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What Does It Mean To Be Carbon Neutral?

Written By Jack Budington

June 9, 2022

The climate crisis can only be addressed by changing how consumers and businesses operate. As sustainability is a core component of More Vang’s mission, we fully support efforts to move away from high carbon footprints and excessive waste. We believe addressing sustainability issues through measurable programs should be the norm over the exception. This year, we began researching our own carbon footprint and looking into what these types of programs entail.

Certification programs have grown across the sustainability spectrum, many providing hopeful and optimistic claims. One that has caught our attention recently is certified carbon neutral. We thought it would be helpful to share what we learned as we explored this idea. 

Defining Neutrality 

Many uphold the idea of “carbon neutrality” as the gold-standard of sustainable business. But what does carbon neutrality actually mean? You might be surprised to learn that there is no legal definition of “carbon neutrality.” It is, in fact, an area of much dispute between different camps of environmentalists and policy makers. Put simply, carbon neutrality means that a company reduces as much carbon emissions as it produces. Yet this simple definition betrays the great difficulty of actually measuring either of those two claims. 

Carbon neutrality does not mean that a product is carbon-free. The vast majority of economic activity is carbon producing. This is true even in very green industries like wind power. A wind turbine is made of steel components that were mined, smelted, and transported to its final location, all of which are carbon-intensive processes. Yet wind power is also vastly less carbon-producing than generating the same amount of electricity from coal. Is wind power carbon neutral? It depends on how you define emissions. 

Measuring Emissions

We’ve all heard references to our carbon footprint. It’s made up of thousands of choices we make everyday, from the car we drive to the temperature we keep our home thermostats set to. Yet this vastly overstates its simplicity. Carbon emissions are also made up of things completely outside our control, like the quality of methane capture at our local landfills and the fuel efficiency of the vehicles used to mine the metals for our iPhones. Scientists and environmental policy makers have created a widely used system to try and classify these wide-ranging emissions. 

Scope I Emissions – Emissions created directly by your business operations outside of traditional utilities (i.e., running a generator, tailpipe emissions from company vehicles, carbon emission coming from a company’s machinery). 

Scope II Emissions – Emissions created through utility usage: electricity, gas, and steam consumed by a  business. 

Scope III Emissions – Emissions created by both upstream (buying supplies, the cost of mining the metals used in machinery and fixtures, etc.) and downstream use (waste products, transportation of goods or raw materials, etc.). 

All of this makes perfect sense to most consumers, but using these definitions to determine a business’ carbon footprint gets complicated fast. That is because different carbon accounting firms define carbon neutrality in different ways. Some require businesses to offset all or some of their Scope III emissions, while others only consider Scope I and II emissions. In the absence of a strict definition offered by legislation, carbon neutrality right now is legally a marketing term regulated by the Federal Trade Commission. 

The FTC publishes a book called “The Green Guide” every few years, which updates its guidelines on common environmental claims to consumers. The Green Guide makes no specific mention of carbon neutrality and offers no hard rule on what does and doesn’t count. The FTC has generally allowed companies to claim carbon neutrality if they have offset all of their Scope I and II emissions. To claim that a product is carbon neutral, the FTC generally requires a company to offset all or most of the Scope I, II, and III emissions associated with that specific product. This is not to say we have a precise legal framework. The FTC’s ability to measure, interpret, and enforce claims of carbon neutrality is limited unless further legislation is passed. 

For most companies, it’s far easier to reduce and offset Scope I and II emissions than it is to reduce and offset Scope III emissions. This does not mean this approach is necessarily an incomplete one. If every company and individual was actually Scope I and II neutral, the world would have completely balanced its entire carbon footprint. More realistically, it means that the company’s portion of the supply chain is carbon neutral which should be celebrated as a significant achievement. However, if this is done deceptively, it can also be largely meaningless. If a product is environmentally unfriendly and the majority of its carbon impact is tied upstream or downstream from the production company, that company can still claim to be carbon neutral, when in actuality, their products are contributing to a warming planet. And it gets worse.

Under the current accounting system, a company can deliberately reduce its Scope I and II emissions by passing the buck. If a company wanted to reduce its vehicle emissions by 50%, it might invest a considerable amount in building an EV fleet. But that company could also reduce its vehicle emissions by 100% by simply contracting shipments to a third-party company, writing those emissions off its ledger. This underlies an important point about sustainability efforts—one that will become even more clear once we dive into carbon offsets. Sustainability should be about companies making the best environmental choices possible given the product they are trying to make, and not pursuing a measurement goal that may or may not reflect reality. 

Some carbon accounting firms favor a stricter approach. Here, the audit process includes adding up your product’s emissions from start to finish and including Scope III emissions. This has the advantage of fully capturing the environmental impact of a product. It also requires a company to offset both its consumer and supplier emissions—something that is often not economically or practically  feasible. The problem is that environmental decisions are systemic, not individual. Consumers, whether they be individuals or companies, don’t often get to decide where their energy comes from or the environmental standards around raw material processing.  

Sounds complex? It is. Accounting for carbon is an inexact science lacking a common set of rules. And once we do account for our carbon emissions, what do we do with them? That’s where this story gets even more complicated; we’ll address the wild world of carbon offsets in the next post in this series.