Despite doubts and setbacks, it serves a second look.
Corporate carbon pricing is like a toll road — every time you pollute, you pay.
Companies that set a target to become carbon neutral commit to purchase and retire one credit for every ton of unabated emissions, setting a de facto price on their climate pollution. As the price of credits goes up, so does the pressure to decarbonize. And the toll funds global progress toward net zero via carbon projects.
That’s the theory anyway. But after three years of rapid rise in corporate carbon neutral target-setting, that term has lost some of its shine. Varying standards of accounting rigor and credit quality have created consumer confusion and, in some cases, accomplished little for the planet.
Still, there is a path forward for carbon neutral to serve as an effective pricing tool, driving progress toward net zero. And it starts with a little-celebrated framework recently released by the International Organization for Standardization (ISO).
Negatives to carbon neutral
Over the last five years, one in three Fortune Global 500 companies have set a carbon neutral commitment, up threefold since 2019.
Source: Climate Impact Partners’ 2024 survey.
But, varying standards in quality have led to a string of lawsuits around misleading claims. Four pain points have plagued efforts to achieve carbon neutrality:
Which scopes are in?
One core difference among the at least 10 third-party carbon neutral frameworks is the emission measurement boundaries. Most of these don’t require measurement or mitigation of Scope 3 emissions, which often account for 70 percent or more of a company’s total climate impact.
A race to the bottom
Several neutrality frameworks have few requirements for verifying credit quality. Without guardrails, project developers face high pressure to sell credits at the lowest price possible — often by sacrificing quality.
Solutions are emerging. New standards such as the Core Carbon Principles, published last year by the Integrity Council for the Voluntary Carbon Market (ICVCM), promise to bring increased rigor to these markets. And third-party project-level ratings provide further transparency into project quality and could raise the floor of integrity across the entire voluntary market.
It’s never really ‘neutral’
The most intractable problem with carbon neutrality is that it promises the unachievable. It’s difficult to imagine a project that truly neutralizes all climate harm from greenhouse gas emissions. The moment greenhouse gas enters the atmosphere, it begins to alter the system. If there’s even a short time lag between the moment of emission and the moment at which a carbon removal intervention takes effect, the impact of that emission cannot be entirely erased.
Distraction or focusing point?
Finally, there’s the debate about whether using credits to reduce global emissions distracts companies from eliminating emissions within their value chains. While multiple studies from the last two years show that companies using carbon credits slash their own direct and indirect emissions faster than those that do not, it’s nearly impossible to untangle the root causes of that superior performance.
Putting carbon neutral in its place: ‘A pathway of continual improvement’
In November 2023, the International Organization for Standardization (ISO), a non-governmental international standard setter across industries, released its carbon neutrality standard. The standard defines neutrality as “a pathway of continual improvement” en route to global net zero.
Right now, carbon neutrality seems like a dull instrument. Before we toss it out, maybe we should try sharpening it first.
Under the new standard, companies must first measure emissions across all three scopes, create a detailed plan to reduce them, demonstrate continuous progress on that plan and commit to neutralize any residual emissions via carbon removals by no later than 2050, in line with a science-based pathway to net zero. All claims must be third-party verified.
After making demonstrated progress on their emissions reduction plan, companies aiming to make neutrality claims must retire credits equivalent to their remaining emissions footprint. In early stages, those credits can come from emissions avoidance, reduction or removal projects; in later stages, only removal credits will earn a neutrality label.
The standard includes several pages of minimum criteria for high-quality credits to mitigate the remaining carbon footprint before making a neutrality claim.
Charting a path to net zero
Net zero frameworks provide a vision for a future in which we have figured out how to live on this planet without destroying it. But in itself the concept offers no roadmap to get there and says nothing about how to mitigate the climate harm we’ll continue to cause along the way.
Carbon pricing — including mechanisms such as neutrality — can help chart a course to net zero. Next week at VERGE24, we’ll dive into three unique applications of corporate carbon pricing with Etsy, McKinsey, and Workday.
Right now, carbon neutrality seems like a dull instrument. Before we toss it out, maybe we should try sharpening it first.
This article originally appeared on Trellis Group (formerly GreenBiz) as part of our partnership with the media and events company that accelerates the just transition to a clean economy.
