Carbon neutral vs net zero: the difference that changes what you may claim

The minute

• Carbon neutral: offsetting what was emitted, now governed by ISO 14068:2026 (which replaced ISO 14068-1:2023), requiring a reduction plan before offsetting
• Net zero: cut as much as possible and neutralise only the residual, with validated targets and a long horizon
• PAS 2060, which allowed neutrality through offsetting alone, was withdrawn on 30 November 2025

Why it matters: Claiming neutrality without a reduction plan is no longer technically defensible, and enforcement of green claims is tightening in Europe and in Brazil.

What changed

Until 2025 a company could buy credits, publish a badge and call itself carbon neutral. PAS 2060, the British standard that allowed exactly that, was withdrawn on 30 November 2025, leaving ISO 14068-1:2023 as the reference framework. In September 2026 ISO withdrew that edition and replaced it with ISO 14068:2026, which keeps the same logic. The standard sets a mandatory hierarchy: measure, reduce, remove and only then offset, with a documented reduction plan covering each stage. A company that skips the reduction step and jumps straight to credits no longer meets the standard, regardless of how many tonnes it retires.

On the regulatory side, the European Union’s Empowering Consumers for the Green Transition directive (Directive 2024/825) was adopted on 28 February 2024 (published in March 2024) and requires member states to transpose it into national law by 27 March 2026, with the rules applying from 27 September 2026. Claims that a product has a neutral, reduced or positive climate impact based on offsetting are banned in all circumstances, and certification does not make them allowed; such claims are only possible when based on the product’s actual lifecycle impact. Generic environmental claims also need proof of recognised excellent environmental performance.

How ISO 14068 works in practice

For a company starting from scratch, the process follows a sequence that the standard treats as non-negotiable.

Step 1: Establish a greenhouse gas inventory

Quantify emissions across Scope 1 (direct), Scope 2 (purchased energy) and, where material, Scope 3 (value chain). The inventory must reference a defined base year so that reduction progress can be measured against a fixed point.

Step 2: Document a reduction plan

Set targets for lowering absolute emissions within a stated timeframe. The plan must identify specific actions (energy efficiency upgrades, fuel switching, supply chain changes) and cannot consist of intentions alone. ISO 14068 does not prescribe a minimum reduction percentage, but the plan must demonstrate that offsetting is not the primary strategy.

Step 3: Implement removals and offsets for the remainder

Only after the reduction plan is in place can a company use carbon credits to compensate for emissions it has not yet eliminated. The standard requires disclosure of the type and registry of each credit used.

Step 4: Report and verify

The entire chain (inventory, plan, credits, progress) must be disclosed in a carbon neutrality statement and, where the company wants third-party credibility, verified by an independent body.

Choosing the term

If a company measures and offsets but has no documented plan to reduce, the honest label is carbon compensated. With a reduction plan that meets ISO 14068, carbon neutral referencing the standard fits. Net zero is the strictest level: it requires validated science-based targets (typically through the Science Based Targets initiative, SBTi), deep cuts across all scopes and neutralisation of the residual only. SBTi’s Corporate Net-Zero Standard asks companies to cut at least 90% of baseline emissions before claiming the term, with the remaining fraction addressed through permanent removals, not conventional offsets.

Brazil: what changes for companies operating there

Brazil approved Law 15.042 in December 2024, creating the SBCE (Sistema Brasileiro de Comércio de Emissões), the country’s regulated emissions trading system. Companies above a greenhouse gas emission threshold (to be defined by regulation) will be required to report emissions and, in later phases, operate under a cap. The law does not directly regulate voluntary carbon-neutral claims, but it creates a government-backed registry and accounting infrastructure that will make unverified claims easier to challenge.

On the advertising side, CONAR (Conselho Nacional de Autorregulamentação Publicitária) already treats unsubstantiated environmental claims as misleading under its code of ethics. Consumer protection agencies (Procons) at the state level can fine companies for green claims that lack evidence. As the SBCE reporting obligations come into force, the gap between what a company reports to the government and what it tells consumers will become auditable, raising the practical risk of enforcement.

The most common mistake

The error that appears most often is treating offsetting as step one instead of step three. A company buys credits in its first year, publishes the badge, and only then begins thinking about operational reductions. Under the old PAS 2060 framework that sequence was technically permissible. Under ISO 14068 it is not: the reduction plan must exist before credits are applied. Companies that built their sustainability communications around the old approach now face a choice between retracting the claim or fast-tracking a credible reduction plan.

What remains unresolved

ISO 14068 defines the process but does not set a minimum reduction rate or a deadline for reaching it. That leaves room for companies to present slow or shallow plans and still reference the standard. There is also no centralised enforcement body: compliance depends on the jurisdiction and, in many cases, on voluntary verification.

At the international level, rules under Article 6 of the Paris Agreement (which governs how carbon credits are transferred between countries) are still being operationalised. The concept of “corresponding adjustments,” where a host country deducts a credit from its own national inventory when a buyer country or company uses it, is not yet consistently applied. Until that mechanism is fully in place, the same tonne of reduction could, in theory, be counted by both the selling country and the purchasing company.

Frequently asked questions

Is carbon neutral the same as net zero?

No. Carbon neutral usually relies on offsetting to balance emissions, while net zero requires deep emission cuts first, with only residual emissions offset.

Which claim are regulators scrutinising more?

“Carbon neutral” claims based only on offsetting are under the most pressure, especially with the EU’s ECGT directive taking effect in 2026.

Can a company claim both?

A company can be carbon neutral today as a step toward a longer-term net zero target, as long as both claims are backed by real data.

Sources: ISO 14068:2026 (replaced ISO 14068-1:2023); BSI withdrawal of PAS 2060 on 30/11/2025; Directive 2024/825 (EU); Law 15.042/2024 (Brazil); SBTi Corporate Net-Zero Standard.

Primary sources: BS ISO 14068-1 replaces PAS 2060 after a 24-month transition (BSI, 2024); ISO 14068:2026 Carbon neutrality, which replaced ISO 14068-1:2023 (ISO, 2026); Directive (EU) 2024/825 on empowering consumers for the green transition (EUR-Lex, 2024); Corporate Net-Zero Standard V1.3.1 (Science Based Targets initiative, 2026); Law 15,042/2024 creating the SBCE, official text (Presidency of Brazil, 2024).