The recent commitment by the Chinese government to achieve carbon neutrality by 2060 has sparked global discussions. Despite some skepticism, overall, the world has expressed admiration for China's ambitious climate goal.

However, regarding China's carbon neutrality goal, many companies, the public, and even many professionals in the low-carbon sector still have many questions and doubts. For example, what does China's carbon neutrality goal mean for businesses, and does China's proposed carbon neutrality goal refer only to carbon dioxide or all greenhouse gases?

I have long wanted to write an article about our understanding of China's carbon neutrality. Finally, during the Spring Festival holiday, I had the chance to read some materials, think deeply, and put some words down. Today's content includes our understanding of "carbon neutrality," a comprehensive interpretation of the What, Why, and How of "carbon neutrality"; answers to several questions about "carbon neutrality"; and most importantly, how companies should set their own "carbon neutrality" goals and implement them.

I. What is Carbon Neutrality

I. What is Carbon Neutrality

Question 1: Does China's Carbon Neutrality Goal Refer Only to Carbon Dioxide or All Greenhouse Gases?

This question has puzzled many people both inside and outside the industry. During the Spring Festival, I also communicated with some top experts in the low-carbon field, including China's negotiators at the United Nations Climate Change Conferences and leaders and experts involved in formulating China's 2060 carbon neutrality goal. Although their statements vary slightly, they are generally consistent: The boundary of China's carbon neutrality goal, whether it refers only to carbon dioxide or all greenhouse gases, is still somewhat vague and may remain so for a while. However, the path China will take to achieve carbon neutrality will involve all greenhouse gases. When the time is right, China is expected to announce a more explicit and ambitious goal: achieving net-zero emissions of all greenhouse gases before 2060. Referring to the global Paris Agreement, the world needs to achieve a balance between human-caused greenhouse gas emissions and removals in the second half of this century. China's carbon neutrality goal also aligns with the Paris Agreement, meaning that China's carbon neutrality goal will also aim for net-zero emissions of all greenhouse gases. This leads to the second question:

Question 2: What is the Relationship Between Carbon Neutrality, Net-Zero Emissions, and Climate Neutrality?

There are many terms related to carbon neutrality, such as carbon neutrality, net-zero emissions, and climate neutrality. What exactly do they mean? Here is my understanding. First, the core content of these three concepts is essentially the same, all aiming to achieve a balance between carbon emissions (which can refer to CO2 or all Greenhouse Gases) and their removals, setting operable and quantifiable goals to address the challenges of global warming and climate change.

From the "carbon neutrality" commitments made by various countries worldwide, some propose "carbon neutrality (carbon neutrality)" goals, like China and California, USA; others propose net-zero emissions goals (net-zero emissions), such as the European Union and the United States; and some countries propose "climate neutrality or climate neutral" goals (climate neutrality), such as Austria and Hungary.

Although the terminology and content have slight differences, I believe these terms can be understood as essentially the same. Using "carbon neutrality" as a standardized term is reasonable, especially for communication purposes, where "carbon neutrality" is a more familiar name. This is similar to how people commonly use "carbon emissions" to refer to all greenhouse gases and CO2e as the equivalent unit for greenhouse gases.

Following this line of thinking, the Carbonstop team recently revised the definitions and descriptions of carbon neutrality on Wikipedia and Baidu (after consulting with authoritative industry experts) to make them more rigorous. For example, it is essential to clarify whether carbon neutrality refers to CO2 or all greenhouse gases, and the subjects of carbon neutrality should be more comprehensive, including nations, enterprises, products, events, and individuals. The current version is as follows: Carbon neutrality refers to the total amount of direct or indirect CO2 or greenhouse gas emissions produced by a nation, enterprise, product, event, or individual over a certain period. These emissions are offset through methods such as afforestation and energy conservation, resulting in a net-zero emission status, often referred to as "zero emissions."

II. Why Carbon Neutrality?

Before discussing why we need to achieve carbon neutrality, it is important to recognize a basic consensus: According to the Intergovernmental Panel on Climate Change (IPCC), to meet the 2°C temperature control target outlined in the Paris Agreement, the world must achieve net-zero CO2 emissions (also known as "carbon neutrality") by 2050, meaning annual CO2 emissions must equal the amount reduced through measures like reforestation. By 2067, the world must achieve net-zero emissions of all greenhouse gases (also known as "greenhouse gas neutrality" or "climate neutrality"), balancing methane and other greenhouse gas emissions with removals.

In January 2021, the World Meteorological Organization announced that the global average temperature in 2020 was approximately 14.9°C, 1.2°C higher than pre-industrial levels. The remaining space for temperature rise is limited. If the temperature rise exceeds 2°C, the Earth and humanity will face irreversible climate disasters—this is why we need carbon neutrality!

Although "carbon neutrality" became the Oxford Dictionary's Word of the Year in 2006, it was a fleeting trend. In recent years, "carbon neutrality" has remained a niche topic, particularly in China. However, this changed in September 2020 when two individuals brought carbon neutrality into the mainstream discourse.

The first person is President Xi Jinping of China. Over the past five months, President Xi has mentioned China's goal of achieving carbon neutrality by 2060 eight times in various international and domestic forums. His first announcement came on September 22, 2020, at the United Nations General Assembly, where he declared China's goals of peaking carbon emissions by 2030 and achieving carbon neutrality by 2060. Both domestic and international communities were caught off guard, as China had previously set less ambitious targets at UN climate conferences, such as intensity-based emissions reductions. This specific and ambitious carbon neutrality year was indeed surprising. Since then, President Xi has reaffirmed the carbon neutrality goal at every major international conference, demonstrating China's commitment to "act on what we say" and "follow through on our promises."

At the Central Economic Work Conference on December 18, 2020, "carbon neutrality" was listed as one of the eight key tasks for 2021, alongside expanding domestic demand, anti-monopoly efforts, and food security, highlighting the country's high regard for "carbon neutrality" and its determination to incorporate the goal into the implementation phase.

The second person who brought "carbon neutrality" into the mainstream is Luo Zhenyu. During his New Year's Eve speech, Luo Zhenyu highlighted carbon neutrality as an important topic. While the event itself may not have directly influenced many people to start paying attention to "carbon neutrality," it marked a significant milestone by featuring "carbon neutrality" as a key agenda item. Additionally, Luo Zhenyu's ability to explain "carbon neutrality" in simple and accessible language has effectively reached ordinary citizens. The societal transformation brought about by "carbon neutrality" is comprehensive, requiring fundamental changes in all industries. This is a game where everyone is at the table, and this generation is all in. Those who haven't watched Luo Zhenyu's New Year's Eve speech on carbon neutrality can view it here.

III. How to Set and Achieve Carbon Neutrality Goals

For China or any country to achieve carbon neutrality, the main actors are companies. How companies can achieve carbon neutrality is the key topic of discussion today.

Many companies have already set their own carbon neutrality goals. The Carbonstop team has recently collected carbon neutrality goals from over 200 companies globally.

Here are a few well-known examples: Amazon aims to achieve carbon neutrality by 2040; Nestlé by 2050; IBM by 2030.
Microsoft aims to become carbon negative by 2030 and plans to remove all the carbon emitted by the company since its founding by 2050 (Microsoft is one of the few companies globally that has pledged to offset all its historical emissions, another being Velux, which aims to offset all emissions since 1941). Coincidentally, the Microsoft China sustainability leader visited Carbonstop's 1.5°C meeting room to discuss collaboration opportunities between Microsoft and Carbonstop in the low-carbon field. The conversation highlighted Microsoft's leading sustainability philosophy and numerous concrete low-carbon practices, which are closely related to the low-carbon vision of Microsoft's founder, Bill Gates, who recently released a new book titled "How to Avoid a Climate Disaster."

Another company with an ambitious carbon neutrality goal is Apple. Apple announced that it will achieve carbon neutrality across its entire product line by 2030 (an extremely ambitious goal, as product carbon neutrality means that all of Apple's suppliers must also achieve carbon neutrality, a massive brand influence required to drive such a fundamental low-carbon transformation in supplier companies, which perhaps only a company like Apple can achieve).

Question 3: How Should Companies Set Their Own Carbon Neutrality Goals, and What Factors Need to Be Considered?

After analyzing most companies that have set carbon neutrality goals and recent case studies, the Carbonstop team has distilled a set of principles for setting carbon neutrality goals: the CFOS principle.

1. Calculating (Quantification): Regardless of the industry, the first step for any company setting a carbon neutrality goal is to quantify its carbon emissions and understand its carbon footprint. Knowing the current state of carbon emissions and the position within the industry provides a solid foundation for targeted emission reduction measures and sets the groundwork for setting carbon neutrality goals.

2. Forecasting (Prediction): With a clear understanding of baseline carbon data, companies need to focus on and predict several key elements related to their carbon neutrality goals:

1) Future overall decarbonization efforts at the national or regional level: This is an important external factor. As the country pushes for non-fossil energy, the carbon intensity of each kilowatt-hour of electricity will decrease, which is beneficial for companies setting carbon neutrality goals (automatically reducing scope 2 emissions). In the future, if Chinese companies can freely choose their electricity sources or invest in renewable energy for their own use, this will be another advantage.

2) Future trends in the company's business development: When setting carbon neutrality goals, companies need to predict the industry and company's conditions over the next few decades, forecasting business growth and corresponding carbon emissions. An extension of this issue is that many Chinese companies are considering setting science-based targets, but they face practical challenges. Companies want to grow, and emissions will increase, while science-based targets primarily encourage absolute emission reductions, putting significant pressure on companies. They worry that setting targets will make it difficult to achieve them or that meeting carbon reduction goals will impact business growth. In the current context, carbon neutrality goals seem more suitable for Chinese companies, as costs are controllable.

3) Cost of emission reduction: Companies need to predict the actual cost of implementing emission reduction projects. This is related to the carbon market. Controlled emission entities generally have two options when facing a shortage of allowances: one is to consider active emission reduction measures (cheaper than buying allowances or CCERs from the carbon market), and the other is to purchase allowances or CCERs directly from the carbon market (cheaper than emission reduction measures). If a company sets a carbon neutrality goal and chooses to purchase allowances or CCERs from the carbon market to fulfill its obligations, it may reduce its own emission reduction actions, leading to higher carbon neutrality costs due to the need to offset more emissions.

4) Cost of carbon neutrality: After taking sufficient emission reduction measures, companies will inevitably have some emissions that must be offset to achieve carbon neutrality. The cost of offsetting these emissions is also something companies need to predict. Generally, the cost of planting trees or purchasing certified emission reduction credits ranges from a few yuan to tens of yuan. Choosing economically viable and impactful offset projects will be a trend, such as planting trees in the region where the company operates or purchasing public carbon reduction credits in the city.

3. Overshooting (Exceeding): When setting carbon neutrality goals, companies need to decide on the specific year. China has set a carbon neutrality goal for 2060, referring to the global 2050 carbon neutrality goal. As a developing country, proposing a goal only ten years later than the global target demonstrates a proactive and ambitious stance. For companies, two indicators need to be considered: one is the national carbon neutrality goal, and advanced companies should not set their carbon neutrality goals later than the national 2060 target; the second is the carbon neutrality goals of international peers, setting goals no later than the average level of the industry and feasible in practice.

4. Spreading (Communication): Carbon neutrality is still a novelty in China. Companies that set carbon neutrality goals early can demonstrate their industry leadership and enhance their communicative value. For example, Tencent's carbon neutrality plan (although Tencent has not yet formally announced a specific carbon neutrality year) has won widespread attention and praise, with countless media outlets and individuals voluntarily promoting Tencent's carbon neutrality plan. It is recommended that companies set their goals as early as possible to gain free publicity.

Question 4: After Setting Carbon Neutrality Goals, How Should Companies Achieve Them?

After setting carbon neutrality goals, how should companies proceed in practice? The Carbonstop team has summarized a four-step CREO pathway for achieving carbon neutrality:

1. Calculating: This is consistent with the previous point. Quantifying carbon emissions is always the most critical aspect of carbon management.

2. Reducing: After setting carbon neutrality goals and quantifying carbon emissions, companies should first focus on reducing emissions as much as possible, rather than opting for offsets and neutrality. In fact, "carbon neutrality" faced resistance from some environmental organizations in Europe and America a decade ago, who believed that this approach did not genuinely encourage companies to reduce emissions, but merely allowed them to claim "zero emissions" by spending money. This somewhat deviated from the original intent of global climate change mitigation and corporate emission reductions. Therefore, I also believe that after quantifying carbon emissions, companies should prioritize emission reductions and strive to minimize emissions generated during production and operations.

3. Engaging: For most companies, beyond their own emission reductions, engaging ecosystem partners in joint emission reduction efforts is even more valuable. We have seen companies using WeChat mini-programs to encourage employees to participate in emission reduction activities and incentivizing outstanding performers with spiritual and material rewards. Some companies are using carbon management software platforms to help upstream and downstream supply chain partners calculate, manage, and reduce emissions. Investment firms are also getting involved, managing their own emissions while providing carbon management training and tools to portfolio companies to support their emission reduction efforts.

4. Offsetting: In the final step, after companies have done everything possible, how should they handle unavoidable emissions? At this point, genuine carbon offsetting comes into play. Companies can choose to plant trees or purchase carbon credits to offset those unavoidable emissions and achieve "zero emissions." There is one additional point: the emission reduction or carbon sink projects used for corporate carbon offsetting also generate emissions during their lifecycle, such as emissions from the full lifecycle of photovoltaic systems and energy consumption during the operation of forest carbon sinks. It is recommended that future carbon offsetting projects achieve carbon neutrality throughout their lifecycle, making corporate carbon neutrality more scientifically sound and reasonable.

Besides companies themselves, events and meetings (refer to the new era carbon-neutral meetings released by Carbonstop recently), products, and services can also achieve carbon neutrality.

One experience that resonated with me was during the Spring Festival when I was shopping in Sanlitun and passed by the Allbirds store. I had heard that their products reflect carbon footprints or emission reductions, but seeing them in person was different. Inside, the products were not only beautifully designed and fashionable but also prominently displayed their environmental features. For example, one T-shirt was made from crab shells, and its carbon footprint was clearly labeled. Our consultant Yuke provided a professional interpretation of the carbon label: Allbirds separately quantified the transportation portion of the product's lifecycle, which is reasonable given the difficulty of predicting transportation emissions, which can be added later if needed. I personally tried the T-shirt, which was very comfortable and perfect for sports, and it didn't smell like crabs at all :)

There were also carbon-neutral shoes made from eucalyptus (with shoelaces made from recycled plastic bottles), using natural materials and incorporating many creative ideas into the products. Most importantly, the prices were reasonable, comparable to similar products from Nike and Adidas, lowering the barrier for consumers to participate in sustainable consumption.

By the way, we are not affiliated with Allbirds and have no intention of advertising. We simply believe that the products are excellent, and the carbon footprint information is presented intelligently. Good products don't need aggressive marketing!

Question 5: If a Company Had 10,000 Tons of Carbon Emissions in 2020 and Reduced Emissions by 5,000 Tons in 2021 Through Energy Efficiency Measures, Emitting Only 5,000 Tons to Society, Can the Company Claim That Its Reductions Offset Its Actual Emissions, Achieving Carbon Neutrality?

This question has puzzled many people. Recently, during discussions with many corporate clients, they have consistently raised this carbon neutrality concept, which seems logical at first glance but reveals some misunderstandings upon closer examination.

Emission reductions achieved by a company through its own energy efficiency measures are not recognized as carbon reductions by society. Carbon reductions must be developed into government or socially recognized carbon credits (such as CCERs) to be used for carbon offsetting and neutrality.

The emission reductions a company achieves internally refer to reductions compared to its own past performance, whereas carbon credits are based on reductions relative to industry baselines. Therefore, while measures like encouraging employee low-carbon travel, reducing food waste, and minimizing single-use items do reduce emissions, these reductions cannot be directly used for carbon offsetting and neutrality. However, companies can attempt to quantify these reductions, register them with government authorities, and potentially use them for carbon neutrality claims and financial gains in the carbon market.

It is gratifying to see China's commitment to achieving carbon neutrality by 2060; to see many companies setting or planning their own carbon neutrality goals; and to witness companies implementing carbon neutrality action plans. We should all stay healthy and aim to see the day when carbon neutrality becomes a reality!