What Is a Carbon Budget? A Guide for Businesses

The concept of carbon budgets has emerged as a pivotal tool in guiding our collective efforts toward a sustainable future. As the Earth's climate faces unprecedented challenges, understanding and respecting these finite allowances for carbon emissions become paramount. Learn more about what they are, and the impact they have on the economy. 

What exactly is a carbon budget?

A carbon budget is a concept within climate science and policy that represents the total amount of carbon dioxide (CO2) emissions that can be released into the atmosphere while still keeping global warming below a specific temperature target. These can be set at both a global and regional level. 

In essence, a carbon budget is like a finite allowance for carbon emissions. It is based on the understanding that there is a limited amount of greenhouse gasses that the Earth's atmosphere can absorb without causing catastrophic climate change. If this budget is exceeded, it becomes increasingly difficult to prevent the worst effects of global warming, such as: 

• More frequent and severe heat waves
• Extreme weather events 
• Rising sea levels
• Disruptions to ecosystems

What is the global carbon budget?

Carbon budgets can be both global and specific to certain countries or regions. The global budget sets a collective limit to achieve global climate targets, while national or regional budgets provide a framework for individual entities to take responsibility for their emissions in accordance with their particular circumstances.

Carbon Budgets and the Paris Agreement

The Paris Agreement, a global climate accord adopted in 2015, explicitly recognizes the importance of carbon budgets in the fight against climate change. It calls on countries to take actions to limit global warming to well below 2 degrees Celsius and to pursue efforts to limit it to 1.5 degrees Celsius. 

This target is typically expressed as a global temperature increase relative to pre-industrial levels, such as the commonly mentioned goal of limiting global warming to well below 2 degrees Celsius above pre-industrial levels, with efforts to limit it to 1.5 degrees Celsius.

What is the UK's Sixth Carbon Budget?

The sixth Carbon Budget refers to the iteration of the Carbon Budget in the UK that was announced in April 2021, and enshrined in law in June 2021. The intention of this version is to limit the volume of greenhouse gasses emitted over a 5-year period from 2033 to 2037, taking the UK more than three-quarters of the way to reaching net zero by 2050.

What is the economic impact of implementing carbon budgets?

The implementation of carbon budgets - aimed at curbing carbon dioxide (CO2) emissions - can have a multifaceted economic impact. While the primary goal of these budgets is to tackle the environmental and societal repercussions of climate change, their execution can lead to a range of economic outcomes, such as: 

• Transition costs - Implementing and adhering to carbon budgets often necessitates a transition from high-carbon to low-carbon energy sources and practices, which can be costly
• Energy prices - Transitioning to cleaner energy sources may lead to higher energy prices in the short term, but can lead to price stability and lower long-term costs as clean technologies mature.
• International trade - Countries with stringent emissions targets may influence trade agreements and impose tariffs or restrictions on goods produced in regions with less stringent climate policies.
• Risk mitigation - The costs of inaction, such as damage to infrastructure, increased insurance premiums, and disruptions to supply chains due to extreme weather events, can be substantial. Adhering to carbon budgets can help reduce these long-term risks.

How can your business adapt to carbon budgets?

Novisto can help organizations to understand their existing carbon output, and create plans to mitigate climate related risks in the future. Our Emissions Data Platform seamlessly collects and processes emissions data from every corner of your organization and supply chain - no matter the format. Making it the ideal platform for emissions audits and all-round business intelligence.

Learn more about how Novisto's Emission Data Platform can help to power you all the way to Net Zero today.