How to identify Scope 3 Emissions

Summary: This is an extract of Chapter 5. This chapter provides an overview of scope 3 emissions, including the list of scope 3 categories and descriptions of each category.

5.1 Overview of the scopes

The GHG Protocol Corporate Standard divides a company’s emissions into direct and indirect emissions.

• Direct emissions are emissions from sources that are owned or controlled by the reporting company.
• Indirect emissions are emissions that are a consequence of the activities of the reporting company, but occur at sources owned or controlled by another company.

Emissions are further divided into three scopes (see table 5.1). Direct emissions are included in scope 1. Indirect emissions are included in scope 2 and scope 3. While a company has control over its direct emissions, it has influence over its indirect emissions. A complete GHG inventory therefore includes scope 1, scope 2, and scope 3.

Scope 1, scope 2, and scope 3 are mutually exclusive for the reporting company, such that there is no double counting of emissions between the scopes. In other words, a company’s scope 3 inventory does not include any emissions already accounted for as scope 1 or scope 2 by the same company. Combined, a company’s scope 1, scope 2, and scope 3 emissions represent the total GHG emissions related to company activities.

By definition, scope 3 emissions occur from sources owned or controlled by other entities in the value chain (e.g., materials suppliers, third-party logistics providers, waste management suppliers, travel suppliers, lessees and lessors, franchisees, retailers, employees, and customers). The scopes are defined to ensure that two or more companies do not account for the same emission within scope 1 or scope 2. By properly accounting for emissions as scope 1, scope 2, and scope 3, companies avoid double counting within scope 1 and scope 2.

(For more information, see the GHG Protocol Corporate Standard, chapter 4, “Setting Operational Boundaries.”)

In certain cases, two or more companies may account for the same emission within scope 3. For example, the scope 1 emissions of a power generator are the scope 2 emissions of an electrical appliance user, which are in turn the scope 3 emissions of both the appliance manufacturer and the appliance retailer. Each of these four companies has different and often mutually exclusive opportunities to reduce emissions. The power generator can generate power using lower-carbon sources. The electrical appliance user can use the appliance more efficiently. The appliance manufacturer can increase the efficiency of the appliance it produces, and the product retailer can offer more energy-efficient product choices.

By allowing for GHG accounting of direct and indirect emissions by multiple companies in a value chain, scope 1, scope 2, and scope 3 accounting facilitates the simultaneous action of multiple entities to reduce emissions throughout society. Because of this type of double counting, scope 3 emissions should not be aggregated across companies to determine total emissions in a given region. Note that while a single emission may be accounted for by more than one company as scope 3, in certain cases the emission is accounted for by each company in a different scope 3.category (see section 5.4). For more information on double counting within scope 3, see section 9.6.

5.2 Organizational boundaries and scope 3 emissions

Defining the organizational boundary is a key step in corporate GHG accounting. This step determines which operations are included in the company’s organizational boundary and how emissions from each operation are consolidated by the reporting company. As detailed in the GHG Protocol Corporate Standard, a company has three options for defining its organizational boundaries as shown in table 5.2.

Companies should use a consistent consolidation approach across the scope 1, scope 2, and scope 3 inventories.

The selection of a consolidation approach affects which activities in the company’s value chain are categorized as direct emissions (i.e., scope 1 emissions) and indirect emissions (i.e., scope 2 and scope 3 emissions). Operations or activities that are excluded from a company’s scope 1 and scope 2 inventories as a result of the organizational boundary definition (e.g., leased assets, investments, and franchises) may become relevant when accounting for scope 3 emissions (see box 5.1).

Scope 3 includes:

• Emissions from activities in the value chain of the entities included in the company’s organizational boundary
• Emissions from leased assets, investments, and franchises that are excluded from the company’s organizational boundary but that the company partially or wholly owns or controls (see box 5.1)

For example, if a company selects the equity share approach, emissions from any asset the company partially or wholly owns are included in its direct emissions (i.e., scope 1), but emissions from any asset the company controls but does not partially or wholly own (e.g., a leased asset) are excluded from its direct emissions and should be included in its scope 3 inventory.1

Similarly, if a company selects the operational control approach, emissions from any asset the company controls are included in its direct emissions (i.e., scope 1), but emissions from any asset the company wholly or partially owns but does not control (e.g., investments) are excluded from its direct emissions and should be included in its scope 3 inventory.

See the GHG Protocol Corporate Standard, chapter 3, “Setting Organizational Boundaries” for more information on each of the consolidation approaches.

5.3 Upstream and downstream scope 3 emissions

This standard divides scope 3 emissions into upstream and downstream emissions. The distinction is based on the financial transactions of the reporting company.

• Upstream emissions are indirect GHG emissions related to purchased or acquired goods and services.
• Downstream emissions are indirect GHG emissions related to sold2 goods and services.

In the case of goods purchased or sold by the reporting company, upstream emissions occur up to the point of receipt by the reporting company, while downstream emissions occur subsequent to their sale by the reporting company and transfer of control from the reporting company to another entity (e.g., a customer). Emissions from activities under the ownership or control of the reporting company (i.e., direct emissions) are neither upstream nor downstream (see figure 5.2).

5.4 Overview of scope 3 categories

This standard categorizes scope 3 emissions into 15 distinct categories, as listed in figure 5.2 and table 5.3. The categories are intended to provide companies with a systematic framework to organize, understand, and report on the diversity of scope 3 activities within a corporate value chain. The categories are designed to be mutually exclusive, such that, for any one reporting company, there is no double counting of emissions between categories.3 Each scope 3 category is comprised of multiple scope 3 activities that individually result in emissions.

Table 5.4 includes descriptions of each of the 15 categories that comprise scope 3 emissions. Each category is described in detail in section 5.5. Companies are required to report scope 3 emissions by scope 3 category. Any scope 3 activities not captured by the list of scope 3 categories may be reported separately (see chapter 11).

Minimum boundaries of scope 3 categories

Table 5.4 identifies the minimum boundaries of each scope 3 category in order to standardize the boundaries of each category and help companies understand

which activities should be accounted for. The minimum boundaries are intended to ensure that major activities are included in the scope 3 inventory, while clarifying that companies need not account for the value chain emissions of each entity in its value chain, ad infinitum. Companies may include emissions from optional activities within

each category. Companies may exclude scope 3 activities included in the minimum boundary of each category, provided that any exclusion is disclosed and justified. (For more information, see chapter 6.)

For some scope 3 categories (e.g., purchased goods and services, capital goods, fuel- and energy-related activities), the minimum boundary includes all upstream (cradle-to-gate4) emissions of purchased products to ensure that the inventory captures the GHG emissions of products wherever they occur in the life cycle, from raw material extraction through purchase by the reporting company. For other categories (e.g., transportation and distribution, waste generated in operations, business travel, employee commuting, leased assets, franchises, use of sold products, etc.), the minimum boundary includes the scope 1 and scope 2 emissions of the relevant value chain partner (e.g., the transportation provider, waste management company, transportation carrier, employee, lessor, franchisor, consumer, etc.).

For these categories, the major emissions related to the scope 3 category result from scope 1 and scope 2 activities of the entity (e.g., the fuel consumed in an airplane for business travel), rather than the emissions associated with manufacturing capital goods or infrastructure (e.g., the construction of an airplane or airport for business travel). Companies may account for additional emissions beyond the minimum boundary where relevant.

Time boundary of scope 3 categories

This standard is designed to account for all emissions related to the reporting company’s activities in the reporting year (e.g., emissions related to products purchased or sold in the reporting year). For some scope 3 categories, emissions occur simultaneously with the activity (e.g., from combustion of energy), so emissions occur in the same year as the company’s activities (see figure 5.3). For some categories, emissions may have occurred in previous years. For other scope 3 categories, emissions are expected to occur in future years because the activities in the reporting year have long-term emissions impacts. For these categories, reported emissions have not yet happened, but are expected to happen as a result of the waste generated, investments made, and products sold in the reporting year. For these categories, the reported data should not be interpreted to mean that emissions have already occurred, but that emissions are expected to occur as a result of activities that occurred in the reporting year.

Minimum boundaries of scope 3 categories Table 5.4 identifies the minimum boundaries of each scope 3 category in order to standardize the boundaries of each category and help companies understand which activities should be accounted for. The minimum boundaries are intended to ensure that major activities are included in the scope 3 inventory, while clarifying that companies need not account for the value chain emissions of each entity in its value chain, ad infinitum. Companies may include emissions from optional activities within each category. Companies may exclude scope 3 activities included in the minimum boundary of each category, provided that any exclusion is disclosed and justified. (For more information, see chapter 6.)

For some scope 3 categories (e.g., purchased goods and services, capital goods, fuel- and energy-related activities), the minimum boundary includes all upstream (cradle-to-gate) emissions of purchased products to ensure that the inventory captures the GHG emissions of products wherever they occur in the life cycle, from raw material extraction through purchase by the reporting company.

For other categories (e.g., transportation and distribution, waste generated in operations, business travel, employee commuting, leased assets, franchises, use of sold products, etc.), the minimum boundary includes the scope 1 and scope 2 emissions of the relevant value chain partner (e.g., the transportation provider, waste management company, transportation carrier, employee, lessor, franchisor, consumer, etc.).

For these categories, the major emissions related to the scope 3 category result from scope 1 and scope 2 activities of the entity (e.g., the fuel consumed in an airplane for business travel), rather than the emissions associated with manufacturing capital goods or infrastructure (e.g., the construction of an airplane or airport for business travel). Companies may account for additional emissions beyond the minimum boundary where relevant.

Time boundary of scope 3 categories This standard is designed to account for all emissions related to the reporting company’s activities in the reporting year (e.g., emissions related to products purchased or sold in the reporting year). For some scope 3 categories, emissions occur simultaneously with the activity (e.g., from combustion of energy), so emissions occur in the same year as the company’s activities (see figure 5.3). For some categories, emissions may have occurred in previous years.

For other scope 3 categories, emissions are expected to occur in future years because the activities in the reporting year have long-term emissions impacts. For these categories, reported emissions have not yet happened, but are expected to happen as a result of the waste generated, investments made, and products sold in the reporting year.

For these categories, the reported data should not be interpreted to mean that emissions have already occurred, but that emissions are expected to occur as a result of activities that occurred in the reporting year.