Upstream vs Downstream: Breaking Down Scope 3

The Greenhouse Gas (GHG) Protocol categorizes scope 3 (value chain) emissions into two main groups: upstream and downstream emissions.

Scope 3 emissions are divided into 15 categories to help companies understand, manage, and report on the scope 3 activities relevant to their operations. The upstream and downstream emissions designation is based on the distinction between the financial transactions of an organization. Upstream emissions everything in your value chain to produce your product, while downstream everything in your value chain to consume your product.

For many companies, value chain emissions represent the majority of their total emissions. Therefore, understanding which categories are relevant to a company's operations is essential for accurate carbon footprint calculations and emission reductions. Scope 3 emissions are generally considered the most difficult to manage, as it often involves an extensive process of collecting data and engaging with suppliers and customers across the value chain.

What are Upstream Emissions?

Upstream emissions are the indirect emissions related to a reporting company’s suppliers, from the purchased materials that flow into the company to the products and services the company utilizes. Below is a description of each of the eight upstream emission categories, as defined by the GHG Protocol:

• Purchased goods and services: This category includes all upstream emissions from the production of all purchased or acquired products and services.
• Capital goods: This category includes all emissions from the production of purchased or acquired capital goods.
• Fuel and energy-related activities: This category includes emissions from fuel and energy-related purchased or consumed products or services that aren’t covered in scope 1 and scope 2.
• Upstream transportation and distribution: This category includes emissions generated from third-party transportation and distribution services and emissions generated to transport and distribute purchased products.
• Waste generated in operations: This category includes emissions from the treatment and disposal of the waste generated by the reporting company’s operations. This could be solid waste and/or wastewater.
• Business travel: This category includes emissions generated from employee transportation for business-related activities in third-party-owned or operated vehicles.
• Employee commuting: This category includes emissions from employee commutes between their workplace and home.
• Upstream leased assets: This category includes emissions from the operation of assets the reporting organization leases. This can include a leased car used for business travel or leased heavy machinery used for a company's construction project

What are Downstream Emissions?

Downstream emissions are the emissions related to customers, from selling goods and services to their distribution, use, and end-of-life stages. Below is a description of each of the seven downstream emissions categories as defined by the GHG Protocol:

• Downstream transportation and distribution: This category includes emissions generated from transporting and distributing sold products in vehicles that aren’t owned or controlled by the reporting organization.
• Processing of sold products: This category includes emissions created when third parties process sold intermediate products following the sale. Intermediate products are goods used with another product before end use.
• Use of sold products: This category includes emissions created from the use of sold services and goods—encompassing the scope 1 and 2 of end users of a sold product.
• End-of-life treatment of sold products: This category includes emissions from waste treatment and disposal of sold products at the end of their life cycle.
• Downstream leased assets: This category includes emissions generated from the operation of owned assets leased to other entities that aren’t included in scopes 1 or 2.
• Franchises: This category includes emissions from franchise operations. This applies to franchisors and includes scope 1 and 2 emissions from franchisees.
• Investments: This category includes investment emissions, also known as financed emissions associated with investments. This category is mainly for financial institutions but is relevant to all other organizations that provide financial services.

Upstream or Downstream?

Sometimes it is difficult to determine if an emission source is upstream or downstream. Transportation and distribution are a good case in point as they are considered part of both the upstream and downstream value chain. To decipher which of the two an emissions activity belongs under, consider one simple question: a) Did my company or employees pay for the good or service, Or did my customers or consumers pay for the good or service?

Upstream and Downstream Examples

Relevant categories for the upstream and downstream emission activities vary between sectors, and even from company to company, depending on its operations. Understanding each of these categories and creating operational boundaries is the first step to calculating them. Below are descriptions of the upstream and downstream activities of the financial and the oil and gas sectors, respectively:  

• Financial Institutions:
  • Upstream Activities: Financial institutions will likely have emissions related to Categories 6 and 7 as their employees often travel internationally and commute into their offices. They will likely have emissions related to Category 8 as well, as they may lease their offices and branches. However, emissions from other categories will likely not be significant enough to calculate and report.
  • Downstream Activities: Category 15: Investments, also known as financed emissions, are the emissions associated with a financial institution's investments, loans, and other financial services. For financial institutions that report their financed emissions to the CDP, these emissions are 700x larger than their scope 1 (direct) emissions, making up the vast majority of their carbon footprint.
• Manufacturing:
  • Upstream Activities: Upstream emissions from manufacturing will come primarily from Categories 1, 2, and 4 as the transport and extraction of the raw materials and the purchase of complex engineering infrastructure needed to manufacture products is very emissions-intensive.
  • Downstream Activities: Downstream emissions for the manufacturing sector will come mainly from Categories 9, 10, 11, and 12 as the use, distribution, and end-of-life of manufactured products are very emissions-intensive.

Calculating Upstream and Downstream Emissions

Upstream and downstream emissions are often cited as the most difficult to measure due to the wide-spanning and complex nature of the necessary data collection and calculations. However, to meet ambitious net zero emissions commitments and comply with regulations in certain jurisdictions, organizations must measure all of their scope 1, 2, and 3 emissions.  

Companies can start by using simple spend-based data to simplify this process. Spend-based data gives organizations a good estimate of the emissions coming from each category and what categories are most emissions-intensive. Based on this information, companies can select which categories should be prioritized for more robust data collection and decarbonization strategies.

As organizations develop better methods of data collection and calculation, they can move from the collection calculation of spend-based data to activity-based data. Activity-based data include the capture of increasingly precise distance- and fuel-based data to make more accurate assessments of their footprint for each category.

How to Reduce Upstream and Downstream Emissions

Upstream and downstream value chain emissions are considered the most difficult to reduce because they involve adapting products and processes, engaging with suppliers, and even instigating consumer behavior change. However, companies can start with some low-hanging fruit, such as encouraging workers to commute via public transportation or bicycle, reducing business travel, or avoiding air travel altogether.

The levers for reducing emissions across the value chain differ for downstream and upstream emissions. To minimize downstream emissions, an organization can change its investment strategy, adopt sustainable product innovations, or engage with customers. To reduce upstream emissions, companies can change their procurement policies and choices; innovate their products, services, and business models; and engage with suppliers. The Science-Based Target initiative (SBTi) released guidance on the most appropriate ways to reduce upstream emissions for each category, as seen below:

1. Purchased goods and services - Supplier engagement, procurement policy and choices, product and service design, business model innovation
2. Capital goods - Supplier engagement, procurement policy, and choices, product and service design
3. Fuel and energy-related activities - Procurement policy and choices, product and service design, operational policies
4. Upstream transportation and distribution - Supplier engagement, procurement policy, and choices, product and service design
5. Waste generated in operations - Product and service design, business model innovation, operational policies
6. Business travel - Procurement policy and choices, operational policies
7. Employee commuting - Operational policies
8. Upstream leased assets - Procurement policy and choice

To help users measure their upstream and downstream emissions, Persefoni’s Climate Management and Accounting Platform (CMAP) enables companies to measure emissions in every category across their value chain. It offers a fully auditable carbon accounting experience to aid regulatory compliance and includes scope 3 emissions disclosure. Persefoni also enables companies to add suppliers onto the platform and provide data for their portion of the company’s scope 3 emissions. To better understand how Persefoni can help measure the emissions across your value chain, reach out for a demo.