What is the difference between net zero and carbon neutral?

January 25, 2024
5 Minutes
Photo by Alexander Abero

‘Carbon Neutral’ and ‘Net Zero’ are two terms that are sometimes used interchangeably, though in the world of carbon accounting, they mean different things. They both represent a mathematical equation where the carbon emitted by an organisation is cancelled out by carbon offsets, or, carbon removed from the atmosphere. Let’s chat definitions first.

What does ‘Net Zero’ mean?

When we talk about ‘net zero’, we’re referring to the state where there’s a balance between the amount of greenhouse gas emissions produced, and the amount removed from the atmosphere.

In order to achieve net zero, an organisation is required to significantly reduce its emissions. Under the Science Based Targets Initiative’s (SBTi) Net Zero Standard, organisations must reduce their emissions by at least 90% compared to their baseline to make a Net Zero claim credible. Learn more about Net Zero and SBTi in our article What is ‘Net Zero’ and ‘SBTi’?

That requires a lot of hard work - removing our reliance on fossil fuels (no more petrol and diesel), switching to renewable energy and buying goods and services from companies that have also made these changes.

Bottom line - it’s not a quick fix, it’s a systems change, but it’s what we have to do. 

What does ‘Carbon Neutral’ mean?

To be ‘carbon neutral’, all that an organisation needs to do is purchase offsets equivalent to the total emissions produced in the reported year. This can be from either avoidance credits, ones that support projects that avoid or reduce emissions compared to what it would normally have been (e.g. prevent deforestation), or removal credits, ones that support projects that adsorb emissions back from the atmosphere (e.g. reforestation / planting trees).

Organisations can buy one carbon credit for every one tonne of carbon they emit. In return, they may receive a logo from the private company selling the carbon credits or go through a certification process to get a 'carbon neutral' logo. There are also platforms that help organisations calculate their emissions at a high level and buy offsets in a few simple clicks (a bit too simple as a solution for this climate crisis we’d say).

Here’s an example to put it practically

Let’s look at a carbon neutral example:

You’re a small hotel with annual emissions of 550 tonnes of carbon. The cost to buy local offsets is $35 per credit (where one credit offsets one tonne of carbon).

That means you’ll spend $19,250 per year in offsets so you can claim your hotel is carbon neutral.

Net Zero example:

You’re a restaurant, with annual emissions of 550 tonnes of carbon. You choose to invest $19,500 in lowering your emissions within your business. You switch out gas cookers for electric stoves, and install solar panels in the first year, reducing your emissions by 100 tonnes, now your restaurant’s annual emissions is 450 tonnes of carbon. 

You’re reducing your business’s carbon footprint by lowering the actual emissions you as a business are creating. You are working towards a net zero goal, as opposed to simply buying credits to become carbon neutral. This is increasingly what consumers and the world is focused on.

What’s the concern?

For a long time having ‘carbon neutral’ labels has been something to boast about, but we now need to prioritise actually reducing emissions.That is not to say supporting carbon reduction projects is a bad thing, it can be a fantastic contribution but from an accounting and claims perspective, that contribution should not be confused with actual reduction. 

We’re already seeing businesses are coming under the spotlight for misleading consumers with their carbon neutral claims:

  • Delta Air Lines faces lawsuit over $1bn carbon neutrality claim
    Delta's claim of being the "world's first carbon-neutral airline" is being challenged in a lawsuit. The suit alleges that the claim is false and misleading because it relies on junk offsets that do not address climate change. This could have led customers to believe their flights were environmentally friendly, potentially influencing their decision to purchase Delta tickets.(source)
  • Apple’s “first carbon-neutral product” claim has come under scrutiny
    The latest Apple Watch that has been marketed as carbon-neutral has come under scrutiny for whether it’s really carbon neutral, critics claim the approach is flawed and don’t believe the offsets fully cover the emissions generated. (source)
  • Danone faces lawsuit challenging its "carbon neutral" claim on bottles of Evian spring water
    Consumers said they would not have bought Evian had they known that Danone's manufacturing process allowed the release of carbon dioxide into the atmosphere or otherwise caused pollution. (source)
Bottom line - we have to actually reduce emissions.

So, how does carbon accounting fit in?

Carbon accounting is essential for measuring progress. We need to be able to see how we're tracking towards those net zero targets, and whether they have actually been achieved - all of this needs to be done with credible carbon data that is calculated, measured, and reported in a transparent, rigorous, and trusted way - just like financial accounting (Queue: The accountants! Learn more about carbon accounting and how accountants play a role here)

We’re moving away from a world where the first step is to measure emissions for the purposes of buying offsets, in order to say that the business is ‘carbon neutral’. When we are only accounting for the purposes of determining how many offsets to buy, there is a natural incentive to try and get that cost down by excluding whatever emissions we can whilst still being compliant with frameworks - a risk that could render the entire exercise unproductive.

Again, there is nothing wrong with supporting projects that sequester carbon, in fact the world needs to invest in projects that do both this and restore nature at a scale we haven’t yet seen!

But the key question we should ask is - what can the business do to actually reduce emissions? That’s the path for us to reach net zero. And we must be accounting for that properly so markets, customers and consumers trust and support that progress. This is what drives more companies to follow on this path, at pace.  

For many organisations, that will mean working with suppliers to understand their impact and their own path for reductions. There’s no instant gratification in that process, but that is doing the work that needs to be done. 

Let’s get started on this journey by educating ourselves first. Jump on a free trial and get started with Sumday Academy. 

Here’s a sneak peak of our Carbon Accounting for Businesses course.