BCG Henderson Institute

Will Net-Zero Get Us to Net Zero Emissions?

Net-zero is rapidly becoming the gold standard for corporate action on climate change. But can it get us to net zero emissions for the planet? In a new article, we articulate 15 limitations of net-zero commitments and review how we can build on current momentum while evolving more powerful approaches.

“The best time to plant a tree is twenty years ago. The second best time is now.” — Chinese Proverb

Net-Zero has become the gold standard for government and corporate commitment on climate change. But is this increasing focus on Net-Zero sufficient to address climate change robustly? If not, what else do we need to think about and act upon?

What is Net-Zero?

Net-zero is an accounting mechanism that measures a company, country, or individual’s carbon footprint using an accepted standard.

The impact of Net-Zero

The Net-Zero concept has some strong merits in facilitating effective collective action towards the goal of taming climate change.

  • A scalable mechanism for an increasing number of players to commit over time and peer pressure to encourage this,
  • Reputational benefits for companies with consumers and procurement preference with B2B customers,
  • Consumer engagement and contribution through support for brands with Net-Zero commitments,
  • Reduction of risk for shareholders as their investments adopt sustainable business models without abrupt disruption to short term returns, and
  • Increased protection for nature, as most carbon offsets today are nature-based.

Fifteen important limitations of Net-Zero

Notwithstanding the benefits mentioned, Net-Zero has some significant gaps and limitations which need to be addressed to attain sufficient impact overall.

Elements of a better path forward

Given these limitations, how do we best leverage the momentum created by Net-Zero to evolve ever more robust solutions and pathways? We don’t pretend to have the complete answer, but some elements of a better path forwarding move beyond today’s Net-Zero approach, might include the following.

Enhancing Net-Zero:

Net-Zero provides a meaningful system of accounting and accountability and can be enhanced to remove some of these limitations. While definitions are continually being improved, sufficient attention also needs to be given to how these are applied in practice.

  • Create mechanisms of verification: Audited inventories of carbon offset resources can be established to provide a means of verification, to eliminate double counting, to monitor permanence and to help project the inevitable inflation in offset prices.
  • Split out the reporting of and accelerate decarbonization: Carbon offsets cannot be allowed to substitute for or postpone addressing emissions, the root cause of climate change. Companies and countries should be required to report separately for emissions reductions and offsets. This should help address the problem of postponement.
  • Accelerate commitments: Net-zero pledges in the distant future must be coupled with interim commitments. These are essential to increasing the sense of urgency, accelerating near-term action, and providing the ability to monitor progress and course correct towards the ultimate target, which will help overcome the limitations of delay and postponement of true reduction.
Moving beyond Net-Zero:

In addition to enhancing Net-Zero mechanisms, we must pursue a more multi-dimensional view of sustainability and put in place the financial, operational, technological, behavioral, and cultural support to enable the transformative action necessary to achieve climate sustainability for the planet.

  • Develop a behavioral strategy: While there is significant work underway to improve accounting, more work is required to understand the behavioral economics of decarbonization, so that the right nudges, sticks, and kicks can be used to direct human action in the desired direction and address the limitations of moral hazard and non-additivity. In particular, we need to harness the power of future regret to mobilize present action.
  • Ensure sustainable economics for decarbonization and offsets. Plan for carbon economics to shift over time as demand for offsets and sustainable inputs create new scarcities and price inflation, to address the limitation of economic viability.
  • Develop transition paths: Reaching net-zero will necessarily require large-scale societal change. What are the major shifts economically, technologically, and societally that must be made? How do we act on and sequence these major shifts collectively, to provide the foundation for individual agents to meet their net-zero targets? This should address the limitation of goals without paths.
  • Accelerate innovation: Decarbonization will require more, cheaper and better solutions than we have today. We do not currently have the approaches to meet our commitments and we must accelerate the rate of discovery, scaling, and deployment of technological and nature-based innovations through increased funding, private & public partnership, and international cooperation.
  • Regulatory and fiscal policy: Regulatory and fiscal policy should be put in place to make corporate and societal transformation a viable path. Like a ball rolled down the street, the regulatory policy forms the curb — channeling the direction of the ball while, the fiscal policy determines the decline of the street — providing the force to overcome friction and accelerating the path of the ball to its desired direction. Together, regulations and financial policy can help overcome the problems of volunteerism, leakage, and inequity of economic development to ensure that planetary net-zero happens at expeditiously, ubiquitously, and equitably.
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