The Paris Agreement represented a major landmark in the global effort to mitigate the most severe impacts of climate change, but getting nearly 200 nations to sign the agreement was just the beginning—and the clock is ticking. The time to take action is now, but lofty aspirations of reducing emissions are not enough.
Unquestionably, the goal for companies, governments, and industries must be overall emissions reductions. As these entities, especially those in high-growth industries, continue their upward trajectory, it’s essential to identify where and how to decouple economic and emissions growth. Getting there requires a transparent and defined approach of tracking, measuring, and reporting progress, and identifying ways to reduce carbon intensity along the way.
Total carbon emissions are an important facet of an entity’s environmental impact, but this metric alone is insufficient in the face of significant growth because it tells an incomplete story. While measuring total emissions is important because of the ultimate need to reduce overall emissions, it does not say anything about the efficiency of an entity’s use of resources, and whether changes in total emissions are due to positive or negative economic growth.
On the other hand, carbon intensity–based metrics, which are measured as total carbon emissions divided by total units of production or total economic activity, provide an indication of such efficiency. Developing complementary metrics for total and carbon intensity–based targets can play an important role in transitioning to more efficient processes, identify key drivers for decarbonization, and be adopted by more entities. Considering carbon emissions per dollar of revenue for a company, or per square foot of occupied space, could be appropriate.
We recently published a white paper (which was commissioned by Amazon) that evaluates the importance of carbon intensity, especially for high-growth entities. Carbon intensity–based metrics enable new improvement pathways, as efforts can be spent identifying more efficient processes or making the necessary changes and upgrades to existing processes to reduce their intensity.
For example, replacing fossil fuel–powered electricity with renewable electricity in a building will reduce its total carbon footprint. This is a great outcome, but if the building can also be redesigned to be more efficient by implementing new systems and technologies to increase revenue in a subsequent year, the overall emissions may remain unchanged, but the revenue-based intensity would continue to decrease. Both are critical actions.
The same is true for electrifying fleet vehicles. This can reduce a company’s overall emissions, but the company can also have its delivery routes better optimized by fitting more packages in a vehicle to reduce intensity.
Making such systems more efficient can have further overall benefits to financial and carbon performance, but those efficiency gains might only be recognized with intensity-based metrics. Total carbon reduction targets, on the contrary, can potentially eliminate the flexibility of a gradual improvement, and make it more difficult for companies to meet those goals while remaining competitive or growing.
While total emissions trajectories can show how an entity is performing at a high level, they may mask the effects of short-term capital investments that enable longer-term emissions reductions. When done in a climate-friendly way, investments made today in order to ensure we reach net zero before the middle of the century represent a socially valuable investment strategy. Investments can generate double dividends, enabling growth and helping to meet emission or intensity reduction goals.
The Paris Agreement aims to keep global warming below 2 degrees Celsius, and achieving that goal will require informed decisions based on a number of different data points. Total carbon emissions are a key factor, but complementary metrics such as carbon intensity, regularly tracked over time, are also vital barometers. Entities must work to develop and set realistic and significant short-term intensity improvement targets that enable long-term emission reduction goals.
Miguel Jaller is an associate professor of civil and environmental engineering and codirector of the Sustainable Freight Research Program at the University of California, Davis.
H. Scott Matthews has been working on carbon management and sustainable investments for the past 20 years.
Subscribe to Fortune Daily to get essential business stories straight to your inbox each morning.
