Net Zero Target means both a reduction of Greenhouse Gas Emissions from all operations [including value and supply chains] and a removal of Greenhouse Gas Emissions associated with carbon offsets acquired to address Residual Emissions of the [party/ies] by [insert date] in order to achieve a balance between [the party/ies/ the project[s]] sources and sinks of Greenhouse Gas Emissions in a calendar year and for each subsequent year thereafter and the goals of the Paris Agreement.
Model laws definition
Net Zero Target means the net reduction of Greenhouse Gas Emissions from all sources to zero by [specified date] so there is a balance between the emissions by sources and removals by sinks of Greenhouse Gases that is consistent with the goals of the Paris Agreement, taking into account the need for a just transition. A Net Zero Target is met when Residual Emissions are fully offset by Greenhouse Gas removals.
A number of countries have already set Net Zero Targets, or committed to do so, for reaching net zero emissions on timescales compatible with the Paris Agreement temperature goals. The Net Zero Tracker shows each countries’ targets and progress. Organisations should ensure that their own Net Zero Targets are also compatible with the Paris Agreement temperature goals.
The words “all operations” in the contract definition and “all sources” in the model law definition are intended to refer to Scope 1, 2 and 3 Emissions. If the clause being drafted is intended to refer only to one or two of these categories of emissions then this definition will need to be amended. To ensure that a Net Zero Target is met, it is recommended that organisations and countries also set interim milestones that describe their trajectory to Net Zero. The trajectory that will be appropriate will depend on the sector[s], level of ambition and available investment for the relevant entities/country, and is likely to be the result of advice from a Climate Professional.
The Net Zero Target date in the contract’s definition should align with the relevant organisation’s target. This will vary, but for many organisations it will be 2050.
While the terms Net Zero and Carbon Neutral are used interchangeably, the concept of Net Zero is distinct from Carbon Neutral:
- Carbon neutrality can be achieved entirely through offsetting, allowing companies to continue to emit Greenhouse Gases as normal.
- Net Zero, while it allows for some offsetting, requires companies to reduce their Greenhouse Gas emissions in order 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 in mind that Net Zero and Carbon Neutral are distinct terms and care should be taken in using them in contracts.
Supply chain clauses, national climate laws, green leases.
- Frank’s Clause (Green Investment Obligations)
- Zack’s Clause (SPA/ Investment Agreement Warranties)
- Sienna’s Clause (Green Acquisition Obligations)
- Owen’s Clause (Net Zero Supply Chain Cascades)
- Gordon’s Clause (Capital Markets Due Diligence Questionnaire)
UNFCCC: Paris Agreement (PDF)
LSE (Grantham institute): What is net zero?
World Resources Institute: What does “Net-Zero Emissions” Mean? 6 Common Questions, Answered
University of Oxford: Mapping of Current Practices around Net Zero Targets, May 2020 (PDF)
The Conversation: Climate Scientists: concept of net zero is a dangerous trap