Today's companies are increasingly hearing and heeding the warning calls of climate change experts. Everyone strives to understand what factors like the greenhouse gas protocol and Scope 1, 2, & 3 emissions mean for their business and how to ensure compliance.
Multinational companies like BP, Coca-Cola, and Walmart account for nearly a fifth of global CO₂ emissions – with the majority of those emissions to be found in their supply chain. As companies become more aware of their environmental impact, it’s clear that organizations' supply chains often account for more than 90% of their greenhouse gas (GHG) emissions. But what does that even mean?
Nearly everything a company does can be understood through the lens of carbon – that is to say, its activities, products, and purchases all have an amount of greenhouse gas emissions allocated to them. So how do companies know what is essential to measure, or how even to quantify the emissions of everything they do? This is where the Greenhouse Gas Protocol comes into play.
We have developed this guide to help organizations understand the GHG Protocol and accompanying emissions to help do their part in compliance and stewardship.
What Is the Greenhouse Gas (GHG) Protocol?
The GHG Protocol is a comprehensive standardized framework for measuring and managing emissions from private and public sector operations, value chains, products, cities, and policies. Originally established in 1988 as a partnership between the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), the purpose of the GHG Protocol is to help businesses everywhere account for the subtle and potentially drastic changes in our future related to greenhouse gas emissions. It has become the most widely recognized and used standard for measuring all three emissions scopes.
In the GHG Protocol, the Corporate Standard categorizes the primary GHG emissions into three distinct Scopes: Scope 1 emissions, Scope 2 emissions, and Scope 3 emissions.
Scope 1 emissions are direct emissions created by owned or controlled sources. Scope 2, or indirect emissions, stem from the generation of purchased energy, and Scope 3 emissions are all indirect emissions. These take place in the value chain for each reporting company and include upstream and downstream emissions.
What Are Scope 1, 2, & 3 Emissions?
Not all GHG emissions are the same. There are various categories that businesses, government bodies, and organizations must consider to ensure complete awareness and ultimate reduction. Gaining a better understanding and more insights into each scope helps businesses succeed in reducing emissions.
GHG Scopes 1, 2, & 3 are emissions categories defined by the GHG Protocol. Each scope is used by organizations, government bodies, and regulators to set goals and targets to reduce carbon emissions and other chemical greenhouse gases damaging the environment. Each scope is distinguished by the degree of control a business or organization has over the emission source rather than by emission type.
Scope 1 Emissions: Direct Emissions
Scope 1 emissions are direct greenhouse gas emissions from sources owned or controlled by an organization (i.e., direct emissions from company facilities and vehicles). They include boiler and furnace emissions, transportation emissions, and chemical production emissions from owned or controlled processes. All this means that emissions are released into the atmosphere directly from the company's daily activities.
Examples of Scope 1 emissions include:
- Fugitive emissions
- Mobile combustion in vehicles
- Process emissions
Scope 1 emissions reporting is mandatory.
Scope 2 Emissions: Indirect Emissions (Owned & Not-Owned)
Scope 2 emissions come from electricity, steam, heat, and cooling consumption (i.e., indirect emissions from purchased energy to turn on the lights in your office). The energy consumption counted for Scope 2 emissions are related to the end-user, indirectly owned by corporations.
Scope 2 emissions are also mandatory to report.
Scope 3 Emissions: Indirect Emissions (Not-Owned)
Scope 3 emissions are naturally complex since they are linked not only to a company’s value chain but also to its entire product life. Scope 3 emissions are companies' most common and significant source of emissions. It refers to GHG emissions that result from the company's activities. However, the company has no direct control over the resulting emissions.
Also known as "value chain" emissions, Scope 3 GHG emissions are part of the cost of doing business. Here are some examples of Scope 3 emissions:
- Emissions from waste disposal or incineration
- Emissions from business travel, whether via air, train, boat, or automobile
- Emissions from the extraction of raw materials used in manufacturing
- Emissions from the manufacturing of products used by the company
- Emissions from the downstream usage of products or services
While organizations must report Scope 1 and Scope 2 emissions, Scope 3 reporting is optional. However, it is highly encouraged to account for and report these emissions since they account for 70% of the total GHG footprint. Of course, these emissions are more challenging to detect, record and report, but they are a vital component toward reaching net-zero targets in the future.
Scope 3 Upstream Emissions
Scope 3 emissions are referred to as upstream or downstream depending on where they initiate in the value chain.
Let's start with a closer look at Scope 3 emissions with upstream emissions. These types of emissions come from goods and services that a business buys or otherwise acquires:
- Purchased goods and services have a cradle-to-gate carbon impact, meaning they have an emissions impact from the moment of production until the moment it arrives at a store or other sales space. The reporting company must also account for the extraction, production, and transportation of services or goods purchased, leased, or otherwise acquired.
- Capital goods, sometimes called capital assets, also have a cradle-to-gate impact. The upstream impact of capital goods comes from their extraction, production, and transportation upon purchase or acquisition by the reporting company.
- Fuel and energy-related activities that do not fall under the same activities listed in Scope 1 or Scope 2. These activities derive from the extraction, production, and transportation of energy and fuels acquired or purchased by the reporting company. Here is a breakdown of the different categories of this particular Scope 3 upstream activity:
- Upstream emissions of purchased fuels consumed by the reporting company.
- Upstream emissions of purchased electricity with the extraction, production, and transportation of fuels used when generating electricity, steam, and heating and cooling used by the reporting company.
- Transmission and distribution (T&D) losses result from generating electricity, steam, heating, and cooling and are reported by the end user.
- Generation of purchased electricity, steam, and heating and cooling is later sold to end users and reported by a utility company or energy retailer.
- Upstream transportation and distribution or emissions from transportation via air, road, rail, sea, and third-party transportation or related to storage. These upstream activities might include:
- Transportation and distribution of products purchased by the reporting company for its operations or between tier 1 suppliers in vehicles and facilities owned by someone other than the reporting company.
- Transportation and distribution services by the reporting company, focusing on inbound and outbound logistics and transportation and distribution between businesses' different facilities.
- Waste disposal and treatment in a reporting company's operations in facilities not owned or controlled by the reporting company. Waste matters might include wastewater, landfill, or composting.
- Business travel by air, bus, rail, or rental car specifically for business-related activities during a reporting year in vehicles not owned or operated by the reporting company.
- Employees commute activities between their homes and worksites by car, rail, bus, air, subway, or teleworking.
- Upstream leased assets or operation of assets, such as assets from energy use, are those leased by the reporting company, known as the lessee, distinguishing them from assets included in Scope 1 and Scope 2 emissions.
Scope 3 Downstream Emissions
Scope 3 downstream activities are more challenging to assess and report because they involve product consumption and focus on the consumer.
Let's look at some examples of downstream activities for Scope 3 emissions.
- Downstream transportation and product distribution activities occur when the manufactured items are no longer in the reporting company's possession. While they are still responsible for producing and distributing those products, the consumer now creates more emissions from the product. The downstream activities occur via air, road, rail, sea, and third-party shipping and storage products.
- The processing and use of sold products, such as a car motor, and what the end user does with them daily.
- End-of-life treatment of sold products is when a consumer has finished using the product, whether the product wore out its usefulness or they bought something new. What is the waste-disposal emissions factor? Was the product incinerated, recycled, or is it in a waste heap?
- Downstream leased assets - While some leased assets fall under Scope 1 or Scope 2, most fall under Scope 3 as downstream concerns. This area is challenging because it is difficult to account for leased items because of varying possession. However, it is still a downstream activity and more challenging to monitor and report.
- Franchises - This category applies to franchisors who must account for emissions from the operation of franchises not included in Scope 1 or 2.
- Investments and financial institutions may involve Scope 1 and 2 emissions classifications related to organizational boundaries related to equity-share investments. Scope 3 becomes a factor when considering the emissions of Scope 1 and 2 investees.
Downstream activities are challenging to measure, but they represent a holistic and realistic overview of a product's complete life cycle and carbon impact, from production to retirement and disposal.
What Scope 3 Means for Your Business's C-Suite, Stakeholders, and Board
Since Scope 1 and 2 emissions are mandatory to report, companies have focused on GHG emissions from their operations. But what about the emissions happening outside their walls?
If companies ignore Scope 3 emissions — those linked to the company’s operations but not owned by them — they miss out on a crucial step towards successful decarbonization.
Why? Scope 3 emissions often represent the most significant production of greenhouse gases. And they are also the hardest to measure since they are outside the company’s operations and direct control. In fact, the CDP has found that supply chain emissions (read: Scope 3) are, on average, 11.4 times higher than operational emissions.
Despite the challenges, it is worth the effort to measure and report all three scopes to reduce your business's carbon footprint as much as possible.
What are the GHG Protocol Standards?
While most GHG Protocols have similar end goals in reducing chemical emissions, there is more than one way to achieve them for different sectors. Let's explore the seven different types of GHG Protocols.
1. Corporate Standard
The GHG Protocol Corporate Accounting and Reporting Standard, or the Corporate Standard, was designed for companies and governmental organizations. It provides guidance and requirements for bodies such as government agencies, NGOs, and universities leading up to a corporate-level GHG emissions inventory.
Here are some additional benefits of this GHG Protocol:
- It helps companies prepare for an upcoming GHG inventory to ensure that the results accurately reflect their emissions with standardized principles and approaches.
- It reduces the cost of the GHG emissions inventory.
- It provides information to help build an effective corrective strategy to manage and reduce future emissions.
- It increases transparency and consistency in accounting and reporting.
This GHG Protocol is compatible with other GHG programs, but it is essential to distinguish the Corporate Standard from other programs when completing the reporting process.
2. Corporate Value Chain Standard (Scope 3)
Companies can quickly assess their value chain emissions with this Scope 3 Emission Standard, or the Corporate Value Chain Standard. The results identify the value chain emissions impact to allow companies to identify the spots where they can reduce emissions activities.
3. Product Standard
The Product Standard, also known as the Product Life Cycle Accounting and Reporting Standard, is used to grasp a specific product's complete life cycle of emissions. This information allows the company to focus efforts on more significant emissions reduction.
4. Project Protocol
This Protocol is the most comprehensive and is known fully as the GHG Protocol for Project Accounting. It offers a policy-neutral accounting tool to help businesses identify and quantify the value and benefits of GHG reduction and climate change mitigation projects.
5. GHG Protocol for Cities
This Protocol is a partnership between WRI, C40 Cities Climate Leadership Group, and Local Governments for Sustainability (ICLEI). Together, these bodies formed the GHG Protocol for Cities (GPC) as a robust framework for accounting and reporting on city-wide GHG emissions.
This standard, designed for cities, focuses on cities offering an excellent opportunity to tackle climate change at the ground level. It allows city GHG leaders to identify and measure the source of emissions to cut problems at the root. The GHG Protocol offers cities specific tools and standards to measure emissions, build reduction strategies, and set measurable emission reduction goals.
6. Mitigation Goal Standard
The Greenhouse Gas Protocol Mitigation Goal Standard offers information and guidance to design national and subnational emission mitigation goals. It also provides a standardized approach to assessing, reporting, and working toward goals.
It will help governments, companies, and organizations to
- Determine and set emission-reduction goals
- Meet international and domestic emissions reporting responsibilities to groups such as NFCCC
- Track the progress of emissions-reduction results
7. Policy and Action Standard
The GHG Protocol Policy and Action Standard is a standardized protocol and approach for organizations to estimate the GHG effect of actions and policies. This Protocol works at local and national levels, allowing respective leadership to assess the GHG impacts of specific policies. It offers a guideline for improving emissions-reduction effectiveness and informs responsible policymakers about where to invest resources to improve and get the best results.
Why Has the GHG Protocol Become So Important?
For several decades, leading scientists have understood the growing need for concern and action regarding the increasing amounts of greenhouse gases, including methane, carbon dioxide, and nitrous oxide. These and other synthetical chemicals trap the Earth's outbound energy, which means that the heat remains in the atmosphere with no place to go.
These substances trapped inside the Earth's atmosphere change the Earth's radioactive balance of energy received via the sun and emitted from the Earth. Together, this energy stalemate has the power to alter the Earth's climate and weather patterns, regionally and globally.
Greenhouse gas emissions have historically been associated with naturally occurring factors, such as the Earth's orbit, the sun's output, the carbon cycle, and volcanic activity. However, scientific experts have found an increasing amount of emissions are related to human and industrial activities since the 1700s, particularly over the past 50 years.
When combined, these factors have negatively impacted the Earth's radiative balance. This imbalance has led to a warming effect surrounding various aspects of the Earth's climate, such as ocean temperatures, sea levels, and surface air.
Without deliberate and coordinated corrective action from leading businesses and worldwide governmental organizations, the imbalance invites vulnerabilities to human health, wildlife, agriculture, water resources, forests, and coastal regions.
Why Is the GHG Protocol Important for Companies?
Businesses ready to commit to reducing emissions and eventual carbon neutrality needs a direct path to success. This complex issue relies on scientific-and-fact-based information and guidance that the GHG Protocol delivers and expands upon to ensure success.
The Protocol provides the world's most easily understood and widely used GHG accounting standards for businesses everywhere. The standards and guidance make it simple for participating companies to monitor, measure, manage, report, and potentially mitigate GHG emissions from their operations or supply chains.
As of 2016, 92% of Fortune 500 companies had already adopted and regularly used the GHG Protocol and its standards for compliance, whether indirectly or directly, via a GHG Protocol-based program.
Some reports indicate that many countries have reduced greenhouse gas emissions, helping to keep the Earth's temperature rise below 1.5 degrees. This success has led to more and more cities worldwide committing to using and relying on the GHG Protocol.
Further, an increasing number of countries are adopting the GHG Protocol on a national level since it offers a strategy to mitigate emissions problems by assessing and reporting progress toward respective goals and estimating the effects of GHG Protocol policies and actions.
The fact is that while large corporations and retailers bear a great responsibility, so do all organizations. It is a social responsibility that everyone in commerce should acknowledge and address to the best of their abilities, and the GHG Protocol offers everyone a simple set of guidelines. It is as beneficial for companies to adopt and use the GHG Protocol as it is for the environment. It shows their commitment to reducing their carbon footprint and carbon neutrality.
As more and more leading companies develop a GHG policy, they have a massive influence on the public consciousness worldwide, so other companies are paying attention regardless of their size and reach. Competitors will undoubtedly have to consider following suit or lose the faith of consumers and leadership devoted to protecting the Earth as a home and bed of resources.
Four Business Benefits of Using the GHG Protocol
All businesses interested in a net-zero future want to find the most straightforward and least disruptive ways to reduce emissions. The GHG Protocol offers all this and more, including the following benefits:
- It provides an easy path to reducing Scope 1, 2, & 3 emissions.
- It keeps businesses competitive among those adopting the GHG Protocol.
- It shows consumers that each business and its leaders adopting the GHG Protocol care about the effects of climate change and the will to do what's right to protect the Earth and its resources.
- It promotes more transparency, consistency, and quality for corporate GHG accounting and reporting duties via standardized approaches, principles, and activities, ensuring complete and consistent compliance with standards set forth by governing bodies.
Are There Limits to the GHG Protocol?
According to a July 2022 Forbes article from Shivaram Rajgopal, the GHG Protocol, the most widely used framework used to measure and report emissions globally, continually seeks to enhance and improve efforts.
In 2023, the WRI intends to make necessary updates, which might include matters such as:
- Due process
- Organizational boundary definitions
- Assurance of organizational boundaries
- Mechanism to report emissions regarding acquired or discontinued operations
- Clarification on Scope 4 or avoided emissions
Ideally, the work in 2023 will help clear up current limitations but considering that the GHG Protocol is still relatively new and an ongoing concern, look for experts to continue seeking improvements.
Let carbmee Help You Develop a GHG Protocol Strategy
While all emissions scopes are essential to measure and report, it takes special tools and strategies to pin down Scope 3 downstream emissions. Our solution can help you track your GHG accounting and accurately measure your GHG reduction without the stress of trying to fill in the gaps.
Carbmee has designed, developed, and refined a cloud-based GHG Protocol solution to support your efforts to measure carbon, manage emissions, and achieve your carbon reduction and net-zero carbon goals.
Contact us to learn more about our offerings, determine your strategy, or book a demo today!