In recent years, businesses around the world are paying more attention to sustainability. Governments worldwide have been cognizant of the growing significance of sustainability. There has been a constant push from the governments to incorporate sustainability as the mainstream business practice by introducing regulations, incentives, and performance-linked financing. Additionally, some governments have leveraged the financial crisis induced by the pandemic to promote sustainable practices by integrating them into stimulus packages. Businesses are cautious about their environmental footprint now and are taking proactive measures to reduce their carbon footprint. Carbon neutrality and net zero are the new buzzwords around the corporate world with companies setting ambitious goals to become carbon neutral or achieve net-zero emissions in the coming years. While this is an important move in fighting climate change, it is important to delve deeper and understand the practical implications and challenges of achieving such ambitious targets.

Carbon neutrality refers to reducing and avoiding the equivalent amount of greenhouse gas (GHG) emitted through emission reduction initiatives and offsetting the emissions. On the other hand, net zero refers to the anthropogenic removal of GHGs permanently from the atmosphere emitted due to human activities. Both these phenomena involve the reduction of emissions as the primary step through energy efficiency, renewable energy, behavioral change, etc. The residual emissions after all the initiatives can be balanced out through offsets or removals.

Achieving net-zero emissions is a challenging task due to the limited availability of carbon removal technologies at scale. Technologies such as afforestation/reforestation, biochar, soil carbon sequestration, etc., are prevalent but monitoring and evaluating them for additionality and permanence can be a tedious and complex task. One of the most common carbon removal technologies is afforestation, which involves planting new forests to absorb carbon dioxide through photosynthesis. However, estimating the amount of carbon removed due to afforestation can be difficult as it can take decades for trees to reach their full carbon sequestration potential, and there are risks like wildfires, natural disasters, or human activities like logging. In addition, the project is also not viable at scale as an afforestation project could generate 5-20 certified emission reductions (CERs, usually expressed in tCO2e) per hectare annually. An organization like Microsoft with estimated annual emissions of around 13 million tons would require 0.65 million hectares (0.4% of the US land area) of land to remove an equivalent amount of GHGs. The world’s largest direct CO2 removal plant Orca in Iceland only has an annual capacity of 4000 tons. Though there are other larger facilities under construction, the cost of the removals through direct air capture (DAC) is extremely high (in the range of 300-600 USD per tCO2e) making it financially unviable for the organizations.

Meanwhile, carbon offset programs, which involve avoidance of GHG emissions through technological, behavioral interventions rather than removals, have been established for a long time. There are several types of offset programs across 15 sectors like renewable energy, energy efficiency, transportation projects, etc. However, the over-issuance of carbon credits is a well-known issue, raising questions about the credibility and transparency of carbon offset standards. There have been several studies by Bloomberg, the Telegraph, and other leading journals dissecting the issue of over-issuance of offsets and non-standardized methodologies. A detailed study on 36 cookstove projects covered under five leading methodologies by the University of California shows that the credits have been over-issued by more than 6 times. Identifying credible offset projects is a challenge for companies with such discrepancies. A detailed guideline with possible offset ranges for each type of project across geographies is required to help businesses pick the right projects. At ecoPRISM, we believe that both these mechanisms are needed for businesses to reduce their carbon footprint. But the impact needs to be real for the companies to claim the benefits of it. Developing rigorous methodologies, ensuring additionality and permanence, and improving the credibility and transparency of carbon offset standards are essential to achieving our climate goals. With international cooperation and government intervention, the methodologies must be standardized to pave the way for businesses to embark on the sustainability journey in a rightful way.