The GHG Protocol's Scope 1, 2 and 3 – explained.
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One of the most recognised and widely used standards for calculating and reporting greenhouse gas emissions is the Greenhouse Gas Protocol (GHG Protocol) along with the categorisation of scope 1, 2, and 3 emissions. As it is widely regarded as the leading standard, it’s also the standard we use at comundo – right on!
The GHG Protocol is a result of a partnership between the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD – one hell of an initialism). The first edition of the GHG Protocol Corporate Accounting and Reporting Standard was introduced in 2001.
We know that carbon accounting can be pretty tricky. Not only is it fairly new to many people, from recently appointed ESG managers to CFOs, but it also contains a high degree of complexity. However, it’s important to get to grips with it as it’s fast becoming an integral part of corporate strategies that can have a very real impact on the bottom line.
What is the GHG Protocol?
The GHG Protocol is a global standard for public and private entities (businesses, corporations, cities, and countries) to measure GHG emissions. It is an integral part of carbon accounting worldwide and a precursor for companies and governments to set carbon targets.
According to the GHG Protocol, there are three different areas of emissions – so-called scopes – where a distinction is made between direct emissions from the company's own and controlled energy sources, the company's indirect emissions (e.g., from purchased energy) and all indirect emissions that occur in the value chain of the reporting company, both upstream and downstream emissions. These, you guessed it, are the GHG Protocol scope 1, 2 and 3.
Put simply:
- Scope 1: The company’s own and controlled sources
- Scope 2: The company’s indirect emissions
- Scope 3: All indirect emissions that occur in the value chain (upstream and downstream) of the reporting company
We’ll break them down further in terms of carbon accounting, the GHG Protocol, and its importance for EU-based companies.
Scope 1: Direct emissions
Scope 1 emissions encompass all direct greenhouse gas (GHG) emissions originating from sources owned or controlled by a company. These emissions are produced through activities such as burning fossil fuels on-site, operating company-owned vehicles, or manufacturing processes. By identifying and quantifying Scope 1 emissions, EU companies gain valuable insights into their own environmental impact.
Scope 1 emissions accounting is fairly simple, as companies can more easily calculate the GHG emissions from their operations. That’s also the reason why Scope 1 emissions are relatively more accurate than value chain emissions.
Reducing Scope 1 emissions demonstrates a commitment to sustainable practices while also promoting operational efficiency. And by investing in cleaner technologies, companies can mitigate their environmental footprint and achieve cost savings in the long run. What's not to like? Scope 1 reporting ensures transparency, allowing businesses to evaluate their progress in reducing emissions and set ambitious targets for the future.
Scope 2: Indirect emissions
Scope 2 emissions are indirect GHG emissions associated with the consumption of purchased electricity, heat or steam. Companies have limited control over the generation of this energy but can influence the choice of suppliers and support the adoption of renewable sources. Reporting Scope 2 emissions enables companies to take responsibility for the environmental impact of their energy consumption.
By sourcing renewable energy or investing in energy efficiency measures, businesses can actively reduce Scope 2 emissions. This not only contributes to a cleaner energy mix but also enhances its reputation and strengthens stakeholder relationships. Transparently reporting Scope 2 emissions demonstrates a commitment to reducing the carbon intensity of operations.
Scope 3: Value chain emissions
Scope 3 emissions represent the indirect GHG emissions occurring throughout a company's value chain, including both upstream and downstream activities. This includes emissions associated with the extraction and production of raw materials, transportation, product use, and disposal. It also includes data on tenants in any properties owned. While these emissions occur outside a company's direct control, they are still influenced by business decisions.
The GHG Protocol defines 15 distinct categories for value chain emissions. The GHG scope 3 categories include:
- Purchased goods and services
- Capital goods
- Fuel and energy-related activities (other than Scope 1 and 2)
- Upstream transportation and distribution
- Waste generated
- Business travel
- Employee commuting
- Upstream leased assets
- Downstream transportation and distribution
- Processing of sold products
- Use of sold products
- End-of-life treatment of sold products
- Downstream leased assets
- Franchises
- Investments
It’s estimated that 75% of a company’s carbon footprint comprises its Scope 3 emissions. Since publishing the first GHG Protocol reporting guidelines in the early 2000s, the calculation and reporting of Scope 3 emissions has been optional in many countries, including the EU member states. However, that’s changing with the introduction of tougher regulations like the EU’s Corporate Sustainability Reporting Directive (CSRD).
Reporting Scope 3 emissions is a comprehensive approach that considers the entire life cycle of products and services. EU companies that account for Scope 3 emissions demonstrate a commitment to sustainability and adopt a holistic view of its environmental impact. By engaging suppliers, optimising transportation networks, and promoting circular economy practices, businesses can reduce Scope 3 emissions and contribute to a greener future.
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The importance of GHG Protocol
The GHG Protocol’s standards emerged when efforts to reduce emissions and control global warming began. As an organisation, the GHG Protocol and its standards have proven instrumental in creating and implementing ESG frameworks worldwide. More importantly, it has been used in many climate regulations, mandating carbon reporting at a much larger scale.
A survey by the Carbon Disclosure Project (CDP) in 2016 found that 92% of Fortune 500 companies reported using the GHG Protocol in some form. The GHG Protocol also publishes entity-specific standards that are continuously updated as new technologies in carbon accounting emerge. These include standards for the corporate sector, non-government organisations (NGOs), cities, and countries. Then, there are the standards for products and projects.
Even though the GHG Protocol has had wide success as a de facto standard for carbon accounting, its shortcomings haven’t gone unnoticed. The standard for value chain emissions (Scope 3) provides guidance for calculating downstream and upstream emissions in 15 distinct categories (as listed above). However, the standard allows for estimation based on industry averages, which experts believe has left room for inaccuracies.
Still, it’s the most comprehensive standard for carbon accounting, one that’s helped countries implement tougher regulations and resulted in initiatives such as the CDP and Science-based Targets Initiative (SBTi).
Wrapping up
And there you have it. The GHG Protocol scope 1, 2 and 3. In the EU, carbon accounting and reporting have become paramount for companies aiming to foster sustainability and combat climate change. Understanding the distinctions between Scope 1, Scope 2, and Scope 3 emissions is the first step for companies when looking to assess their environmental impact, create a net-zero strategy and drive positive change.
By embracing carbon accountability and understanding why accurate data is so important, businesses can safeguard the planet but also gain a competitive edge and forge meaningful connections with stakeholders. Let's move towards a greener future, one emission report at a time!
FAQs
How to measure Scope 1, 2, and 3 emissions?
The GHG Protocol provides the guidelines for measuring Scope 1, 2, and 3 emissions. Here’s how emissions in each scope can be calculated:
- Scope 1 emissions are the direct emissions from assets and processes a company controls. These are fairly easy to measure with the help of the emissions factor. For instance, fuel used by company cars can be multiplied with the appropriate emission factor to get the emission value
- Scope 2 emissions are indirect emissions from the purchase of energy. These are measured using two methods: location-based and market-based. The former utilises the average emissions from the grid in the company's location, whereas the latter method reflects emissions from a specific electricity product
- Scope 3 emissions are indirect emissions, which can be measured using spending or activity data. The spend-based approach is indirect and relies on estimates based on financial or accounting data. Activity-based data is considered more reliable as it calculates emissions based on a particular activity and requires more data
Why is Scope 3 such a challenge?
Measuring Scope 3 emissions is challenging because of the lack of data or its poor quality. Many suppliers don’t have or report accurate emissions data. With supply chains worldwide, collecting data is tedious and expensive. As a result, companies often resort to estimates to calculate their Scope 3 emissions.
While the GHG Protocol for Scope 3 emissions is used worldwide, there’s still no universal protocol for measuring and reporting value chain emissions.
What is net zero?
Net zero refers to a state of equilibrium where greenhouse gases emitted into the atmosphere are balanced by an equal amount removed. The removal may come from offsets, such as tree planting or carbon capture technology. According to the Paris Agreement, the world must reach net-zero emissions by 2050 to limit the temperature rise to 1.5 degrees.
How to reduce Scope 1, 2, and 3 emissions?
Businesses can reduce their Scope 1, 2, and 3 emissions by reducing their dependence on fossil fuels. Targeting power consumption and opting for energy-efficient assets can significantly reduce Scope 1 and 2 emissions. To reduce value chain emissions, engage with suppliers to opt for environment-friendly practices, encourage sustainable use of products and services, and reduce work-related travel.
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