The race to net-zero

Have you heard about the Pareto Principle? Also known as the 80/20 rule, it merely states that roughly 80 per cent of consequences come from 20% of the causes for many outcomes. Can this principle apply to what we are currently observing in the number of countries and companies setting up science-based emissions reduction targets to reach net-zero status? (A net-zero status means we are absorbing as much emissions as we are emitting).

As of November 2020, six countries had enacted laws to reach net-zero status by 2050. These are Sweden, United Kingdom, France, Denmark, New Zealand and Hungary. Another six ( European Union, Canada, South Korea, Spain, Chile and Fiji) have tabled legislation to achieve net-zero by 2050. Two countries Suriname (in South America) and Bhutan(in South Asia) have already achieved net-zero status in 2020. Altogether these countries represent about 12 per cent of global carbon emissions. A lot more action is needed.

While some countries evaluate their options, businesses, on the other hand, are moving fast. Five years ago, 52 companies had science-based emissions reduction targets. By 2020, this number grew to 1106, a twentyfold increase. A back of the envelope calculation indicates that the number of companies setting net-zero targets could reach 1800 by the time of COP26 in 2021 and almost 5500 by the time of COP30 in 2025. And these are conservative estimates. Could companies start to tip the scale and drive 80% of the emissions reduction for a net-zero global economy? We shall see.

Source: Science Based Targets initiative (SBTi), Authors’ calculations.

Effective coordination, collaboration as well as innovations will be required to keep this momentum going. There is much good work in the pipeline. The International Institute of Finance’s Task Force for scaling up voluntary carbon markets is one example. Launched by Mark Carney, Bill Winters and Tim Adams in September 2020, the Task Force anticipates an explosion in demand for carbon offsets to meet companies’ net-zero targets. This initiative will help to unleash private capital flows, particularly to developing economies. We may not have reached the tipping point yet. We must keep going. That 20 per cent is within reach.