Expert View | Ways to Achieve High Quality Carbon Neutrality in the Era of Carbon Neutrality

Author:Xing'an GE
Ways to Achieve High Quality Carbon Neutrality in the Era of Carbon Neutrality

Xing'an Ge, Vice President of the Council at CASVI

The global response to climate change has become more urgent. With the joint efforts of the world, major economies have announced their carbon neutrality targets, and the world has entered the "carbon neutral era." Against this backdrop, companies should be both the participants and contributors in the era of carbon neutrality.

Carbon neutrality has become one of the strategic measures for enterprises to promote business carbon reduction. However, the requirements to be carbon neutral in the era of carbon neutrality have also changed. Enterprises need to adapt to the new requirements and achieve carbon neutrality with high quality. This paper provides specific suggestions on how companies can achieve carbon neutrality with high quality.

In 2019 and 2020, an unprecedented breakthrough in global cooperation to address climate change has taken place: the world's major economies are committed to achieving carbon neutrality by around mid-century. According to incomplete statistics, the total GDP of countries and regions that have

committed to carbon neutrality accounts for 84% of global GDP (PPP), 75% of total carbon emissions and 60% of total population. Undoubtedly, the world has officially entered the "carbon neutral era." Global companies should be the protagonists in the era of carbon neutrality. Countries around the world are actively committing to carbon neutrality targets, and promote the rapid formation of a global wave of carbon neutrality. Global companies are also actively striving to be the actors and contributors to reduce greenhouse gas emissions. A key strategy for corporate action is for companies to commit to carbon neutrality targets. According to the UN Race to Zero initiative (as of August 15, 2021), 733 cities, 31 regions,

3,067 companies, 173 of the world's largest investment institutions and 622 higher education institutions have committed to becoming carbon neutral by 2050. According to a study by the Task Force on Scaling Up Global Voluntary Carbon Markets (TSVCM), companies currently committed to carbon neutrality will need 200 million tons of carbon credits by 2030 to become carbon neutral. It is clear that global companies are making a push to become carbon neutral.

Achieving carbon neutrality with high quality is a new requirement for enterprises in the era of carbon neutrality. In the past, the main driving force for companies to achieve carbon neutrality was to brand themselves as the green low-carbon brand. Therefore, the common practice was that enterprises hired external third-party organizations to account for their own carbon emissions, and after the accounting was clear, they could achieve carbon neutrality by

purchasing the equivalent amount of carbon indicators for cancellation through the trading market. In the era of carbon neutrality, branding is no longer the single incentive. The driving force gradually becomes effective emission reduction for the whole society and the company's own contribution to the global fight against climate change.

Therefore, the previous common practice is no longer suitable for enterprises to meet the carbon neutral requirements. They ought to pursue a high quality carbon neutrality. The recommendations are as follows:

1. Focus on the Sequence of Carbon Neutrality realization

First is to focus on the order of achieving carbon neutrality and place more importance on company's own emission reduction. In the past,the order of achieving carbon neutrality was two steps: accounting and offsetting. However, in the era of carbon neutrality, enterprises should achieve carbon neutrality in three steps: accounting, emission reduction, and offsetting. The first accounting, then reducing emissions by themselves, and finally buying carbon targets for offsetting, and the order should not be reversed.

"Carbon accounting" is to find out the carbon emission data of enterprises, not only to grasp the total amount of their own carbon emission data, but also to grasp their own potential areas of emission reduction. "Emission reduction" is the second step after accounting, that is, after clearing the home base, enterprises should analyze their own emission reduction measures, costs and implementation time, as well as the effect of emission reduction. After acquiring the information, enterprises should be ready to develop and implement their own emission reduction action plan. After the "accounting" and "emission reduction," enterprises that still have remaining emission can buy appropriate carbon indicators through the market. After cancellation, enterprise can finally achieve carbon neutral. If the step of "emission reduction" is omitted, enterprises are not in line with the core principle of reducing carbon emissions through their own efforts, and it will easily give the public the impression that's similar to the "atonement vouchers" in the history of Western religions, which will cause public resentment and affect the brand and image of the company.

2. Select High Quality Carbon Offsets

The second is to carefully select high-quality carbon emission quota for carbon offsets. In the era of carbon neutrality, realizing carbon neutrality by buying carbon quota and balancing them out should be the new norm for companies. Therefore, a high-quality carbon quota is essential for companies to achieve a high-quality carbon neutrality. The quality of carbon quota is subject to numerous factors, such as the authority of the institution for emission reduction chosen or the carbon quota development project; the location, type, year, consequent synergistic environmental and social benefits

and managerial quality of such project; and the credibility of the institution that issues certification for the project.

Therefore, when choosing carbon quota, enterprises should fully understand the specific situation of carbon offsets and their development projects, and evaluate the possible risks, rather than just choosing according to price. Certainly, enterprises can choose carbon offsets with synergistic environmental and social benefits that are more suitable for their industries, preferred social causes and public welfare areas they care about. By doing so, companies can achieve a "win-win-win" effect between the three dimensions of achieving carbon neutrality, helping the world reduce carbon emissions and promoting the governance of environmental and social issues they care about. Such a triple win" effect is also one of the dimensions of high quality assessment of carbon offsets. In addition, Chinese companies should pay special attention to the international standards and requirements to avoid misunderstandings in the process of carbon neutrality.

3. Choose the Right Carbon Neutral Year

The third is to choose a right year to be carbon neutral based on scientific analysis. The time should not be too early or too late. At present, many enterprises have misunderstandings in the choice of carbon neutral year. In order to reflect their attention to carbon neutrality and show their ambitions in carbon neutrality, some enterprises choose the current year or an earlier year as their carbon neutral year. However, it may not be appropriateto choose a carbon neutral year too early, because these enterprises are likely to ignore or not fully consider their own emission reduction factors, and more often intend to achieve carbon neutrality by purchasing carbon allowances for cancellation. As mentioned earlier, there is a greater risk of public opinion in achieving carbon neutrality in this way. For these enterprises, it is recommended to seriously consider their own emission reduction potential,measures, costs, and benefits, as well as the time required to implement emission reduction measures. Therefore, companies should choose the year after the emission reduction measures have been fully implemented as the year of carbon neutrality, rather than using the year that does carbon accounting as the year to achieve carbon neutrality. Unless the enterprise volume is very small, the enterprise has no possibility or potential

to reduce its own emissions.

Another type of companies are relatively conservative in choosing the year, and they typically choose a later carbon neutral year. These enterprises believe that they need to achieve carbon neutrality themselves after the whole society's energy structure has substantially achieved low carbon. But in fact, they ignore the role of their own emission reduction, they stay on the current economic, energy, and technological status quo, and they lack foresight, knowledge, and confidence in the rapid development of carbon neutral technology. Therefore, for these enterprises, it is recommended to fully consider the overall goal and timeline of global carbon reduction, as well as the practices and measures of excellent enterprises in the same industry, and determine the year of corporate carbon neutrality in a forward-looking manner.

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