Scope 3 Emissions: Contributing Factors, Measurement and Reduction

Scope 3 emissions cover most of the carbon emissions in the value chain, resulting from emissions that happen outside of the reporting company's walls and are the scopes 1 and 2 of the other organizations in the value chain.

The discourse surrounding Scope 3 emissions has experienced a significant increase in attention when it comes to corporate responsibility and carbon accountability. Various stakeholders, including businesses, policymakers, and environmentalists, are intensifying their focus on Scope 3 emissions, delving into its specifics and emphasizing its importance. This guide aims to elucidate the concept of Scope 3 emissions, explore its categories, establish connections with Scope 1 and 2 emissions, and highlight the significance for companies, irrespective of their industry, size, or geographical locations, to proactively gauge and how to mitigate their Scope 3 emissions using the AI technology in Net0.

What are scope 3 emissions?

Scope 3 emissions cover upstream and downstream indirect emissions throughout the value chain from the result of assets from a reporting company but not owned or controlled by them. The scope 3 emissions of a reporting organization are the scope 1 and 2 emissions of another organization. This includes the production of purchased products and the transportation of them, and the use of sold products.

15 categories of scope 3 emissions

Scope 3 emissions are the largest proportion of emissions in the value chain and there are 15 categories of scope 3 emissions according to the Greenhouse Gas Protocol (GHGP).

Upstream emissions categories

Upstream emissions come from pre-production stages prior to reaching the reporting company's facility, including 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 categories

Downstream emissions occur after a product departs from the reporting company's facility, including aspects such as distribution, product use, and product lifecycle. These emissions generally 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:

9. 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.
10. 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.
11. 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.
12. 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.
13. 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.            
14. 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.
15. 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.    

Why should businesses measure scope 3 emissions?

• Since scope 3 emissions are the largest percentage of GHG emissions, (about 70% for many businesses according to Deloitte), you will be getting ahead at preventing more significant effects of climate change.
• It is a way to understand how to make more sustainable products regarding life cycles, going forward. Supply chains can understand the impact on the environment from their products and from the activities happening outside of their walls within the value chain.
• Companies can discover gaps in their market to improve or add new products. In the beginning of new production the tCO₂e could rise however, over time when a product's usage is emitting less and the entire value chain has a long-term reduction in emissions due to the new product's existence, then the overall result has been worth it.
• Over half of GenZs and Millennials consider sustainability before making a purchase but don't have any data to prove the company isn't just greenwashing.
• Investors seek sustainable businesses and are shying away from backing companies that do not comply with any of the UN SDGs especially in regards to carbon neutrality. In fact, 61% of investors won't invest in a company without a net zero plan.
• Scope 1 and 2 emissions are required for reporting in many regions so scope 3 emissions reporting is a benefit to making a company more competitive and gaining an eco-friendly rapport.

Related content

Find out more about scope emissions reporting with one of our suggested resources:

• Article: What Are Scope 1, 2, and 3 Emissions?
• Article: Scope 4 Avoided Emissions: Everything You Need to Know
• Article: 10 Reasons Net0 Is the Best Carbon Accounting Platform

How to calculate scope 3 emissions

The first step of Net0's carbon accounting platform uses automation to capture raw data or entering it manually to convert it into carbon tonnage. This will show you a comprehensive view of your carbon footprint. Next, you'll be able to choose a carbon accounting methodology that works best for you. It should be a hybrid of activity based, productivity based, and spend based. After viewing precise and accurate calculations in Net0's platform, you'll be on your way to better planning in the supply chain. All you have to do is collect the data and Net0 does the calculations for you. When you generate your report, you will see all of your emissions itemized by scope and categorized in each of the 15 scope 3 categories.

How to reduce scope 3 emissions

Inventing products with lower CO2 emissions during manufacturing and more eco-friendly life cycles, transporting larger loads to distribution centers to cut back on logistics movements, getting involved with sustainable suppliers who are like-minded in their carbon neutral goals, depending on what you produce and how, reductions will look different in your market.

You can also create new ways of working which reduce emissions like less business travel, smarter commuting, and getting others involved in your company and value chain in recording the data. Net0 allows you to onboard users so entering emissions data is a shared responsibility. It is more time and cost-efficient when everyone participates.

Use the simulator tool within the Net0 platform to plan reduction strategies in the future. View your entire carbon footprint through analytics with graphs and tables over time. When you see your emissions data you will realize your sources and where you can cut back. Plan realistic and ambitious reduction targets to get where you want to go by next year.

How to set scope 3 emissions targets

Setting scope 3 emissions targets can be done through the Science Based Targets initiative SBTi guidance. Scope 3 emissions are 11 times higher than scope 1 and about 70% of a company's emissions. According to the SBTi standard on scope 3 emissions target setting, "Scope 3 targets are a requirement under the SBTi Net-Zero Standard. The SBTi Criteria for near-term targets (criterion C4) also states that if a company’s scope 3 emissions are 40% or more of total scope 1, 2, and 3 emissions (i.e. the vast majority of companies), a scope 3 target is required."

The SBTi requires all goods must be produced with climate stability in mind at zero or residual levels. Target setting includes submitting a plan with a target of keeping temperature under a 1.5C increase compared to pre-industrial levels, or a 2C, less ambitious goal.

How to tackle scope 3 emissions

• Set targets to lower your emissions every year. They should be realistic yet push you to move forward. Net0 offers a publish dashboard and anyone you give the link to will be able to see where you are in your net zero journey. Being transparent about your progress and communicating your milestones to stakeholders will keep you accountable along the way.
• Offset the unavoidable emissions. Net0 provides 140+ verified climate programs across the globe that you can contribute to in your climate action portfolio. These projects accelerate the creation of life-changing projects that enable us to switch to alternatives for instance. You know where your offsets are taking place and that they are actually getting done.
• Get emissions management software. You cannot get on a net zero journey without having the proper tools. Since Net0 enables you to calculate, reduce, track, offset, report, and certify all in one place, you will not need external tools. Consultancies can cost up to five times the rate of carbon accounting software. You also get full control of your emissions platform. With the data you provide, you can track your carbon footprint, view your progress in real-time, and run reports for stakeholders at any moment by just logging into your personal dashboard and performing the tasks.

Scope 3 emissions reporting

The essentials of scope 3 emissions reporting can be found in our GHG Reporting article so you don't have to study the entire GHGP technical guide unless you are seeking more in depth knowledge. Our system is GHGP-compliant so all reports are investor-grade and performed in real-time. You can also filter specific dates in the system as well to get reports for a desired timeframe. Moreover, Net0 is government-compliant, so whether you are reporting to mandatory directives like the CSRD, or voluntary regulations like the CDP, we have you covered so you have confidence that your scope 3 emissions reporting is accurate, itemized by category, and thorough.

Scope 3 emissions double counting

According to the Gold Standard on double counting:

"Double Counting: The scenario wherein the benefit of a single GHG Emission Reduction (ER) unit is used on more than one occasion to:

• Sell to third parties for the purpose of financial gain, VER offsetting or to achieve regulated targets AND/OR

• Be included in an account or inventory to avoid the requirement to purchase ER units under a regulated system"

Since carbon accounting software reports on raw data emissions accurately and all offsetting projects are verified without having to go outside to purchase carbon credits or enter trading markets, it is becoming more difficult for companies to perform double counting. Now there are emissions management platforms that report in compliance with the GHGP, so having records of the actual tCO2e along with offsets is valuable for honesty and transparency.

To conclude

Scope 3 emissions can be managed more thoroughly with proper communication and data insights throughout the value chain. Scope 1 and 2 reporting that is done accurately by others in the value chain will also further you along on your net zero journey so all scope 3 emissions do not fall on the same reporting company.

‍Book a demo with Net0 today and learn how converting your raw emissions data to precise calculations and tracking, reducing, offsetting, and reporting will get you carbon neutral certified faster and easier.

Cover photo by Johannes Plenio from Pexels