What are Scope 1, 2, and 3 emissions?

If you're looking to report the carbon emissions of your business, you'll likely come across the three scopes of emissions. You can think of the three scopes as categories that help you — and anyone you need to report to — understand the contribution of your business to climate change.

In this guide, we'll run through the main differences between the three scopes, and outline why you should start measuring your own greenhouse gas (GHG) emissions.

What are the three scopes of emissions?

The 3 scopes of emissions are direct emissions (Scope 1), indirect emissions (Scope 2), and value chain emissions (Scope 3). Together, these make up what is sometimes called an organisation's carbon footprint.

The scopes are defined by the Greenhouse Gas Protocol, an international standard for measuring and reporting GHG emissions. These emissions categories help organisations understand — and report on — their impact in a standardised way.

Unless a company has unusually large energy consumption, the largest category of emissions for most businesses is Scope 3. This is also the hardest to measure — though as we outline below, tools like CarbonTrail are using AI to automate emissions reporting, including more complex value chain emissions.

A closer look at Scope 1, 2, and 3 Emissions

Scope 1: Direct Emissions

Scope 1 emissions are those that are directly produced by your organisation. These emissions include those resulting from activities like burning fuel for heating, on-site transportation, and industrial processes.

Subcategories of Scope 1 include:

• Stationary Combustion. This refers to on-site combustion of fossil fuels (e.g. from boilers or generators). This category includes fuels used in boilers, heaters, furnaces, kilns, ovens, dryers, etc.
  
• Mobile Combustion. These are emissions from burning fuels for transportation. This category encompasses company-owned or controlled vehicles such as cars, trucks, trains, airplanes, or ships.
  
• Process Emissions. These are emissions from physical or chemical processes such as CO2 from the calcination step in cement manufacturing, CO2 from catalytic cracking in petrochemical processing, or PFC emissions from aluminium smelting.
  
• Fugitive Emissions. These emissions result from intentional or unintentional releases, like equipment leaks from joints, seals, packing, and gaskets.' This includes refrigerant gas leakage from air conditioning units or refrigeration

The most accurate way of measuring Scope 1 emissions is to use direct monitoring systems and sensors, such as those that measure the amount of fuel being used or the amount of carbon dioxide being produced.

Organisations can also use ‘proxy' methods such as fuel consumption records, emission factors, and emission calculations based on activity data.

For example, a business that uses an on-site generator can use fuel consumption records to calculate their emissions, or alternatively calculate their emissions using an emission factor for diesel generators.

Scope 2: Indirect Emissions

Scope 2 emissions are indirect emissions resulting from the generation of energy consumed by a company. These emissions occur during the production of the energy and are physically produced at the facility where the energy is generated.

Subcategories of Scope 2 include:

• Purchased electricity: Emissions from the generation of purchased electricity consumed by a company.
  
• Purchased heat and Steam: Emissions from the generation of purchased heat and steam consumed by a company.

To measure Scope 2 emissions, you need to calculate the amount of purchased energy (like electricity, heat, or steam) and multiply it by the relevant emission factor. The emission factors are usually provided by the energy provider. They can also be obtained from official databases.

Alternatively, these calculations can be automatically calculated by CarbonTrail. Simply plug in your accounting app, such as Xero or MYOB, and CarbonTrail will generate your emissions profile in minutes.

Scope 3: Value Chain Emissions

Scope 3 emissions are all other indirect GHG emissions. These emissions are produced from sources not owned or directly controlled by the company.

Upstream emissions are activities associated with the production and preparation of products or services before the company purchases them. Downstream emissions are activities are associated with the use and end-of-life treatment of products and services after a company sells them.

Common categories of Scope 3 emissions include (get ready, it's a big list):

• Purchased goods and services. This encompasses the emissions from the production of goods and services that the organisation has purchased and used in its operations, including cloud software (which produces emissions from data centres).
  
• Capital goods. This category includes emissions from the production of any physical assets that the organisation has purchased, such as machinery or buildings.
  
• Fuel and energy-related activities. This includes emissions related to energy not covered in Scopes 1 and 2, such as emissions from the extraction, production, and transportation of fuels or energy not combusted by the company.
  
• Transportation and distribution. This captures emissions from the transportation and distribution of goods in vehicles or facilities owned by others.
  
• Waste generated in operations. This represents emissions from waste generated by the organisation's operations, which are not treated or disposed of by the organisation itself.
  
• Business travel. This includes emissions from the transportation of employees for business-related activities.
  
• Employee commuting. This includes the emissions from the transportation of employees between their homes and workplaces.
  
• Investments. This category represents emissions from the operation of any investments that are not consolidated into the organisation's financial statements, such as equity investments, project finance, and debt investments.

How to measure Scope 3 emissions

As mentioned above, it's difficult to measure Scope 3 emissions. But with standards quickly requiring more robust reporting of your carbon footprint, the need for accurate data is greater than ever.

With this in mind, there are three major ways to measure and report on your Scope 3 emissions.

1. Do it yourself

Organisations with in-house capacity, extremely complex supply chains, or simply more resources may choose to measure their emissions on their own. This can take many forms, but is often an internal spreadsheet or database. DIY carbon accounting is typically time-intensive and is not always as accurate as other options.

2. Pay a consultant

Organisations with a larger budget can pay a consultancy to study their emissions in detail and provide an auditable report. These organisations are typically staffed by experts, and are practised at working with complex businesses. The major limitation with this option is the time and money it takes to get the result you need.

3. Use software

Most businesses will be able to generate an accurate view of their entire carbon footprint — including Scope 3 emissions — using software like CarbonTrail.

With CarbonTrail, businesses can connect their accounting app, such as Xero or MYOB, and get an accurate, real-time view of their emissions powered by AI.

This includes an overview of their emissions, the emissions totals over time, and a comparison with other companies of a similar size.

CarbonTrail allows you to study the detail of your transactions, and produce reports for reporting to boards, auditors, and other stakeholders.

As you make progress in your carbon reduction journey, CarbonTrail also makes it easy to share your progress with customers using the CarbonTrail Impact Aware badge and live dashboard.

Finally, CarbonTrail makes it easier to see emissions reduction opportunities with its AI-powered Insights. These are generated from an analysis of your emissions data, and will give you a quick overview of the most impactful changes you could make.

Why do businesses need to measure their scope emissions?

Businesses of all sizes are seeing the need to measure and reduce their scope emissions. In our experience, there are 4 main reasons why businesses need to measure their emissions.

1. Procurement. Many companies around the world have made net zero emissions commitments. But in order to meet these commitments, they're going to need to reduce their Scope 3 emissions. The upshot? New procurement rules are likely coming for suppliers to these large companies, including the need to report on emissions data.
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2. Regulation. Regulations are slowly but surely coming into force all over the world, particularly for larger businesses. The need for better reporting with large companies has flow-on effects for smaller companies, though, who will require data from their supply chain to meet these regulatory requirements.
   
   
3. Capital. Banks and financial institutions are increasingly looking to understand the impact of their lending. This means they need — you guessed it — emissions data from their customers.
   
   
4. Ethos. Many businesses measure their emissions because they want to do the right thing — that is, to reduce their contribution to climate change.
   
   
5. Consumer demand. As climate change increasingly becomes our shared lived experience, consumers are becoming much more wary of greenwashing. And the best way to avoid greenwashing is to measure and share your real emissions data with consumers.
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What About Scope 4 Emissions?

Scope 4 emissions, also known as "avoided emissions," are a new concept in carbon accounting. These are greenhouse gas emissions that are avoided due to the use of more efficient goods and services. The term covers emission reductions that occur outside a product's life cycle or value chain but as a result of the use of that product.

For instance, developing new products or processes may temporarily increase emissions but ultimately reduce them in the long term. This concept is becoming increasingly important to drive climate action among businesses, although it's not currently required by many initiatives.

Measuring Scope 1, 2, and 3 Emissions Is a Business Imperative

With mounting societal pressure, regulatory scrutiny, and increasing recognition of the financial risks associated with climate change, companies are increasingly expected to measure, report, and reduce their GHG emissions.

Many companies are already taking action to reduce their environmental impact across all scopes. Apple, for instance, has committed to making its supply chain carbon-neutral by 2030, recognising that its largest emissions sources are not from its direct operations but from its upstream suppliers and the downstream use of its products.

However, companies cannot effectively reduce their emissions if they are not measuring them in the first place. The first step for any company looking to reduce its emissions is to conduct a comprehensive emissions inventory that covers all three scopes.

Frequently asked questions

Do the three scopes just measure CO2 emissions?

Scope emissions include a range of greenhouse gases, including methane emissions, nitrous oxide, hydrofluorocarbons, and more. For consistency, these emissions are converted to a carbon dioxide equivalent number for reporting under the GHG Protocol, known as CO2e.

Which scope do electric vehicles fall under?

Because energy used by electric cars is typically purchased electricity, electric vehicle emissions usually fall under Scope 2.

How easy is it to reduce Scope 1, 2, and 3 emissions?

To understand the easiest way to reduce emissions, businesses need to first understand where their emissions are coming from. Once this is achieved, tools like CarbonTrail use artificial intelligence (AI) to make recommendations on the most impactful ways to reduce emissions.

But the types of emissions that are easiest to reduce will depend on the business. Some businesses can have an impact by switching to renewable energy. Other businesses may need to address factory fumes or refrigerant gases.

Is air travel Scope 2 or 3?

If an employee of a company travels by plane for business purposes, the emissions from that flight are considered Scope 3, not Scope 2. This is because the flight is not directly controlled by the company but is still part of its value chain.