Business

Beware the looming net zero car crash

The world has rarely seen any environmental idea take off like the push to cut greenhouse gas emissions to net zero.

A fringe concept six years ago, it has gone mainstream so quickly that more than 60 per cent of countries now have some sort of net zero goal, along with investors managing nearly $37tn and at least 20 per cent of the 2,000 largest publicly listed companies. The International Energy Agency warns in a striking net zero report today that all new oil, gas and coal projects and exploration must stop if global warming is to stay below 1.5C.

Yet for many businesses, the rush to net zero looks like a looming car crash. These groups face rising pressure to be both environmentally and financially sustainable at a time when the green technologies they need are still on the drawing board; government policy support is paltry and a small group of influential but poorly understood umpires are judging their progress.

Consider what executives from US and European companies have been saying, under Chatham House rules, at climate business meetings in recent weeks.

“Our clients include local authorities who have all declared climate emergencies and want to be carbon neutral by 2030,” a manager from a construction group told one gathering last month. “Our directors said, ‘OK, we need to cut our emissions’.”

But when the company looked into how to do this, it found buying cleaner hydrogen-fuelled equipment for one of its smaller plants alone would cost more than $2m.

Another executive from a manufacturing business that had just made a net zero commitment said his company was banking on a technological breakthrough to replace its mainly fossil-fuelled furnaces with cleaner kit, hopefully within a few years.

The first furnace was likely to cost “about double” the normal price, he said, and his business was relatively lucky. It is based in Europe, where government funding for green industrial innovation is available. Too many companies are not. For them, and alas many others, carbon offsets look like the easiest solution.

Voluntary offsetting schemes let a business effectively pay someone else to tackle emissions by, say, planting carbon-absorbing trees, or building wind farms to replace coal-fired power plants.

The schemes have been around for decades but studies show too many have not led to extra emission cuts. Not all offsetting is pointless, but nor is it a satisfactory substitute for the steep, unprecedented cuts in emissions needed this decade and next to meet the safest global temperature goals in the Paris climate agreement.

Regrettably, interest in offsets is rising in tandem with net zero targets.

“There’s going to be a green rush to find the most credible certificates out there,” one food company executive predicts.

That rush is on course to collide with investor demands for scientifically credible climate targets rather than vague pledges to do something in the future.

Enter the Science Based Targets initiative, a programme set up in 2015 by four sustainability groups to validate and review corporate climate goals. This has become an increasingly important benchmark for investors trying to gauge business climate plans. More than 1,420 companies have joined the initiative, including more than 90 in March alone, triple last year’s average monthly rate.

The programme’s position on offsets has long been clear: companies must set targets based on cutting their own emissions, and/or those of their supply chains. Offsets cannot be used to dodge that requirement.

Its work is undeniably needed. Too many corporate net zero goals are too vague and distant. Some smack of abject greenwashing.

Yet it is still striking that a handful of NGOs is effectively setting the rules for the biggest economic transformation the world has known. It also may be unfair that companies are being pressed to reshape their business models before all the building blocks needed for that transformation are in place. Yet they are.

So what should companies do?

First, stop lobbying against tougher climate action. Delays helped to create the problem in the first place. Instead, forge industry alliances to press for wider systemic shifts, be it government support for green innovation, or policies to make existing clean technologies cheaper.

Finally, resist offsets and accept the reality of the 21st century: the imperative to cut emissions is urgent and will only grow more so in decades to come.

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