How to become a carbon neutral business

A step-by-step guide

Every business can take climate action by becoming carbon neutral, yet very few know where to start.

The good news: 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!

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

Before we jump in, let’s define ‘carbon neutral’.

You achieve 'carbon neutrality' when all of the emissions (Scopes 1, 2 and 3) produced by your organisation are equal to or ‘neutralised’ by the emissions avoided or removed from the atmosphere through the use of carbon offsets (also known as carbon credits). For every tonne of CO2 produced, a business needs to buy one verified carbon credit to consider those emissions offset.

Carbon neutrality is an achievable short-term goal for any business.We consider it to be the first step in a company’s journey to net-zero emissions. To reach net-zero, a business needs to reduce or avoid most of its emissions before they’re created, reducing the need for carbon offsets.

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Learn more:

How do carbon offsets work?

How is becoming carbon neutral different to reaching net zero?

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

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How does a business become carbon neutral?

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There are three key steps to becoming carbon neutral.

Step 1: Measure your emissions by collecting emissions data

You’re likely familiar with the saying, “You can’t manage what you can’t measure” - and managing your carbon emissions is no exception. Measuring something as intangible as GHG (greenhouse gas) emissions can be tricky. If you can’t see them, how can you measure them?

Greenhouse gas emissions (primarily carbon emissions) are a by-product of almost all of the operations your business undertakes. This includes the energy you use, the waste you create, the emissions associated with travel and the emissions of your suppliers. 

To calculate the volume of emissions you’re producing, you need to capture data points like how much energy you use and waste you produce, and how often and how far you travel for business. This data is referred to as your ‘activity rate’ - in other words, how often you do something (or use energy) that produces emissions. 

All the activity data you collect is used in the next step – calculating your carbon footprint!

Take a deeper look at Trace's data collection process

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Step 2: Calculate your carbon footprint (‘carbon emissions assessment’)

Now you have the data on the emissions-producing activities of your business, it’s time to use this data to calculate your carbon footprint.

To do this, the data you collect in Step 1 about your business activities is multiplied by the associated ‘emissions factor’ to calculate the volume of emissions produced by that activity.

An emissions factor is the quantity of CO2 released into the atmosphere for a specific activity based on scientific evidence. 

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. The combined total of each calculation produces your final carbon footprint calculation. You might hear different terms like carbon inventory, carbon footprint or carbon assessment; these generally all refer to the same thing.

See below for an example of what this looks like in the Trace platform.

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Step 3: Offset your emissions with carbon credits

The final step to make your business carbon neutral is to use carbon credits (also referred to as carbon offsets) to offset your emissions.

You can think about carbon neutrality like you’re using a set of balance scales. Imagine your business’s emissions (tonnes of CO2e) on one side, which need to be 'balanced out' by carbon credits on the other side. 

Carbon offsets are created through the development of climate projects that verifiably help sequester or avoid carbon being released into the atmosphere. The purchase of carbon offsets by companies, governments or individuals who want to ‘neutralise’ their carbon emissions helps finance these projects which would otherwise not have existed (and so the carbon would not have been removed/ avoided).

Because every carbon credit represents one tonne of CO2 removed from the atmosphere or avoided, you need one credit for every tonne of CO2 your business produces to ‘balance the scales’ and become carbon neutral.

You can purchase carbon credits through a range of platforms or partner organisations, but no matter how you decide to purchase offsets, 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 feel 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.

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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/ selected partners. These include:

1. Measurement & carbon footprint calculation
2. Purchasing of offsets
3. Certification/ licence fees

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

• Whether you measure your carbon footprint yourself (i.e., in-house), or use an external platform or consultant to help. Most businesses will need outside help and expertise for this process. Large businesses or those with complex supply chains will likely want to enlist the help of a specialised consultant. Many businesses  can usually use tech platforms such as Trace to collect their data and calculate their footprint at a fraction of the cost.

• The price of the carbon offsets you want to purchase. This can vary depending on the project locations and type. For example, Australian-based carbon offset projects are limited in number and more expensive to develop so generally cost more than their overseas counterparts.

• The size of your carbon footprint (i.e. number of tonnes), which determines the number of offsets you need to buy, will be one of the biggest cost factors.

• The cost of official 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.

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For an indication of costs to become carbon neutral with Trace as compared to under Climate Active, take a look at the comparison table below.

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For a service-based business with 100 FTE based in Australia, becoming carbon neutral with Trace would cost approximately $10,000 (AUD) a year. To gain Climate Active certification with the help of an external consultant, the cost would be more like $23,000.

Not sure whether Trace or Climate Active is right for your business? Read through this deep-dive on the differences, and how the two can complement one another.