] reasons," Lang said. "But even if some aren't set in good faith now, expectations and accountability dynamics are being created.

"Providing transparency on, for example, the credibility of plans, scopes of coverage and the intended use of carbon offsets, will help accelerate efforts to benchmark targets and forge more uniformity going forward," he added.

Hale believes that voluntary private schemes, international standards, government regulations, and UN-led orchestration efforts should complement one another in what he described as a governance "ecosystem" for net-zero pledges, rather than to rely on a dominant regulatory force.

"There is no scientific answer on the single, 'right' path to net zero for a given country, sector, company, city, or region," he said.

Principally, all countries and companies should aim to reduce emissions aggressively by 2030 and not rely on offsets to substitute for or delay emissions cuts, according to Hale. But he admitted no one can know exactly what mix of technologies, rules, and behavioral shifts can deliver a net-zero world by midcentury.

"This uncertainty means that governance of net zero needs to be adaptive and dynamic…Regulation that is too static risks creating unintended barriers to achieving net zero in the decades to come," Hale said.

Posted 01 December 2021 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability


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