Chapter Overview

You have probably heard the term “net zero”, perhaps from countries or companies aiming to achieve net-zero emissions by a certain date, commonly by 2050. In this chapter we will have a close look where the concept of “net zero” comes from, what it means, and how it relates to the goals of the Paris Agreement. We will dive deeper into carbon budgets, pathways to stay within those budgets, and how to assess the impact of businesses on climate. Hereby we continue our discussion in Chapter 4 including the concept of Climate Transition Risks faced by companies.

In this chapter we will encourage you to become familiar with important resources on climate change so you know where to find information in the future. In particular, we extensively draw upon the International Panel on Climate Change (IPCC), which collates the knowledge and science on climate change to date and consists of three working groups: Working Group I focuses on the physical science basis, Working Group II on climate impacts and adaptation, and Working Group III on climate change mitigation.

Net Zero and the Paris Agreement

As we covered in the prior chapter, the Paris Agreement is a globally significant agreement to limit global warming. It is important to go to the source itself to understand what the Paris Agreement states. Here is the link to the Paris Agreement (PDF, 4.33MB).

Here are some of the key elements of what the Paris Agreement states (2015, p. 2):

“Acknowledging that climate change is a common concern of humankind”.^[1]

In other words, tackling climate change has nothing to do with the planet, the planet will still be here if humans are not! It is about maintaining life-supporting systems for humans, their activities and development – humans and other species are vulnerable and dependent on the functioning and state of our natural systems, specifically our climate.
“Article 2:

1. This Agreement […] aims to strengthen the global response to the threat of climate change, in the context of sustainable development and efforts to eradicate poverty, including by:
   1. (a) Holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels, recognizing that this would significantly reduce the risks and impacts of climate change;
   2. (b) Increasing the ability to adapt to the adverse impacts of climate change and foster climate resilience and low greenhouse gas emissions development, in a manner that does not threaten food production; and
   3. (c) Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.
2. This Agreement will be implemented to reflect equity and the principle of common but differentiated responsibilities and respective capabilities, in the light of different national circumstances.”^[2]

This is a key paragraph in the Paris Agreement. It highlights the temperature limit agreed upon, that development should integrate both adaptation and be low carbon, and that rich nations have a greater responsibility to address climate change. This last point reflects that rich countries have more capability to address climate change, but also recognises that these nations’ economic development resulted by them producing the majority of global emissions to date (we will discuss this further later in the chapter). This is what the climate negotiations at the Conference of Parties (COP) every year are about, nations coming together to discuss progress, commitments and responsibilities.

“Article 4: 1. In order to achieve the long-term temperature goal set out in Article 2, Parties aim to reach global peaking of greenhouse gas emissions as soon as possible, recognizing that peaking will take longer for developing country Parties, and to undertake rapid reductions thereafter in accordance with best available science, so as to achieve a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century, on the basis of equity, and in the context of sustainable development and efforts to eradicate poverty.”^[3]

This paragraph actually refers to net zero – the balancing of carbon sources with sinks. However, note that it is in the context of article 2, and needs to be paired with rapid reductions. It is not possible, at this point, to create enough carbon sinks to absorb our emissions. The pathways to net zero (how we will get to net zero) matters greatly, and is what we will discuss further in this chapter.

Carbon Budgets

Cumulative greenhouse gas emissions determine the concentration of carbon in the atmosphere, and in turn global temperatures. There are six main greenhouse gases emitted by human activities: carbon dioxide (CO₂), methane (CH4), nitrous oxide (N₂O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6). These different greenhouse gases have different warming strengths, and different life spans. The most dominant and prevalent greenhouse gas emitted by human activities is carbon dioxide, which is also a very long-lived gas (there is no single estimate, but it is likely centuries, up to even 1000 years). Other gases, like methane, have a very high potency (up to 83 times stronger than CO₂), but are relatively short lived (around 12 years). Greenhouse gases are often expressed as a carbon dioxide equivalent (CO₂-e) to be able to understand their warming potentials.

Hopefully the prior exercise has given you a good overview of carbon budgets and the challenge ahead.

Carbon Dioxide Emissions Pathways

As we saw before, to have a more than 50% chance of staying below 1.5°C, cumulative emissions need to be kept within 500 GtCO₂ from 2020, which is also referred to as the “remaining carbon budget”. Currently, we emit around 40-45 GtCO₂ globally every year. As you calculated in the exercise above, this means that if we do not reduce emissions, we could exceed the budget before 2030. The IPCC outlines different pathways to reduce emissions society can follow, all resulting in net zero CO₂ emissions around 2050.

Human Development Index

The climate challenge can also be seen as a “dual-challenge”. The figure below looks at the correlation between HDI (Human Development Index) and consumption-based per capita CO₂ emissions, considering different income quintiles.

From the graph you can see a clear trend: the higher the development, the higher the carbon emissions per capita. For example, if you live in Australia on an (relatively low) income of around A$25,000 per year, then your carbon footprint is estimated to be around 13 tonnes of CO₂. This amount can vary depending on a couple of factors, including one’s travelling habits (e.g. international flights), as well as diet (e.g. vegetarian or meat-based diet).

If everyone in the world was given an “equal” carbon budget, how much would this be? In order to stay within a 2°C consistent carbon budget, everyone in the world would have 1.64 tonnes of CO₂ allocated per person to emit in 2030. Compare this to the 13 tonnes of CO₂ emitted by someone in Australia earning A$25,000 per year. The challenge for developed countries is therefore to maintain a high HDI, but decrease the emissions per capita. For developing or underdeveloped countries the challenge is quite different, as they currently have very low CO₂ levels per capita. Their challenge is to increase their HDI without  increasing their emissions. As we saw at the beginning of the chapter, an important element of the Paris Agreement is that there are “common but differentiated responsibilities”. This means that because developed countries have emitted by far the largest portion of emissions, and have benefited from this greatly, they have a greater responsibility in mitigating climate change, which also included providing Climate Finance to poorer countries.

Carbon Intensity Pathways of Sectors: How Can We Decarbonise Different Sectors?

In order to contribute to the CO₂ reduction process, industries have to adopt significant transformations. Have a look at Table 2 of this Nature Climate Change article^[8], which provides a summary of the unit reduction certain industries have to achieve in order to achieve the sustainability targets.

For example, in the case of power generation, the global average was 591 g CO₂ per kWh 2011 and to stay within a global carbon budget consistent with staying below 2°C, this amount should be reduced to 28.7 by 2050. Power generation currently predominantly relies on the use of fossil fuels. Ways to decarbonise power generation can be achieved with renewable energy or nuclear power. However, both options carry certain risks or drawbacks. An increase in renewables has to be paired with investment in energy storage and smart systems. There is some exciting research ongoing by UQ researcher Dr Jake Whitehead on using electric vehicles as portable energy storage systems, i.e. “battery-on-wheels”.

Climate Change as a Tragedy of the Commons

Climate change can be seen as a classic example of a “tragedy of the commons”. This occurs where a common pool of resources is overexploited. Globally, individual entities (each country, each company, and each individual) have a self-interest to consume or produce more than their “fair share” of greenhouse gas emissions, which has led to a suboptimal state of our common climate. Think “why should I  fly less when all my colleagues or friends don’t? Why should I  consume less energy when everyone else doesn’t?” (for more information on the tragedy of the commons, please have a look at The Tragedy of the Commons published in Science).

Solving this issue requires collective action, and it is essential to recognise the importance of governance, ethical dimensions, equity, value judgments, economic assessments and diverse perceptions and responses to risk and uncertainty. Hardin (1968)^[9] argues that there is no technical solution to the tragedy of the commons. It requires education , recognising the necessity to give up a little bit of freedom by regulating the commons and reducing the production of greenhouse gases, because only then can people be “free”; “But what does “freedom” mean? When men mutually agreed to pass laws against robbing, mankind became more free, not less so. Individuals locked into the logic of the commons are free only to bring on universal ruin; once they see the necessity of mutual coercion, they become free to pursue other goals.”^[10]

Nobel Prize winner in economics, Elinor Ostrom^[11], however, argued that Hardin’s (somewhat depressing) view did not line up with how we observe humans behave. Her work argues that in reality, the tragedy of the commons can be overcome by cooperation and self-regulation i.e. by groups coming up with agreed ways to divide up a resource. You can see a direct link between her ideas and some of the collaborative initiatives we discussed in Chapter 3 as well as the Paris Agreement. You can read more about Elinor Ostrom in the article published in Nature.

Climate change was first addressed internationally as a major issue in the 1970s, in an IPCC report. Since then, there have been numerous international negotiations on how to solve it, mainly evolving around which country has to do what, which highlights this case as a collective action problem.

Did You Know?

There is an increasing area of the law that deals with the rights of people in regards to climate change.

For example, in the Netherlands, there was a lawsuit brought by citizens who sued their government for not taking enough action against climate change. They won the first case, which was appealed, and then they won again. This initiated an international breakthrough in terms of law, encouraging courts to mandate that governments take the required actions.

What do you think about the role of educators, and universities? Do you believe they have a big influence in this case?

Corporate Carbon Accounting – GHG Protocol

We have covered different emission sources and global emissions accounts, but accounting for a company’s emission requires a specific approach. The international guidelines on how to account for a company’s emissions can be found by the Greenhouse Gas Protocol. The GHG Protocol classifies companies’ greenhouse gas emissions into three types as follows:

• Scope 1 emissions: direct emissions from owned or controlled sources. Examples are fugitive emissions (e.g. gases escaping from a mine) and livestock emissions (e.g. anaerobic digestion from livestock)
• Scope 2 emissions: indirect emissions from the generation of purchased energy
• Scope 3 emissions: all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions.^[12] Scope 3 covers a wide range of emissions and are divided into 15 categories:
  • Downstream:
    • purchased goods and services
    • capital goods
    • fuel- and energy-related activities
    • upstream transportation and distribution
    • waste generated in operations
    • business travel
    • employee commuting
  • Upstream:
    • upstream leased assets
    • processing of sold products
    • use of sold products
    • end-of-life treatment of sold products
    • downstream leased assets
    • franchises
    • investments

Let’s look at a few examples to illustrate how it works.

Measuring and recording a company’s emissions is only the very first step in managing a company’s GHG emission and climate risk. To effectively manage a company’s transition risk, increasingly companies are being asked to align with the goals of the Paris Agreement. Under its core component of transition risk, “metrics and targets”, the TCFD^[13] recommends companies to disclose the following:

• whether the target is absolute or intensity based
• time frames over which the target applies
• base year from which progress is measured, and why
• key performance indicators used to assess progress against targets.

Further, in 2021 Larry Fink, the CEO of Blackrock, asked in his annual letter to CEOs to “disclose a business plan aligned with the goal of limiting global warming to well below 2°C, consistent with achieving net-zero global greenhouse gas emissions by 2050”.^[14] Regulators across the world are increasingly requiring companies to disclose their targets, the progress against them and even to meet certain emission reduction levels.

Science Based Targets

Following the Paris Agreement, several organisations came together to develop the Science Based Targets initiative (SBTi). This initiative was to set global guidelines on aligning corporate emission reduction targets with the Paris Agreement. It was founded by the Carbon Disclosure Project, UN Global Compact, World Resources Institute and World Wide Fund for Nature.

Fast forward, in January 2024 over 7000 companies are “taking action” through the initiative. The SBTi provides several guidelines, including sector-specific methods. It requires companies to set near-term targets (between 5-10 years), and optional long-term targets. These targets are then also listed on the SBTi’s website.

In simple terms, there are two different methods:

• Absolute Contraction Approach (ACA). This approach requires every company to reduce their emissions by the same % every year, year on year.
• Sectoral Decarbonisation Approach (SDA). This method takes a sectoral approach to allocating the carbon budget. It takes global sectoral reduction pathways, which outline sectoral emissions as well as demand/production, and then determines a companies’ required emission reductions based on its initial carbon intensity and its market share over time.

The SBTi provides tools on their website to help companies to develop targets.