Categorizing emissions into scopes is an important part of corporate carbon accounting and reporting.
By understanding what Scopes 1, 2 and 3 emissions mean, your business can align with international best practice when measuring, reporting and reducing its carbon footprint.
Greenhouse gas (GHG) emissions within a company’s corporate footprint are broken down into Scopes 1, 2 and 3:
Scope 1 - Direct emissions from the company’s operations
Scope 2 - Indirect energy emissions
Scope 3 - Other indirect emissions
Scopes 1, 2 and 3 are mutually exclusive. Within one company, there is no double counting of emissions between the scopes. For example, a company’s Scope 3 inventory does not include any emissions that are in its Scope 1 and 2 inventories.
However, one company’s Scope 3 inventory will include other companies’ Scope 1, 2 and 3 emissions.
Scope 1 emissions are direct emissions from operations that are owned or controlled by the company, including fuels combusted in vehicles or furnaces/boilers, fugitive or vented emissions from process equipment, or process emissions from chemical reactions.
Scope 2 emissions are emissions from the generation of purchased or acquired electricity, steam, heating or cooling consumed by the company. Scope 2 emissions occur at the facility where electricity is generated, not at the company's own.
These Scope 2 emissions are the Scope 1 emissions of another company (e.g. a power station).
Scope 3 emissions are all other indirect emissions (not included in Scope 2) that occur in the value chain of the company.
Scope 3 emissions are divided into:
For example, a car manufacturer would include emissions generated from the production of the metals and components it purchases, the transportation of purchased products from its suppliers (and between its suppliers and their suppliers), as well as use of its sold cars.
Scope 3 is typically the biggest source of emissions for a company (on average 11.4x its operational emissions). There are 15 categories of Scope 3 emissions, as defined by the Greenhouse Gas Protocol:
To effectively take climate action, a company needs to comprehensively understand its impact. The three emissions Scopes (and their categories) provide companies with a systematic framework to organize, understand and report on their emissions.
An organized and comprehensive GHG inventory that includes all three Scopes allows companies to identify and focus efforts on their greatest emissions sources. It also allows stakeholders, investors and policymakers to more easily compare companies’ carbon footprints.
Measuring Scope 1 and 2 is mandatory in corporate carbon accounting, while Scope 3 is usually optional. However, it is best practice to measure all three Scopes.
New and changing regulations are demanding Scope 3 disclosure, and one key principle of carbon accounting is completeness. Companies and their investors and stakeholders increasingly understand the need to account for emissions across the value chain, to properly manage carbon-related risks and opportunities.
Developing a full corporate footprint enables companies to understand their full emissions impact both on-site and across the value chain, and focus efforts where they can have the greatest impact.
Although Scope 3 emissions are the hardest to measure, because they include supplier data, they are also typically the largest source of a company’s emissions.
💡 Tools like CarbonChain make the process of Scope 3 carbon accounting easier and more accurate for companies with complex supply chains.
Typically, reducing Scope 1 and 2 emissions is more straightforward for companies because they have more control over those sources of emissions. However, to become a net zero business, companies must cut emissions across all three Scopes.
To reduce Scope 1 emissions (those generated by a company’s owned or controlled operations and facilities), companies should improve efficiencies in their processes, and deploy the many low-carbon or zero-carbon solutions that already exist. For example, shifting to electric vehicles, making buildings more passive and efficient, and using lower-carbon processes in aluminum, steel and copper production.
To reduce Scope 2 emissions, companies can source electricity from renewable sources, enter into Power Purchase Agreements (PPA), install renewable energy generation on site. In addition, companies should electrify operations that currently rely on fossil fuel energy (since most countries now have decarbonization targets for electricity grids).
Where low-carbon solutions are prohibitively expensive or unfeasible, companies should identify opportunities to transition to lower-carbon products and new markets. Companies can also demonstrate demand for renewable electricity in markets with low supply, by advocating for policy change through initiatives like RE100.
To reduce Scope 3 emissions, companies should focus on addressing their supply chain emissions (upstream and downstream). For example:
💡On CarbonChain’s platform, companies can automatically calculate their supplier emissions, and identify lower-carbon suppliers and supply chain assets, without having to source and collect the data themselves.
The Greenhouse Gas Protocol (GHG Protocol) provides the internationally-recognized standard for calculating Scope 1, 2 and 3 emissions. Together, Scope 1, 2 and 3 emissions form a corporate carbon footprint, or corporate GHG emissions inventory.
The guidelines include:
The ISO 14064 is another internationally-recognized standard for corporate carbon accounting. Rather than breakdowns by Scopes, it uses the categories of ‘direct’ and ‘indirect’ emissions.
When it comes to setting emissions reduction targets, the Science Based Targets initiative requires companies to include Scope 1, 2 and 3 emissions in long-term (net-zero by 2050) targets. For shorter-term targets, Scope 1 and 2 must be included, and Scope 3 emissions sources are included if they contribute to at least 40% of the company’s overall carbon footprint.
The Scope 1, 2 and 3 emissions breakdowns and definitions are the same for financial institutions, such as banks or institutional investors.
However, Scope 3 inventories look very different for banks than for a typical company. Banks will typically focus on Category 15 - Investments as this will be the largest contributor to their carbon footprint, and their biggest exposure to climate risk.
Reporting guidelines for Scope 1, 2 and 3 emissions tend to follow the GHG Protocol. However, not all mandatory or voluntary reporting frameworks require companies to include Scope 3 emissions.
💡 Read our guide to the frameworks and standards that include Scope 3 emissions.