Downstream vs upstream emissions: what you need to know

As businesses turn their attention to sustainability and the transition to net zero, understanding the complexities of the emissions landscape has never been more important. This article focuses on a particular aspect of this - upstream and downstream emissions; key components that often make up the bulk of a company's carbon footprint. Understanding these emission sources is critical for effective carbon management. Whether you're a business leader, sustainability manager, or simply someone keen on understanding the mechanisms of climate change, this article will take you through the ins and outs of upstream and downstream emissions and why it’s important to understand what they are. 

👉 Downstream vs upstream emissions - what do these terms mean and why are they important in the context of carbon accounting?

Before we dive into downstream vs upstream emissions, let’s quickly go over some of the basics - i.e. what are carbon emissions in the first place? 

Carbon emissions refer to the release of carbon - particularly in the form of carbon dioxide - into the atmosphere. These emissions primarily result from the burning of fossil fuels like coal, oil, and natural gas for energy. Other sources include human activities such as deforestation, industrial processes, and agricultural practices. Carbon emissions are a key contributor to climate change - something that’s changing weather patterns across the globe and increasing the frequency and intensity of extreme weather events such as heatwaves, flooding, and storms. 

Understanding and tracking carbon emissions is crucial for both individuals and organizations for several reasons. First, carbon emissions have a direct impact on the health of our planet, affecting ecosystems, biodiversity, and even human health. Monitoring these emissions helps to identify the primary sources and therefore create effective strategies for reduction.

Second, for organizations, carbon tracking is not just an environmental responsibility but is increasingly becoming a financial and reputational necessity. Governments and consumers are growing more conscious of climate change, leading to the development of regulations and a preference for businesses that have lower carbon footprints. This is why understanding both downstream and upstream aspects of carbon emissions is essential for effective carbon management.

👉 To learn more about carbon emissions why not check out our article on the topic.

The second concept that’s crucial to understanding upstream and downstream emissions is carbon accounting.

Carbon accounting involves the quantification of carbon dioxide, methane, and other greenhouse gases emitted during various activities or operations. The collected data is then analyzed to formulate strategies aimed at reducing an organization's carbon footprint. The methodology extends from individual projects to entire organizational operations, giving a company a holistic view of its emissions.

The importance of carbon accounting can't be overstated in today's world, where climate change is a growing threat. For businesses in particular, proper emission management is not just an ethical obligation but increasingly a legal requirement, as governments around the world tighten environmental regulations. 

But carbon accounting shouldn’t be viewed as an imposition, as managing emissions brings with it a whole host of advantages. Companies that actively engage in carbon accounting are likely to find themselves better positioned for success, as consumers are increasingly leaning towards eco-friendly brands. Additionally, comprehensive carbon accounting can also help companies identify inefficiencies in their operations, offering the potential for cost savings.

Now that we’ve covered the basics, let’s take a closer look at downstream vs upstream emissions…

👉 To learn more about carbon accounting - and how Greenly can help your company - head over to our article.

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The Greenhouse Gas Protocol - the most commonly used framework for calculating a company’s greenhouse gas emissions - categorizes scope 3 emissions into either upstream or downstream sources. For the majority of businesses, scope 3 typically constitutes the largest portion of their carbon footprint.

👉 Also referred to as value chain emissions, scope 3 is responsible for approximately 90% of an average company's impact on the climate.

For a thorough understanding and reduction of your business's carbon emissions, it's essential to fully grasp scope 3 emissions, which involves calculating both upstream and downstream sources of emissions.

A quick refresh on scope 1, 2, and 3 emissions

Scope 1 - This is direct greenhouse gas emissions stemming from resources that are owned and controlled by an organization. For example, emissions produced by company facilities or a company-owned vehicle. 

Scope 2 - This is indirect energy emissions and results from a company’s consumption of electricity, heat, or steam in company facilities or vehicles. 

Scope 3 - This is all other indirect emissions occurring either upstream or downstream in the company’s value chain. Scope 3 emissions usually account for the majority of a company’s emissions which is why it’s so important for companies to measure these emissions, it’s also why the category is further broken down into upstream and downstream sources.

👉 To discover more about the different emissions scopes why not take a look at our article which outlines everything you need to know.

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Upstream emissions refer to greenhouse gas emissions stemming from the production of goods or services that a company purchases or uses. 

The Greenhouse Gas Protocol outlines eight upstream emissions categories. These are: 

• Purchased goods and services - This includes emissions arising from the extraction, manufacturing, and transportation of any items or services purchased by the company. 
• Capital good - This is emissions arising from the extraction, manufacturing, and transportation of a company’s purchased or acquired assets. 
• Fuel and energy use - Emissions arising from the extraction, manufacturing, and transportation of fuels and energy that are not already included under scope 2 or 3 emissions.
• Upstream transport and distribution - This covers emissions linked to the transportation and distribution of the company’s purchased products. This category also includes logistics and transportation such as supply chain services, outbound logistics, and transportation between company facilities. 
• Operational waste - Emissions produced as a result of the disposal or treatment of operational waste. This excludes emissions linked to in-house waste management facilities. 
• Business travel - Emissions resulting from employee transportation for business-related activities in vehicles not belonging to the company. 
• Employee commuting - This covers emissions resulting from an employee’s commute between their home and office where the vehicles used don’t belong to the company. 
• Upstream leased assets - This includes any assets leased by the company that fall out with scope 1 and 2 emissions. 

Real-world examples of upstream emissions are incredibly varied and depend on the specific operations and industry of the company. In the automotive industry, for example, it might include emissions resulting from the extraction of metals for car parts and the production of synthetic materials for interiors. In the case of a food retailer, upstream emissions could include those resulting from the manufacturing of plastic containers used to sell their produce. It even encompasses emissions related to the extraction and processing of coal, oil, or natural gas, which are not already accounted for in scope 1 or 2.

Why is it important to calculate upstream emissions? 

Although upstream emissions are generally not directly within the control of the company - since they arise from activities outside of the organisation's own operations. These emissions occur in the supply chain, originating from sources like suppliers' manufacturing processes, raw material extraction, and transportation services that are contracted by the company but not owned or operated by it. However, a company can influence these emissions through its procurement choices, supplier engagement, and by setting sustainability incentives for its supply chain partners. Through strategic decision-making and collaboration with suppliers, companies can encourage more sustainable practices upstream, thereby reducing the overall Scope 3 emissions associated with their products or services.

Downstream emissions are the greenhouse gases emitted during the use, end-of-life treatment, and disposal phases of a product or service. In essence, these emissions occur after the product has been sold to the consumer. 

The Greenhouse Gas Protocol breaks down downstream emissions into seven distinct categories: 

• Downstream transportation and distribution - This includes emissions linked to the delivery and distribution of company products. 
• Processing of sold products - Emissions related to the processing of products sold by third parties. 
• Use of sold products - Emissions stemming from the final use of the goods and services. 
• End-of-life disposal and treatment - Any emissions related to waste disposal or treatment of the company's products. 
• Downstream leased assets - Emissions stemming from a company’s leased assets to organizations or individuals. 
• Franchises - Any emissions created by the operation of franchises that do not fall under scope 1 or 2 emissions. 
• Investments - Emissions linked to the operation of investments, including the financing of projects. 

Like upstream emissions, examples of downstream emissions in the real world are incredibly varied. In the context of vehicles, downstream emissions include those generated when consumers drive their cars. For electronic gadgets, this entails emissions from electricity consumption during the gadget's usage. In the case of consumer goods like packaged food or drinks, downstream emissions could involve the energy needed for refrigeration and, eventually, the emissions resulting from waste disposal, such as landfill decomposition or incineration.

Why is it important to calculate downstream emissions? 

Tracking downstream emissions is critical for a number of reasons. First, they often constitute a significant portion of a product's overall carbon footprint. Ignoring them means missing a large part of the emissions puzzle. Second, understanding downstream emissions can help businesses make more eco-friendly products and can influence consumer education. For example, if a company knows that most emissions from its product occur during the usage phase, it can develop lower-energy-consuming alternatives or educate consumers on efficient usage.

However, monitoring downstream emissions presents its own set of challenges. For one, these emissions are typically outside the direct control of the organisation that produced the product, making it difficult to collect precise data. Consumer usage patterns can also be highly variable, and waste disposal practices differ widely across regions. Despite these difficulties, effective tracking of downstream emissions is increasingly important for full-spectrum carbon accounting, regulatory compliance, and fostering a sustainable brand image.

Distinguishing between upstream and downstream sources might sound complex, but it actually boils down to one simple question - who paid for the goods or services? If it's the company then it’s upstream, if it's the consumer then it's downstream. 

Let’s take a closer look at some of the other key differences between upstream and downstream scope 3 emissions: 

• Phase of Life Cycle - Scope 3 upstream emissions are indirect greenhouse gas emissions that occur outside of a company's direct operations but are associated with activities in its supply chain, such as raw material extraction, manufacturing, and transportation. Downstream emissions, on the other hand, occur post-sale during the use, end-of-life treatment, and disposal stages.
  
• Control - Although upstream emissions are not directly within the control of the company, through partnerships with suppliers they may be able to indirectly influence these emissions. Downstream emissions often depend on consumer behaviour and waste management practices, making them harder to control.
  
• Data Collection - Tracking upstream emissions involves data collected from suppliers and can be relatively straightforward if the supply chain is well-managed. Conversely, downstream emissions tracking can be challenging due to the variability in consumer usage and waste disposal practices.
  
• Regulatory Implications - Regulations for Scope 3 emissions, both upstream and downstream, are generally less stringent than for Scope 1 and Scope 2 emissions, focusing more on disclosure than mandatory reductions - though this is changing as regulations become more stringent. Upstream and downstream Scope 3 emissions may also be indirectly influenced by various regulations, such as supplier standards or end-of-life disposal rules, which vary by jurisdiction and are evolving over time.

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Understanding and accounting for upstream and downstream emissions are fundamental steps in addressing an organization's total carbon footprint. From raw material extraction to consumer usage and waste disposal, each stage of a product's life cycle contributes to its overall environmental impact. Ignoring Scope 3 emissions results in an incomplete and potentially misleading picture, it also reduces the effectiveness of carbon reduction strategies.

Understanding upstream and downstream emissions enables organizations to identify emission hotspots, develop targeted reduction strategies, and meet regulatory requirements. As the global focus on sustainability intensifies, adopting robust accounting methods becomes not just good practice, but a business imperative.

Calculating Scope 3 upstream and downstream emissions can admittedly be complicated and time-consuming. However, various tools and specialist companies are available to assist organizations in calculating these emissions. Companies such as Greenly help to make the whole process as straightforward and pain-free as possible, so why not get in touch to see how we can help!

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Government 

Governments wield significant influence in shaping a sustainable future, using their legislative and policy-making powers to set the trajectory for both individual and corporate behaviour. Here's an overview of the avenues through which governments can drive environmental sustainability:

Environmental Regulations

Regulatory frameworks are essential in setting clear environmental standards. By implementing and enforcing stringent environmental regulations - ranging from emission caps to waste management guidelines - governments can ensure that industries operate within sustainable parameters, reducing negative impacts on the environment.

Green Tech and Industries

Governments can stimulate the growth of green technologies and industries through incentives, grants, and research funding. By supporting innovations in renewable energy, sustainable agriculture, and eco-friendly transportation, they can pave the way for a more sustainable economic landscape, creating jobs and boosting economic growth in the process.

Policies Supporting Sustainable Practices

Government policies can actively promote sustainable practices across sectors. This includes providing tax breaks for sustainable businesses, offering subsidies for renewable energy installations, and endorsing urban planning that supports public transportation and green spaces. By setting a legislative agenda that prioritises sustainability, governments play a pivotal role in ensuring a greener future for all.

At Greenly we can help you to assess your company’s carbon footprint, and then give you the tools you need to cut down on emissions. Why not request a free demo with one of our experts - no obligation or commitment required. 

If reading this article has inspired you to consider your company’s own carbon footprint, Greenly can help. Learn more about Greenly’s carbon management platform here.