Net Zero vs. Carbon Neutral: What’s the Difference and Why It Matters

In the world of sustainability, the terms “net zero” and “carbon neutral” are often used interchangeably, leading to confusion among businesses and consumers. However, while both aim to reduce carbon emissions, they differ significantly in their approach, impact, and long-term goals. But is carbon neutral the same as net zero? Understanding the difference between net zero and carbon neutral is key to making informed decisions about sustainability. This article will explore these distinctions, why businesses should aim for net zero, and how these strategies can shape the future of climate action.

‍

What Does ‘Carbon Neutral’ Really Mean?

“Carbon neutral” became popular after the Kyoto Protocol (1997), as a way for countries and businesses to claim they are offsetting their emissions. Essentially, it means balancing the amount of carbon dioxide (CO2) emitted with an equivalent offset, typically through carbon credits.

However, the term is often criticised for three key reasons:

1. Limited Scope: Carbon neutrality usually includes only Scope 1 and 2 emissions (direct emissions from operations and energy usage), while Scope 3 emissions (indirect emissions from supply chains, product use, and other indirect activities) remain voluntary. On average, Scope 3 emissions can account for 70-95% of a business’s total emissions. This means that under carbon neutrality, the vast majority of a business’s climate impact can be excluded, leading to an incomplete picture of their true environmental footprint.
2. Lack of Required Reductions: Businesses can achieve carbon neutrality by purchasing offsets without reducing their emissions. Critics liken this to “buying indulgences” – allowing businesses to continue their polluting activities without real change.
3. Low-Quality Offsets: The voluntary carbon market offers offsets that vary greatly in quality, often leading to companies opting for the cheapest, least impactful options. This can lead to greenwashing and public distrust.

In 2023, Danone, the manufacturer of Evian water, faced a class-action lawsuit in the US. The lawsuit alleged that Danone’s claim of Evian being “carbon neutral” was misleading. It was argued that while Danone purchased carbon credits to offset emissions, the actual offsets would not occur for decades, highlighting that carbon offsetting alone is insufficient without genuine reduction efforts. 

‍

Net Zero: A More Ambitious Climate Strategy

Net zero, on the other hand, represents a far more comprehensive and ambitious commitment. Achieving net zero means that a company not only offsets its emissions but also significantly reduces them across all three scopes—direct, indirect, and supply chain-related emissions.

‍

Requirements for Net Zero:

• All Scopes Included: Businesses must account for Scope 1, 2, and 3 emissions, ensuring that their entire carbon footprint is addressed.

• Reduction Targets: Companies must reduce emissions in line with science-based targets, following a pathway to limit global temperature rise to 1.5°C.

• High-Quality Offsets: For any remaining emissions, businesses must use carbon removal methods that permanently remove CO2 from the atmosphere, such as reforestation, afforestation, or direct air capture.

Aiming for net zero demonstrates a commitment to not just offset emissions but also to reduce them actively. As the Science-Based Targets initiative outlines, deep cuts of up to 90% are required before relying on offsets.

Why Businesses Should Aim for Net Zero

So, why should businesses choose net zero over carbon neutrality? Beyond the ethical imperative, here are three key reasons:

1. Stakeholder Trust

Consumers, investors, and employees are increasingly demanding transparent and credible climate action. In fact, 64% of consumers say they are more likely to support companies with a clear and credible climate strategy (YouGov, 2024). Achieving net zero shows that a business is genuinely committed to sustainability rather than relying on offsets to bypass meaningful action.

2. Regulatory Advantage

Governments worldwide are tightening regulations on carbon emissions, and businesses need to act now to avoid significant penalties. The European Union, for example, is pushing for stricter climate reporting requirements under the Corporate Sustainability Reporting Directive (CSRD), which will demand Scope 3 emissions reporting by 2024. In the UK, the penalties for non-compliance with emissions reporting can be severe. Under the Greenhouse Gas Emissions Trading Scheme Order 2020, companies face a daily fine of £500, which can accumulate up to £45,000 over 90 days. In 2020-21 in the UK alone, £27 million in fines were issued to 33 companies for breaching emissions regulations across various schemes, including the European Union Emissions Trading System and the Energy Savings Opportunity Scheme. Businesses that act early to align with net zero requirements can avoid these costly compliance risks and penalties down the road.

3. Commercial Success

Early adopters of net zero are reaping significant financial rewards. Sustainable businesses are not only achieving operational cost savings of up to 20%, thanks to energy efficiency measures and lower resource consumption (Carbon Trust, N.d.), but they are also gaining a competitive edge in the marketplace. Companies that integrate sustainability into their operations are 52% more likely to outperform their peers in profitability and see a 16% higher revenue growth (IBM, 2024). Not to mention that businesses with a credible net zero strategy are more likely to win contracts with large corporations prioritising sustainable suppliers.

“Net Zero is not just the right thing to do, it’s the smarter business move. It demonstrates true commitment to climate action, which today’s stakeholders demand.” - Simon Heppner, Founder of Net Zero Now.

Achieve net zero and showcase your sustainability commitment.

Carbon Offsets: Not All Are Created Equal

While carbon offsets play a role in both carbon neutrality and net zero, the difference lies in the quality and type of offsets. In carbon neutrality, there is no requirement to use high-quality, permanent offsets, leading to the use of cheaper, lower-impact options.

For net zero, only carbon removal offsets—such as reforestation or technological solutions like direct air capture—are considered valid. These methods remove CO2 from the atmosphere, ensuring a lasting impact.

For more on why high-quality offsets matter, check out our article: In Defence of Quality Offsets.

‍

The Future of Climate Action: Why Net Zero Is the Only Option

As climate change continues to impact economies and societies, the difference between carbon neutrality and net zero becomes even more critical. Businesses that opt for net zero not only position themselves as leaders in sustainability but also safeguard their future in an increasingly climate-conscious world.

In the end, while carbon neutrality may seem like a step in the right direction, net zero is the only strategy that aligns with the scale of action required to combat climate change. Businesses that aim for net zero will build trust, future-proof their operations, and ultimately drive long-term success.

The world is moving toward net zero, and businesses must follow suit. By reducing emissions across all scopes and using high-quality offsets, companies can play a key role in the fight against climate change. Net Zero Now is here to help you on that journey, providing the tools, resources, and certification needed to make net zero a reality.

Ready to take the next step? Contact Net Zero Now today to learn more about how your business can achieve net zero and lead the way in sustainability.

‍