Last updated: 14 Oct 2024 09:00 Posted in: AIA
Sunita Devi examines the difficulties in monitoring and achieving Net Zero targets on a global basis.
Since the Brundtland Commission Report in 1987 and Kyoto Protocol in 1997, the science of measuring polluting gases has been ongoing. The announcement of Net Zero goals by countries and companies around the world adds to this conundrum. The ambition to balance the amount of greenhouse gases emitted with those removed from the atmosphere has become a global dilemma in fighting climate change.
Governments, corporations and individuals have all embraced this goal, pledging to drastically cut emissions and invest in carbon removal technologies. However, the path to Net Zero is fraught with risks and challenges that could undermine its effectiveness if not carefully managed.
This article explores some of the significant risks associated with pursuing Net Zero targets and the implications for global climate policy and sustainability.
Monitoring Net Zero ambitions
Net Zero Tracker is an independent tool that provides a comprehensive view of Net Zero across all nations and the world’s largest regions, cities and companies, and allows you to identify the individual emissions levels and targets on a company-by-company basis.
Almost all companies have a sustainability reporting mechanism. However, general observation reveals that although most companies have a target of achieving Net Zero by 2050, there is little evidence of a detailed plan to meet this goal. Few have included Scope 3 in the coverage, nor is there an indication of their roadmap and whether their greenhouse gas inventory is verified.
Surprisingly, the majority of the companies on the Net Zero Tracker database did not consider the use of carbon credits as a preferred option.
Policy and regulatory challenges
Net Zero commitments around the globe are subject to regulations set by the capital markets, as well as by the government. However, the enforcement of these commitment is lacking.
Christopher Bataille’s article ‘Physical and policy pathways to net-zero emissions industry’ (Wiley Interdisciplinary Reviews (2020)) reveals that the physical absolute reduction of emissions varies in different industries. A sectoral reduction plan, known as the transition pathway, provides specific evidence for sectors such as construction, transportation and the automotive industry; however, this information is not widely available in other sectors.
This is made clear on examination of the Sustainability Reports of financial institutions. Although financial institutions are highly regulated, there isn’t sufficient reporting on Scope 3 emissions.
The success of Net Zero targets hinges upon robust and consistent policies and regulations. However, the political landscape can be unpredictable, with policy changes influenced by shifting government priorities and lobbying from vested interests. Inconsistent policies can undermine climate goals, create uncertainty for investors, and lead to ineffective implementation of Net Zero strategies.
The neighbouring countries Malaysia and Singapore provide a good example of this disparity. The Singapore Stock Exchange enforced mandatory reporting on emissions in 2024. Meanwhile the capital market regulator Bursa Malaysia has just published a listing requirement that both new and existing companies have until 2027 to report on full emissions.
With such variations in requirements, can the Net Zero objectives be achieved by 2030 or 2040? Will the milestone have to be pushed back even further?
Economic and social impacts
Achieving Net Zero requires substantial economic investment and systemic changes across multiple sectors. The transition to renewable energy sources, such as wind and solar, necessitates significant upfront costs both for infrastructure and technology.
Any slippage by a corporation in its transition from fossil fuels to carbon capture technology could have a significant impact. This has been demonstrated by the case of Occidental Petroleum, which has been criticised by Carbon Market Watch.
A transition that addresses absolute emissions, according to the Net Zero Transition Pathway, would first consider avoiding operational activities that cause emissions, followed by reduction, substitution and finally the offsetting of any residual emissions. Would this pathway result in actual economic and social impacts? There are clear indications of difficulties in some organisations. Steelmaker ArcelorMittal, for example, has been criticised by the Institute for Energy Economics and Financial Analysis for its reliance on ‘unproven’ carbon capture technologies to achieve its Net Zero targets.
For an organisation to be considered to have met the reporting principles, it should disclose its baseline greenhouse gas inventory, and its Greenhouse Gas Roadmap with absolute reduction projections. The environmental, social and economic impacts are key to business sustainability and the resilience of the organisation.
Many of the businesses that do not report on their Net Zero targets and milestones may be guilty of committing ‘green hushing’ (non‑transparent and non-credible reporting). For others, though, it may simply be due to an innocent or ignorant omission if non‑qualified writers are drafting their sustainability statements.
Measurement and verification challenges
A Net Zero organisation, which commits publicly to achieving a Net Zero ambition by 2050, has to sign a declaration note and have its carbon footprint and reduction plan verified by the Science Based Target initiative. This climate group is the arbiter for corporate Net Zero goals.
Accurately measuring and verifying emissions reductions across sectors, countries and individual companies poses a significant challenge. The effectiveness of carbon offset projects and other mitigation strategies depends on reliable monitoring and reporting systems. Inaccuracies or misreporting can lead to overestimations of progress and undermine the credibility of Net Zero commitments.
A company reporting on emissions from diesel consumption would have different numbers depending on whether they are using AR5 reports or AR6 reports, making standardisation difficult for Scope 1.
In many countries, an emission factor calculation formula is provided by the energy commission or by independent power producers. However, the mathematics and science behind those numbers are not standardised. This causes further discrepancies in Scope 2 emissions.
Waste collection vendors often work within an informal sector within their country. Not having the actual emissions data from waste collection and disposal is another significant challenge for Scope 3 emissions. The local authority should be able to provide a reasonable waste emission factor based on landfill management.
Airline companies that are forthcoming in offering their emissions data for both long and short haul flights should be the preferred partner for corporate travel.
Measurement and verification is essential, and so is the provision of accurate mathematical formulae which support the science behind Net Zero claims.
Any change in directions from the set standards in achieving Net Zero would jeopardise the integrity of the actions not just by one authority but by the collective stakeholders. The backlash over the Science Based Target initiative’s offset standards is one example of such a slide back. Set standards must be enforced – it garners credibility.
Unpredictable Net Zero challenges
The future trajectory of climate science, technology and policy is inherently uncertain. Unforeseen developments, such as breakthroughs in technology or changes in political dynamics, could significantly alter the landscape of Net Zero efforts. Building flexibility and adaptability into climate strategies can help to manage these uncertainties and ensure that Net Zero goals remain achievable despite evolving circumstances.
One of the most significant risks in the journey toward Net Zero is the reliance on technologies that are not yet commercially viable or proven at scale. Carbon capture and storage, direct air capture and other carbon removal technologies are promoted as essential components of Net Zero strategies. However, these technologies are still in the experimental or early deployment stages and face numerous technical, financial and logistical hurdles. Over-reliance on these unproven solutions could lead to a false sense of security and potentially divert attention and resources away from proven absolute emission reduction strategies.
Carbon leakage, or burden shifting, is the situation where emissions reductions in one country or sector can lead to an increase in emissions elsewhere, often due to shifts in production or consumption patterns. For instance, stringent climate policies in one country might prompt industries to relocate to regions with less stringent regulations, thereby undermining global emission reduction efforts.
Addressing carbon leakage requires coordinated international efforts and mechanisms to ensure that climate policies do not inadvertently shift emissions to other parts of the world.
While Net Zero focuses on balancing emissions, there is a risk that it could overshadow the need for immediate and substantial emission reductions. Some stakeholders may perceive the promise of future carbon removal as a justification for delaying or diminishing current efforts to cut emissions. This ‘wait-and-see’ attitude could hinder progress in achieving the necessary reductions needed to limit global warming to 1.5°C or 2°C above pre-industrial levels, as outlined in the Paris Agreement.
Certain carbon removal technologies, such as large-scale bioenergy with carbon capture and storage (BECCS), raise environmental and ethical concerns. BECCS involves growing biomass, which requires land, water and nutrients, potentially competing with food production or natural ecosystems. Additionally, the large-scale deployment of these technologies could have unintended ecological consequences. Ethical considerations, such as the impact on indigenous lands and local communities, also need to be addressed to ensure that climate solutions do not exacerbate existing inequalities or harm vulnerable populations.
This raises global disparities in resources, technology and capabilities, presenting another risk in the Net Zero transition. Developing countries, which contribute less to historical emissions but are more vulnerable to climate impacts, may struggle to achieve Net Zero due to limited financial and technological resources.
Ensuring equitable support and financing for these countries is essential to prevent widening global inequalities and to foster international cooperation in addressing climate change.
Net Zero is risky: tread carefully
While the pursuit of Net Zero is a critical and necessary goal for addressing climate change, it is not without its risks and challenges. Navigating these risks requires sufficient science and mathematical nuances in measurement and approaches. These must balance ambition with practicality, innovation with proven strategies, and short-term actions with long-term goals.
By acknowledging and addressing these risks, leaders in organisation with Net Zero goals can better navigate the complexities and avoid potential green washing in their Net Zero journey.
This article elaborates on the webinar ‘How Net Zero is Risky Business webinar’ held for AIA on 13 August 2024.
Author biography
Sunita Devi is a Certified Sustainability Reporting Specialist at Devcom Trends, working with public listed companies to adhere to standards in reporting requirements.
