The Carbon Border Adjustment Mechanism (CBAM)
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In this article, we break down what the EU CBAM is, how it works, and what businesses need to do to comply.
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What are Scopes 1, 2 and 3 Emissions?
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You might not have read the Paris Agreement cover to cover, but there's a good chance you've heard about one of its primary goals: keeping the rise in global temperatures below 1.5°C. This figure hasn't been plucked from thin air - it's a crucial benchmark to keep the more extreme effects of climate change at bay.
So, what's the best way to achieve this? Well, the key is reducing greenhouse gas emissions (GHGs). And a big part of that comes down to keeping an eye on something called Scope 1, 2, and 3 emissions.
These categories aren't just industry jargon, they're key to identifying the sources of emissions and figuring out effective ways to reduce them and prevent global warming. In this article, we'll unravel these terms and explain why they're essential in our collective effort to combat climate change.
👉 In this article, we clarify what Scope 1, 2, and 3 emissions are and their significance in managing a company's carbon footprint.
Why do we need to understand Scope 1, 2 and 3 emissions?
Why is it important to work out Scope 1, 2, and 3 emissions? Let's start with a quick refresher: the greenhouse effect is a natural process that helps keep the Earth's temperature at a level suitable for human life. But here's the catch – the excessive GHG resulting from human activities is supercharging this effect, leading to a rise in the average global temperature. And the fallout? It's putting the Earth's ecosystems in a tight spot, threatening the delicate balance that supports life as we know it.
To effectively reduce your carbon emissions, whether as an individual or a company, the first step is understanding how much carbon you're actually emitting. This is where the concept of GHG emissions Scopes comes into play. They provide a structured way to categorise and measure these emissions, laying the foundation for targeted strategies to cut down on carbon output.
💡 To learn more about the Earth's carbon cycle and why it's out of balance head over to our article on the topic.
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The Greenhouse Gas Protocol (GHG Protocol)
To understand Scope 1, 2, and 3 emissions we need to look to the Greenhouse Gas Protocol. This initiative is a comprehensive multi-stakeholder partnership, encompassing businesses, non-governmental organisations (NGOs), governmental bodies, and other entities, all brought together by the World Resources Institute (WRI) in 1998.
Their mission? To develop and establish international standards for accounting and reporting GHG emissions for businesses and to encourage widespread adoption.
Over the years, the GHG Protocol has expanded to include several standards, each designed to address different aspects of greenhouse gas measurement and management. Below is a brief overview of the key standards:
| Standard | Purpose | Best For |
|---|---|---|
| Corporate Accounting and Reporting Standard | Provides requirements and guidance for companies and other organizations to prepare a corporate-level GHG emissions inventory. | Companies and Organizations |
| Corporate Value Chain (Scope 3) Standard | Allows companies to assess their entire value chain emissions impact and identify where to focus reduction activities. | Companies and Organizations |
| Product Life Cycle Accounting and Reporting Standard | Helps understand the full life cycle emissions of a product and focus efforts on the greatest GHG reduction opportunities. | Companies and Organizations |
| Policy and Action Standard | Offers a standardized approach for estimating the greenhouse gas effect of policies and actions. | Countries and Cities |
| Mitigation Goal Standard | Provides guidance for designing national and subnational mitigation goals and a standardized approach for assessing and reporting progress toward goal achievement. | Countries and Cities |
| GHG Protocol for Cities (Global Protocol for Community-Scale GHG Emission Inventories) | Provides a robust framework for accounting and reporting city-wide greenhouse gas emissions. | Cities and Communities |
| GHG Protocol for Project Accounting | The most comprehensive, policy-neutral accounting tool for quantifying the greenhouse gas benefits of climate change mitigation projects. | Companies and Organizations; Countries and Cities |
To learn more about the GHG protocol head over to our blog.
What are Scope 1 2 3 emissions?
The term 'Scope emissions' first made its appearance in the GHG Protocol Corporate Accounting and Reporting Standards (the gold standard for corporate carbon accounting). These standards are a go-to resource for companies aiming to measure and report their GHG emissions accurately. They play a crucial role in breaking down a company's emissions into distinct categories, which are more commonly known as 'scopes.' More specifically, Scope 1, Scope 2, and Scope 3 emissions - each category represents a different source of emissions.
Let's break down these categories:
| Scope | Description | Examples |
|---|---|---|
| Scope 1 | Direct emissions from sources owned or controlled by the company. |
- Fuel combustion from company-owned vehicles - Emissions from on-site boilers, furnaces, and generators - Process emissions from chemical production in owned facilities - Fugitive emissions from refrigeration or air conditioning leaks |
| Scope 2 | Indirect emissions from the generation of purchased electricity, steam, heat, or cooling. |
- Electricity used in offices and manufacturing plants - Purchased heating or cooling for office buildings - Steam used in industrial production processes - District energy systems |
| Scope 3 | All other indirect emissions in the value chain, not included in Scope 2. |
- Purchased goods and services (e.g., raw materials, office supplies) - Business travel (e.g., flights, hotel stays) - Employee commuting (e.g., car, bus, or train) - Waste disposal (e.g., landfill, incineration) - Use of sold products (e.g., fuel in cars sold by an auto manufacturer) - Transportation and distribution (e.g., third-party logistics) - End-of-life treatment of sold products (e.g., recycling, disposal) |
By understanding and categorising emissions in this way, companies can develop more targeted strategies to reduce their overall carbon footprint.
Let's explore the different scopes in more detail.
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Scope 1 emissions
Scope 1 emissions are directly released into the atmosphere as a result of a company's activities. These direct emissions originate from resources that are owned or controlled by the company. To ensure comprehensive tracking and management, Scope 1 emissions are categorised into four distinct groups:
- Stationary combustion - This category includes all fuels that produce greenhouse gas emissions during combustion (natural gas, oil, coal, etc). It encompasses a wide range of stationary sources such as boilers, furnaces, and other combustion equipment.
- Mobile combustion - This encompasses all vehicles owned or controlled by the firm that burn fuel, including cars, vans, trucks, etc. It's important to note that emissions from electric vehicles are classified under Scope 2.
- Fugitive emissions - These emissions are associated with the unintentional release of greenhouse gases. Common examples include emissions from refrigeration and air conditioning units, as well as leaks from industrial gases.
- Process emissions - These are emissions released during industrial processes or general production activities. This category includes emissions from manufacturing processes, such as factory fumes, and the release of chemicals like nitrous oxide.
Scope 2 emissions
Unlike Scope 1 which covers direct emissions, Scope 2 emissions refer to indirect GHG emissions that arise from the consumption of purchased electricity, steam, heat, and cooling in buildings and production processes. These emissions are classified separately because they originate from sources not directly controlled by the company.
The majority of Scope 2 emissions typically stem from electricity consumed by the company. This category encompasses the indirect emissions produced during the generation of the electricity purchased, which is then transmitted and distributed to the company.
Scope 3 emissions
Scope 3 emissions represent a significant part of GHG accounting. However, because it involves quantifying carbon emissions associated with a company's supply chain it is often seen as the most challenging to quantify. Unlike Scope 1 and 2 emissions, Scope 3 emissions are not directly linked to the company's own operations, but rather to the entire value chain, incorporating both upstream and downstream emissions. These significant carbon emissions are associated with the company's operations, yet they occur outside of its direct control.
Scope 3 emissions encompass a wide range of indirect emissions, examples include:
- Purchased goods and services - This includes emissions related to the production of goods and services before their purchase by the company.
- Business travel and employee commuting - This covers emissions from air travel, railway travel, taxis, and the commuting practices of employees.
- Waste disposal - Emissions arising from landfill operations, wastewater treatment, and other waste management activities.
- Use of sold products - Emissions that result from the end use of the company's products and services by consumers.
- Transportation and distribution - This involves emissions from transporting and distributing goods via land, sea, and air, including those related to third-party warehousing.
- Investments - Emissions linked to equity investments, debt investments, capital goods, project finance, managed investments, and client services.
- Leased assets and franchises - Emissions from assets leased by the company and operations of franchises.
Scope 3 emissions provide a comprehensive view of a company's environmental impact, extending beyond its immediate operations to the broader impacts associated with its value chain emissions.
💡 Scope 3 emissions typically constitute the majority of a company's greenhouse gas output. According to the World Economic Forum, value chain emissions can account for as much as 70% of a business's total emissions footprint.
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Why is it important to measure Scope 3 emissions?
Unless a company has significant real estate holdings and energy consumption the majority of a company's total greenhouse gas emissions, around 70%, typically comes from Scope 3 sources. This statistic underscores the extent to which a company's environmental impact extends beyond its direct activities, into its wider value chain. Addressing these emissions is crucial not only for reducing a company's carbon footprint but also for identifying cost efficiencies and reinforcing sustainable practices.
Additionally, it's revealing to note that 71% of global emissions can be traced back to just 100 companies. This fact emphasises the enormous responsibility and influence businesses have in tackling global warming. Nowadays, the role of businesses extends beyond mere product and service delivery; they are expected to be at the forefront of environmental responsibility. The growing demand from customers, employees, and investors is for companies to actively incorporate sustainability and environmental considerations into their operations.
Companies that embrace sustainable practices also position themselves for new growth and investment opportunities. Those who ignore this shift risk falling behind, as regulatory environments tighten and consumer expectations lean heavily towards environmental stewardship.
Measuring all emissions, particularly Scope 3, is therefore not just a regulatory formality, it's a strategic necessity, allowing companies to:
- Pinpoint key GHG emission sources within their value chain
- Assess the environmental practices of their partners and suppliers
- Uncover operational inefficiencies and financial risks
- Identify potential for cost savings and operational improvements
- Strategise effective ways to lower their carbon emissions
- Cultivate a culture of sustainability among all stakeholders
- Stay prepared for evolving environmental regulations and responsibilities
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Understanding the measurement of Scopes
When we talk about measuring carbon footprints in terms of carbon and carbon dioxide equivalents, we are referring to the quantification of different greenhouse gases (GHGs) in terms of their impact on global warming. This measurement is crucial because different gases have varying levels of effect on the Earth's atmosphere.
The most common unit of measurement is the carbon dioxide equivalent (CO2e), which standardises various GHGs based on their Global Warming Potential (GWP).
Carbon dioxide (CO2) is the most prevalent GHG emitted through human activities, such as fossil fuel combustion and deforestation. It serves as the baseline for the CO2e metric, with a GWP of 1.
Other greenhouse gases like methane(CH4), nitrous oxide (N2O), and fluorinated gases (HFCs, PFCs, SF6, and NF3) are also significant contributors to global warming. Each of these gases differs in GWP and atmospheric lifespan:
| Gas | Global Warming Potential (GWP) | Atmospheric Lifespan | Common Sources |
|---|---|---|---|
| Carbon Dioxide (CO2) | 1 | 300–1,000 years | Burning fossil fuels, deforestation, cement production |
| Methane (CH4) | ~28–34 (over 100 years) | ~12 years | Agriculture (livestock digestion), landfills, natural gas extraction |
| Nitrous Oxide (N2O) | ~265–298 | ~114 years | Fertilizers, industrial processes, combustion of fossil fuels |
| Hydrofluorocarbons (HFCs) | 12–14,800 | 15–29 years | Refrigeration, air conditioning, aerosol propellants |
| Perfluorocarbons (PFCs) | ~6,500–12,200 | Thousands of years | Aluminum production, semiconductor manufacturing |
| Sulfur Hexafluoride (SF6) | ~23,500 | ~3,200 years | Electrical insulation, circuit breakers |
| Nitrogen Trifluoride (NF3) | ~17,200 | ~500 years | Semiconductor manufacturing, LCD panel production |
How are Scope 1, 2, and 3 emissions used in reporting?
Understanding and reporting Scope 1, 2, and 3 emissions is not just about categorising emissions - it’s about ensuring transparency, regulatory compliance, and aligning with climate action goals to reduce emissions. Each scope plays a unique role in reporting, helping organisations measure their impact comprehensively and communicate effectively with stakeholders.
Scope 1: Direct operational emissions
Purpose: These emissions give organisations a clear picture of their direct environmental footprint, offering a starting point for reductions.
- How it's reported:
- Often mandatory in regulatory frameworks like the EU Emissions Trading System (EU ETS) or national GHG reporting schemes.
- Data collection typically involves on-site fuel logs, emission meters, or operational activity reports.
- Common metrics:
- CO2e emissions from vehicles, on-site boilers, or industrial processes.
- Annual emissions totals for internal performance tracking and regulatory compliance.
- Challenges:
- Ensuring accuracy in emissions measurements, especially for fugitive or process emissions.
Scope 2: Energy consumption
Purpose: Scope 2 highlights an organisation’s reliance on energy and identifies opportunities to transition to renewable sources.
- How it's reported:
- Frequently included in corporate sustainability reports and frameworks like CDP (Carbon Disclosure Project) and TCFD (Task Force on Climate-related Financial Disclosures).
- Requires electricity, heat, and steam consumption data from utility bills or invoices.
- Common Metrics:
- Annual CO2e emissions from purchased electricity, adjusted for renewable energy credits or grid emission factors.
- Challenges:
- Accurately accounting for emissions from shared or outsourced facilities.
Scope 3: Value chain emissions
Purpose: Scope 3 reporting provides a complete view of an organisation’s environmental impact, enabling them to address emissions across their value chain.
- How it's reported:
- Often voluntary but increasingly expected by stakeholders under frameworks like the Science-Based Targets Initiative (SBTi) or ESG disclosures.
- Data collection involves collaboration with suppliers, partners, and customers.
- Common metrics:
- CO2e emissions broken down by category (e.g., transportation, purchased goods).
- Lifecycle analysis (LCA) metrics for products or services.
- Challenges:
- Gathering reliable data from third parties and accounting for variability across industries.
How reporting drives impact
Incorporating all three scopes into emissions reporting achieves several goals:
- Regulatory compliance: Scope 1 and 2 are often required for compliance with national and international regulations.
- Stakeholder engagement: Scope 3 reporting demonstrates a commitment to transparency and climate leadership, attracting customers, investors, and partners.
- Identifying opportunities: Comprehensive reporting helps pinpoint inefficiencies and high-impact areas for emission reductions, leading to cost savings and innovation.
- Benchmarking and goal-setting: Enables organisations to track progress toward sustainability targets, such as net-zero commitments.
| Scope | Reported Where? | Purpose in Reporting | Challenges |
|---|---|---|---|
| Scope 1 | Regulatory frameworks (e.g., EU ETS), internal reporting | Tracks direct impact and sets a baseline for reductions. | Accurate measurement of fugitive and process emissions. |
| Scope 2 | Corporate sustainability reports, CDP, TCFD | Highlights energy consumption and opportunities for renewables. | Adjusting for renewable energy credits or grid factors. |
| Scope 3 | ESG disclosures, SBTi, voluntary initiatives | Provides a complete picture of environmental impact. | Data collection across supply chains and value chains. |
Practical steps for measuring and reporting emissions
While Scope 1, 2, and 3 emissions provide a clear framework for categorising and understanding greenhouse gas emissions, putting this knowledge into practice can be challenging. For many companies, measuring and reporting emissions requires navigating a complex web of data collection, reporting frameworks, and value chain engagement.
Steps to begin your emissions reporting journey
- Identify key emission sources
Start by mapping your operational and value chain activities to their associated emissions categories. - For Scope 1: Focus on direct emissions from company-owned facilities and vehicles.
- For Scope 2: Account for purchased electricity, heat, and cooling.
- For Scope 3: Analyse upstream and downstream activities, such as supplier emissions and product end-of-life.
- Choose the right reporting framework
Frameworks like the Carbon Disclosure Project (CDP) and Task Force on Climate-related Financial Disclosures (TCFD) provide guidance on reporting emissions transparently and comprehensively.
| Framework | Description |
|---|---|
| Greenhouse Gas Protocol (GHG Protocol) | The foundation for many emissions reporting initiatives, providing comprehensive standards for measuring and managing Scope 1, 2, and 3 emissions. |
| Global Reporting Initiative (GRI) | A widely used framework for sustainability reporting, including disclosures on greenhouse gas emissions and climate impacts. |
| Science-Based Targets initiative (SBTi) | Helps organizations set science-based emissions reduction targets in line with the Paris Agreement’s goal of limiting global temperature rise to 1.5°C. |
| ISO 14064 Standards | An international framework for quantifying and reporting greenhouse gas emissions. Includes organization-level (ISO 14064-1) and project-level (ISO 14064-2) standards. |
| Climate Disclosure Standards Board (CDSB) | Provides guidance for integrating climate-related information into mainstream financial reports with an emphasis on consistency and comparability. |
| Sustainability Accounting Standards Board (SASB) | Focuses on material ESG factors, including greenhouse gas emissions, tailored to specific industries with sector-specific standards. |
| United Nations Framework Convention on Climate Change (UNFCCC) | Offers guidelines for nations and organizations participating in climate agreements, including reporting requirements for emissions inventories. |
| European Sustainability Reporting Standards (ESRS) | Developed under the EU Corporate Sustainability Reporting Directive (CSRD), requiring detailed reporting of Scope 1, 2, and 3 emissions. |
| The Carbon Trust Standard | Certifies organizations that successfully measure, manage, and reduce their carbon footprint in alignment with global best practices. |
| B Corp Certification | Includes requirements for environmental impact reporting and targets to reduce carbon emissions as part of broader sustainability efforts. |
- Leverage data collection tools
Collecting accurate and consistent data is critical. Use utility records, transportation logs, and supplier data to quantify emissions. - For Scope 3, collaborate with partners to gather lifecycle data and estimate emissions where necessary.
Why companies struggle with emissions reporting
Even with a clear framework, many companies face barriers to effective emissions reporting:
- Data complexity: Tracking emissions across multiple facilities, supply chains, and third-party operations requires extensive coordination.
- Accuracy vs. estimation: While direct emissions (Scope 1) can often be measured precisely, indirect emissions (Scope 3) frequently rely on estimates and averages.
- Time and resource constraints: Smaller organisations may lack the capacity to manage comprehensive data collection and reporting processes.
- Regulatory evolution: Keeping up with changing laws and expectations around emissions reporting can be overwhelming.
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How Greenly can help
At Greenly, we understand the challenges businesses face in measuring and reporting their carbon emissions. That’s why we’ve developed tools and services designed to take the complexity out of emissions management:
- Emissions Monitoring: Track Scope 1, 2, and 3 emissions across your operations and supply chain. Gain the visibility needed to reduce both direct and supplier emissions effectively.
- Lifecycle Assessment (LCA): Evaluate the carbon footprint of your products from raw material sourcing to disposal. Identify and address the most carbon-intensive stages of your product lifecycle.
- Sustainable Supply Chain Strategies: Work collaboratively with suppliers to enhance resource efficiency, lower emissions, and build a more sustainable supply chain.
- Decarbonisation Pathways: Create tailored, actionable plans for reducing emissions—whether through energy efficiency upgrades, transitioning to renewable energy, or other targeted solutions.
- Science-Based Targets: Set ambitious yet achievable emissions reduction goals aligned with the Science-Based Targets initiative (SBTi) and take meaningful steps to achieve them.
Partner with Greenly to track your company's greenhouse gas emissions, enhance operational efficiency, and make measurable progress toward sustainability. Reach out to us today.
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