The Manufacturer's Net-Zero Pledge Meets Grid Reality
A consumer-goods manufacturer pledges net zero by 2040 across Scopes 1, 2, and 3. Its plan: (1) cut Scope 1 by switching gas boilers to electric heat pumps; (2) cut Scope 2 by signing a 15-year corporate PPA for wind power; (3) address Scope 3 (82% of its footprint) by 'engaging suppliers' and purchasing carbon credits for the residual. The local grid is coal-heavy and expected to stay so until 2035. The PPA is a virtual (financial) PPA, not a physical one, and the company is in a region where renewable energy certificates are cheap and abundant. Its Scope 3 supplier engagement consists of a survey with a 40% response rate. The board wants to know whether the plan is credible and what the 'net' in net zero actually requires.
1. Evaluate the credibility of each of the three levers.
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(1) Heat pumps: credible only if the grid decarbonises; on a coal-heavy grid until 2035, electrifying heat may increase operational emissions in the near term (higher Scope 2). The company should model grid-intensity trajectories and possibly pair electrification with on-site renewables or demand flexibility. (2) Virtual PPA + cheap RECs: a financial PPA provides price hedging and can support renewable build-out, but market-based Scope 2 accounting using unbundled, cheap RECs is weak evidence of real decarbonisation - it may not be additional. The company should report both location-based and market-based Scope 2 and prioritise additionality (PPA that enables new build, ideally physical or with credible additionality). (3) Scope 3 via surveys + credits: a 40% response rate is not a reduction plan. Supplier engagement needs targets, incentives, and data. Carbon credits cannot substitute for reducing Scope 3 under credible net-zero standards - offsets are for residual, hard-to-abate emissions only, after deep reduction.
2. What does 'net zero' require, and is this plan consistent with it?
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Credible net zero (SBTi Net-Zero Standard, ISO 14068) requires: (1) near-term deep cuts (e.g., ~50% by 2030 for 1.5°C); (2) long-term reduction of ~90% of emissions by 2050 (or 2040 here) across all scopes; (3) neutralisation of the residual (~10%) using permanent removals, not avoidance offsets; (4) transparent, verified reporting. This plan fails on several counts: it relies on offsets for a large residual rather than deep cuts; Scope 3 (82% of footprint) is addressed by a survey, not reductions; and the Scope 2 strategy leans on non-additional RECs. The 'net' is not a licence to offset - it is the small residual after maximum abatement. The board should require: a Scope 3 reduction roadmap with supplier targets, a shift from offsets to removals only for the residual, and disclosure of both Scope 2 methods.
3. How should the company treat the coal-heavy grid in its 2040 target and reporting?
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The grid is an external constraint the company cannot control, but it must be reflected honestly. Options: (1) use location-based Scope 2 as the primary physical metric and disclose the market-based figure alongside; (2) set a target that accounts for grid decarbonisation (e.g., 'Scope 2 intensity reduction in line with grid trajectory, plus additional renewables procurement'); (3) consider scope 2 quality criteria (SBTi requires contractual instruments to be from the same market, with additionality and vintage rules). The company should not claim grid-driven reductions as its own achievement, and should flag the risk that its 2040 target depends on a grid transition it does not control. A credible plan states the dependency explicitly and builds in contingency (e.g., on-site generation, storage, or relocation of energy-intensive processes).