Glossary entry

Net Zero

Definitions

Option 1

Net Zero means a balance between [a party’s] sources and sinks of greenhouse gases by [2050/ insert earlier date]. This is achieved by reducing Greenhouse Gas (GHG) Emissions and removing GHGs [to meet [the goals of the Paris Agreement/ Paris Agreement Goals]].

Option 2

Net Zero means the time when [the Project/ Company] [and its Affiliates] has, according to an Independent Expert:

(a) reduced and removed its Scope 1, 2 and 3 Emissions to a level consistent with the goals of the Paris Agreement;

(b) fully Offset its Residual Emissions; and

(c) adhered to the UNFCCC requirements for a Just Transition.

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Drafting notes

Net zero vs carbon neutral

Net zero and carbon neutral are often used interchangeably. However, they are not interchangeable as the concept of net zero is distinct from carbon neutral in a number of important respects:

  • Carbon neutrality can be achieved entirely through offsetting, allowing companies to continue to emit greenhouse gases as normal.
  • Although net zero allows for some offsetting, it requires companies to reduce their greenhouse gas emissions to achieve the Paris Agreement’s temperature goals.
  • The Carbon Trust differentiated the two terms using PAS 2060, an internationally-recognised standard, to define carbon neutral and SBTi’s draft net zero definition to define net zero.

It is important to keep these important distinctions in mind and to make sure that each term is used clearly and precisely.

Option 1

If you use option 1, you will also need to use these additional glossary terms:

Option 2

This definition sets out high level steps that a company needs to take to achieve net zero.

It also requires an independent expert to verify that the company has indeed achieved a state of net zero.

The definition deliberately refers to removing and reducing emissions first before resorting to offsetting. This is in line with SBTI’s Corporate Net-Zero Standard.

Parties can remove their scope 1, 2 and 3 emissions using neutralisation measures.

If you use option 2, you will also need to use these additional glossary terms:

If using option 2, make sure that your contract contains operative provisions relating to the appointment of the independent expert.

Just transition

For more information on UNFCCC requirements for just transition, see the UNFCCC Just Transition of the Workforce and the Creation of Decent Work and Quality Jobs Technical Paper.

For more information on how to implement just transition concepts in contracts and company operations, see our Just Transition Resources.

Application

Supply chain clauses, national climate laws, green leases, investment and finance agreements and corporate governance documents.