March 4, 2024

Carbon Accounting

What Are Scope 1, 2, and 3 Emissions?

What Are Scope 1, 2, and 3 Emissions?

In an era of increasing environmental consciousness and the pressing need to address global warming, understanding the intricacies of greenhouse gas emissions (GHGs) is paramount for businesses striving to achieve net zero and carbon neutrality. The Greenhouse Gas Protocol (GHGP) serves as the preeminent guideline for carbon accounting, delineating GHGs into three distinct scopes:

  • Scope 1 encompasses direct emissions originating from sources owned or controlled by the reporting company.
  • Scope 2 pertains to indirect emissions derived from the generation of purchased electricity, steam, heating, and cooling employed by the reporting company.
  • Scope 3 covers indirect emissions resulting from activities involving assets beyond the reporting organization's control, but within its value chain.

Established independently from any government in 2001, the GHGP provides a standardized approach for businesses to manage and calculate their emissions, facilitating the creation of policies and regulations. By comprehending all scopes of emissions, companies are better equipped to devise and implement effective strategies for combating climate change and reducing GHG emissions.

It is important to note that not all GHGs are carbon dioxide (CO2), but they are all incorporated within the GHGP's carbon accounting framework. The Protocol provides a comprehensive basis for calculating and measuring emissions, as exemplified by platforms such as Net0, which utilize data supplied by businesses to inform their mitigation efforts.

What is the difference between direct and indirect emissions?

Direct GHG emissions emanate from sources owned and controlled by the reporting entity, highlighting their immediate environmental impact.

Conversely, indirect GHG emissions are attributed to the reporting entity's activities, but originate from sources under the ownership or control of another entity, reflecting a broader, shared responsibility in mitigating climate change.

Scope 1 2 3 emissions types chart

The classification of scopes hinges on two fundamental factors, which are instrumental in understanding a company's contribution to greenhouse gas emissions:

  1. The ownership of those emissions.
  2. The degree of control exerted over emission levels at each stage.

By discerning these elements, businesses can effectively assess their environmental impact and devise targeted strategies to mitigate it.

Scope 1 emissions - direct emissions from owned or controlled sources 

Scope 1 emissions are direct emissions that are made during a production process with items that are owned and controlled by a company including boilers, furnaces, emissions from machinery and equipment, and vehicles which use fuel.

Scope 2 emissions - indirect emissions from purchased services 

Scope 2 emissions are indirect emissions that come from the generation of purchased electric, heating, cooling, gas, steam, and electric vehicles.

Scope 1 and 2 emissions are a mandatory part of reporting for many businesses around the world. 

scope 123 emissions flow chart value chain emissions

Scope 3 emissions - all other indirect emissions that occur in a company’s value chain  

Scope 3 emissions, alternatively referred to as value chain emissions, encompass indirect greenhouse gas emissions both upstream and downstream of an organization's core operations. It is worth noting that one organization's scope 3 emissions constitute the scope 1 and 2 emissions of another entity.

While businesses may not exercise direct control over scope 3 emissions, they can still exert influence over the activities that generate these greenhouse gases. For instance, logistical responsibilities may depend on shipping agreements established between pre-production teams, the reporting company, and the final distribution center. Addressing scope 3 emissions, which include upstream and downstream emissions, often necessitates collaboration with various stakeholders and businesses throughout the value chain. Organizations can select suppliers and vendors based on their eco-friendly processes and practices, thereby incorporating reducing greenhouse gas strategies into their reporting.

To prevent double counting emissions across categories, the 15 distinct scope 3 categories are designed to be mutually exclusive. This framework ensures accuracy in assessing an organization's environmental impact and facilitates the development of comprehensive emissions reduction plans.

scope 3 upstream and downstream emissions categories

What are the 15 categories of scope 3 emissions?

Upstream emissions originate during pre-production stages prior to reaching the reporting company's facility, encompassing materials acquisition and preliminary processing emissions.

These emissions include the following 8 categories: 

  1. Purchased goods and services - This category encompasses the extraction, production, and transportation of goods and services procured by the reporting company during the reporting year. It pertains to materials acquired for product manufacturing, as well as non-production-related purchases, such as office furniture or outsourced services like accounting. Additionally, this classification includes raw materials, agricultural activities, upstream energy usage, waste treatment, land use, and transportation between suppliers
  2. Capital goods - Refers to the extraction, production, and transportation of long-lasting goods purchased or acquired by the reporting company. These goods are utilized in manufacturing products, providing services, and storing manufactured items, and their emissions are calculated on a cradle-to-gate basis. Examples include buildings, vehicles, and machinery.
  3. Fuel and energy-related activities - Excluding scope 1 and scope 2, these activities involve the extraction, production, and transportation of fuels and purchased energy by the reporting entity. Examples include cradle-to-gate emissions of purchased fuels, consumption in transmission and distribution (T&D) systems, and energy sold to end-users.
  4. Upstream transportation and distribution - This category refers to a) transportation and distribution of products purchased by the reporting entity between tier 1 suppliers and its operations, and b) transportation and distribution services purchased by the reporting entity, including inbound logistics and outbound logistics. It also covers emissions from third-party warehousing.
  5. Waste accumulated in operations - This category includes the disposal and treatment of waste generated by the reporting entity's operations, such as waste sent to landfills and wastewater treatments. Other GHGs like methane (CH4) and nitrous oxide (N2O) are considered, as they cause more significant environmental damage than CO2 alone. Waste-to-energy, composting, incineration, and recycling recovery are also included.
  6. Business travel - This encompasses the transportation of employees for business-related activities, such as employee-owned vehicles used for work-related tasks. Emissions from hotel stays, waste, and energy usage during business trips are also considered. Various modes of transport are relevant, including rail, air travel, bus, and other GHG-emitting means.
  7. Employee commuting - This category covers the transportation of employees between their homes and worksites, including but not limited to motorbikes, public transportation such as buses, rail, subways, and ferries. It can be seen as the scope 1 and 2 of employees themselves.
  8. Upstream leased assets - These refer to the operation of assets leased by the reporting entity (lessee) and not included in scope 1 and 2 emissions to avoid double counting. Reporting is more straightforward for upstream leased assets due to data availability. Optionally, the lifecycle emissions of constructing leased assets could be included.

Downstream emissions occur after a product departs from the reporting company's facility, encompassing aspects such as distribution, product use, and product lifecycle. These emissions predominantly relate to the goods and services sold by the company. Downstream interventions primarily hinge on product and service design, as well as modifications in consumer behavior.

These emissions include the following 7 categories:

  1. Downstream transportation and distribution - The emissions from transporting and distributing products sold by the organization in the reporting year, between the organization's operations and the end consumer (if not paid for by the organization), including retail and storage in non-owned vehicles and facilities. This category involves supply chain emissions and outbound logistics after the point of sale: warehousing, distribution centers, and reaching the end consumer.
  2. Processing of sold products - Emissions from processing intermediate products sold by downstream companies (e.g., manufacturers). These are the scope 1 and 2 emissions of downstream companies (the organization's customers) that occur during production processes, such as energy use.
  3. Use of sold products - The utilization of sold products refers to the end-use of goods and services provided by the organization within the reporting year. It includes emissions generated by customers during product usage, arising over the products' life expectancy. For example, energy or fuel consumption resulting from end-users interacting with the company's offerings.
  4. End-of-life treatment of sold products - The waste disposal and treatment of products sold by the organization (in the reporting year) at the end of their life. By assessing end-of-life options for products, companies can promote a circular economy and circular supply chain model, replacing the linear model.
  5. Downstream leased assets - The operation of assets owned by the organization (lessor) and leased to other entities during the reporting year. Calculations are based on operational control and equity share. These are the scope 1 and 2 emissions of lessees. Optionally, the organization could include the life cycle emissions of manufacturing and constructing leased assets.            
  6. Franchises - The operation of the organization's franchises in the reporting year. Franchisors must report at least scope 1 and 2 of franchisees' emissions, such as energy consumption. Franchisees can optionally report scope 3 emissions.
  7. Investments - The operation of investments including equity, debt investments, project finance, and managed investments and client services in the reporting year. This category is relevant for private and public financial institutions. Emissions could be included in scopes 1 or 2 instead of 3, depending on the organization's approach.    

By assessing these categories, organizations can develop a comprehensive emissions inventory to identify their total emissions and implement effective strategies for reducing greenhouse gas and process emissions.

Why is measuring scopes 1, 2, and 3 emissions necessary?

Carbon emissions account for 81% of overall greenhouse gas emissions, with businesses being major contributors. Many organizations are mandated to report on scope 1 and scope 2 emissions, while comprehensive reporting across the entire value chain is becoming the standard.

Attaining net-zero commitments necessitates addressing scope 3 emissions, as they often represent over 70% of a company's carbon footprint for numerous businesses.

Net0 platform all scopes of emissions

Given that scope 3 emissions constitute more than 40% of total emissions, the Science Based Targets initiative (SBTi) now requires businesses to establish targets encompassing this impact.

Globally, measuring and reporting on scope 3 presents an opportunity to accelerate environmental engagement through supply chains, international and local businesses, regional and national governments, and consumers. Reporting on scope 3 carbon emissions enables organizations to implement the changes required by the Paris Agreement and adhere to new objectives set at COP26.

Presently, most sustainability reporting frameworks encompass criteria for all emission scopes, reflecting the increasing importance of comprehensive emission assessment in addressing climate change.

Related content

To learn more about carbon emissions, managing, and reporting them, please explore our blog and downloadable resources:

• Article: How to Reduce Upstream Emissions With the Gold Standard Framework for Supplier Engagement
• Article: GHG Reporting: Everything You Need to Know
• Article: 11 Reasons Net0 Is the Best Carbon Accounting Platform
• White Paper: How Net0 Brings Businesses Towards Carbon Neutrality in 5 Steps

Benefits of comprehensive GHG reporting:

Gaining insight into the emissions a business is responsible for and learning how to measure, offset, and, reduce emissions will equip your company with a proactive approach to comply with mandatory regional climate regulations. Accurate reporting to stakeholders is essential to ensure your business meets the standards of local and national governments and is prepared for value chain growth in the future.

Companies proficient in reporting all three GHG Protocol scopes of emissions also gain a competitive advantage in carbon neutrality. Furthermore, several benefits of comprehensive reporting emerge on a business's sustainability journey:

  • Enhanced transparency throughout the supply chain for leaders, employees, and stakeholders.
  • Recognition of industry leaders' progress towards net-zero.
  • Identification of obstacles and devising valuable solutions to overcome them.
  • Increased consumer trust and loyalty.
  • Exceptional environmental reputation and unique market positioning due to the ability to obtain GHG certifications and employ eco-labeling.
  • A better understanding of exposure to climate-related risks, enabling supply chain adaptations in production methods and materials.
  • Decreased energy consumption and reduced resource costs.
  • The ability to transition to eco-friendlier processes and pinpoint significant CO2 reduction opportunities.
  • Positive employee engagement, retention, and attraction of similarly-minded applicants.
  • Acknowledgment for early voluntary action.
  • Heightened interest from investors inclined towards green investments.

By embracing comprehensive GHG accounting and addressing all aspects of a company's activities, businesses can enjoy numerous advantages and contribute to a more sustainable future.

man's hands holding papers with graphs in front of a computer

Leveraging Net0 carbon management tool to measure scopes 1, 2, and 3 emissions

In the pursuit of accurate and comprehensive greenhouse gas emission measurements, businesses can utilize the Net0 carbon management tool to assess and report on all of the scopes of emissions. The Net0 tool is designed to streamline and optimize the process, making it more accessible for organizations of various sizes and industries.

Net0 emissions management platform dashboard with colorful graphs
Image source: Net0 Emissions Management Platform
  1. Streamlined Data Collection: The Net0 tool simplifies data collection across all aspects of a company's activities, enabling businesses to compile relevant information from scope 1, 2, and 3 emissions. Through the vendor outreach program, Net0 facilitates data collection from suppliers across the supply chain by directly inviting vendors to the platform to share their data. For scope 1 and scope 2 emissions, companies can also access granular data, examining emissions by locations, departments, and teams, ensuring a comprehensive understanding of their carbon footprint.
  2. Automated Calculations and Accurate Data: Net0 eliminates the need for complex manual calculations or spreadsheets to determine a company's carbon footprint. The tool automatically computes emission levels across all scopes, providing a clear and comprehensive overview of a company's carbon emissions. Net0's carbon management platform features over 350 API integrations, including ERP systems, which enables sourcing accurate emissions data directly from utility providers and other data sources. Automation and AI significantly reduce the error rate in emissions data by up to 45%, providing businesses with reliable and accurate data to drive sustainable progress and develop effective carbon reduction strategies.
  3. Customized Reporting: The Net0 tool offers customizable reporting features, allowing businesses to generate detailed and relevant reports that meet the specific requirements of their stakeholders, including investors, customers, and regulators. This comprehensive reporting ensures that organizations stay aligned with regional climate regulations and industry standards.
  4. Emission Reduction Planning: Net0 not only helps in measuring emissions but also aids in devising strategies to reduce them. By identifying significant emission sources within the company's operations and value chain, the tool assists in creating targeted reduction plans and monitoring their progress over time.
  5. Benchmarking and Tracking Progress: The Net0 carbon management tool allows businesses to set benchmarks for their emission reduction goals, enabling them to track progress against industry standards and competitor performance. This feature helps companies stay motivated and focused on their sustainability journey.
  6. Integration with Other Sustainability Initiatives: Net0 can be integrated with other sustainability initiatives and tools, ensuring that businesses can effectively coordinate their climate action strategies across different aspects of their operations.

By utilizing the Net0 carbon management tool, businesses can effectively measure scopes 1, 2and 3 emissions and take the necessary steps towards a sustainable and carbon-neutral future. The tool's streamlined approach ensures that organizations can readily comply with evolving climate regulations, satisfy stakeholder expectations, and stay competitive in an increasingly eco-conscious market.

sustainability team sitting aound a table in a meeting


Q: Do companies have to report Scope 3 emissions?
A: Depending on the regional reporting directive and size of the company, it may be mandatory. Scope 3 emissions include emissions that originate along a company's supply chain and account for 90% of a company's overall emissions. To access Scope 3 data, companies need to establish transparent collaboration with suppliers and reciprocal climate data management.

Q: What are scope 4 emissions?
Scope 4 are described as avoided emissions, which means they are a result of the use of the product, and are now accounted for in the product carbon footprint. By considering the carbon footprint during a product's life cycle, this should drive changes in consumer behavior. Additionally, home-working emissions, which also contribute to the overall carbon footprint, are considered scope 4.

Q: How can companies ensure the accuracy of their emissions data when using the Net0 carbon management tool?
Companies can ensure the accuracy of their emissions data when using the Net0 carbon management tool by leveraging automation and AI to reduce the error rate by up to 45%, sourcing accurate data directly from systems via API, and collecting exact activity data at scale. This results in reliable emissions data for informed decision-making and effective carbon reduction strategies.

Q: Can Net0 help businesses set and achieve their emissions reduction goals?
A: Yes, Net0 can help businesses set and achieve their emissions reduction goals. The tool offers customized reporting and emission reduction planning features that allow businesses to devise strategies to reduce their carbon emissions and monitor progress over time. Net0's carbon management platform also allows businesses to set benchmarks for their emission reduction goals, enabling them to track progress against industry standards and competitor performance.

Q: Which types of companies can Net0 help with measuring and managing all three scopes of emissions?
Net0 can assist large companies, public companies, and governments with measuring and managing all three scopes of emissions. Net0 has a range of Fortune 500 clients that utilize its platform to accurately measure and reduce their carbon footprint across all scopes of emissions.

Book a demo

Net0 empowers businesses to accurately measure all three scopes of carbon emissions and implement strategies to reduce those emissions, ultimately achieving carbon-neutral status. Schedule a demo with us today to discover how Net0 can transform your organization's sustainability efforts.

Written by:

Sofia Fominova

As a Co-Founder of Net0, Sofia applies her experience in environmental software to help businesses reduce their carbon footprint and achieve carbon neutrality. She is an accomplished tech entrepreneur recognized for her expertise in B2B software and contributions to the field of Artificial Intelligence.
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