How Much Emissions Should a Company Compensate?

In our extensive research, particularly when advising clients and crafting tools like AI Scorecard, we've encountered a critical question: How much emissions should a company compensate, and what are the costs involved?

A common notion suggests compensating 100% of emissions annually, which is financially burdensome for most. Similarly, arbitrary figures such as 20% or 80% do not constitute an optimal strategy either. They pose a risk of non-compliance with potential future regulations.

Our Approach

IPCC 1.5° Pathway as a Base for Footprint Reduction Path

Short-term emission reduction is crucial, but we believe that without compensating emissions — which encompasses both carbon removal and avoidance — it's impossible to achieve the 1.5° pathway outlined by the IPCC.

Regulatory frameworks and standards are evolving sluggishly, leading to a delayed start in emission reduction initiatives. Consequently, global emissions peaked in 2023.

That is why we propose a strategic approach to achieve net zero.

The IPCC's recent findings for the 1.5° pathway indicate that to limit global warming to 1.5° — with only a 50% probability — we must cut our net CO2 emissions by 50% by 2030 and achieve net zero by 2050, using 2019 as the baseline year.

For businesses that began emission reductions in 2023, this translates to a 7%-12% annual reduction rate to reach the 50% probability mark. To raise this likelihood to >95%, annual reduction rates may need to escalate to 20%.

Carbon Compensation Strategy for Unavoidable Emissions

Achieving net zero by 2050 requires a net emission count of zero, possible only through carbon compensation (both carbon avoidance and removal).

Meeting IPCC reduction targets for scope 1, 2, and 3 emissions through internal value chain modifications alone is a significant challenge. More than that, these pathways will only be effective if most businesses commence immediate action, which, particularly in Europe, is not the current reality.

Compensating emissions bridges this gap. It eliminates the discrepancy between a company's actual reduction trajectory and the 1.5° Pathway. Given that most companies have unavoidable emissions, it's evident they must compensate for these to reach net zero. However, they must address the emissions falling between their actual reduction path and the 1.5° Pathway before their net-zero target year. To quantify this difference, companies should chart their reduction trajectory or utilize our chart template.

It's worth noting that the carbon compensations calculated here represent the minimum required to align with the IPCC recommendations. With businesses lacking reduction goals and the likelihood of limiting global warming to 1.5° at only 50%, we at Senken advocate for compensating beyond the minimum to establish leadership in sustainability.

Start with AI Scorecard by Senken

To estimate your company's current emissions and the associated costs based on our models, turn to the Senken AI Scorecard. We evaluate your corporate carbon footprint in under 10 seconds using just an email and project the costs of carbon compensation to achieve net zero.

We are actively developing the Net Zero Path toolkit, designed to assist businesses in planning and estimating the costs of various initiatives. Contact us for early access or to share your ideas.