Article

Decoding ADEME's opinion on carbon neutrality

May 2021

Article

Decoding ADEME's opinion on carbon neutrality

May 2021

Neutrality & Net Zero

Article|May 12, 2021

Decoding ADEME's opinion on carbon neutrality

Lire en français

Last April, ADEME published its official opinion on "carbon neutrality"[1]. What are its key messages? What are the consequences for companies and territories? What are the links with the Net Zero Initiative?

ACCORDING TO ADEME, THE NOTION OF "CARBON NEUTRALITY" ONLY MAKES SENSE ON A GLOBAL AND NATIONAL SCALE. WHY ONLY ON THESE TWO SCALES?

So far, the only science-based definition of carbon neutrality, also known as "net zero" (the two expressions are synonymous according to the IPCC) applies at the global scale. The IPCC defines this state as a balance between CO2 emissions and absorptions on a global scale[2]. To hope to limit the temperature below 1.5°C of warming, it must be reached by 2050. Moreover, given the relative scarcity of carbon sinks (forests, soils, and possibly technological solutions) available on the planet, this planetary "net zero" can only be achieved at the price of a drastic reduction in GHG emissions from human societies, which makes it a very ambitious objective, highly transformative, and requiring a profound rethinking of our production and consumption patterns.

The question then arises as to whether achieving this global and collective carbon neutrality must necessarily involve a sum of specific “neutralities” at different sub-scales (States, cities, companies, etc.). ADEME's answer is that this is not the case. For ADEME, it is more relevant to ask the question of how, and to what extent, these objects must act in favor of collective carbon neutrality, rather than to achieve "their" neutrality.

However, an exception is made for States, for which ADEME considers net zero ambitions to be acceptable: seeking a balance between emissions and sinks on the scale of a national territory is an ambition that is considered sufficiently transformative, and sufficiently in line with the Paris Agreement.

AND WHY SHOULDN'T OTHER TERRITORIES, SUCH AS REGIONS, TERRITORIES OR MUNICIPALITIES, SEEK THEIR NEUTRALITY?

The argument that pushes ADEME to invite sub-national territories not to necessarily seek "their" neutrality is an argument of equity. To achieve a net zero emissions France or planet, it is neither necessary nor sufficient to aim for net zero for all the territories that make it up. Some must in fact aim for higher ambitions (becoming net negative, in the case of rural territories with a large number of carbon sinks), and others for lower ambitions (in the case, for example, of urban or highly industrialized territories, which will always have no choice but to emit more than they sequester). The argument is still that of the fair contribution to collective neutrality.

AND WHAT ABOUT COMPANIES? WHY CAN'T THEY BE "NEUTRAL" EITHER?

ADEME is against claims of carbon neutrality of economic actors, but also of their products or events. Several arguments are invoked:

Scope argument: if we wanted to model the concept of emissions/sinks balance for companies, we would have to talk only about their direct emissions (because aiming for this balance for all direct AND indirect emissions would mean over-dimensioning the need for sinks, as indirect emissions are counted by several actors). However, limiting the reasoning to direct emissions would in most cases lead to neglecting a very important part of the responsibility of companies, since the preponderant part of emissions is often located in their value chain ("scope 3").
Equity argument: as for the territories, some companies with a high sink potential (agricultural sector, food industry, wood construction, etc.) will have to become net "negative", and not only net zero.
Efficiency argument: the search for an individual net zero does not necessarily trigger the actions expected from economic actors in the context of the climate emergency. Indeed, the possibility given to economic actors to "offset" their emissions through the purchase of cheap carbon credits makes it economically irrational to implement breakthrough actions, which are often more expensive, for their own decarbonization. The claim of "carbon neutrality" can also imply that the work for the climate has already been done, a fortiori by others, thus encouraging a regrettable immobility on the part of managers and employees.

Other arguments can also be used:

Arithmetic argument: such a claim of "zero" is in reality an accounting artifice that is the result of a subtraction between emissions on the one hand, and carbon offsetting on the other. This zero therefore hides what the company really does to reduce its emissions: it is impossible to distinguish between a company that has reduced its emissions by 50% and offsets the rest, and a company that has not reduced anything and offsets 100% of its emissions. Thus, this “arithmetical” neutrality is not able to reflect the maturity of an economic actor with respect to the climate.
Semantic argument: as we saw earlier, climate science gives a very different definition of carbon neutrality, which at this stage only applies on a global scale. As the term is already taken, it seems understandable to reserve this term to the only object for which it is scientifically defined.
Image argument: From the consumer's point of view, the idea of a carbon-neutral company is fundamentally dubious. Indeed, there is nothing less "neutral" for the climate than a company! These vectors of world transformation induce significant and multiple environmental impacts in their value chains, and it is doubtful that such objects (and what they imply in terms of production, wealth creation, employment, social and economic impacts) can ever claim to be climate neutral.
Temporal argument (for products and events): in the sense of the planet and the States, carbon neutrality is above all a long-term time horizon, which must crown a continuous process of reducing emissions and increasing carbon sinks. This is made possible by the fact that these objects "endure" over time, and can be associated with a logic of improvement. On the other hand, for entities that are either punctual (events) or essentially incapable of implementing a continuous improvement approach (products are manufactured once and for all, and do not "change" during their use), the concept of neutrality seems devoid of interest. Worse, it is even misleading to associate an idea of "neutrality" to products, services or events just for the sake of offsetting their emissions, even though they may be intrinsically incompatible with the Paris Agreement (e.g. neutral oil[3], neutral gasoline[4], neutral LNG[5], neutral flights[6]...).

BUT THEN, WHAT SHOULD BE THE WAY FORWARD FOR THE TERRITORIES?

Not being able to be neutral in itself does not mean that nothing should be done in favor of neutrality! On the contrary, moving away from accounting neutrality allows territories and companies to ask themselves the right questions about their contribution and their place in relation to collective carbon neutrality.

In concrete terms, ADEME is inviting territories (regions, departments, inter-municipalities, cities, etc.) to ask themselves what role they are expected to play in a France aiming for net zero emissions. The answer is twofold: to reduce their emissions as much as possible, and to develop carbon sinks to their maximum capacity. Net zero in France will only be achieved if all territorial actors push their action sliders to the maximum. Defining the right climate ambition therefore requires identifying the maximum potential for reducing emissions and sequestering carbon in the territory, ideally in co-construction with key players (associations, citizens, NGOs, ADEME territory engineers, private players, elected officials, etc.). Thus, territorial action must be thought out both "bottom-up" (identifying the levers of action and the associated decarbonization potential at the local level) and "top-down" (ensuring that the territory's ambition is consistent with achieving the national strategy). Territorial climate plans (SRADDET, PCAET, etc.) must be designed to be as close as possible to the realities on the ground, and at the same time consistent with the national ambition.

AND WHAT ABOUT COMPANIES? HOW CAN THEY APPLY THE CONCEPT OF NEUTRALITY AT THEIR LEVEL?

The challenge is to ensure that the ambition of carbon neutrality invites companies to ask themselves the right questions and to implement ambitious actions, in keeping with the climate emergency. As seen above, this was the problem with "arithmetic" neutrality: trying to reach "zero" as quickly as possible, by offsetting emissions on an arbitrarily small perimeter, using cheap carbon credits of a physically heterogeneous nature, is unlikely to result in a sufficiently serious corporate climate plan.

Hence the paradigm shift in favor of the company's contribution to collective neutrality, already proposed by the Net Zero Initiative in April 2020[7]. The idea is to invite companies to act in favor of carbon neutrality, and to do so on the most structural levers:

The implementation of a climate strategy that is compatible with the Paris Agreement, covering both emissions reductions and increases in the organization's direct and indirect sinks;
Participating in the decarbonization of downstream entities, through low-carbon products and services that replace more carbon-intensive equipment or uses by customers;
Financial contribution to the transition by supporting low-carbon projects outside the company's value chain. One way to act in favor of this lever is to use the voluntary carbon market and buy credits. This is not an "offset" approach, since these credits do not cancel out anything; a more appropriate term would be contribution.

DOES THIS MEAN THAT A COMPANY SHOULD NOT OFFSET ITS EMISSIONS?

It is not that simple.

On the one hand, we have seen above that offsetting in the sense of cancelling the footprint of companies is misleading, as it suggests that a credit purchase can substitute for a reduction at source. This carries the risk of de-prioritizing the decarbonization action of companies in favor of buying cheap credits.

On the other hand, financing projects does not in itself harm anyone! On the contrary, funding from private actors is a condition for success in meeting the Paris Agreement, which still suffers from a very large "finance gap" (i.e., a difference between the required funding and the funding actually committed).

The solution is therefore to decouple the action of financing projects from the action of cancelling the footprint. In other words, to no longer link the purchase of carbon credits by a company to the idea of "compensation", "cancellation" or "neutrality". Hence the proposal to talk about contribution instead of compensation.

From this point of view, the purchase of carbon credits (which are nothing more or less than certificates attesting that a sum of money has triggered a reduction or sequestration of CO2 somewhere) is not the only way to contribute financially to the transition. Provided that the projects are sufficiently robust, one could envisage that private actors finance the projects directly, or that ways could be developed to guarantee the usefulness of the financing without necessarily quantifying the offsets in terms of CO2[8] [9].

WHAT IS THE LINK BETWEEN ADEME'S POSITION AND CARBONE 4’S NET ZERO INITIATIVE (NZI)?

The two positions are very similar. Firstly, the position of reserving the term "carbon neutrality" for the planet and the States, and talking about a contribution to collective neutrality for the rest of the actors, constitutes the backbone of the NZI approach.

Secondly, talking about "financial contribution" rather than compensation is also a particularly important battle horse for NZI, which is also inspired by the work of think tanks such as Carbon Market Watch[10] and the NewClimate Institute[11] in its concern to broaden the notion of carbon finance to include other innovative mechanisms that go beyond the classic carbon certification models.

Finally, the three axes proposed by ADEME (climate strategy, downstream decarbonization, carbon finance) overlap perfectly with the three pillars of NZI (reduce emissions, avoid emissions, sequester carbon):

Fig. 1: Equivalence between the three NZI pillars (A, B, C) and the three levers recommended by ADEME (1, 2, 3).

IF THE COMPANY CAN NO LONGER BE "NEUTRAL", WHAT IS THE POINT OF ACTING OR FINANCING PROJECTS? WHAT IS IN IT FOR THE COMPANY?

First of all, it is good to remember that from a climate and citizen's point of view, an absence of reward seems preferable to an undeserved reward with too low an ambition.

Then there is the question of how to replace the simplistic claim of "neutrality". This will be the focus of part of the work of NZI 2021, which will be co-financed by ADEME, and which will specifically address the issues related to the communication of corporate climate action on the different pillars of action.

Even the United Nations has begun to move in this direction, by proposing a redesign of its Climate Neutral Now initiative[12].

Once such a system for assessing the alignment of companies with carbon neutrality has been developed, the question is to what extent French or European public authorities could make it an official system for valuing actions, or even a criterion for eco-conditionality in the granting of public aid (bonus-malus, soft loans, etc.).

1] Read the ADEME opinion: https://presse.ademe.fr/2021/04/avis-de-lademe-tous-les-acteurs-doivent-agir-collectivement-pour-la-neutralite-carbone-mais-aucun-acteur-ne-devrait-se-revendiquer-neutre-en-carbone.html

2] CO2 is a very inert gas that has a very long life in the atmosphere. It is therefore necessary to balance its inputs (emissions) and outputs (absorptions) in the atmosphere in order to stabilize its concentration. Other greenhouse gases, such as methane or nitrous oxide, have a shorter lifetime: to hope to stabilize the temperature, it is sufficient to reduce their emissions at a sufficiently rapid rate. Nevertheless, for the sake of simplicity, we often speak of carbon neutrality "all GHGs combined" by converting all gases into CO2 equivalent.

3] https://www.offshore-energy.biz/occidental-delivers-world-first-carbon-neutral-crude-shipment/

4] https://www.lyon-entreprises.com/actualites/article/ouverture-a-bourgoin-jallieu-de-la-1ere-station-service-100-carbone-compense-dauvergne-rhone-alpes#:~:text=Two%20centimes%20of%20more%20per%20liter&text=En%20int%C3%A9grant%20in%20the%20price,having%20a%20carbon%20neutral%20balance.

[5] https://www.total.com/fr/medias/actualite/press-releases/total-livre-sa-premiere-cargaison-de-gnl-neutre-en-carbone

[6] https://www.novethic.fr/actualite/environnement/climat/isr-rse/compensation-carbone-air-france-s-appuie-sur-le-giec-et-est-interpellee-par-deux-de-ses-membres-148849.html

[7] http://www.carbone4.com/publication-referentiel-nzi/

[8] https://all4trees.org/lancement-groupe-travail-evaluation-impact-projets-preservation-restauration-forets/

[9] https://carbonmarketwatch.org/publications/above-and-beyond-carbon-offsetting-alternatives-to-compensation-for-climate-action-and-sustainable-development/

[10] Ibid.

[11] https://newclimate.org/climateresponsibility

[12] https://unfccc.int/climate-action/climate-neutral-now

Neutrality & Net Zero

Decoding ADEME's opinion on carbon neutrality

Lire en français

ACCORDING TO ADEME, THE NOTION OF "CARBON NEUTRALITY" ONLY MAKES SENSE ON A GLOBAL AND NATIONAL SCALE. WHY ONLY ON THESE TWO SCALES?

AND WHY SHOULDN'T OTHER TERRITORIES, SUCH AS REGIONS, TERRITORIES OR MUNICIPALITIES, SEEK THEIR NEUTRALITY?

AND WHAT ABOUT COMPANIES? WHY CAN'T THEY BE "NEUTRAL" EITHER?

ADEME is against claims of carbon neutrality of economic actors, but also of their products or events. Several arguments are invoked:

Scope argument: if we wanted to model the concept of emissions/sinks balance for companies, we would have to talk only about their direct emissions (because aiming for this balance for all direct AND indirect emissions would mean over-dimensioning the need for sinks, as indirect emissions are counted by several actors). However, limiting the reasoning to direct emissions would in most cases lead to neglecting a very important part of the responsibility of companies, since the preponderant part of emissions is often located in their value chain ("scope 3").
Equity argument: as for the territories, some companies with a high sink potential (agricultural sector, food industry, wood construction, etc.) will have to become net "negative", and not only net zero.
Efficiency argument: the search for an individual net zero does not necessarily trigger the actions expected from economic actors in the context of the climate emergency. Indeed, the possibility given to economic actors to "offset" their emissions through the purchase of cheap carbon credits makes it economically irrational to implement breakthrough actions, which are often more expensive, for their own decarbonization. The claim of "carbon neutrality" can also imply that the work for the climate has already been done, a fortiori by others, thus encouraging a regrettable immobility on the part of managers and employees.

Other arguments can also be used:

Arithmetic argument: such a claim of "zero" is in reality an accounting artifice that is the result of a subtraction between emissions on the one hand, and carbon offsetting on the other. This zero therefore hides what the company really does to reduce its emissions: it is impossible to distinguish between a company that has reduced its emissions by 50% and offsets the rest, and a company that has not reduced anything and offsets 100% of its emissions. Thus, this “arithmetical” neutrality is not able to reflect the maturity of an economic actor with respect to the climate.
Semantic argument: as we saw earlier, climate science gives a very different definition of carbon neutrality, which at this stage only applies on a global scale. As the term is already taken, it seems understandable to reserve this term to the only object for which it is scientifically defined.
Image argument: From the consumer's point of view, the idea of a carbon-neutral company is fundamentally dubious. Indeed, there is nothing less "neutral" for the climate than a company! These vectors of world transformation induce significant and multiple environmental impacts in their value chains, and it is doubtful that such objects (and what they imply in terms of production, wealth creation, employment, social and economic impacts) can ever claim to be climate neutral.
Temporal argument (for products and events): in the sense of the planet and the States, carbon neutrality is above all a long-term time horizon, which must crown a continuous process of reducing emissions and increasing carbon sinks. This is made possible by the fact that these objects "endure" over time, and can be associated with a logic of improvement. On the other hand, for entities that are either punctual (events) or essentially incapable of implementing a continuous improvement approach (products are manufactured once and for all, and do not "change" during their use), the concept of neutrality seems devoid of interest. Worse, it is even misleading to associate an idea of "neutrality" to products, services or events just for the sake of offsetting their emissions, even though they may be intrinsically incompatible with the Paris Agreement (e.g. neutral oil[3], neutral gasoline[4], neutral LNG[5], neutral flights[6]...).

BUT THEN, WHAT SHOULD BE THE WAY FORWARD FOR THE TERRITORIES?

AND WHAT ABOUT COMPANIES? HOW CAN THEY APPLY THE CONCEPT OF NEUTRALITY AT THEIR LEVEL?

The implementation of a climate strategy that is compatible with the Paris Agreement, covering both emissions reductions and increases in the organization's direct and indirect sinks;
Participating in the decarbonization of downstream entities, through low-carbon products and services that replace more carbon-intensive equipment or uses by customers;
Financial contribution to the transition by supporting low-carbon projects outside the company's value chain. One way to act in favor of this lever is to use the voluntary carbon market and buy credits. This is not an "offset" approach, since these credits do not cancel out anything; a more appropriate term would be contribution.