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Carbon Ratings

What is carbon neutral?

April 14, 2022
What does carbon neutral actually mean?

When an organization is carbon neutral, it means that they have compensated for all their carbon dioxide (CO2) or other greenhouse gas (GHG) emissions through carbon offsetting, the purchasing and retirement of carbon credits.

Let’s dig into the detail.

First, it’s important to point out that there is no legal or regulated meaning of carbon neutral. In this article, we are using the most common definition of carbon neutral, but keep in mind that different organizations might use it to mean slightly different things. 

The carbon part of the term refers to CO2, because CO2 is the most common GHG produced by human activities. GHGs trap heat in the atmosphere and increase the average global temperature, the accumulation of which has caused the climate crisis. In reality, carbon neutral is a catch-all term that also refers to balancing out all GHGs, including methane and nitrous oxide (N2O).

Neutral refers to the fact that means that all of a company’s GHG emissions have been offset. In theory this means that the organization would be causing no net change of GHG concentrations in the atmosphere. 

Offsetting means that every metric ton of emissions has been compensated for by a metric ton of emissions elsewhere being avoided or removed from the atmosphere. For example, the organization might pay to protect an area of rainforest from being cut down, avoiding the release of the carbon stored there.

How do organizations become carbon neutral?

To properly offset its emissions, an organization must first work out the GHG emissions produced in their entire operations, referred to as their value chain, for that year. 

This can include scope 1, 2 and 3 emissions. Scope 1 emissions are the direct result of any GHG emissions sources owned by the organization, for example, any buildings, factories or vehicles they may own. Scope 2 GHG emissions are emissions caused by any energy purchased to produce the organization’s products or deliver its services. Scope 3 GHG emissions, the most challenging to calculate, include all emissions the organization is indirectly responsible for and doesn’t own, such as the emissions caused by factories and vehicles it doesn’t own, but it makes use of in its operations. This likely includes goods and services it purchases to create its products or deliver its services, such as raw materials and delivery services. 

GHG emissions are calculated in metric tons of CO2. To account for other GHGs, emissions are measured in CO2 equivalent (CO2e) — how many metric tons of CO2 would cause equivalent global warming.

For each ton of CO2e emitted, the organization must purchase a carbon credit. Credits are issued by projects across the world that carry out activities to reduce emissions or even remove GHGs from the atmosphere. For more details about carbon credits see our article: what is a carbon credit?

For a carbon credit to count as an offset, the organization must then retire the credit. This ensures that it can never be resold or used for another purpose, allowing the organization to lay sole claim to the tons of GHGs avoided or removed. For more details about this process see our article: what is a carbon offset?

Who holds organizations accountable for carbon neutrality claims?  

At the moment, a carbon neutral commitment is totally voluntary. This means there is no standardized, legally binding regulatory framework. There are many initiatives that independently monitor adherence to voluntary climate commitments, such as the British Standards Institute’s (BSI’s) Publicly Available Specification (PAS) 2060 standard. However, there is currently no requirement for organizations making carbon neutral claims to have this verified by an external standard.

In the future, it’s likely that governments will require and regulate climate commitments, to help reach global climate goals. Climate regulations are rapidly becoming more prescriptive and comprehensive, so it will be advantageous for organizations and sustainability leaders to get ahead of the game. Organizations should therefore look to set high-integrity targets and take ambitious steps towards meeting them. 

Is carbon neutral good enough?

First, the lack of transparency and consistency in carbon neutral claims is a cause for concern. There is a fairly low bar for organizations to claim this — there are examples of some organizations only measuring and offsetting a small, select portion of their emissions, for example, their scope 1 emissions. 

Another common criticism is that the carbon credits used for offsetting aren’t actually delivering on their carbon promises. It’s absolutely essential to select high-quality credits and that’s what we specialize in. We offer in-depth carbon credit ratings that can help with selecting the best quality carbon credits. 

Perhaps the most important consideration is that organizations don’t necessarily need to reduce their GHG emissions to claim to be carbon neutral. However, to combat the climate crisis we urgently need a huge reduction in global GHG emissions, very soon. Without this, the world’s leading climate scientists are very clear: we’re heading for a climate catastrophe. 

Here at Sylvera, we advocate for higher ambition climate commitments. We see offsetting emissions as an essential part of a wider toolkit; decarbonization is also essential to help combat the climate crisis. 

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This article features expertise and contributions from many specialists in their respective fields employed across our organization.