Managing Director & Senior Partner, Chairman of the BCG Henderson Institute
San Francisco - Bay Area
Related Expertise: Climate Change and Sustainability
Despite its merits, net zero isn’t a perfect mechanism for addressing climate change. Here are 15 of its limitations—and our recommendations for fixing them.
“The best time to plant a tree is twenty years ago. The second best time is now.” — Chinese Proverb
The growing number of companies making net-zero carbon commitments offers a ray of hope for progress on climate change. Currently about 33% of world’s largest companies and more than 50% of countries have pledged to reach net zero, with target dates varying mostly between 2030 and 2050.1 Notes: 1 Business Wire, Sept. 20, 2021; BBC News, Nov. 4, 2021.
More commitments will almost certainly follow. As one company moves, others in the industry feel pressure to follow—either to avoid being seen as a sustainability laggard, to fend off regulatory requirements that might be more stringent, or to build advantage in a shifting competitive landscape. A single company with the courage to set ambitious targets can ratchet up the efforts of an entire industry while seizing early advantage. As of October 2021, virtually all of the world’s airlines had pledged to reach net zero by 2050, having previously promised only a 50% net reduction in emissions in 2009.2 Notes: 2 The Guardian, Oct. 29, 2021.
Net zero has become the gold standard for government and corporate commitment on climate change. But is this increasing focus on net zero sufficient to address climate change? If not, what else do we need to think about and act upon?
Net zero is an accounting mechanism that measures a company, country, or individual’s carbon footprint using an accepted standard.
In the credits column are the metric tons of carbon dioxide and carbon dioxide equivalents (for other greenhouse gases like methane and nitrous oxide) that a company produces through the direct (Scope 1) and indirect activities (Scope 2) of the company as well as its supply chain (Scope 3).
In the debits column, emissions that cannot be immediately reduced by the company can be offset by paying someone else to take an equivalent amount of carbon out of the atmosphere. Such offsets can use both nature and manmade technologies to remove greenhouse gases, although the former predominate today. Common nature-based methods include sequestering carbon in plant matter by planting new forests, protecting existing ones, or restoring previously logged ones. Technological approaches include capturing greenhouse gases such as methane gas at landfills, nitrous oxide at chemical plants, and direct carbon capture from the air.
A company, country, or individual is said to be net zero when the debits equal the credits—meaning the entity is not contributing additive greenhouse gases to the atmosphere. The idea is that if all countries, companies, and individuals become net zero, we end up at net zero for the planet.
The net zero concept has some strong merits in facilitating effective collective action toward the goal of taming climate change. First and foremost, net zero provides a measure of transparency and comparability in accounting for carbon emissions. Little progress will be made overall without clear accounting and accountability for environmental impact.
Secondly, the scheme creates an easy way for companies and countries to make both long-term decarbonization commitments and create immediate impact. Companies can plan a realistic path for decarbonization while using offsets in the short term.
On its face, this should result in:
However, a closer inspection reveals that net zero also has some significant limitations which, if unaddressed, could easily misrepresent and undermine progress toward the ultimate goal of environmental sustainability.
Notwithstanding the benefits mentioned, net zero has some significant gaps and limitations which need to be addressed to attain sufficient impact overall. We have captured these in a series of scenarios, all of which have examples in the present; each scenario captures a problem with definitions, implementation, or scope that can lead to emission reductions being postponed, exaggerated, or diminished. Taken together, these limitations could hinder decarbonization efforts, with net-zero pledges providing companies a false sense of accomplishment and allowing them to mistake activity for progress.
Given these limitations, how do we best leverage the momentum created by net zero to evolve ever more robust solutions and pathways? We don’t pretend to have the complete answer, but some elements of a better path forward might include the following.
Net zero provides a meaningful system of accounting and accountability and can be enhanced to remove some of these limitations. While definitions are continually being improved, sufficient attention also needs to be given to how they are applied in practice.
In addition to enhancing net-zero mechanisms, we must pursue a more multidimensional view of sustainability and put in place the financial, operational, technological, behavioral, and cultural support to enable the transformative action necessary to achieve climate sustainability for the planet.
Net zero has provided a positive foundation and engendered momentum critical for the fight against climate change. However, we must work together to enhance net zero by removing these 15 limitations—taking a more multidimensional view of, and approach to, sustainability. As more companies and countries make net-zero pledges, we must laud their commitments while continuing to ask for more.
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