Protocols for corporate greenhouse gas accounting that are based on the ISO 14064 standards, such as the WBCSD/WRI GHG Protocol, use the term “scope” to distinguish between different greenhouse gas emissions sources. There are three categories; Scope 1, Scope 2, and Scope 3. For most registry’s or reporting agencies Scopes 1 and 2 are considered mandatory while Scope 3 is considered optional.
Scope 1 emissions, also known as direct emissions, include any emissions that occur on-site or from company-owned assets. This includes the combustion of fuels, process emissions, and refrigerant leakage. These emissions are aggregated on a facility-level, with the company’s vehicle fleet considered as one “facility.”
Scope 2 emissions, also known as indirect emissions, include any emissions created directly on behalf of the company in the generation of electricity or the delivery of energy via hot water or steam. The reason for accepting responsibility for these emissions is because the company has ultimate control over “turning on the light switch” and they directly benefit from it. Under California’s AB-32 Global Warming Solutions Act utility companies are regulated based on all of their emissions, including those from electricity that is sold to consumers. This results in double-counting in terms of the regulated utility emissions and non-regulated Scope 2, company-based emissions from their electricity use. However, regulating the aggregated emissions at a utility-level makes sense from a regulatory perspective and quantifying indirect greenhouse gas emissions from electricity use makes sense to individual companies because it is so closely tied to cost-saving efforts from energy efficiency projects. This example should start to demonstrate how complicated GHG legislation can become when ownership of emissions is itself a difficult concept to grasp.
The final scope, Scope 3, is a catch-all for remaining emissions that result from the activities of the company. While some protocols recommend Scope 3 emissions sources worth including, what is ultimately included is entirely optional. Many companies choose not to account for and report their Scope 3 emissions and most that do only include emissions from business travel. Some potential emissions sources that can fall under Scope 3 are the shipping of goods (inbound and outbound), emissions from contracted activities (outsourced production, etc.), and even the emissions from resource extraction and product disposal.
This cradle-to-grave analysis, while uncommon, is highly valuable. Most of the emissions that occur in a company’s value chain are either upstream or downstream of the company. It’s straight-forward to see the benefit that a company gets from calculating emissions sources throughout its supply chain, including Scope 3 sources. Because of the close correlation between emissions and fossil fuel use understanding a company’s upstream emissions helps to understand its exposure to risk from volatility in the global energy markets. Downstream emissions; emissions from the distribution, use, and disposal of products are also important to understand.
However, from a regulated point of view, what happens when a company’s distribution contractors are also regulated? One company’s Scope 3 emissions become another company’s Scope 1 emissions – once again, the threat of double-counting emerges. This is the main reason that Scope 3 emissions are voluntary.
From an environmental perspective the benefit of quantifying greenhouse gas emissions is clear, but the economic benefits are also becoming clear. At ClimateCHECK we strongly believe in this double dividend approach and we guiding our clients through this valuable activity, which often includes a detailed understanding of all 3 emissions Scopes. More and more companies are turning the threat of looming climate change legislation into an opportunity by acting early, getting ahead of their competition, and encouraging optimization throughout the supply chain.