National vs Corporate Net Zero: Key Differences and Essential Guidelines
8th August 2024
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Climate change terms such as “Net Zero” are often misused. This is highly problematic. With increasing expectations placed on companies to do the right thing, the terms used must not misconstrue the climate action being taken and the difference between a national emissions net zero target and a corporate one is cruical. In this article, we unpack the difference between National vs Corporate Net Zero – because while the same term is used, the expectations are very different. We step out how Australia’s net zero ambition will influence corporate action and how achieving Australia’s net zero target will require significant support and action from the corporate sector.
The National net zero target – and the rules Australia plays by
Australia’s Net Zero Target is our commitment to reducing greenhouse gas emissions to net zero by 2050.
The boundary of the NDC and Australia’s Net Zero target includes all emissions that happen within Australia’s geographic borders, as a result of human activities. This includes estimates of emissions impact of changes to land based activities – deforestation, reforestation and land management. It doesn’t include any exported emissions – for example, coal or energy products sold and combusted overseas.
It also includes all direct emissions produced by corporate and government activities. This means it includes all emissions reported by corporates under the National Greenhouse and Energy Reporting Act.
As such, we anticipate the government will continue to implement regulatory measures that will encourage corporates to support progress towards NDCs.
This has already been seen by the reforms to the Safeguard Mechanism – which will heavily impact the emissions occurring within Australia’s national inventory.
Corporate Net Zero targets and inclusions
While the national target is geographically bound, corporate targets are organisationally bound. The first step in setting a corporate target is to define the organisational and operational boundary of a company.
This can include operations that happen out of Australia, and it also includes direct and indirect emissions.
Best practice corporate targets include all three scopes of emissions – scope 1 direct emissions, scope 2 electricity, and all other emissions in the supply chain – scope 3 – even if these happen overseas.
Because it’s not geographically bound, a corporate target does include the emissions associated with exports, and doesn’t include emissions from land based changes unless they are directly within their value chain.
For your company to achieve net zero in line with best practice frameworks, your direct and indirect emissions have to be reduced as close to zero and then any residual emissions that can’t be reduced need to be offset. Offsetting alongside reductions on the journey to net zero is recommended to support action, but not to delay absolute reductions.
National vs Corporate Net Zero – How Australia’s Net Zero Ambition Will Influence Corporate Action?
Australia will need the support of the corporate sector to help it achieve its Net Zero target including the following actions:
- Primarily Australia will need corporates to reduce their scope 1 emissions (as it’s the sum of all scope 1 emissions that add up to Australia’s emissions). It’s here we can see the impact and focus of the Safeguard Reforms, mandating that Australia’s heaviest emitters reduce in line with Australia’s interim targets.
- To achieve Australia’s Net Zero target, corporates also will need to support the clean energy transition. This so far can be seen through the Renewable Energy Target Legislation, which requires retailers to procure and surrender generation certificates up to the renewable energy target.
- Finally, to ensure shared responsibility of emissions between corporates, Australia will be putting an increasing focus on reporting of scope 3 emissions. This was demonstrated by the requirement to report scope 3 emissions under the AFRS and recent changes.
While Australia’s Net Zero target is focussed on 2050, different sectors may have to contribute based on their ability to do so – we can expect some will need to achieve Net Zero earlier than this, and have the technology to do so.
We also know that Australia will have to undergo a significant economic transition to cater for a climate-proof future. Currently 39% of Australia’s total commodity exports are fossil fuels, and according to Beyond Zero Emissions, our top markets also have Net Zero targets – and the demand for fossil fuel is expected to dramatically change.
While Australia’s Net Zero target doesn’t include exports – Australia should be acutely aware of the impact of climate on our exports – and that’s another reason scope 3 is so important.
In our next article, we provide an overview of CBAM and how it interacts with scope 3 and exports – preventing carbon leakage.
Want to learn more about National vs Corporate Net Zero or need guidance on your net zero target?
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