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An Introduction to Scope 1, 2, and 3 Emissions

By 
Keslio Team
5
 minute read  
|  
March 19, 2024
An abstract illustration of a busy manufacturing plant and its emissions.

A company’s carbon footprint, or the amount of greenhouse gas (GHG) generated by a business and its operations, is increasingly becoming a matter of concern, especially in implementing sustainability strategies and reporting a company’s sustainability performance. To simplify the broad concept, the Greenhouse Gas Protocol, a global standard in greenhouse gas accounting, classified greenhouse gas emissions into 3 scopes.

By segmenting greenhouse gas emissions into separate categories, companies can better examine their sustainability performance. Through going in-depth in tracking emissions across the entire value chain, companies can determine which areas produce the most emissions and eventually create strategies and plans to reduce their negative impact on the environment.

Differentiating Scope 1, 2, and 3 Emissions

Understanding and differentiating Scope 1, 2, and 3 emissions is the first step in reducing greenhouse gas emissions. By being able to point out which scope applies to specific operations and parts of a company’s value chain, companies can create more specific and concrete plans to reduce emissions and steer the company towards more sustainable practices.

Scope 1

Scope 1 spans all direct emissions that are generated from sources owned or controlled by a company. This includes emissions from fuel used by company vehicles, or gas from air-conditioning, refrigeration, and cooling units. Gas used in company sites or machines such as boilers also fall under Scope 1 emissions.

Scope 2

Scope 2 covers indirect emissions from energy purchased and consumed by the company. These are associated with electricity, heat and cooling, and steam. While Scope 1 and 2 emissions may sound similar, the source of Scope 2 emissions are not controlled by the company. Scope 2 considers the emissions generated by the source which creates the energy the company purchases to power their facilities and operations.

Scope 3

Scope 3 emissions span indirect emissions across the value chain. While Scope 2 emissions are also indirect, these are emissions associated with the purchase of energy, whereas Scope 3 covers all indirect emissions from activities or sources a company does not own or control. These are not generated by the company nor are they byproducts of company-owned and controlled activities and assets. Scope 3 emissions can be categorized into 15 types:

  1. Purchased goods and services
  2. Capital goods
  3. Fuel and energy related activities
  4. Upstream transportation and distribution
  5. Waste generated in operations
  6. Business travel
  7. Employee commuting
  8. Upstream leased assets
  9. Downstream transportation and distribution
  10. Processing of sold products
  11. Use of sold products
  12. End-of-life treatment of sold products
  13. Downstream leased assets
  14. Franchises
  15. Investments

Scope 3 emissions cover the entire value chain, from supplier-related to post-consumer activities. Given its complexity as it considers activities across the value chain and these activities are beyond the company’s control, categorizing Scope 3 emissions into 15 types of activities lets companies better evaluate the types of emissions that impact them the most. For example, a manufacturing company may find a large bulk of its Scope 3 emissions under downstream transportation and distribution or a financial institution may be challenged by emissions occurring from investments.

Upstream and Downstream Emissions

Knowing upstream and downstream emissions can help companies better understand the impact of their business activities. In addition, it splits the 15 Scope 3 categories into two, making it easier for companies to understand the complex scope.

Upstream and downstream emissions stretch across the business’s value chain. In upstream emissions, these consist of activities involving the production of goods and services. Downstream emissions then cover activities from the distribution of goods and services to the end-of-life treatment. In the 15 Scope 3 categories, Categories 1-8 are classified under upstream activities and Categories 9-15 fall under downstream activities.

Outside Scope 3 emissions, Scope 2 emissions are included in upstream emissions. Scope 1 emissions, meanwhile, fall in between the two streams.

Tracking and Reporting

To improve a company’s carbon footprint management, companies must first measure and track their greenhouse gas emissions. Once they can pinpoint which areas create the largest negative environmental impact, tailor-fit strategies and changes can be established and such performance can be reported to their stakeholders.

Measuring Scope 1 and 2 emissions can be straightforward and easily quantifiable given how data can be collected by the company by investing in technology and communicating with energy suppliers. Scope 1 is also known to be the easiest to measure and mitigate since the activities which produce these emissions can be controlled by the company itself.

Scope 2 also can be calculated based on the location or the market of the energy purchased by the company. Location-based emissions take the average energy mix of the electricity grid that covers the company’s facilities in that area. The energy mix consists of the different types of fuel used to generate electricity in the grid. This approach gives companies clarity on their impact in specific locations where their company facilities are based.

Market-based emissions, on the other hand, are more specific. In this method, emissions from electricity purposefully chosen by the company are measured through instruments and contracts. The market-based approach allows companies to evaluate purchasing decisions and arrangements they have made directly with their energy suppliers.

Dual-reporting Scope 2 emissions allow companies to determine which regions or energy sources need improvements. By knowing the amount of Scope 1 and 2 emissions a company produces, they can establish new changes, ranging from investing in renewable energy or energy-efficient technology.

Scope 3 then poses a challenge to companies as they venture out of activities they cannot control or energy sources they do not own. Properly measuring Scope 3 emissions would require reaching out to stakeholders and parties participating in the company’s value chain, such as suppliers, third-party logistics companies, and customers. Companies can also make use of technology to measure and track Scope 3 emissions performance.

The Greenhouse Gas Protocol has established a guide companies can use in starting or improving their Scope 3 emissions calculations. Each category has its own ways to measure and track emissions. Methods may depend on the availability of data and formulas are also provided for specific activities. The guide also elaborates on the scope of each category and activity to ensure recorded emissions do not overlap with each other and cause companies to double-count their emissions.

Reporting greenhouse gas emissions is becoming a requirement in mandatory sustainability reporting across different countries globally. Countries are also establishing net zero targets they aim to achieve in the near future. Through familiarizing with the different greenhouse gas scopes, companies can kickstart their initiatives to reduce emissions and reach their sustainability targets. Understanding Scope 1, 2, and 3 emissions is relevant to the sustainability operations and performance of a business as it maps out a company’s environmental impact and pushes businesses to work towards sustainability, not just in operations they can control, but also activities that span their entire value chain.

Resources:

1. Greenhouse Gas Protocol Technical Guidance for Calculating Scope 3 Emissions (version 1.0)

At Keslio, we are deeply passionate about sustainability, equipping us with the expertise and extensive network needed to guide clients through their sustainability journey effectively and efficiently. Our expertise is particularly valuable for companies looking to embed sustainability practices into their businesses and investors looking to integrate ESG and impact into investment portfolios. To learn more about how Keslio can assist your organization on its sustainability journey, please don't hesitate to get in touch with us.

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