From Jargon to Corporate Action: Defining Carbon Reduction, Avoidance and Removal

As the climate crisis intensifies, the corporate world’s response is under greater scrutiny than ever. Decarbonization plans and public disclosures are critical, yet their real value depends on the actions they prompt. According to the Science Based Targets Initiative’s latest report, as of July 2024 about 5,760 companies in 80 countries have set science-based targets (a ~40% increase since December 2023), with ~60% committed to Net Zero.

With net zero deadlines approaching fast, companies must shift from declarations to concrete actions.

Many companies struggle to build a decarbonization strategy. Reducing emissions is complex, requiring sustainable best practices, regulatory compliance, and new technologies. Companies must balance operational efficiency with investment in sustainable technologies and infrastructure. The fast pace of innovation and changing regulations adds to the challenge. Managing emissions across a large supply chain adds another layer of complexity.

A prudent first step is understanding the three components of decarbonization.

Decarbonization 101: Components of a Carbon Strategy

• Carbon Reduction refers to directly lowering greenhouse gas emissions in a company’s operations. Strategies include improving energy efficiency, using renewable energy, and optimizing supply chains to cut waste and emissions. Reducing emissions should always be the top priority, since a ton of CO₂ avoided is more beneficial than a ton removed.
• Carbon Avoidance involves preventing possible future emissions. This includes adopting cleaner technologies, changing operational practices, influencing consumers to use low-carbon alternatives, and preventing deforestation. Avoidance does not eliminate existing emissions but prevents future growth, which complements reduction and removal efforts.
• Carbon Removal means capturing and storing atmospheric CO₂ through nature-based methods like afforestation and reforestation, soil carbon sequestration, or technology-based methods such as direct air capture, and hybrid methods like biochar. The goal is to permanently remove CO₂ from the atmosphere, reversing emissions already made. Removal is essential for net zero, since companies will always have residual emissions that must be neutralized.

Carbon Credits: Putting Reduction, Avoidance and Removal into Practice

Carbon credits can play a pivotal role in a decarbonization strategy, especially for industries with hard-to-abate emissions such as manufacturing, transport and heavy industry. They offer flexibility to address emissions that are challenging to eliminate directly.

For credits to be effective they must come from high-quality carbon projects that are verifiable, permanent and deliver long-term environmental benefits. The best projects offer measurable outcomes, transparent verification and monitoring, and sustained impact.

Correct use of carbon credits within the mitigation hierarchy is crucial. Misusing credits can lead to greenwashing, which undermines environmental goals and corporate credibility.

Key Principles to Follow

Companies should look for carbon credits certified by reputable organizations, with transparent methods, clear additionality and robust verification. Recognized guidelines such as IETA Guidance, the Oxford Principles (Revised), Science Based Targets Net Zero guidance and U.S. White House carbon recommendations all align on key points:

• Prioritize reduction and avoidance
• Move gradually toward removal
• Support the growth of carbon removal technologies

Procrastination Is Costly: The Early Movers’ Advantage

Companies cannot afford to delay entering the carbon credit market. McKinsey’s 2023 report shows demand for carbon removals may grow to 10 billion tons CO₂ per year by 2050.

Early movers can secure more affordable credits, access high-quality projects, and stay ahead of regulatory pressure. They can also benefit from improved reputation and competitive advantage in markets that value sustainability.

The path to decarbonization is difficult but imperative. Companies must move past declarations into actions that reduce risk, support financial stability and demonstrate leadership in climate action.

Interested or have any questions?