Companies are claiming ‘carbon neutrality’—but what does that mean?

As offsets become more popular, more clarity is needed around the term to help determine whether companies are actually making a difference.
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Grant Thomas

· 5 min read

Carbon-neutral: It’s a term that seems to be popping up more and more in corporate marketing efforts as companies face pressure to address their roles in the climate crisis. (Just look at your napkin next time you’re on a Delta flight.)

But as Morning Consult found in a recent survey, most Americans don’t even know what “carbon-neutral” means. When asked to select the definition, only 41% of respondents chose the right one: “A company that produces carbon emissions but uses carbon-offset programs to remove as much carbon as they produce from the atmosphere.”

Even the majority of respondents who said they’ve changed their behavior due to climate-crisis concerns either didn’t know or selected the wrong definition.

With many terms floating around—from carbon-neutral to net zero to carbon-negative—and a carbon-offset industry in its infancy, experts said there needs to be more transparency and accountability when it comes to the claims companies are making.

The offset onset

In an effort to achieve carbon neutrality, companies like Amazon, Microsoft, Disney, JPMorgan Chase, and Royal Dutch Shell have all turned to carbon offsets in recent years. In 2021, 40% more offsets were issued than in 2020, according to analytics firm Ecosystem Marketplace.

But what is an offset, exactly? Essentially, it’s a credit that can be bought to compensate for carbon dioxide (or other greenhouse gas) emissions elsewhere. So, in theory, if a company burns a lot of fossil fuels, it may invest money in preserving a forest or funding a solar farm to essentially cancel out its emissions.

The problem, MIT Sloan professor John Sterman told us, is that offsets are “mostly bunk.” In order to truly be effective, he said offsets need to meet four criteria:

  • Is it additional? “The offset has to reduce the emissions somewhere that would not have otherwise been reduced,” he said. “If you preserve a forest that would not have been cut anyway, you haven’t done anything yet.” Last year, a Guardian and Greenpeace investigation found that airline offset predictions “were often inconsistent with previous levels of deforestation in the area, and in some cases, the threat to the trees may have been overstated.”
  • Is it verifiable? In other words, can you confirm that emissions are going down? Sterman gave an example of providing solar cookstoves to people who typically burn firewood. If no one’s measuring whether people use them or they break, then he said it’s not possible to verify that emissions are being reduced.
  • Is it immediate? “Every ton of carbon that goes into the atmosphere warms the climate every day past the year 2100,” Sterman said. “Removing that ton of carbon in 50 years does not offset that impact.”
  • Is it durable? Carbon-offset forests have burned in wildfires in places like California. In addition to fire, Sterman pointed out threats to trees like pests, disease, and drought: “All of those things are becoming more and more common as the climate warms, and so you can’t be sure that any carbon [absorbed by] the trees you’re planting will remain out of the atmosphere and you can’t claim it as an offset.”
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According to Sterman, “You have to meet these conditions in order for it to be a legitimate offset. And this is very, very difficult.” Many offsets sold on the voluntary market don’t meet those criteria and are “far, far cheaper than they really ought to be" as a result.

What counts?

In addition to the quality of the offset they’re buying, Niklas Kaskeala, chief impact officer at Compensate, a Finnish nonprofit offset brokerage, told us companies also need to be clear about what they’re including in their carbon-neutral calculations given that definitions and terms sometimes vary.

Often, he said, companies focus on their direct emissions—Scope 1 and 2—without always factoring in Scope 3 supply-chain emissions. While they can be a company’s greatest source of carbon emissions,  Scope 3 is typically the most difficult to measure.

“That’s fine if you’re transparent about it,” he said. “But when you make these kinds of claims [about being] carbon-neutral and if you’re not transparent about which emission scopes have been included, then that’s a problem.”

Kaskeala said it’s better for marketing departments to communicate that a company isn’t perfect than “exaggerating things and greenwashing."

The big picture

Ultimately, Kaskeala worries “the growth of the [offset] market will have zero or close to no climate impact” given what both he and Sterman described as the “Wild West” status of the market. But change is coming as the market evolves and regulations are proposed. France has already passed a law requiring that carbon neutrality claims in ads come with proof as of 2023.

Thiago Chagas, head of legal affairs at nonprofit think tank Climate Focus, told us that companies need to look at decarbonizing and reducing their emissions—not just making up for them. Only after that, he said, should offsets be used to cancel out any other emissions as a last resort.

While not “a bad tool,” Chagas said, offsets are “definitely not supposed to be a replacement for action by companies in developed countries, that’s for sure.”

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