As pressures continue to mount for businesses to set and prioritize ESG programs (Environmental, Social, and Governance), we now commonly see companies that have established goals to reduce their greenhouse gas emissions and lower their carbon footprints. These goals typically resemble something like reaching ‘net-zero carbon’ or ‘carbon neutral’ operations by some future date, and are accompanied with annual emission reduction targets to track and report on progress.
But what are all of the business activities that factor into an organization’s carbon footprint? What does it mean when a company has a “scope 3” emission reduction goal?
One important aspect of carbon reporting is that there are several categories used to segment different types of greenhouse gas emissions, helping stakeholders see a more comprehensive picture of an organization’s true carbon impact. Some emissions result directly from activities needed to run the business, like machine usage in a manufacturing plant, and some emissions are more indirect, like what happens to a sold product after it has been used and needs to be disposed of.
These varying categories are known as scopes. Emission scopes evaluate not only what GHG (greenhouse gas) emissions are produced from direct operations, but how the business behaves, what it invests in, what impact its products have on the environment, who it sources raw materials from, and beyond. In this writeup, we’ll define these scopes and provide some examples for each to help you better understand the language around corporate emission reporting.
Defining Scope 1, 2, and 3 Emissions
According to the EPA, there are 3 primary scopes of greenhouse gas emissions: scope 1, scope 2, and scope 3. The business activity that leads to these emissions will dictate the scope it falls in, depending on how directly associated it is with the reporting company’s operations.
Scope 1: Direct emissions
This category represents emissions that stem directly from operations or assets that are owned and controlled by the reporting company. Scope 1 emissions are broken out into 4 key sub-categories:
- Stationary combustion: this includes the burning of fossil fuels for stationary equipment. Some examples include industrial boilers, furnaces, incinerators, and power generators
- Mobile combustion: this includes any fossil fuels burned to power vehicles owned or leased by the company
- Fugitive emissions: this includes any unintended emissions, like leaks in pipelines or evaporation from storage tanks
- Process emissions: this category covers a wide-range of emission sources like chemical reactions, fermentation, and combustion processes. An example could be CO2 (carbon dioxide) released from cement production processes, or greenhouse gasses released from using fertilizers in the agricultural sector
Scope 2: Consumption of purchased electricity, steam, heat, and cooling
Scope 2 represents any GHG emissions that result from the production of purchased electricity, steam, heat, or cooling. These emissions are considered indirect because they are produced offsite. They are not directly controlled by the company, but rather sourced from a utility provider.
The amount of indirect emissions from scope 2 sources can vary greatly, depending on the region and production source. For example, electricity that is produced from fossil fuels will have a different emission output than an equivalent amount of electricity produced from renewable energy sources like solar or wind.
Scope 3: Indirect emissions
Scope 3 includes GHG emissions from sources that are not directly owned or controlled by the company, and captures activities throughout the entire value chain of the business.
There are 2 key sub-categories for scope 3 emissions:
- Upstream emissions: this includes any emissions that are attributed to the extraction, production, and transportation of raw materials and purchases made by the company. In an effort to minimize upstream emissions, companies are increasingly searching for partners and suppliers that are minimizing their own carbon footprints — creating a demand for more sustainable business practices throughout the entire supply chain, even if upstream suppliers don’t face the same pressures from investors or consumers.
- Downstream emissions: this includes emissions that accompany the use and disposal of the services or goods produced by the company. Some examples include greenhouse gases released to dispose, recycle, or incinerate the product, ship products to customers, or from using the product itself (like automobile suppliers).
Scope 3 emissions also include a wide-range of emission sources, like the amount of waste the reporting company disposes of, emissions released from employees commuting, any franchising done by the reporting company, any leased assets, or any investments made by the company. Scope 3 emissions are particularly challenging to accurately measure, but crucial for stakeholders to have access to in order to understand the overall impact the reporting company has on the environment.
Final thoughts
Scope 1 and scope 2 emissions are commonly the highest priority for companies when deploying ESG initiatives. This is partly due to increasing regulatory requirements like the Clean Air Act, but these emissions can also be the easiest to measure and improve upon as the reporting company is more directly responsible for them. However, companies that focus exclusively on scopes 1 and 2 leave substantial opportunity for sustainability improvements on the table. According to Plan A, Kraft Foods reported that 90% of their emissions fell under scope 3, along with ~99% of Apple’s overall emissions (albeit 76% being attributed to product manufacturing in their supply chain). Companies have immense opportunity to dramatically reduce their environmental impact by forming partnerships with other emission-conscious suppliers working towards their own sustainability goals — and will likely benefit long-term as demands only become more stringent.
Work with PEC to reach your emission targets
Looking to deploy an emission reduction project that makes an impact, drives profitability, with minimum effort? Our team at PEC (Pacific Energy Concepts) is one the nation’s most innovative turn-key solution providers for services like LED retrofits, EV charging, and Energy Monitoring solutions. Our mission is to provide clients with an expert partner to design and project manage efficiency solutions end-to-end.
As a partner to several globally recognized companies like Costco, IKEA, Alaska Airlines and beyond, we’ve had the opportunity to implement solutions that drive energy efficiency throughout the supply chain.
Get in touch below to see how we could make an impact for your facility and your partner facilities, starting with a complimentary on-site energy audit!
Sources
https://ghgprotocol.org/sites/default/files/standards/Corporate-Value-Chain-Accounting-Reporing-Standard_041613_2.pdf
https://plana.earth/academy/what-are-scope-1-2-3-emissions#scope-3-indirect-emissions-not-owned
https://www.ghginsight.com/simplify-scope-1-and-scope-2-emissions-reporting/what-are-scope-1-emissions/
