What are Scope 3 Emissions? | CarbonChain

Scope 3 Emissions Explained

What are Scope 3 emissions and why will your company need to report on its supply chain activities more transparently? Here’s what you need to know.

Scope 3 emissions can represent over 90% of a company’s carbon footprint. Regulators are zoning in on them, particularly in high-emitting industrial and commodity supply chains — and this will impact many companies’ business models.

With organizations increasingly disclosing their full carbon footprint on the road to net zero, find out more about the importance of Scope 3 emissions, why this data enables companies to better understand their climate impacts, and how to begin this complex reporting process.

What are Scope 3 emissions?

Scope 3 emissions are indirect emissions emitted across an organization’s value chain, the result of activities which are not directly controlled or owned by the company. The exception is indirect emissions from the purchase or use of electricity generated elsewhere: those emissions are Scope 2, rather than Scope 3.

Categorizing greenhouse gas (GHG) emissions into ‘Scopes’ was first introduced by the GHG Protocol, a leading provider of standards and tools which help organizations quantify their emissions. Scope 3 emissions are complex to measure, and originate from a wide range of sources, which is why the GHG Protocol identifies 15 categories of Scope 3 emissions — to better guide on measurement, identify where companies’ Scope 3 hotspots are, and make cross-company comparisons easier.

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There are 15 categories of Scope 3 emissions, broken down into ‘upstream’ and ‘downstream’.

How do Scope 3 emissions differ from Scope 1 and 2 emissions?

Scope 1 covers emissions from sources which a company owns or directly controls. Scope 2 covers emissions which are indirectly caused by companies through the electricity, heating, cooling or steam they purchase and use.

Scope 3 emissions include sources which are not within a company’s Scope 1 and Scope 2 operational boundaries. Examples include emissions from suppliers' facilities that produce a company's purchased goods, transportation of purchased or sold goods, and how products are used once sold.

While Scope 3 emissions represent the largest share of an organization’s GHG emissions — especially for companies creating and trading physical products — these emissions will represent Scope 1 and 2 emissions for other companies in the original organization’s value chain.

If all organizations were equally invested in reducing their carbon emissions, Scope 3 emissions would be easier to monitor and manage.

However, the reality is that economies are highly interconnected and organizations have influence on emissions they do not directly produce. One of the GHG Protocol’s original goals was to avoid double counting between companies.

Example of Scope 3 emissions for a manufacturer

Manufacturers’ carbon footprints are likely to have a very high share of Scope 3 emissions.

Emissions from purchased goods that manufacturers buy as material inputs, falling under Category 1 — purchased goods and services — are likely to be material, depending on how carbon-intensive their products are.
Category 11 — use of sold products — are also an important hotspot for manufacturers to measure.

Example of Scope 3 emissions for a commodity trader

With carbon prices on the rise, commodity traders should keep an eye on the Scope 3 emissions of high-risk products.

For example, Category 11 — use of sold products — of Oil and Gas products will represent a large share of their carbon footprint, due to the combustion of fuels sold.

Example of Scope 3 emissions for a trade finance provider

‍ Banks looking to reduce their portfolio’s carbon intensity will need to focus on Scope 3 Category 15 emissions — investments— as their primary carbon hotspot.

Why should organizations measure their Scope 3?

Benefit stakeholders

A comprehensive GHG inventory outlining all three Scopes allows organizations to identify and focus efforts on their largest emissions sources. Disclosing Scope 3 emissions allows stakeholders to more easily compare companies’ carbon footprints.

Better analyze environmental impact

Companies are increasingly analyzing their value chains to understand the full impact of their business. Classifying and disclosing different types of emissions provides an indication of the control an organization has over GHG emissions and pinpoint emissions reduction opportunities.

Contribute to global decarbonization aims

Disclosing Scope 3 emissions is also an important step towards reaching global climate goals.

Why does your organization need a Scope 3 strategy?

Scope 1 and Scope 2 emissions reduction can usually be achieved without significant changes to an organization’s operations. However, reducing Scope 3 emissions will lead to a more fundamental business model transformation. The earlier a company can measure and disclose all Scopes, the easier it will be to adapt to a lower-carbon world.

How to create a Scope 3 strategy

One way to prioritize Scope 3 calculations is to complete a screening of Scope 3 sources. A review of a company’s procurement spend — analyzing spend categories, products or services purchased, and prominent suppliers — is a good place to start.

Organizations can also prioritize different focus areas depending on activities the company has influence over.

Scope 3 and science-based targets

Scope 3 emissions are included in net-zero emissions reduction targets under the Science Based Targets initiative (SBTi).

Different ways to measure Scope 3 emissions

Once a reporting period is established, activity data (data from activities which generate GHG emissions) and emissions data should be collected across all emission sources. Over time, it is important to improve data quality to avoid relying on estimates.

There are two main approaches an organization can take to measure its Scope 3 emissions:

Direct measurement

GHG emissions are quantified using direct monitoring, mass balance or stoichiometry, such as a flue gas meter.

Calculation based

This approach quantifies GHG emissions by multiplying activity data by an emission factor.

Different calculation approaches include:

Supplier-specific method

Collects product-level, cradle-to-gate GHG inventory data from goods or services suppliers.

Average-data method

Estimates emissions for goods and services by collecting data on the mass or quantity of purchased products.

Which emissions factors do you need to consider for Scope 3?

There are several different types of emission factors (EFs) which can be used to calculate Scope 3 emissions:

Embodied EFs — GHG emissions from the production of a certain material, product, or energy.
Life cycle EFs — include the GHG emissions throughout the entire life cycle of a product, from raw material extraction to its end-of-life treatment.

Calculating Scope 3 emissions with CarbonChain

Leading manufacturers and commodity traders use CarbonChain’s products to access accurate and efficiently-calculated data when analyzing their carbon footprint.

FAQs

Is Scope 3 included in net zero targets?

A company’s full carbon footprint is considered when creating a net zero target, so Scope 3 emissions are included in net zero targets.

Are Scope 3 emissions the same as supply chain emissions?

Scope 3 emissions are all other indirect emissions that do not fall under Scope 1 and 2 emission sources.