Net Zero Carbon vs. Carbon Neutral: What You Need To Know About The Energy Sector

4 min readJan 20, 2022


What are the main differences between “net-zero carbon” and “carbon-neutral” and the relation with the energy sector?

2021 has proven to be a pivotal year for climate change action. In the past year, the EU has set out its strategy to reach net zero. Through the “Fit for 55” law package, the EU proposes to cut GHG emissions by 55 percent by 2030 and reach net zero emissions by 2050. Corporates are now getting in on the act and setting net-zero targets. But what does net zero mean? And how does it compare to other climate targets such as carbon neutrality?

Carbon versus Greenhouse Gas (GHG) Emissions

Before we look at net zero and carbon neutral, we should clear up carbon emissions versus greenhouse gas (GHG) emissions. The terminology used for climate change action varies depending on what emissions are being discussed. Carbon emissions will just include the CO2 output from a process such as combustion. However, when GHG emissions are quoted, this includes carbon and a number of other gases that contribute to global warming. These gases are methane, nitrous oxide, and F-gases.‍

Source: Our World in Data

To make matters even more confusing, many sources convert GHG Emissions to a Carbon Dioxide equivalent — CO2e. All GHG emissions are included in the calculation of CO2e. This means that a company’s total CO2 output could be very different from its total CO2e output.

It’s a necessary step to convert the emissions of all GHG gases to a reference gas (or CO2e), as all gases have different Global Warming Potential (GWP). With this method, we can see that even though CH4 emissions are much less in quantitative terms than CO2, methane still plays a key role in global warming due to a high 100-year GWP of 28–36 (compared to GWP of 1 for CO2).‍

Carbon Neutral versus Net-Zero Carbon

Now that we have clarified carbon emissions v GHG emissions, let’s look at carbon-specific targets.

Carbon Neutral is more well-known and has been used by companies to describe their services and products. Carbon neutrality is about having a Net Zero balance between carbon emissions and carbon removal.

This is often achieved through carbon offsetting, and less often by eliminating carbon emissions altogether by investing in approaches and technologies that don’t contribute to climate change in the first place. Examples include reducing the need for energy by becoming more efficient, and sourcing energy from no-and-low carbon sources. Carbon neutrality is one subset of Net-Zero.

Net Zero Carbon is a much more recent concept and looks at carbon neutrality from a different angle. The Institute for Government defines Net Zero as “achieving a balance between the amount of greenhouse gas emissions produced and the amount removed from the atmosphere”. They identify two routes to achieving this. 1) Reducing existing emissions 2) Actively removing greenhouse gases — where both must work in tandem.

What is the difference between carbon-neutral and net-zero carbon?

While the two concepts are similar, the mainstream view is that Net Zero Carbon is more ambitious than just being Carbon Neutral. This comes down to one key difference.

The goal of Net Zero Carbon is to eliminate emissions as much as possible before using other tactics such as carbon removal or offsetting. For companies, that means investing in energy efficiency, purchasing renewable electricity, and using zero-carbon fuels. With this approach, we first reduce the need to offset or remove carbon from the atmosphere as much as possible. In many industries, reducing carbon emissions to zero (or Gross Zero) will not be possible so some level of offsetting/removal will be needed.

In contrast to this, Carbon Neutrality does not have the same requirement to prioritise eliminating emissions at source in the first instance. In recent years, companies have claimed carbon neutrality by simply compensating all of their emissions with carbon credits or offsets. This approach doesn’t tackle the emissions at source and might not be the most effective strategy to tackle climate change.‍

Carbon Offsetting

Carbon offsetting plays a key role in both Net Zero Carbon and Carbon Neutrality targets. It is the approach to compensate for carbon dioxide emissions. Most companies do this by participating in schemes designed to make equivalent reductions of carbon dioxide in the atmosphere.

At present, carbon offsetting is usually achieved through tree planting schemes or the purchase of carbon credits. Carbon offsetting has not been without controversy and suffered many credibility issues in the past. A recent Greenpeace investigation suggests that global airlines are claiming carbon neutrality based on flawed deforestation offset projects. The increase in global wildfires is also threatening the viability of forestry carbon credits, with many global companies having previously purchased credits from projects that have since burned down or are at risk of wildfire destruction.‍

How do Net-Zero and Offsetting work in the Energy Sector?

Carbon emissions are split into three categories in accordance with the GHG Protocol. These are Scope 1, 2, and Scope 3. Scope 2 primarily relates to a company’s use of grid electricity. Depending on the sector, this could be responsible for a large portion of a company’s emissions from operations.

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FlexiDAO is a software provider in the energy sector aiming to accelerate the transition toward a decabornised world, leveraging on blockchain applications.