What Is Net Zero?

Net zero refers to a state where greenhouse gas emissions produced are balanced by emissions removed from the atmosphere, resulting in no net addition to atmospheric greenhouse gas concentrations. Critically, net zero requires deep decarbonization first—typically 90-95% emission reduction—with only residual, hard-to-abate emissions neutralized through carbon removal.

The emphasis on reduction before removal distinguishes net zero from earlier climate commitments. An organization cannot purchase its way to net zero through offsets alone. It must fundamentally transform operations, supply chains, and often business models to eliminate the vast majority of emissions.

Net zero has become the benchmark commitment for climate-serious organizations. The Science Based Targets initiative's Net-Zero Standard, the UN Race to Zero campaign, and investor expectations have converged around this definition—making it the credibility threshold for corporate climate leadership.

What Is Carbon Neutral?

Carbon neutrality means that an organization's net carbon emissions equal zero, typically achieved by balancing emissions with carbon offsets or credits. Unlike net zero, carbon neutrality places no requirement on the proportion achieved through actual emission reduction versus offsetting.

An organization could be carbon neutral while maintaining the same emissions it has always produced—as long as it purchases sufficient offsets. This flexibility made carbon neutrality achievable quickly and broadly, but also created the conditions for greenwashing concerns as the gap between "carbon neutral" claims and actual emission reduction became apparent.

Carbon neutrality remains a valid concept for specific applications—events, products, or operations where reduction opportunities are limited—but has lost credibility as an organizational climate commitment standard.

Why the Distinction Matters for Business Leaders

The terms are not interchangeable, and the difference is not semantic. Using them incorrectly—or choosing the wrong commitment—carries real risk.

Stakeholders have grown sophisticated. Investors, regulators, and customers increasingly distinguish between organizations pursuing genuine decarbonization and those using offsets to maintain business as usual. Claims of "carbon neutrality" that rely heavily on offsetting invite scrutiny and potential greenwashing allegations.

Regulatory direction points toward net zero. The EU Green Claims Directive, SEC disclosure requirements, and emerging standards globally emphasize actual emission reduction and Paris alignment. Organizations positioning around carbon neutrality may find themselves out of step with regulatory expectations.

The economic implications differ substantially. Carbon neutrality can be achieved through annual offset purchases—a recurring operating expense. Net zero requires capital investment in efficiency, electrification, renewable energy, and supply chain transformation—higher upfront cost but fundamental business model alignment with a low-carbon economy.

How Net Zero and Carbon Neutral Work

Net Zero Pathway

1. Measure Comprehensive Emissions Inventory emissions across Scopes 1, 2, and 3—the full value chain footprint. Net zero commitments cover total emissions, not just direct operations.

2. Set Science-Based Reduction Targets Establish near-term (2030) and long-term (2050) targets aligned with 1.5°C pathways. SBTi's Net-Zero Standard requires 90-95% reduction before neutralization of residuals.

3. Execute Deep Decarbonization Transform operations, supply chains, and products to eliminate emissions at source. This typically requires:

• Energy efficiency improvements

• Transition to renewable electricity

• Electrification of processes and fleets

• Supplier engagement on their emissions

• Product redesign to reduce embedded carbon

4. Address Residual Emissions For the 5-10% of emissions that cannot be eliminated with current technology, invest in permanent carbon removal—not avoidance offsets but actual removal from the atmosphere.

Carbon Neutral Pathway

1. Measure Emissions (Often Narrower Scope) Inventory emissions, often limited to Scopes 1 and 2 or a subset of operations.

2. Reduce Where Practical Implement emission reduction measures that make economic sense—typically low-hanging fruit like efficiency and renewable energy procurement.

3. Offset Remaining Emissions Purchase carbon credits to compensate for emissions not reduced. Credits may come from avoidance projects (preventing emissions that would otherwise occur) or removal projects (capturing and storing carbon).

4. Maintain Annually Repeat the offset purchase each year to maintain carbon neutral status.

Net Zero vs. Carbon Neutral: Key Differences

Common Misconceptions About Net Zero and Carbon Neutral

"Net zero just means carbon neutral with better marketing." The terms describe fundamentally different approaches. Net zero requires transformation; carbon neutrality permits compensation without change. Organizations claiming net zero while relying heavily on offsets misuse the term.

"Our net-zero commitment by 2050 means we don't need to act now." Net-zero frameworks require near-term targets—typically 50%+ reduction by 2030. A 2050 target without interim milestones lacks credibility and signals intent without commitment.

"High-quality offsets make carbon neutrality equivalent to net zero." Even the best offsets—permanent removal with verified additionality—don't transform your business. The distinction between net zero and carbon neutrality isn't offset quality; it's whether your organization is fundamentally decarbonizing.

"Scope 3 makes net zero impossible for our business." Scope 3 targets don't require zero emissions from suppliers—they require systematic reduction. Supplier engagement, procurement shifts, and product redesign can drive substantial Scope 3 reductions without controlling supply chain operations directly.

"We should pursue carbon neutrality as a stepping stone to net zero." This sequence can create perverse incentives—why invest in reduction if offsets are cheaper? Organizations serious about net zero should set science-based reduction targets immediately, using offsets only strategically and transparently as a bridge.

When to Use Which Term

Use "net zero" when:

• Making long-term organizational climate commitments

• Communicating with investors, regulators, or sophisticated stakeholders

• Aligning with SBTi, Race to Zero, or equivalent frameworks

• Committing to fundamental business transformation

Use "carbon neutral" when:

• Addressing specific products, events, or limited scopes

• Offsetting is appropriate and transparent (e.g., a single conference)

• Reduction opportunities are genuinely exhausted

• Making transitional claims while net-zero pathway develops

Avoid either term when:

• You lack the data to substantiate the claim

• Your offset strategy hasn't been scrutinized for quality

• You're claiming organizational status based on limited scope

• Internal commitment to the pathway doesn't exist

How These Concepts Connect to Broader Business Systems

Net zero commitments shape capital allocation, R&D priorities, and strategic planning on multi-decade horizons. They connect directly to science-based targets (the near-term milestones), Scope 3 management (the hardest and often largest emission category), and sustainability reporting (disclosure of progress and methodology).

Carbon offset strategies—whether for carbon neutrality claims or net-zero residual emissions—require carbon credit due diligence, procurement processes, and verification systems. The quality of these programs determines whether claims are credible or vulnerable.

Both concepts intersect with climate risk management. Organizations pursuing net zero are actively managing transition risk—transforming business models before regulatory or market forces mandate change. Organizations relying on offsets may face stranded asset risk if offset markets tighten or claims face regulatory scrutiny.

Related Definitions

→ What Is Science-Based Targets?

→ What Is Scope 3 Emissions?

→ What Is Climate Resilience?

→ What Is ESG Strategy?