How to set targets & create a net zero pathway?

Key Takeaways

1. A company's Net Zero pathway is a company-specific plan based on its baseline emissions, carbon footprint, chosen emissions reduction measures, and the strategic use of carbon offsets. It should be aligned with the IPCC's broader guidelines for achieving net zero emissions if the company wants to avoid any PR risks.
2. In many cases, it's possible to determine or approximate remaining Scope 1 emissions and continuous Scope 3 impacts ahead of time. Prioritising emissions reductions is crucial, yet it's equally vital to concurrently strategise for handling remaining emissions over the long term.‍
3. Carbon compensation through purchasing carbon credits plays a critical role in managing hard-to-remove emissions, allowing companies to compensate for the difference between their reduction pathway and the IPCC 1.5°C Pathway, while neutralising unavoidable emissions is essential for reaching true net zero.
4. Setting realistic and ambitious Net Zero targets involves understanding best practices, aligning targets with science through frameworks like the Science Based Targets initiative (SBTi), and considering internal carbon pricing to encourage stakeholder buy-in and align company strategies with the Paris Agreement's objectives.

Now that we have covered how to establish your company's emissions, it's time to set the year-on-year emissions reduction targets to reduce your company's footprint at the right rate and yearly amount so that it aligns with the globally accepted Net Zero pathway. Once this has been completed, it is time to create your company’s Net Zero Pathway and plot it against the global or country-specific Net Zero Pathway.

What are net zero targets and how do you set them?

Net zero targets are the key milestones on your net zero pathway. The two Net Zero targets which are critical for a company to set are the short-term and long-term net-zero targets.

Short-term targets- The point in time when you will half your emissions.

Long-term targets- The point in time when you will achieve net zero.

What are the best practices for setting net zero targets?

The below is applicable for the short and long-term targets plotted along the net zero pathway, as well as for the net zero targets.

Realistic and Ambitious Goals

Effective target setting involves balancing ambition with feasibility. Companies should aim for targets that challenge and push them towards significant improvements while remaining achievable and grounded in reality.

Comprehensive Scope

Targets should encompass all significant sources of emissions within the company's operations,  as well as the net zero pathway and its milestones.

Alignment with Science

This means that a company should focus heavily on internal emissions reductions before even considering setting a net zero target, to set targets accurately.

Consider Your Internal Carbon Pricing

A common strategy when creating lowered emissions targets is to also set an internal price on emissions, creating a monetary amount for the cost of their environmental impact. Seeing a financial equivalent of “cost-savings” with the emission calculations of targets can help generate buy-in from valuable stakeholders.

Use existing frameworks to set targets

Science Based Targets Initiative (SBTi)

The Science Based Targets Initiative (SBTi) is a collaborative effort between CDP, the United Nations Global Compact, the World Resources Institute (WRI), and the World Wide Fund for Nature (WWF). It is not a law but a framework and guideline that helps companies set ambitious carbon reduction targets in line with the latest climate science. The main goal is to enable companies to align their strategies with the objectives of the Paris Agreement.

The SBTi has established robust criteria for companies to follow:

1. Aim for Rapid and Significant Emissions Reductions: Encouraging companies to set ambitious targets for cutting emissions at a rate consistent with the need to limit global warming.
2. Set Both Short- and Long-Term Targets: Companies are required to have clear, time-bound targets for both the short and long term.
3. No Net-Zero Aspirations Until Long-Term Targets Are Achieved: Companies must focus on actual emissions reductions before setting net-zero targets.
4. Act Beyond the Value Chain: Companies should strive to make positive impacts beyond their immediate operations and value chain.

To set SBTi targets, a company needs to:

1. Commit: Publicly commit to setting science-based emissions reduction targets.
2. Develop Targets: Develop targets in line with SBTi criteria and methodologies.
3. Submit for Validation: Present these targets to the SBTi for official validation.
4. Implement and Disclose: Implement the targets and annually disclose progress.

What is a company’s net zero pathway?

A company’s net zero pathway refers to the year-on-year measures that a specific company will take to align with the IPCC pathway, and the plotting of these measures on a graph, as illustrated below. A company’s pathway will always be tailored to the unique circumstances, operations, and capacities of the company.

While a company’s pathway for emission reduction may be informed by the broader guidelines of the IPCC pathway, it is essentially a customised plan that fits the specific needs and goals of the company.

In the graph below you can see an example of this, where the orange line illustrates the company’s projected pathway of decreasing emissions over time, based on the implementation of reduction strategies and the anticipated timeline of their impact.

How the company net zero pathway is created:

1. Plot the Baseline Year and Emissions as the Starting Point: This involves adding the initial level of emissions from which reductions will begin. The baseline acts as the reference point against which all future emissions reductions are measured. It is crucial to establish the current state of emissions before any reduction measures are implemented.
2. Plot the reduction targets year on year: This step involves using data from an internal inspection of the planned reduction measures/methods, along with their expected impact over time. This is done using the outcomes of the MACC and Mitigation Hierarchy discussed in the previous chapter. Each target represents a milestone where emissions should be reduced to a specific level by a certain year, using one or a combination of the various reduction measures. The targets should be plotted on the graph in their respective years, showing a clear trajectory of emissions reduction from the baseline to the ultimate goal of net zero.
3. Plot the carbon compensation pathway: This should be the difference between the IPCC 1.5° pathway and your real reduction pathway (green area on the graph). As companies cannot reduce their emissions to zero, they need to compensate for the rest.

The role of the IPCC pathway for companies

When we talk about the "IPCC pathway for companies," it refers to the guidance and scenarios provided by the IPCC for reducing greenhouse gas emissions. The IPCC pathway sets out the year-on-year amount that global emissions need to be reduced to meet the net zero goal.

Now, you can see the exact figures that define the IPCC 1.5° pathway. Since there are currently no regulations on reduction targets, we anticipate that the actual targets will be close to or even more stringent than these figures. Therefore, we strongly advise companies to begin taking action now in order to avoid facing severe reduction and compensation regulations in the future.

Avoidable, hard-to-abate(remove) and unavoidable emissions

Similarly to the previously mentioned Mitigation Hierarchy, the three types of emissions influencing the net zero pathway are:

• Avoidable emissions are greenhouse gas emissions that can be reduced or eliminated through current technology, alternative processes, or changes in behaviour. These are emissions where feasible measures exist to prevent their release into the atmosphere. Examples of such emissions stem from internal waste management practices leading to landfill deposits, as well as emissions resulting from transportation and energy consumption.

• Hard-to-abate emissions are those greenhouse gas emissions that are especially challenging to eliminate due to current technological constraints, high costs of abatement, or essential industrial processes where no viable low-carbon alternatives exist. These emissions usually stem from emissions in industries such as heavy manufacturing, aviation and maritime transport, agriculture, and chemical/petrochemical industries.

• Unavoidable emissions are those emissions that cannot currently be eliminated due to existing technological, economic, or practical limitations, which are felt even stronger than those limitations mentioned under hard-to-abate emissions. These are often emissions that are deeply integrated into essential processes or services that do not yet have viable low-carbon or zero-carbon alternatives. Examples include certain industrial processes, agricultural activities, and some forms of long-haul transportation.

The generally accepted rule of thumb is that only an estimated 5-10% of all a company's emissions will be unavoidable or hard to remove. This helps companies take accountability for their current emissions and begin to estimate the amount of emissions they might need to offset or neutralise with carbon credits.

How to use carbon credits for hard-to-abate and unavoidable emissions.

Once the Net Zero pathway has been plotted against the IPCC pathway for Net Zero, then you need to:

• Calculate the gap in emissions between the IPCC pathway and your company's pathway (depicted in the bright green colour on the graph above). Include this number in your plan to purchase carbon credits, which will offset the difference in pathways and accelerate the process of reducing your carbon emissions.
• Calculate Unavoidable Emissions: Neutralising unavoidable emissions is the only way to get to true net zero, and this is also achieved by investing in carbon reduction projects and related carbon credits.

Both SBTI and IPCC recommend using only carbon removal credits to compensate and neutralise their emissions. While there is no particular regulation yet, we recommend using high-quality removal credits for your net zero journey.