How companies can get net-zero right

As the corporate world plans for net-zero emissions by 2050, a few principles should guide our collective thinking

Canada is one nation on the growing list of countries that promised to achieve net-zero emissions by 2050. While the federal government is critical in setting the pace, we cannot get to net-zero without leadership from industry and corporations.

By Isabelle Turcotte

This article was published by Pembina Institute on June 30, 2020.

In May, more than 150 corporations worth US$2.4 trillion joined a United Nations–backed, CEO-led climate advocacy effort asking governments to align their economic recovery plans with “reaching net-zero emissions well before 2050.” Far-sighted businesses know that when we emerge from the pandemic, they’ll be facing another global crisis: climate change. Some companies are starting to set out broad frameworks indicating how they’ll meet the ambitious climate target. But beyond a feel-good corporate buzzword, what does getting to net-zero really mean – and how do we make sure it’s more than just a lofty goal?

The gunshot that started the race to reach net-zero by 2050 was really a 2018 Intergovernmental Panel on Climate Change (IPCC) special report. The report sent a powerful message: 1.5 degrees Celsius is the maximum warming we can accept. The IPCC was clear that this target for a “safer” world (compared with even more warming) is within reach but requires global carbon (CO2) emissions to decline by 45% from 2010 levels by 2030 and hit net-zero by mid-century. When nations convened a year later for COP25, the annual UN climate conference, the target was cemented: 73 countries, 398 cities, 768 businesses and 16 investors announced that they were working to achieve this goal.

Canada is one nation on the growing list of countries that promised to achieve net-zero emissions by 2050. While the federal government is critical in setting the pace, we cannot get to net-zero without leadership from industry and corporations.

The “what” is fairly straightforward: we’ll get to net-zero when we achieve a global balance between emissions produced by humans and emissions taken out of the atmosphere. How we get there is, perhaps surprisingly, more important than the final destination. We need a flattening of the carbon curve, which will be particularly difficult for such carbon-heavy sectors as cement, steel, freight, aviation, chemical manufacturing, and oil and gas. Encouragingly, Canada’s Economic Strategy Table on clean energy indicates that by 2030, a $26 trillion low-carbon economy will create 65 million jobs worldwide.

As the corporate world plans for net-zero, a few principles should guide our collective thinking.

The power of carbon budgets

Limiting global temperature rise to 1.5C isn’t possible without public policy and corporate strategy informed by a carbon budget. As with any other budget, it helps measure progress and lets you know exactly where you stand relative to your goal. That’s why the federal government’s commitment to set legally binding, sectoral milestones that fairly and equitably achieve net-zero by 2050 is absolutely essential.

The concept of shrinking carbon budgets should guide corporations across all sectors. Energy companies producing only fossil fuels face a particular challenge: how do you offer a cost-competitive, low-carbon product while demand decreases as industrialized economies strive to decarbonize? Governments, corporations and civil society together need to plan pathways to reach these targets in such a way that we all can innovate and diversify to ensure Canadians have steady, in-demand employment as we transition to this decarbonized economy.

Not every pathway to net-zero is equal. One approach might be to stick to “business-as-usual” without reducing emissions and instead rely on CO2 removal measures to get to net-zero by mid-century. A second, safer approach is more transformative. It sees a company immediately creating and implementing an emissions-reduction plan that achieves substantial and sustained greenhouse gas (GHG) decreases to reach net-zero earlier.

Both approaches hit net-zero in 2050, but if every company adopts the first approach, we will blow through our carbon budget and fail at limiting warming to 1.5C. Why? It’s all about steadily decreasing annual emissions between now and 2050 so cumulative emissions stay below the global carbon budget to maintain that safer world. Delayed action not only spends our limited budget earlier (increasing the risk of overshoot), but also necessitates more stringent and costlier actions later to rapidly make up the difference.

Prioritize early mitigation

Carbon emissions are still growing in Canada, according to the latest national inventory report. Those emissions need to peak as soon as possible and decline rapidly before they reach net-zero. For businesses, that means now is the time to seize opportunities to reduce emissions across their supply chains. That might mean embracing new products, services and business models.

A key indicator for success will be early and deep mitigation, an approach that tackles carbon in all areas of the supply chain, with strict timelines and public reporting.

High-end outdoor gear company Arc’teryx is one example of a Canadian company that recently pledged to go net-zero by 2050. It has publicly committed to reduce emissions associated with its headquarters, Canadian production facility, and retail stores by 65% by 2030 (compared to 2018), which includes curbing the footprint of its fabrics, products, factories, mills, shipping and distribution centres.

For fossil fuel companies, the route to decarbonization is far more challenging, given that the bulk of emissions come from the end use of the products they create. Shell is planning to reach net-zero on scope 1 and 2 emissions involved in the creation of its products. It’s also committed to a 65% reduction on scope 3 emissions (those GHGs associated with the use of their products, namely burning Shell products in cars or furnaces). To achieve all these reductions, Shell has announced it plans to diversify beyond oil and gas, with a fresh business model that includes selling low- or zero-carbon energy products, including hydrogen, low-carbon biofuels, solar and wind power.

Critically, Shell has set annual targets to reduce its net-carbon footprint, covering a three- or five-year period, and it has wisely linked executive pay to reaching these targets. It also plans to use carbon removal measures, including carbon capture and storage and nature-based solutions like reforestation.

Though it’s too early to know if these company approaches to reaching net-zero will deliver, as they try to manage the material risks of climate change these businesses are positioning themselves as leaders in a low-carbon economy.

Use every tool at hand

Mitigation (efforts to reduce or prevent emissions) should be the first and most important step for all companies in tackling this global crisis. That means such measures as adopting low- and zero-emission vehicles to replace combustion-engine fleets, switching to zero- or low-carbon fuels like green or blue hydrogen for high-temperature processes, dramatically improving energy efficiency in buildings, exploring alternative delivery logistics, and committing to renewable energy use.

The IPCC pathways to a 1.5C world all use carbon removal measures to some extent (both natural and technological). Shifting toward a circular economy model will also be important. This means using materials more sustainably, by recycling, reusing and designing less resource-intensive products. Design also plays a role: improved building design, for one, could reduce overall demand for cement by 34%, according to the Energy Transitions Commission’s Mission Possible report.

Turn up the heat on climate policy

Net-zero is only as credible a target as the set of policies that will be introduced to get us there. Corporate leaders have a unique place at the table to inform the development of these policies and champion implementation that results in stable, good-paying jobs, strong communities and sustainable development that delivers on decarbonization and climate resilience. They’re already doing so through initiatives like the Catalyst Business Coalition, an alliance of dozens of Canadian companies ranging from a craft brewery to the Insurance Bureau of Canada, together calling for increased climate action. Among other things, the coalition calls on the federal government to prioritize stimulus funding for employment opportunities resilient to future economic shocks as the world limits warming to 1.5C.

On the transportation front, the Urban Delivery Solutions initiative – a national network of businesses including Canada Post and UPS – is asking government for policies to support low-carbon urban freight operations in Canada.

To safely achieve our goal of limiting warming to 1.5 degrees Celsius, Canada’s approach to carbon removal needs to move beyond business as usual. It’s time we embrace a transformative scenario. Working with companies to rebuild our economy and society to be carbon neutral by mid-century won’t be easy, but it is within reach.

Isabelle Turcotte is the director of federal policy at the Pembina Institute, and is based in Ottawa.


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