So now you're on board with global climate goals and taking action to reduce your carbon emissions. For many businesses, the next step on the way to net zero is to go carbon neutral.
Going carbon neutral involves three key steps - measure, reduce, offset.
Measure your carbon footprint, reduce it using the strategies outlined in the previous article, and offset the remainder.
This is the fourth article in a series - The Net Zero Carbon Transformation and your Business. Check out the other ones when you're done:
What's a carbon footprint?
A carbon footprint is the quantity of greenhouse gas (GHG) emissions that were produced as a result of a company's operations, or a product being created, used and disposed.
As discussed in previous articles, this includes emissions from generation of electricity (primarily CO2), burning fuel for energy or transport (CO2 and CH4), and direct emissions through industrial processes, agriculture, landfill, refrigeration and extraction and transport of fossil fuels.
Your own business' contribution to climate change may be minor, but your customers and employees want to see that you're doing your part in the global transition.
Businesses are primarily responsible for their direct emissions and the use of electricity, but are increasingly committing to reducing the footprint of their supply chain as well by working with suppliers who actively reduce their own emissions.
Note a carbon footprint is only considering your business' emissions of GHG, not contribution to other environmental impacts such as water use, land use and waste generation. A life cycle analysis can be undertaken to develop a full picture of your environmental footprint.
How does a carbon footprint work?
As we've noted in previous articles, there are actually multiple different "greenhouse gases". So how do these translate into a single "carbon footprint"?
Each of these other types of greenhouse gases, including methane (CH4), nitrous oxide (N2O) and fluorinated gases (HFC, PFC, NF3, SF6) get converted into a single metric called CO2-e, which is short for carbon dioxide (CO2) equivalent.
Carbon dioxide is the most common GHG humans emit, and it is (thankfully) the least potent in its contribution to the greenhouse effect. Methane is 25 times more potent, nitrous oxide is nearly 300 times, and fluorinated gases are 12,000-23,000 times more potent. So a single unit of each of the other GHGs is therefore multiplied by its potency, e.g. 1 tonne of methane = 25 tonnes CO2-e.
To calculate the carbon footprint, we look at an organisation's emissions-generating activities and then determine how much emissions are generated by each. Thankfully, we don't need to directly measure the emissions, because this has been done before and average emissions for common activities and sources are available as "emissions factors" in global databases and methodologies.
So for each activity or emissions source, we multiply each unit, e.g. a litre of fuel, a megawatt of electricity, or a kilometre of air travel, by its relevant emissions factor to identify how much CO2-e it generates. These factors are generally sufficient for the purposes of small businesses, though those with direct emissions or making commitments on the carbon neutrality of their products may consider improving the accuracy of their footprint through direct measurement.
Each of the activities and emissions sources are then tallied up into a total footprint number, e.g. 10 tonnes CO2-e (or less for most small businesses).
How to do it in your business
Every business' footprint looks different based on their activities, including their energy use, transport use and material use. A recent study from Powershop, for example, identified that nearly 40% of a small retail business' carbon footprint is in its electricity, while over 70% of a small construction business' carbon footprint is in its material use.
Carbon footprint makeup by emissions source and SME sector
Click on each of the steps below to see details on how to calculate your own footprint and go carbon neutral if desired.
For most small businesses, the vast majority of their carbon footprint comes from building heating and cooling, fleet vehicles, electricity use, and employee travel. Therefore the sources we must consider are:
- electricity consumption
- gas consumption
- fuel used in fleet vehicles
- other energy uses (e.g. steam)
- employee travel (taxis, flights).
Depending on the business, there may be other key sources to consider, such as refrigeration, fire protection and air conditioning equipment, industrial processes, chemical use, fugitive emissions from storage, and transport and distribution of products.
Many businesses also choose to consider indirect emissions caused by their activities such as those generated by their waste, their water use, their purchase of paper, and catering.
You will need to identify how much of each energy type, substance or activity is used by your business. This generally includes:
- Utility bills (gas and electricity, water if you want to get a full picture)
- Records for company vehicles (e.g. fuel cards, expense claims and/or logbooks)
- Taxi expense claims
- Records for company air travel (e.g. flights purchased and distances travelled, which is often provided if you have a travel management company)
- Maintenance records of refrigeration, fire protection and air conditioning equipment (with top-ups of relevant fluorinated gases)
- Paper purchasing (kg, or number of reams and their GSM)
- Waste management records (tonnes of waste collected)
- Catering ($ expenditure).
As mentioned above, different energy uses and activities are converted into carbon units using emissions factors. These factors are generally country-specific, so in Australia we use the National Greenhouse Accounts (NGA) Factors for local activities, or refer to the global Greenhouse Gas (GHG) Protocol.
Thankfully, there are a number of calculators available on the web these days so you don't have to dig into those technical manuals and databases, often for free for simple footprints. Two useful ones are:
To get more precise or cover more complex business operations, you can either engage a consultant to calculate your footprint or follow the process set out in the GHG Protocol (and its handy new Excel-based calculation tool) to set up your own inventory.
Remember, our primary goal is to reduce absolute emissions globally, so focus on this first before offsetting.
Once you have collected your emissions sources and translated these into comparable units via the emissions factors, you will be able to see which of those sources has the highest CO2-e. Target those largest numbers with actions to reduce, referring to the carbon reduction hierarchy in the previous article.
- Do less of those activities (less travel, less paper, less heating, less lighting)
- Use energy efficiently (upgrade to more efficient equipment)
- Switch to lower-carbon energy sources (electrify fuel use, switch to renewable energy).
For many small businesses, 30-50% of their carbon footprint is in their electricity use (according to Powershop data), so switching that electricity use to renewable through solar panels or simply purchasing from a renewable energy, carbon neutral electricity plan can quickly wipe out much of your carbon footprint.
Now that you know your footprint and understand your major sources, you can plan how to reduce them. Set a goal for actual emissions reductions.
Businesses are increasingly setting "science-based targets", meaning in line with the global reductions required to limit global warming to 1.5°C. This means achieving net zero emissions (avoiding nearly all emissions, and removing the minority of unavoidable ones from the atmosphere) by 2050 at the latest, and additionally setting a short-term interim target of significant reductions, e.g. 50%, within the next 5-10 years.
Many businesses, especially smaller ones, have even announced plans to achieve their net zero goals in a shorter period, by 2030.
If you want to be official with your goals, the Science Based Targets Initiative provides a simplified and expedited path for SMEs to set net zero targets and have them approved.
Offsets can be used for those emissions you can't avoid, or as a temporary measure while you're reducing emissions toward your targets.
Offsetting means investing in projects that provide emissions reductions (avoidance) or removals (capture) to compensate for your own GHG emissions. A number of credits equal to the amount of your emissions (1 credit = 1 tonne CO2-e) is purchased and then 'surrendered' or 'retired', that is, taken off the market permanently.
Offsets come in a lot of shapes and sizes. They may be for reforestation, ecosystem restoration, carbon farming, capturing methane, building wind or solar farms, and many other things. But they also aren't all created equal, with some low-quality offsets only moving the impact elsewhere or later in time. Thankfully global carbon markets have matured and introduced certifications to ensure offsets are high-quality, but it still pays to be vigilant and sceptical.
Third party agencies verify that an offset is real, permanent and additional, that is an emissions reduction or removal that wouldn't happen otherwise (e.g. a forest that isn't actually threatened, or a project that would go ahead regardless).
In Australia, the best carbon offsets to buy are those that meet the Australian Government’s Climate Active Carbon Neutral Standard’s offsets integrity principles, including:
- Australian Carbon Credit Units (ACCUs) issued by the Clean Energy Regulator
- Verified Emissions Reductions (VERs) issued by the Gold Standard
- Verified Carbon Units (VCUs) issued by the Verified Carbon Standard
- Certified Emissions Reductions (CERs) issued under the Clean Development Mechanism of the United Nations Framework Convention on Climate Change.
Once you've verified the certification, you also have the opportunity to choose the type of offset that aligns best with your business values. Being able to tell a story about your chosen offsets helps your customers and employees engage if you can find something that connects with your own products, services, impacts or local community.
- Location - depending on your product or service, you may prefer to support local Australian clean energy or carbon farming, or you may prefer to support the overseas communities where your materials are sourced or product is manufactured, or where they can't afford to access needed products or technologies. Are your customers and employees more locally or globally minded?
- Project type - is there an emissions reduction or removal project aligned with your own product or impacts? For example, if you're selling food products, it makes sense to invest in carbon farming that addresses impacts from your own supply chain. If you sell kitchen appliances or fitouts, you could invest in shifting families in developing countries from burning biomass to clean and efficient cookstoves. Or maybe you and your employees are simply passionate about the need to shift to renewable energy or nature conservation.
- Co-benefits - many offset projects offer additional environmental or social benefits, such as improving health, creating better employment or education opportunities, improving wildlife conservation or improving water quality. If a core value of your business is women's empowerment, reducing poverty or protecting nature, for example, look for projects that address these issues. One offset provider, Trace, helpfully links all its offsets to the Sustainable Development Goals they impact.
And the final consideration is price. Each of the above factors will influence the price of the offset, which can range from $1 to over $20 per credit (tonne CO2-e). So you will have to balance your ideal criteria against your budget. However for most small businesses, the annual cost to offset is likely to still be under $200, so you can invest in a project that is meaningful.
Offsets can be purchased through retailers such as Trace, Climate Friendly, Carbon Neutral, Greening Australia, and South Pole. You can shop around until you find the right offset project for you.
Carbon offsets are a big, complicated topic, so if you want to learn more I recommend The Carbon Offset Guide.
If anyone ever inquires about your footprint, you'll need to be able to demonstrate how you calculated it. Also, you'll want to remember the process to do it again next year, and track your reduction over time!
Document the process and steps you undertook, data sources, emissions factors, calculations, assumptions etc. Excel can be good for storing the data, calculations and output, or you can use a software like Impact Sustainability that manages, stores, calculates and tracks your data across multiple sites.
If you've come this far, measuring, reducing and offsetting your carbon footprint, you might want to make it official and get verified and recognised as carbon neutral.
In Australia, that is achieved through the government-backed Climate Active Carbon Neutral Certification (formerly National Carbon Offset Standard, or NCOS).
The certification is available for the entire organisation, single products or services, buildings, events and precincts. It involves engaging an auditor to conduct an independent verification of your footprint, reductions and offsets (at the business' own cost) and an annual licence fee.
Aligning your business model, strategy and portfolio to a net zero world
Congratulations. You've tackled your business emissions, which is an important achievement. The next step in your journey is to think a little bigger about your business' role. If you zoom out a bit, is your business model contributing toward a net zero future or holding it back? Are your products part of the solution or part of the problem?
Within the next decade, the world will be quickly transitioning away from fossil fuels and toward clean energy and emissions reduction technology. What will your business look like in a net zero world? Think about how your business can be part of that transition, shifting your product and/or investment portfolio toward low emissions solutions and finding ways to support the transition and resilience in your community.
The transition is happening - its your choice to be part of it and help build the kind of world you want to see.