In order to stave off the worst effects of climate change, experts say that we, as a planet, need to reach net-zero emissions by 2050.
That has led countless companies to set their own corporate net-zero goals—and use carbon credits and renewable energy certificates to balance out their emissions—as a way to show their commitment to the climate.
But a company getting to net zero on paper isn’t actually all that beneficial for the climate, argues a new paper from the Searchlight Institute, a centrist Democratic think tank.
Instead of having a voluntary net-zero goal, it says, companies’ climate efforts should be based on causing “more clean energy and climate-related infrastructure to get built than would otherwise exist,” and what a business does—around investments or policy work—to bring that about.
Net-zero goals incentivize the least impactful actions
Already, we’ve seen the limits of net-zero goals, especially as the AI data center boom has caused some company emissions to increase.
Research has found that carbon offsets don’t meaningfully reduce emissions. But as tech companies launch data center projects powered by new gas infrastructure, they’re buying up even more carbon credits to offset those emissions increases on their own balance sheets.
A net-zero goal encourages this kind of ineffective behavior, says Jane Flegal, senior fellow at the Searchlight Institute and author of the recent paper, “Beyond Carbon Accounting.”
A corporate net-zero goal may be well meaning, she says, “but the incentive structure of those commitments drives [businesses] to do the cheapest stuff, which is often the least impactful.”
Take forest carbon offsets, which are cheap. The idea is that by investing in forest management or reforestation, a company can claim the carbon those trees will absorb to offset the emissions it produces.
This carbon removal often isn’t permanent, though. Forests can burn in wildfires or suffer from drought, which releases the carbon those trees have stored.
In some cases, these credits aren’t additive, meaning the forest would have removed carbon anyway. A company purchasing such credits doesn’t do much to reduce emissions on a planetary level.
The problem with carbon credits and renewable energy certificates
Flegal saw this issue emerging years ago. She worked at Stripe and helped launch Frontier, a coalition of companies including Stripe, Google, and H&M that aimed to make carbon removal a viable, affordable technology.
Carbon removal is still nascent, and so it’s extremely expensive. (Nature naturally removes carbon, as explained above, but experts have been trying to build up direct air capture technology to pull carbon out of the atmosphere and create a carbon removal industry.)
Carbon removal via direct air capture can cost about $1,000 per ton of carbon. The idea of Frontier was to get companies to buy this removal at scale so that it would get cheaper.
“But I would talk to companies that had net-zero targets,” Flegal says, “and it became very clear that it was like, why would they pay $1,000 a ton for carbon removal if they could make the exact same claim and pay $4 a ton for a forest offset that was not permanent?”
That revealed something broken about corporate net-zero goals, she says.
Companies also often use renewable energy certificates to reach their net-zero goals, including for data centers. In that case, a company could build a data center in one place powered by gas, but buy renewable energy certificates for a wind farm in another state.
The problem, Flegal notes, is that renewables like wind and solar have already become so cheap, and have grown so fast, that those projects would likely get financed and built anyway. (Certificates also don’t address the local pollution from gas turbines at their physical location).
“You haven’t done anything meaningful to change the physical reality of the grid or of the energy system in terms of advancing climate [action],” she says to those certificate purchasers.
Companies can take other voluntary climate actions
The artificial intelligence data center boom has only exacerbated these issues. And it’s happening at a different political and macroeconomic moment that has also impeded climate action.
“I think the pressure companies felt to make these corporate level net-zero commitments is coming undone,” Flegal says.
In some instances, companies have scrubbed certain climate commitments from their web pages touting sustainability. For others, it’s becoming clear that their net-zero goals are getting further out of reach.
“A very bad outcome would be if companies just walked away from their climate commitments altogether, because they recognize that their net-zero targets are not feasible,” Flegal says.
That risk is real. And it highlights another core issue with corporate net zero goals: They’re voluntary. There is no compliance framework forcing businesses to meaningfully reduce their emissions.
Net-zero goals can also be siloed from other corporate behavior; a company with a net-zero goal might join a trade association that lobbies against climate action.
There are still voluntary actions companies can take that would help the planet and advance global removal of carbon. That could include policy work like advocating for transmission-permitting reform to help upgrade our electricity grid, or having expenditure-based goals to drive investments in climate technology.
Flagel at the Searchlight Institute isn’t alone in wondering if we should just get rid of corporate net-zero goals. Raz Godelnik, a professor at Parsons School of Design who explores sustainable business models, wrote an article in February calling on business leaders to be honest and acknowledge that their net-zero goals are insufficient.
And hundreds of climate groups have called net-zero pledges—by both corporations and countries—a “dangerous distraction from real climate action.”
Flagel is not advocating against carbon accounting broadly. We still need companies to track and inventory their emissions, she says, as that allows for future policymaking and helps quantify emissions embedded in products.
But the goal, her argument goes, shouldn’t be to balance that number in a sustainability report through ineffective credits and certificates.
“It just is not the case that optimizing for netting out your own personal ledger as a company is going to be the maximally effective thing for global decarbonization,” she says.