Net Zero is a state where greenhouse gas (GHG) emissions released into the atmosphere are balanced by an equal amount of GHG emissions being removed. Achieving this equilibrium is the scientifically-backed global goal to halt climate change and stabilize planetary temperatures, as outlined in the Paris Agreement.
Net Zero refers to the critical point where we stop increasing the concentration of greenhouse gases in the atmosphere. It is the ultimate objective for companies, cities, and countries serious about tackling climate change. The core principle is not simply to offset emissions, but to fundamentally reduce them to the absolute minimum possible, and only then, use removal techniques to neutralize the unavoidable remainder. This makes it the most ambitious and scientifically credible climate commitment.
The journey to Net Zero follows a clear and hierarchical path, prioritizing genuine decarbonization over simple offsetting. The key steps include:
- Deep Emission Reductions: An entity must first exhaust all possible avenues to cut emissions from its own operations (Scope 1), its energy purchases (Scope 2), and its entire value chain, including suppliers and customers (Scope 3). This is the most critical and challenging part of the process.
- Neutralizing Residual Emissions: For the small fraction of emissions that are technically or financially impossible to eliminate (e.g., from certain industrial processes like cement production or aspects of agriculture), an equivalent amount of carbon dioxide must be permanently removed from the atmosphere.
- Carbon Dioxide Removal (CDR): These removals must be achieved through methods like direct air capture and storage (DACS) or nature-based solutions such as large-scale reforestation and afforestation. This goes beyond traditional carbon offsetting, which often focuses on emission reduction elsewhere rather than genuine removal.
This rigorous approach is what distinguishes "Net Zero" from the less stringent concept of "carbon neutrality." For investors, understanding a company's Net Zero strategy is crucial for assessing its long-term viability and its alignment with the global energy transition. Policies like the EU Emissions Trading System (ETS) are designed to put a price on carbon, directly incentivizing companies to accelerate their emission reduction efforts on their path to Net Zero.
Concrete Examples
- Corporate Level (Microsoft): Microsoft has pledged to be carbon negative (going beyond Net Zero) by 2030. Their strategy prioritizes reducing their operational emissions drastically. For their residual emissions, they are investing heavily in a portfolio of carbon removal technologies, helping to scale this nascent but vital industry.
- National Level (United Kingdom): The UK was the first major economy to pass a legally binding Net Zero emissions law, targeting 2050. This goal is underpinned by concrete policies, including the UK Emissions Trading Scheme (UK ETS), which caps the emissions of heavy industry and power sectors, creating a market for carbon allowances (
learn more about UK Allowances (UKA)) and driving investment in decarbonization.
External Resource: For an authoritative overview, see the United Nations' explanation of Net Zero Coalition.