Market view and Insights
Everyone is talking about net zero these days - but do you know what it really means? For example, what’s the difference between net zero and climate neutral? And what is the most popular method for reducing CO2?
Many companies have committed to becoming net zero. What exactly does that mean?
"Net zero" refers to a balance that if achieved, means the amount of greenhouse gases that are emitted into the atmosphere does not exceed the amount that can be removed. With the Paris Agreement, humankind committed to not only limiting global warming to 1.5 degrees, but also to reaching net zero emissions from 2050. If this is achieved, humans will no longer contribute to climate change and the temperature will stabilize. For companies, a "net zero" target means aiming to balance the emissions from all of their activities and their removal of greenhouse gases.
So "net zero" means the same as "climate neutral"?
Yes and No. "Climate neutral" is a vague term that is often misused. In today’s economic system, practically nothing can be produced without directly or indirectly consuming fossil fuels. Unlike "climate neutral", "net zero" never refers to an individual product, but only to a company or corporation as a whole.
There is no official definition of "climate neutral", so it’s a good idea to look at the fine print. Many companies that strive for climate neutrality or claim to have already achieved it are only referring to direct emissions. Often, however, the indirect emissions are much greater, for example those generated in the upstream supply chain or through the consumption of the products that are manufactured. A service company such as a bank, for example, can reduce direct emissions relatively easily by avoiding fossil technologies when it comes to its vehicle fleet and its energy consumption. However, it’s much more difficult and at the same time much more important to also protect the climate at the investment level. When referring to “net zero”, these indirect emissions are also always meant. In other words, a bank is only “net zero” when the emissions it has financed are"net zero" too.
Another important difference between "climate neutral" and "net zero" is the measures permitted for compensating the remaining emissions.
What are the different measures?
Many companies probably won’t be able to fully reduce their emissions to zero in the foreseeable future. There are two forms of compensation for balancing remaining emissions: offsetting and removing greenhouse gases elsewhere in the world. In both cases, the company pays money for someone else to reduce emissions. When it comes to the global climate, where exactly such a reduction takes place isn’t important.
What is, however, very important, is which form of compensation is chosen. Offsetting is the simpler, but unfortunately no longer sufficient option. The money paid is used to build wind turbines, for example, which in turn help to replace coal-fired power. In this way, future emissions are avoided. While this is useful for the climate, it does not change the fact that the company that is offsetting has emitted net greenhouse gases. And that’s a problem, because every metric ton of CO2 in the atmosphere contributes to global warming. "Net zero" cannot be achieved this way. However, companies that claim to be "climate neutral" often choose precisely this kind of offsetting measure. In the case of "net zero", on the other hand, only the second type of compensation measure is permitted. Why? Because the only way to guarantee that a carbon footprint is truly balanced and that further strain is not placed on the global CO2 budget is to opt for removal.
How can CO2 be removed from the atmosphere?
There are two different approaches, one natural and technological. The best known and most popular natural method is reforestation. Forests are large CO2 reservoirs. A growing forest absorbs a net amount of carbon dioxide, thus removing it from the atmosphere. Numerous initiatives around the world implement reforestation projects and offer certificates for companies that want to compensate their emissions this way.
Another natural method is spreading biochar in soil and fields. Only a small amount of CO2 is released during the carbonization process, and most of the carbon remains in the charcoal. If it enters into the soil, it remains stored there for a long time and makes the soil even more fertile. Another natural option is to increase the humus layer, which also captures CO2 - this is referred to as "regenerative agriculture".
The technological methods, on the other hand, remove CO2 from the air mechanically. This is done either directly on the chimneys of industrial and fossil-fuel power plants, or the CO2 is sucked out of the atmosphere. The latter is more expensive because of the lower concentration, but will still work even when there are (hopefully) no longer any greenhouse gases emitted from fossil fuels.
Which method is the most popular?
At the moment, CO2 removal from the atmosphere is done almost exclusively through reforestation. This method is simple and cheap. But it has a catch, because its potential is limited: there is a finite amount of suitable land available for new forests. Another drawback is that it takes decades for trees to absorb carbon dioxide, while the emissions to be offset happen today – so the “net zero” principle takes a bit of a hit in this regard. LGT sustainability expert Peter Segmüller mentions another problem: all too often, the approach results in the creation of industrial forests and monocultures. “Good projects take the local population and biodiversity into account – that has to go hand in hand,” he says. It’s not possible yet to determine conclusively how useful other natural methods such as biochar will be in the future.
How well does technological CO2 removal work?
Only a few plants exist at present, and the majority thereof are still in an experimental phase. Perhaps the most interesting project is that of Climeworks, a Swiss company that has built a pilot plant in Iceland to extract CO2 directly from the atmosphere. LGT has signed a ten-year agreement with Climeworks to compensate its emissions. This project is the first in LGT’s future portfolio of technological and natural solutions for removing CO2, which will help the company achieve its target of "net zero by 2030". "In our view, Climeworks has the safest technology," says Peter Segmüller. "The CO2 is mineralized in stone and can no longer escape. If you store it in gas form, on the other hand, there’s always a risk that it could leak." In contrast to the natural methods, there is in principle no limit to the quantities that can be removed using the technological solutions. “There is a lot of potential here,” says Segmüller. “The technology can be scaled up significantly, especially as companies and countries are now investing a lot of money in development.” One drawback, however, is that the mere knowledge that a technological solution exists could lead to a slowdown in the efforts to reduce greenhouse gas emissions.
Why should companies continue to reduce emissions if there’s a technological solution on the horizon?
Just think of the scale we’re talking about. With the pilot plant in Iceland, Climeworks can remove about 4000 metric tons of CO2 from the atmosphere annually. That is a tiny fraction of today’s global emissions. What’s more, the process is currently still extremely expensive. Even if it were to be scaled up massively, it will take many years before the removed quantities really start to add up. But the climate problem is more than anything a problem of time – emissions must decrease as quickly as possible if we want to keep climate change in check. So there’s no getting around the fact that companies have to reduce their emissions to the greatest extent possible. CO2 removal should remain reserved for offsetting those emissions that at present, cannot be reduced quickly enough, such as those generated through agriculture, air traffic and cement production.