As mentioned earlier, the GHG Protocol and PCAF break down all emissions into scope 1, 2, and 3.
Let's go more in-depth on each scope, how you can measure them, and why it's important for a company to understand its emissions.
Scope 1 emissions consist of the direct emissions that occur from sources owned by the reporting organization.
Scope 1 covers the following types of emissions:
Because a company has explicit control of emissions generated from on-site activities, scope 1 emissions are typically the easiest to manage and mitigate.
Scopes 2 and 3 both cover indirect emissions. Let's look at scope 2 first.
Scope 2 emissions are the indirect GHG emissions resulting from the generation of purchased energy by the reporting company, including electricity, gas, steam, heating, or cooling.
Purchased energy is given its own scope, because companies have more control over these emissions than they would over other indirect emission sources. Emissions generated from purchased energy are responsible for approximately 40% of global emissions and are considered one of the simplest to reduce through energy efficiency measures. This makes scope 2 incredibly important for companies who want to make quick reductions to their emissions.
A company can implement on-site energy efficiency measures — such as switching to LED lighting — that would directly reduce the consumption of purchased energy — despite the fact that these emissions are technically generated by the power provider.
One thing to keep in mind is that any energy purchased for resale is not included in scope 2 emissions, as these fall under scope 3, category for fuel- and energy-related activities. This will be covered later in this module.
The data needed to calculate scope 2 emissions tends to be easier to track down — for example, you can look at utility bills to find purchased energy.
Most companies have to report their scope 2 emissions in two ways: a location-based approach and a market-based approach. This is also known as "dual reporting".
Location-based accounting is required for all companies reporting scope 2 emissions. It approximates the GHG emitted to the atmosphere from energy that is physically delivered to a company. It relies on data from the grids where energy consumption occurs.
For renewable energy, beyond what is included in grid averages, only on-site and direct-line sources are reflected in location-based accounting. This approach ensures that changes to renewable energy over time reflect actual changes to the grid. It excludes the vast majority of renewable energy purchases, which can help increase renewables on the grid, but don’t necessarily include the direct delivery of the underlying renewable energy.
It is important for every company to report a location-based emission total to understand the physical impacts of its operation without market influences being taken into account. However, most companies will set goals based on their market-based emissions total to allow for more flexibility in goal achievement.
The market-based approach to measure purchased energy represents emissions based on how an organization buys its energy and the associated attributes.
Emissions are tied to purchasing decisions. These purchasing decisions can be supported by contractual instruments, which are contracts to claim renewable energy attributes (e.g. zero emissions). These contracts can vary widely across regions and markets.
When contractual instruments are not involved, emissions should still be calculated and included in the market-based emissions total using an average supplier factor or a residual mix factor. If there is neither a supplier factor nor a residual mix factor, a location-based factor may be used.
Below are a few examples of contractual instruments that might be used in market-based accounting.
Scope 3 emissions cover all indirect emissions that are not included in scope 2 and occur throughout the value chain of the reporting company. These are emissions that the reporting company doesn’t directly control, but happen as a result of their operation.
Many countries and organizations require scope 1 and 2 emissions to be reported, whereas scope 3 emissions are more likely to be voluntary.
According to the CDP's 2021 Global Supply Chain Report, there are 11.4 times more emissions in a company's supply chain compared to its direct operations.
Scope 3 emissions are complex and difficult to measure since many of them are outside of an organization’s direct control. Measuring also requires comprehensive data collection to get accurate information. Persefoni’s product can support organizations looking to report on their scope 3 emissions by streamlining the data collection from other organizations.
The GHG Protocol breaks scope 3 emissions into 15 categories.
Each category has a set of activity-specific methodologies to measure emissions.
Category 4 “Transport and Distribution” can be measured using one of three calculation methods: Fuel-based, spend-based, or distance-based.
Organizations have to decide which of the 15 categories are relevant to them, what should be measured, and which calculation type is best-suited to their available data and intended use of the calculations.