Carbon neutrality

What it means

Carbon neutrality, often called climate neutrality or net zero, is the state in which the amount of greenhouse gases an organisation, product or country releases into the atmosphere is balanced by the amount reduced or removed from it. The European Union aims to reach climate neutrality by 2050.

The starting point is measuring the carbon footprint by scope, scopes 1, 2 and 3: direct emissions from own sources, indirect emissions from purchased energy and emissions across the whole value chain. Neutrality should be achieved above all by genuinely cutting emissions, for example through energy savings or switching sources or suppliers.

Residual emissions that cannot be eliminated can be balanced by projects that remove CO2 from the atmosphere or prevent it elsewhere, known as offsets. A distinction is made between neutrality achieved mainly through offsets and the net zero approach, which requires deep emission cuts and offsetting only a small remainder.

How it works in practice

Companies commit to neutrality out of conviction and under pressure from customers, banks and investors who require emissions data as part of ESG assessments. Large companies must publish transition plans and emission reduction targets under the CSRD and then ask their smaller suppliers for data too.

The practical process starts by calculating the carbon footprint for a base year, setting targets using science-based methods, drawing up an action plan with deadlines and costs, and reporting progress regularly. For a small company the first step can be a simple overview of energy, fuel and business travel.

Allowance prices under the EU ETS and the planned extension of the system to buildings and transport are raising the cost of fossil fuels. Emission reduction measures therefore often bring financial savings, not just reputational benefits.

What to watch out for

Claims that products are carbon neutral based solely on offsets are being banned by the EU as misleading environmental claims. A company that labels a product climate neutral without a demonstrable basis risks accusations of greenwashing, penalties and loss of customer trust.

Watch the quality of offset projects. Some overstate their impact, are not permanent or would have happened without the funding. Before buying offsets, check certification and transparency, and in communications clearly separate reducing your own emissions from offsetting them.