Most businesses can take immediate climate action by becoming carbon neutral, yet very few know where to start.

The good news is you don’t need to be a sustainability expert to become carbon neutral. Just follow this step-by-step guide and bring in the right tools, people and partners along the way.‍

What does it mean for a business to be carbon neutral?

A business is considered 'carbon neutral' when all of the scope 1, 2, and 3 carbon emissions produced by the business operations are equal to or ‘neutralised’ by the carbon emissions avoided or removed from the atmosphere through the purchase of carbon credits (also known as carbon offsets), importantly this must be done alongside a plan to reduce these emissions. For every tonne of carbon produced, a business needs to purchase one verified carbon credit as an offset and start proactively reducing these emissions. 

Carbon neutrality is an achievable short-term and interim goal for most businesses as they work towards net-zero. To go beyond this and reach net-zero, a business ultimately needs to reduce or avoid a majority of its carbon emissions within a target time frame. Overtime, reductions in carbon emissions will reduce the amount of carbon credits needed to be carbon neutral, incentivising businesses to reduce their emissions.  And so at the net zero state only unavoidable emissions are compensated for.

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Note: Different carbon neutral certification standards may define specific rules for how to measure, reduce, and offset  emissions in order to qualify. However, the high-level definition of carbon neutral as it’s described above is widely accepted.

Despite the short-term and immediate feasibility of becoming carbon neutral, implementing emissions reduction and avoidance strategies is the next and crucial logical step to the ongoing verification of a carbon neutral claim as net-zero (near complete emissions reduction with minor use of offsets) becomes the ultimate goal.  While carbon credits create investments into projects that remove or prevent carbon in the atmosphere, an organisation is still continuing to emit carbon until reduction initiatives have been undertaken.

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How does a business become carbon neutral?

There are three key steps to becoming carbon neutral.

Step 1: Measure

“You can’t manage what you can’t measure” and managing carbon emissions is no exception to this rule!

Measuring and understanding your business’ carbon footprint is the first step to taking climate action and decreasing carbon emissions. You might hear different terms like carbon inventory or carbon assessment used interchangeably - these generally all refer to the same concept. 

Greenhouse gas emissions (primarily carbon emissions) are a by-product of all of the operations an organisation undertakes, no matter what type of business you’re in. This includes electricity usage, employee commute, purchased goods and services, business travel, and generated waste. 

Best practice for measuring a businesses’ carbon footprint is to use a methodology that is based on the Greenhouse Gas (GHG) Protocol.  The GHG Protocol defines where the boundaries should be drawn for a business, which activities should be included and over what timeframe.

To measure your business carbon footprint specific data will be needed such as the total kWh used in your offices, waste disposed to landfill, business flights and accommodation,  and supplier spend over a specified 12- month period. This data is referred to as your ‘activity rate’ - in other words, how often you do a specific emitting activity. 

These business activities are then multiplied by their associated emissions factor to calculate the volume of emissions produced by that activity.  An emissions factor is a quantity of CO2e prescribed based on the emissions intensity of a specific polluting activity. All of these values are supported by rigorous and up-to-date scientific data. 

Here’s an example of how your data could be used in this equation:

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This calculation is repeated across all major areas of your business until you’ve accounted for the vast majority of your emissions-producing activities. This entire process of calculating, aggregating, and categorising your emissions is known as carbon accounting. 

This calculation forms the basis of any carbon neutral claim as it will be used to identify the number of carbon credits needed as well as identify potential reduction initiatives. Therefore, it is important to use a trusted provider to measure and validate your footprint when there is not up-to-date knowledge on this process available directly within your business 

An example of what a carbon footprint breakdown looks like in the Trace platform.

‍Step 2: Create a reduction plan

Measuring your carbon footprint is incredibly powerful because it gives you insight into where your emissions are coming from and where your opportunities are to  manage and reduce them. 

Your overall carbon footprint can be used to uncover what areas of your operations contribute a majority of your emissions. Consequently, your team can then create targeted initiatives that aim to directly reduce emissions from specific categories.

For example, for service-based companies,  energy use is  often a significant contributor to their overall carbon footprint, so potential reduction initiatives could be investing in solar or switching to a carbon neutral energy provider.

You don't need to have already reduced your emissions in order to be considered carbon neutral, however to be carbon neutral requires a plan and ongoing progress to reducing your overall emissions, not just using carbon credits. Engaging your team and stakeholders in the creation of a carbon reduction plan creates an opportunity to achieve some reduction goals before re-measuring your footprint each year and is an important part of a business’ broader journey of reaching net-zero emissions.

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Step 3: Offset your emissions with carbon credits

The final step to make your business carbon neutral is to purchase carbon credits to offset your carbon emissions.

You can think about carbon neutrality like you’re using a set of balance scales. Imagine your business’ emissions (tonnes of carbon) on one side, which need to be 'balanced out' by carbon credits on the other side. 

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Carbon credits are created through the development of climate projects that verifiably remove existing carbon or avoid new carbon releases into the atmosphere. These projects are financed directly by the businesses, governments, and individuals who purchase carbon credits in an effort to neutralise their carbon emissions. Without these purchases, the projects would not exist and therefore, the carbon would not have been sequestered or avoided.

The equality of one carbon credit to one tonne of carbon means that for every tonne of carbon in your footprint there must be one credit purchased to neutralise your footprint. This balances the scales, making your business carbon neutral in the immediate and creating an opportunity to begin reducing. As you use your carbon footprint calculation to reduce your emissions, the cost to balance your footprint becomes smaller over time.

You can purchase carbon credits through a range of platforms or partner organisations, however it’s important to ensure they’re credible. At Trace, we use a range of criteria when choosing carbon credits for our portfolio, so our customers can be confident they're buying the best available.

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It’s important to note that offsetting isn't a standalone solution. Using the information gathered through the process of becoming carbon neutral, every company should be developing a strategy to reduce emissions today and then shift their focus to the longer term goal of a transition to net-zero.

How much does it cost for a business to be carbon neutral?

The cost to become carbon neutral usually consists of three key components, some of which might be bundled together depending on your approach or partners. These include:

1. Carbon footprint measurement
2. Purchasing of offsets
3. Certification/licence fees

‍The final cost can vary widely, depending on the following factors:

• Whether you measure your carbon footprint yourself or use an external platform or consultant to help. 

• Most businesses will need outside help and expertise for this process.

• Most businesses  can use tech platforms such as Trace to collect their data and measure their footprint at a fraction of the cost but large businesses or those with complex supply chains will likely want to enlist the help of a specialised consultant

• The price of the carbon offsets you want to purchase. 

• This varies based on the type of project and its location . For example, Australian-based carbon offset projects are limited in number and more expensive to develop so generally cost more per credit than their overseas counterparts.

• The size of your carbon footprint, which determines the number of carbon credits  you need to balance your footprint, will be one of the biggest causes of variation.

• As you reduce your emissions year on year, the cost to offset becomes smaller and smaller so by reducing you’re not only working towards a cleaner future, you’re also working to save money

• The cost of official/verified carbon neutral certifications. 

• To certify that you’ve measured and offset your carbon footprint, you may want to gain certification from a third party, which usually comes with a ‘badge’ you can use on marketing collateral. 

• One example is the Australian Government’s Climate Active certification. Not only can this have an associated cost (usually a licence fee paid annually), but may also require you to meet certain criteria in order to qualify for that certification (for example, involving a third-party consultant to verify your data and calculation methodology), which can impact the other costs outlined above. 
• However, there are different levels of certification that vary in price, including Trace, that might also be sufficient for your needs! 

It’s also important to note that while the purchase of carbon credits is often the biggest upfront cost, there are other costs associated with the reduction strategies that are implemented after you know your footprint.  These costs will vary depending on what area of your footprint you are targeting, the reduction timeline you are following, and the complexity of your chosen initiatives. For example, if your business chooses to focus on reducing electricity emissions, the cost may be the purchase of energy efficient light globes for your office space but it also might be the installation of solar panels - both of which have very different costs. 

Becoming carbon neutral is a tangible, immediate commitment to a sustainable future. By following this step-by-step guide and engaging in reduction initiatives, your business can not only achieve carbon neutrality but also contribute to the broader goal of a cleaner, more sustainable world.

For an estimate of costs and guidance tailored to your business, reach out to our team at Trace today!

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