Scope 1, 2, 3 Emissions: Understanding the GHG Protocol System

In this article

What are Scope 1 2 3 Emissions?

Scope 1, 2, and 3 emissions are a way of categorizing business emissions, accounting for both direct and indirect emitted greenhouse gasses (GHGs).

Scope 1 emissions are GHGs released directly from a business.
Scope 2 emissions are indirect GHGs released from the energy purchased by an organization.
Scope 3 emissions are also indirect GHG emissions, accounting for upstream and downstream emissions of a product or service, and emissions across a business’s value chain.

In this Green Business Benchmark° article, we explain what scope 1, 2, and 3 emissions are, to help you understand the GHG Protocol emission classification system. We also explain why categorizing business emissions across operations is important.

Why are business emission scopes categorized using 3 boundaries?

Scope 1, 2, and 3 emissions is a classification system used to bucket greenhouse gas emissions (GHGs) exerted by an organization, to help measure, manage and reduce business emissions. This scope 1, 2, and 3 emission system first appeared in the 2001 Greenhouse Gas Protocol. The aim was to clarify what business emissions need to be measured and managed, and how.

An easy way to think about this is to consider business emission scopes as organizational boundaries, each specifying the related emissions from activities, products, and services.

PRESSURE FOR ACCURATE BUSINESS CARBON REPORTING MOUNTS

Introducing 3 emission scopes was a development that came as momentum behind climate action soared. And this drive for a low carbon world has only escalated over the years, with 2015 marking a significant point in our history. At this time, 192 countries (plus the European Union) signed the Paris Climate Agreement, which set to limit global temperature rise to 2°C (35.6°F) above pre-industrial levels by 2040.

As global leaders act to deliver a zero-carbon future, pressure mounts on business leaders to do the same. Today, half of the fortune 500 companies (F500) fully or partially report GHG emission data. Plus 60% of America’s largest companies have set at least one target to reduce GHG emissions.

Yet, despite these efforts, a 2018-2019 Fortune 500 Greenhouse Gas Emissions Report calculated that the F500 was responsible for 13.34 billion tonnes of CO_2e in 2018, and 13.15 billion tonnes of CO_2e in 2019. Once more, a 2017 Carbon Major Report found that 50% of global industrial emissions can be traced to just 25 organizations (since human-induced climate change was officially recognized).

This suggests some goodwill but shallow targets that do not abate businesses’ contribution to our climate crisis. Hence climate action in business needs improvement.

As the saying goes, you cannot manage what you can’t measure. And so better carbon reporting is one way to reduce business emissions, especially when 40% of business GHGs are underreported. By accurately reporting emissions across 3 scopes, organizations gain a true understanding of their climatic impact.

GHG PROTOCOL’S SCOPE 1, 2, AND 3 EMISSIONS

The GHG Protocol’s scope 1, 2, and 3 emission system works to close today’s carbon reporting gap.

Reporting scopes 1 and 2 emissions is mandatory for many organizations across the globe. These emissions are easily accounted for, measured, and managed. Hence, organizations often target scope 1 and 2 emissions when setting their GHG business emission reduction goals. Yet, it’s scope 3 emissions that have the largest impact on an entity’s carbon footprint (being responsible for ~70% of business emissions).

By classifying business emissions across three scopes, the GHG Protocol effectively communicates and educates leaders on what business emissions need to be considered, helping organizations act to create a low-carbon future. With this in mind, let’s define scope 1, 2, and 3 emissions in more detail.

Indirect emissions and direct emissions explained

To help you understand business emission scopes, we’re going to explain each scope using the acronym burn, buy, and beyond (as originally defined by Sustain Life).

SCOPE 1 EMISSIONS EXPLAINED

Scope 1 emissions are emissions caused by an entity and its operations, released directly from controlled assets. To remember scope 1 emissions, think burn (these are the emissions from fossil fuels burnt directly). This could be from the combustion of fuels for heating or for mobile vehicles, it could be from fugitive emissions from refrigerators and air conditioning units, or it could be GHGs released from industrial processes.

SCOPE 2 EMISSIONS EXPLAINED

Scope 2 emissions are indirect GHGs released from the energy purchased from a utility provider. To remember scope 2 emissions, think buy. For most organizations, the majority of their scope 2 emissions come from electricity purchased.

SCOPE 3 EMISSIONS EXPLAINED

Scope 3 emissions cover all other indirect emissions associated with an entity. Most importantly, these are emissions that occur within the value chain, both upstream and downstream. To remember scope 3 emissions, think beyond.

Scope 3 emissions often account for more than 70% of a business’s carbon footprint. Yet the majority of these emissions are beyond an entity’s control. Most scope 3 emissions are influenced by the supplier, who’ll dictate emissions through product design and purchasing decisions.

Why should you measure direct emissions and indirect emissions?

Business requirements to manage and audit business emissions are propelled by schemes such as the Task Force on Climate-Related Financial Disclosure (TCFD) and Streamlined Energy and Carbon Reporting (SECR).In addition, the GHG Protocol devised three standards, namely the GHG Protocol Corporate Standard (scopes 1, 2 and 3), the GHG Protocol Corporate Value Chain (Scope 3) and the GHG Protocol Product Standard (accounting for emissions at a product level). These standards take a value chain or life cycle approach to GHG accounting.

The GHG Protocol Corporate Standard provides overall requirements and guidance for organizations wanting to prepare and report emission inventories at the corporate-level.
The Corporate Value Chain Standard helps organizations track emissions across the value chain, identify opportunities and engage with suppliers.
The GHG Protocol Product Standard helps organizations track emissions across a product’s life cycle, from material sourcing, right through to the product’s disposal.

BENEFITS OF TRACKING SCOPE 1 2 3 EMISSIONS

These three standards set scope 1 and 2 emission reporting as required but leave scope 3 emission reporting optional. Yet, following these standards and reporting emissions across all scopes will help businesses keep ahead of regulatory requirements. As in the future, the GHG Protocol, governments, and other standards might make emission reporting mandatory across all scopes.

Hence, scope emission reporting reduces regulatory uncertainty. But this is just one single benefit amongst a myriad of others. Below we’ve detailed other benefits of emission reporting. That is, emissions reporting:

Drives innovation:Scope emission reporting helps organizations identify the risks and opportunities associated with their direct and indirect emissions. Opportunity and risk will drive innovation, with teams looking for new solutions, and different ways to get work done.
Strengthens credibility and confidence for investors: In 2022, investors managing over $130 million in assets – including the biggest asset manager Amundi – have written to more than 10,000 companies calling them to supply environmental data (incorporating emission data) to the CDP. Hence, investors are becoming increasingly aware of climate change risk, and are realigning their investments accordingly. As such, companies disclosing emission data appear to be safer investment opportunities.
Improves profitability and competitiveness: Reducing carbon emissions often comes hand-in-hand with cost savings. E.g. Using renewable energy reduces the demand for fossil fuels, which have risen in cost over the years. Plus, improving efficiency reduces waste, which ultimately bolsters an organization’s bottom line. Once more, 88% of consumers across the UK and the USA want to support brands making a positive contribution to sustainability.
Improves transparency across the value chain:Thinking about scope 3 emissions highlights the climate maturity of key-value chain players, to identify value chain emission hotspots, plus weaknesses. Once more, working to collect scope emission data improves operational transparency for leaders to understand business processes better.
Risk mitigation: Measuring scope emissions educates leaders on the importance of addressing resource exposure, plus energy and climate risk.

It must be noted that to report scope 1, 2 and 3 emissions, you must first calculate your carbon footprint. Calculating your carbon footprint is easy with the carbon footprint calculating software available here at GBB.

Scope 1 2 3 emissions across different industries

The idea of scope is sometimes confused with the idea of responsibility. It’s for this reason why scope 3 emissions are often under-reported, and why scope 1 emissions are prioritized in business emission reduction targets. Yet it’s inaccurate to assign responsibility as such.

For instance, consider the following scenario.

Company one is renting a poorly insulated building meaning this business has high scope 1 emissions. A large amount of energy is used to maintain an optimum working temperature. Yet company one is working hard to create a more sustainable value chain, building positive supplier relationships to reduce upstream and downstream indirect emissions.

Now, consider another company, company two. Company two is a manufacturing organization operating in a small warehouse. This company has the funds to install a high-tech efficient heating, ventilation, and air conditioning (HVAC) system. The scope 1 emissions of company two will be significantly lower than that of company one. Yet company two is using a stock management system with suppliers located across the globe. This will heighten the organization’s scope 3 emissions due to the strategic operational choices made. Substantial scope 3 emissions mean company two emits more GHGs than company one, an outcome only visible if all scope emissions are considered and the appropriate responsibility is assigned.

This example also hits on a second vital point. That is, the significance of scope 1, 2, and 3 emissions will vary across industries. Oil and gas industries will have high scope 3 emissions (they sell fossil fuels), whereas tech companies providing a SaaS service will have low scope 3 emissions (they aren’t manufacturing a physical product), but higher scope 1 and 2 emissions (e.g. by utilizing carbon-intensive data centers).

By accounting for and assigning equal importance to every scope, a more accurate picture of an organization’s climatic impact is given. It also consolidates emissions from different companies, across geographical entities.

Yet it’s important to note that scope 1 emissions are the only emissions that can be added up between companies while avoiding double counting. Scope 2 and 3 emissions must be scope 1 emissions for another company (e.g the electricity provider, the suppliers, etc).

Working towards global standardization for emission reporting

Accurately measuring business emissions provides the foundation for strategic thinking. The GHG Protocol defined scope 1, 2, and 3 emissions to set standards for companies around the world. Businesses are provided with the information they need to effectively reduce their carbon footprint.

At the moment, following the GHG Protocol standards to measure and report business emissions is voluntary. Yet, in the future, governments or programs may choose these standards when creating mandatory programs or regulations.

The GHG Protocol aims to have one consistent global standard. This is important as value chains span across national boundaries, climate change is a world problem, and businesses are operating in a global economy.

Working towards global standardization for business sustainability

At the Green Business Benchmark°, we are also working towards setting a global standard, but for affordable green certification and business sustainability, to support the GHG Protocol. On signing up for the Green Business Benchmark°, you’ll gain access to our EcoPlanner and EcoAssessment, which allow you to measure and document your sustainability successes, while simultaneously setting green goals. You can choose from a library of sustainability initiatives which you can incorporate into your organization. This includes initiatives that lower business-related GHGs. Maybe that’s by switching to a green energy supplier, or by improving workplace insulation. You’ll also gain access to carbon calculator software helping your measure and track your GHG emissions.

In this sense, the Green Business Benchmark° wants to support the efforts of the GHG Protocol, to help organizations account for and lower their GHG emissions across all scopes.

Sign up for the Green Business Benchmark°, and start accounting for and reducing your business scope 1, 2, and 3 emissions today, and measure your carbon footprint with access to carbon calculator software.

‍

Copied to clipboard!