May 4, 2022

What Are Scope 1, 2, and 3 Emissions?

What Are Scope 1, 2, and 3 Emissions?
Contents

Greenhouse gas emissions (GHGs) are categorized into three scopes by the GHG Protocol (GHGP), which is the most utilized guideline for carbon accounting: 

  • Scope 1 direct emissions come from owned or controlled sources by the reporting company
  • Scope 2 indirect emissions come from the generation of purchased electricity, steam, heating and cooling used by the reporting company
  • Scope 3 are indirect emissions that occur in a company’s value chain, outside of the reporting company's walls


The terms scope 1, 2, and 3 emissions were coined by the GHGP in 2001, which was created for businesses to have a set standard to do their carbon accounting. This helps businesses separate their emissions so they are as manageable as possible to calculate. It also makes it easier to create policies and laws for businesses to abide by. The GHGP is independent from any government. 

As more businesses aim to achieve net zero and become carbon neutral, it becomes essential that they are able to measure, reduce and report their carbon emissions. Gaining a detailed understanding of a company’s GHGs is the first step to planning and executing effective climate change and GHG reduction strategies. Not all GHGs are CO2, but they are all included in the GHGP, are part of the idea of carbon accounting as a whole, and are included in the calculations and measurements that Net0 can do for you based on the data you provide the platform.

What is the difference between direct and indirect emissions?

Before we break down the 3 scopes it's important to know the difference between direct and indirect emissions:

Direct GHG emissions are those which are from sources that are owned and controlled by the company or entity reporting the emissions. 

Indirect GHG emissions are the result of the reporting entity/company's activities but come from sources owned or controlled by another entity. 

What are scopes 1, 2, and 3 exactly?

scope 123 emissions graph

The scopes are classified by two factors: 

  • the ownership of those emissions
  • the level of control applicable to changing those emission levels at each stage 

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, also known as value chain emissions, are indirect GHG emissions both upstream and downstream of an organization's main operations. The scope 3 emissions for one organization are the scope 1 and 2 emissions of another organization. 

Although scope 3 emissions are not under the direct control of the business, the organization may be able to impact the activities that result in the emissions. For example, logistics responsibility depends on the shipping agreements between the pre-production, reporting company, and the final distribution center. Tackling scope 3 often requires engaging with many other stakeholders and businesses throughout the value chain. The organization may also influence its suppliers and choose which vendors to work with based on their processes and practices. It's important to choose suppliers that are more eco-friendly and to consider the life cycle of the product so that when the business is reporting scope 3 emissions, reduction strategies have already been implemented. 

There are 15 categories in scope 3, which are designed to be mutually exclusive to avoid a company double counting emissions among categories. 

scope 3 emissions categories

Upstream emissions are made during pre-production before arriving at the reporting company's facility such as materials and pre-processing emissions. They also refer to employee commutes and business trips within the reporting organization.

Upstream emissions include the following 8 categories: 

  1. Purchased goods and services - The extraction, production and transportation of goods and services purchased or acquired by the reporting company during the reporting year. This is related to materials purchased to make their product or non-production-related purchases like office furniture or outsourced work such as at an accountancy firm. This also includes raw materials, agricultural activities, upstream energy consumption, treatment of waste, land use, and transportation between suppliers.
  2. Capital goods - The extraction, production and transportation of final goods purchased or acquired by the reporting company that have an extended life. Capital goods are used to manufacture a product, provide a service, sell, and store manufactured products. These are cradle-to-gate emissions. Buildings, vehicles, and machinery acquired by the company are examples of capital goods. Per the GHGP, these goods should have fully counted emissions throughout the year that do not depreciate with the goods over time. Companies should be careful that these are not double-counted in their scope 1 and 2 emissions. Whether they are counted in one category or another, needs to be set clearly in their financial accounting procedures per the GHGP suggestion. These are the capital goods owned by the company that help them do business such as equipment, buildings, machinery, facilities, and even vehicles that deliver.
  3. Fuel and energy-related activities (Those which are not included in scope 1 and scope 2), are the extraction, production and transportation of fuels and energy purchased or acquired by the reporting company. For example, cradle-to-gate emissions of purchased fuels from raw materials, energy consumed in transmission and distribution (T&D) systems that don't include combustion, and energy that is sold to end-users. 
  4. Upstream transportation and distribution - To define: a) transportation and distribution of products purchased by the reporting company in the reporting year between a company’s tier 1 suppliers and its own operations (in vehicles and facilities not owned or controlled by the reporting company), and b) transportation and distribution services purchased by the reporting company in the reporting year, including inbound logistics, outbound logistics (e.g., of sold products), and transportation and distribution between a company’s own facilities (in vehicles and facilities not owned or controlled by the reporting company). This also includes emissions done for the reporting company at third-party warehousing.
  5. Waste accumulated in operations - The disposal and treatment of waste accumulated in the reporting company’s operations in the reporting year (in facilities not owned or controlled by the reporting company). This includes waste going to landfills and waste sent to wastewater treatments, (including the transportation of waste). Waste emits other GHGs like methane (CH4) and nitrous oxide (N2O) which cause worse environmental damage than CO2 alone. Waste-to-energy and reverse, composting, incineration, and recycling recovery are also included.
  6. Business travel - Transportation of employees for business-related activities during the reporting year (in vehicles not owned or operated by the reporting company). An example would be, employee-owned vehicles that they use for work-related responsibilities such as sales calls. (Scope 1 and 2 emissions would be from company-owned vehicles). Emissions from hotel stays and consuming energy there, waste, and using the services there, on business trips, are also included. Any type of transport is relevant in this category such as rail, airline tickets for far away business trips, bus, and any other GHG emitting mode of travel.
  7. Employee commuting - Transportation of employees between their homes and their worksites during the reporting year (in vehicles not owned or operated by the reporting company, which would be scope 1 or 2). This includes but isn't limited to motorbikes, public transportation such as city buses, rail, subways, and even ferries. This can be seen as the scope 1 and 2 of employees themselves.
  8. Upstream leased assets - The operation of assets leased by the reporting company (lessee) in the reporting year and not included in the scope 1 and 2 emissions that are reported by the lessee to avoid double counting. This is easier to report than downstream leased assets due to having the reporting information. Calculations depend on who is controlling the operations. Optionally, the lifecycle emissions of constructing the leased assets could be included.

Downstream emissions are made after a product leaves the reporting company's facility such as distribution, product use, and product lifestyle. Most downstream emissions are related to sold goods and services. Downstream interventions are mainly driven by product and service design and behavior change.

Downstream emissions include the following 7 categories:

  1. Downstream transportation and distribution - The emissions from transportation and distribution of products sold by the reporting company in the reporting year between the reporting company’s operations and the end consumer (if not paid for by the reporting company), including retail and storage (in vehicles and facilities not owned or controlled by the reporting company). This includes outbound logistics after the point of sale: warehousing, to the distribution center, to the end consumer.
  2. Processing of sold products - The processing of emissions from intermediate products sold in the reporting year by downstream companies (e.g., manufacturers). For example, energy use. These are actually the scope 1 and 2 emissions of downstream companies (the reporting company's customers) that occur during processing like the use of energy.
  3. Use of sold products - The end use of goods and services sold by the reporting company in the reporting year. The emissions that the customer makes using the product they bought. These are the direct and indirect (optional) use-phase emissions the products the reporting company sold over its life expectancy. For example, the energy or fuel the end-users consume as the result of using your product. Direct emissions examples from intermediate-use products could be from transportation, electronics, lighting, data centers, and software. Indirect examples could be washing of apparel or dishes from detergents and machines, and heated water.
  4. End-of-life treatment of sold products - The waste disposal and treatments of products sold by the reporting company (in the reporting year) at the end of their life. The company can make items more sustainable by assessing what can be done with them at the end of their life cycles. However, the consumer may or may not recycle or dispose of them that way. This promotes the circular economy and the circular supply chain model which will replace the linear model.
  5. Downstream leased assets - The operation of assets owned by the reporting company (lessor) and leased to other entities in the period of the reporting year. This is more difficult to report due to obtaining information. Calculations are based on who controls operations and the equity share. These are the scope 1 and 2 emissions of lessees. Optionally, the reporting company could include the life cycle emissions of manufacturing and constructing leased assets.              
  6. Franchises - The operation of the reporting company's franchises in the reporting year. Franchisors must report at least scope 1 and 2 of franchisees' emissions like energy consumption for example. Franchisees can optionally report scope 3 emissions. Optionally, the reporting company could include the life cycle emissions of manufacturing and constructing leased assets.
  7. Investments - The operation of investments including equity, debt investments, project finance, and managed investments and client services in the reporting year. This category exists for private financial institutions like commercial banks or public financial institutions such as multilateral development banks or export credit agencies. Depending on how your company has decided to organize these emissions, they could be included in scopes 1 or 2 in lieu of 3.       

For the minimum boundaries, refer to the Technical Guidance for Calculating Scope 3 Emissions by GHG Protocol. 

Why measure all three scopes?

Carbon emissions are responsible for 81% of overall GHG emissions, and businesses are responsible for a big part of it. Reporting on scope 1 and scope 2 is mandatory for many organizations, while reporting carbon emissions across the whole value chain is becoming a new norm. 

Committing to reach net zero will involve tackling scope 3 emissions because for many businesses scope 3 emissions account for more than 70% of their carbon footprint.

scope emissions and supply chains

Since scope 3 emissions account for more than 40% of the overall emissions, SBTi now requires that businesses set a target to cover this impact. 

On a global scale, measuring and reporting on scope 3 offers an opportunity to drive rapid environmental engagement through supply chains, global and local businesses, local and national governments and consumers. Reporting on scope 3 carbon emissions will help organizations to make the changes required by the Paris Agreement and comply with new goals set at COP26

Today the most sustainability reporting frameworks include all the scopes' criteria. 

Related content

To learn more about carbon emissions, managing, and reporting them, please read our suggested content:

• Article: How to Reduce Upstream Emissions With the Gold Standard Framework for Supplier Engagement
• Article: GHG Reporting: Everything You Need to Know
• Article: 10 Reasons Net0 Is the Best Carbon Accounting Platform

Benefits of scope reporting: 

Understanding the emissions the business is responsible for and knowing how to measure, offset and, most importantly, reduce carbon emissions will provide your business with a proactive approach to align with mandatory regional climate regulations. To ensure your business is fulfilling all of the standards of your local and national governments, and prepared for growth in your value chain in the future, accurate reporting to stakeholders is key.

Companies that succeed in reporting all 3 scopes of emissions also have a competitive edge in carbon neutrality. There are also many other benefits of scope reporting for businesses: 

  • Maximized transparency throughout the supply chain for leaders, employees, and stakeholders.
  • Recognizing the advancements towards net zero of key players in their industries.
  • Identifying hindrances and overcoming them with valuable solutions.
  • Improved consumer trust and loyalty.
  • Outstanding environmental reputation and unique positioning in the market due to the ability to get GHG certifications and use eco-labelling. 
  • A better understanding of exposure to climate-related risks, enabling supply chains to be able to change the way they produce and with what they produce.
  • Lower energy consumption and reduced resource costs.
  • Ability to switch to more environmentally friendly processes and identify significant CO2 reduction opportunities. 
  • Positive employee engagement, retention, and attraction of like-minded applicants.
  • Recognition for early voluntary action. 
  • More interest from investors that lean towards green investments.

How can I measure my business' carbon emissions?

Measure your CO2 emissions data in 5 easy steps:

  1. Measure - Net0 takes the data that your company provides and uses automated data capture to convert your raw data into emissions data. You can upload bills instead of entering them manually. Net0 will parse out the data and populate the data. Additionally, your sites, company vehicles, manufacturing processes, business trips, commutes, and any other scope 1, 2, and 3 emissions can be added. All calculations are done by Net0 so there's no reason to do any extra calculations beforehand.
  1. Reduce - Make reduction strategies with insights from Net0's all-in-one dashboard. All of the analytics are filled in automatically with the data you provide, in real-time. You can view your company's carbon footprint right away to evaluate the sources of your emissions with tables and graphs. 
  1. Offset - Choose from over 140 of Net0's climate programs to contribute to a sustainable world. Offset your present emissions and even past emissions to erase some of the damage done to the atmosphere. 
  1. Report - On Net0's investor-grade reports, your scope 1, 2, and 3 emissions are listed separately to make it clear where you are in your net zero journey, with all dates recorded. The report will also show specifics about where the emissions came from and what scope they are without you having to categorize them because we comply with all localized GHGP standards.
  1. Certify - When you've made an offset, Net0 gives you a hosted certificate of carbon neutrality for that amount and you receive certification badges you can place on premises or products to become recognized as a top carbon-neutral, sustainable company in your field.

You can view your personal dashboard in real-time or share your public dashboard by giving a link to your stakeholders, to see where you are exactly in your net zero journey.

emissions management platform
Image source: Net0 Emissions Management Platform


FAQs

  1. What is the difference between Scope 1 and 2 emissions?

Scope 1 are direct emissions from the reporting company's owned or controlled sources while scope 2 emissions are indirect from a reporting company's generation of or purchased electricity, steam, heating, and cooling. 

  1. What percentage of emissions are scope 3?

That depends on the company. Most value chain emissions are scope 3 and any emissions in the value chain outside of the reporting company's walls are scope 3 emissions.

  1. Do companies have to report Scope 3 emissions?

Legally, not yet. Franchisees have to report their scope 1 and 2 emissions to franchisors, which would be their scope 3 emissions. As of 2022, only scopes 1 and 2 are mandatory in many regions. However, if businesses want to stay competitive with ESG conscious stakeholders it is strongly suggested.

  1. Does carbon-neutral include scope 3?

Scope 3 is encouraged but only scopes 1 and 2 are mandatory to declare a company "carbon neutral".

  1. What are scope 4 emissions?

Scope 4 are described as avoided emissions which means they are a result of the use of the product. This is where product life cycles are now coming into account when the product is being created. This should drive the change in consumer behavior. Additionally, home-working emissions are considered scope 4. 

Things to remember

  • Scope 1 emissions are direct emissions from owned or controlled sources
  • Scope 2 emissions are indirect emissions from purchased services
  • Scope 3 emissions are all other indirect emissions that occur in a company’s value chain

You can view the specifics in full detail at the GHGP website.

Net0 empowers businesses to precisely measure all three scopes of carbon emissions and execute plans to reduce those emissions and achieve carbon-neutral status. Book a demo with us today to experience how it works. 

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FAQ

What’s the difference between gross zero and net zero?

Again, net zero is coming to a balance between emissions and those which have been removed from the atmosphere. Gross zero means stopping all emissions, period.

Again, net zero is coming to a balance between emissions and those which have been removed from the atmosphere. Gross zero means stopping all emissions, period.
How soon can we start?

You can usually start using the system within a week of contract signature. Book a call with us to start.

You can usually start using the system within a week of contract signature. Book a call with us to start.
Do you help with setting up the processes?

Yes, our team will help you set up the platform and provide you with guidance on how to use it.

Yes, our team will help you set up the platform and provide you with guidance on how to use it.
What type of clients have you successfully helped?

We work with companies from different industries, from professional services and tech businesses to construction companies and manufacturing sites.

We work with companies from different industries, from professional services and tech businesses to construction companies and manufacturing sites.
What sets Net0 apart from others on the market?

Net0 offers simplicity, automation, no-code integrations, and provides an activity-based approach meaning the calculations are done by co2e tonnage and not by how much money was spent on the activity that led to emissions.

Net0 offers simplicity, automation, no-code integrations, and provides an activity-based approach meaning the calculations are done by co2e tonnage and not by how much money was spent on the activity that led to emissions.
Why do companies choose to work with Net0?

Net0 is the most comprehensive solution to recording, measuring, tracking, offsetting, and certifying emissions all in one place and in minutes. Net0 also enables organizations to invite anyone they want to contribute to the dashboard, being all-inclusive and simple to use.

Net0 is the most comprehensive solution to recording, measuring, tracking, offsetting, and certifying emissions all in one place and in minutes. Net0 also enables organizations to invite anyone they want to contribute to the dashboard, being all-inclusive and simple to use.

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