To effectively manage greenhouse gas (GHG) emissions including scope 1, scope 2, and scope 3 emissions organizations must first understand how to measure and report their carbon footprint according to the main GHG reporting frameworks.
The GHG Protocol Corporate Standard provides the world's most widely used accounting framework for GHG emissions management and climate reporting. It classifies a company's GHG emissions into three distinct categories, or "scopes," essential for transparent corporate sustainability reporting, risk assessment, decarbonization planning, and alignment with regulatory compliance requirements.
This article provides a technical explanation of scope 1, 2, and 3 emissions. We will define each scope with clear examples, discuss the challenges associated with measurement, and outline actionable steps for businesses to improve their GHG management and reporting accuracy.
Defining the three scopes of emissions
The GHG Protocol framework divides GHG emissions into direct and indirect sources, fundamental concepts within carbon accounting and emissions inventory processes.
Scope 1: direct emissions
Scope 1 emissions are direct GHG emissions that occur from sources owned or controlled by the company.
Key examples of scope 1 emissions:
- Fuel combustion: Emissions from boilers, furnaces, vehicles, or other equipment owned and operated by the company. For example, the combustion of natural gas in an on-site heating system or diesel in a fleet of company-owned delivery trucks.
- Process emissions: Emissions released during an industrial process or manufacturing activity on-site. This includes CO2 produced during cement manufacturing, emissions from chemical production, or PFC emissions from aluminum smelting.
- Fugitive emissions: Unintentional releases of greenhouse gases. Common examples include leaks from refrigeration and air conditioning units (HFCs), methane leaks from pipelines, or emissions from industrial wastewater treatment.
For most organizations, scope 1 reporting is the initial and most fundamental step in carbon accounting. These emissions are directly within the company's control, making them the primary target for immediate reduction initiatives.
Scope 2: Indirect emissions from purchased energy
Scope 2 emissions are indirect GHG emissions generated from the purchase of electricity, steam, heating, or cooling. Although these emissions do not occur on-site, they are a direct consequence of a company’s energy consumption and thus play a critical role in carbon accounting, emissions inventory compilation, and broader GHG management.
Key example of scope 2 emissions:
- Purchased electricity: The emissions produced by a utility provider to generate the electricity that a company consumes in its offices, factories, and other facilities.
The GHG Protocol requires companies to report scope 2 emissions using two methods:
- Location-based method: This reflects the average emissions intensity of the electrical grid where the consumption occurs. It uses regional or national grid-average emission factors.
- Market-based method: This reflects emissions from the specific electricity suppliers a company has chosen. If a company purchases energy through a renewable energy contract (e.g., a Power Purchase Agreement or Renewable Energy Certificates), this method allows them to report lower or zero emissions for that portion of their energy use.
Reporting both methods provides a complete picture of a company's energy procurement decisions and their impact on the broader energy system.
Scope 3: All other indirect emissions
Scope 3 emissions encompass all other indirect emissions that occur in a company’s value chain and are a central focus of comprehensive carbon accounting, GHG management, and emissions inventory processes. These are the most extensive and complex emissions to measure in any GHG reporting framework, as they are outside the company's direct operational control and require climate reporting collaboration across diverse stakeholders. However, for many businesses, scope 3 emissions represent the largest portion of their total carbon footprint and are critical for developing a complete climate strategy. The GHG Protocol divides these into 15 distinct categories.
Key examples of scope 3 emissions:
Upstream activities:
- Purchased goods and services: Emissions from the production of products and services a company buys from its suppliers.
- Capital goods: Emissions from the production of equipment, machinery, and buildings purchased.
- Business travel: Emissions from employee travel in vehicles not owned by the company (e.g., flights, rental cars, taxis).
- Employee commuting: Emissions generated by employees traveling to and from their workplace.
- Upstream transportation and distribution: Emissions from transporting and distributing products from suppliers to the company.
Downstream activities:
- Downstream transportation and distribution: Emissions from transporting and distributing a company’s products to the end customer.
- Use of sold products: Emissions generated when customers use the company's products. For an automobile manufacturer, this would be the exhaust emissions from the vehicles they sell.
- End-of-life treatment of sold products: Emissions from the disposal or recycling of products after they are no longer in use.
- Investments: Emissions associated with a company's financial investments, particularly relevant for financial institutions.
Scope 3 provides a comprehensive view of a company's climate impact, revealing risks and opportunities for collaboration across the entire value chain.
Challenges in measurement and reporting
While accounting for scope 1 and scope 2 emissions is relatively standardized within carbon accounting frameworks, measuring scope 3 emissions for a complete emissions inventory and robust GHG management presents significant challenges.
- Data availability and quality: The primary obstacle is collecting accurate data from suppliers, customers, and other partners across the value chain. Many suppliers may not track their own emissions, forcing companies to rely on industry-average data, modeling, and estimations. This can reduce the accuracy and reliability of the final report.
- Defining boundaries: Determining the boundaries for scope 3 reporting can be complex. Companies must first identify which of the 15 categories are relevant to their operations and establish a consistent methodology for data collection to avoid double-counting.
- Supplier engagement: Accurate scope 3 reporting requires active engagement with suppliers to encourage them to measure and report their own emissions. This involves building capacity, providing training, and sometimes creating incentives for participation.
Best practices for accurate GHG reporting
To overcome these challenges, companies can adopt several best practices to ensure their GHG inventory is robust, transparent, and aligned with core cluster topics such as carbon accounting, emissions inventory, GHG management, and climate reporting. Integrating these cluster keywords and approaches helps organizations achieve decision-useful, comparable, and compliant GHG disclosures across all operational boundaries and value chain stages.
- Adhere to the GHG Protocol: Use the GHG Protocol Corporate Standard and the Corporate Value Chain (Scope 3) Standard as the foundation for your accounting and reporting. This ensures consistency and comparability.
- Invest in data management systems: Utilize specialized carbon accounting software to streamline data collection, manage emission factors, perform calculations, and generate reports. These tools can improve accuracy and efficiency.
- Prioritize your scope 3 categories: Begin by conducting a screening to identify the most significant scope 3 categories for your business. Focus data collection efforts on these "hot spots" to maximize the impact of your reporting and reduction strategies.
- Develop a supplier engagement program: Collaborate with key suppliers to help them build their own carbon accounting capabilities. Provide resources, share best practices, and integrate sustainability metrics into procurement processes.
Conclusion: Actionable steps for businesses
Understanding the differences between scope 1, 2, and 3 emissions is the first step toward comprehensive climate action and robust carbon accounting. For businesses ready to improve their GHG management and climate reporting, developing an accurate emissions inventory and aligning with leading GHG reporting frameworks will be essential.
- Measure scope 1 and 2 emissions: If you have not already done so, perform a complete inventory of your scope 1 and 2 emissions. This establishes a baseline and highlights immediate opportunities for reduction, such as improving energy efficiency or switching to renewable energy.
- Screen scope 3 emissions: Map your value chain to identify the most relevant and significant scope 3 categories. Use industry data and spend analysis to create an initial estimate of your scope 3 footprint.
- Report transparently: Disclose your emissions data through established platforms like CDP (formerly the Carbon Disclosure Project) or in your annual sustainability report. Transparency builds trust with stakeholders, including investors, customers, and employees.
By systematically addressing all three scopes, businesses can develop a holistic and effective strategy to reduce their climate impact and position themselves as leaders in the transition to a low-carbon economy.
