Scope 1, 2, and 3 Emissions

Introduction to Scope 1, 2, and 3 emissions

Scope 1, 2, and 3 emissions refer to the different categories of greenhouse gas emissions that a company produces.

These three different scopes cover the greenhouse gasses that a company emits directly, like fuel burned from a company’s delivery truck or its factory equipment, and indirectly, like the electricity a company uses to operate, the emissions from employee commutes or business travel, or even the emissions from a company’s suppliers.

We’ll break down what each scope means in simple terms and explain why it matters. Whether you’re a consumer curious about corporate sustainability, or a business leader looking to cut emissions, this guide will help you understand the essentials of Scope 1, 2, and 3 and how they shape the journey toward a greener future.

Why do Scope 1, 2, and 3 emissions matter?

Scope 1, 2, and 3 emissions represent the total carbon footprint of a business. Understanding this footprint helps companies know where their greenhouse gas emissions are coming from and gives them a full picture of their environmental impact. With climate regulations tightening, tracking and measuring Scope 1, 2, and 3 emissions also ensures that companies stay compliant and avoid potential fines.

Additionally, consumers and investors are increasingly prioritizing companies with strong environmental practices, so reducing emissions can boost a company’s reputation and appeal. Plus, cutting emissions often reveals ways to streamline operations and lower costs, whether by using energy more efficiently or improving supply chain practices.

Ultimately, addressing scope emissions helps companies build trust with stakeholders, reduce their climate impact, and gain a competitive edge in an environmentally aware world.

When were Scope 1, 2, and 3 emissions introduced?

The concept of Scope 1, 2, and 3 emissions was introduced in the early 2000s as part of the Greenhouse Gas (GHG) Protocol, a global standard created by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD).

The goal of the GHG Protocol was to define scope emissions and provide a clear and standardized framework to help companies, governments, and other organizations measure and report greenhouse gas emissions, helping to drive transparency and accountability.

It has become the most widely used tool for organizations committed to understanding and managing their climate impact and is the foundation for many other environmental reporting standards, such as those used by the United Nations and the International Standards Organization (ISO).

What are Scope 1 emissions?

Essentially, Scope 1 emissions are all the direct emissions a company produces from sources it owns or directly controls.

These emissions are often described as direct because they come from activities directly managed by the company itself, such as fuel burned on-site or in company vehicles. This makes them the most straightforward emissions to track and measure, though they can vary widely depending on a company’s operations.

Companies often focus on Scope 1 emissions first because these are the emissions they have the most control over. They can usually make changes internally to reduce these emissions.

Reducing Scope 1 emissions often has an immediate impact, both on the environment and on a company’s operating costs, due to decreased fuel consumption and improved operational efficiency.

What are examples of Scope 1 emissions?

1. Fuel used on-site at company-owned facilities: Any burning of fossil fuels within a company’s buildings qualifies as a Scope 1 emission. This could be:

• Gasoline or diesel fuel used in backup generators
• Natural gas heating systems
• Boilers used to produce steam for industrial processes

2. Fuel use in company vehicles: When companies operate vehicles, whether they’re trucks for delivery, passenger vehicles, or heavy equipment, emissions from these are Scope 1. For instance:

• A logistics company’s fleet of delivery vans
• An airline’s aircraft
• Mining and construction companies’ machinery like bulldozers and excavators.

3. Emissions from industrial production: Manufacturing and industrial companies often produce emissions as a direct result of their processes. Examples include:

• Cement production, which releases CO₂ as part of the chemical transformation in limestone
• Metal smelting processes
• Chemical manufacturing that involves reactions producing byproducts like methane or nitrous oxide

4. Refrigerant leaks: Some companies use refrigerants in air conditioning and refrigeration units. If these systems leak, these emissions, often called fugitive emissions, count as Scope 1 due to the greenhouse gases in refrigerants. This is particularly relevant for sectors like:

• Food and beverage companies with large refrigeration needs
• Hospitals and data centers with significant cooling requirements
• Retailers that operate refrigerated storage for products

How Scope 1 emissions are calculated

As Scope 1 emissions come directly from sources controlled by the company, they are the most straightforward to calculate. Here is a general outline of how to calculate Scope 1 emissions:

Step 1: Identify the sources

Look at where emissions come from. Review all company-owned or controlled facilities to identify equipment and processes that burn fuel or generate emissions. This includes heating systems, boilers, generators, and any industrial processes that release greenhouse gases.

List all vehicles operated by the company, including delivery trucks, fleet cars, and heavy machinery. For manufacturing or processing companies, look at emissions directly produced by chemical or physical transformations.

Identify any air conditioning or refrigeration units that might use gases with high global warming potential (like HFCs). Leaks or servicing of these systems can result in Scope 1 fugitive emissions.

Maintenance logs, fuel purchase records, and energy usage reports can help pinpoint where emissions are coming from, especially for on-site equipment and vehicles.

Step 2: Collect data for each source

Once the sources are identified, it’s time to collect data on the activity associated with each source.

For fuel consumption, track the amount of fuel (e.g., natural gas, gasoline, diesel) burned in kilowatt-hours (kWh), liters, gallons, or cubic meters – as well as how often equipment is used. This data could come from fuel bills, tank meters, or internal systems that monitor energy usage.

If a company’s processes produce emissions as a byproduct, like cement or chemicals, track how much of each material was used. For fugitive emissions, record the type and amount of refrigerant added during maintenance, typically measured in kilograms or pounds, as well as any leakage detected.

Tracking emissions data accurately is vital, so companies often establish regular data-collection processes or install monitoring devices.

Step 3: Apply emissions factors

Once a company has its activity data, it needs to convert this information into actual emissions. This is done by applying emissions factors, which are values that represent the amount of greenhouse gas released per unit of activity and vary by fuel type, process, or substance.

For example, for each liter or gallon of diesel fuel burned, an emission factor can help calculate the resulting CO₂, methane (CH₄), and nitrous oxide (N₂O) emissions. For natural gas combustion, emission factors provide the amount of CO₂ emitted per cubic meter of natural gas burned. For refrigerants, the emissions factor could be based on the global warming potential (GWP) of each refrigerant type.

Reliable emission factors can be sourced from governmental bodies, like the U.S. Environmental Protection Agency (EPA) and the Intergovernmental Panel on Climate Change (IPCC). In addition, many industries have established their own emission factors, particularly for process emissions. 

Step 4: Calculate the emissions

To calculate the emissions, multiply the activity data for each source by the appropriate emission factor. The formula general looks like this:

Emissions = activity data x emissions factor

Greenhouse gases vary in their warming impact, so to report them in a standardized way, they are converted to CO₂ equivalents (CO₂e) using their global warming potential (GWP) values, which quantify their impact relative to CO₂. CO₂ is used as a baseline (with a GWP of 1), and other gases are converted based on how much more (or less) they impact the atmosphere.

After calculating emissions for each source, add them together to get the total Scope 1 emissions for the reporting period, usually a year. The final result is often expressed in metric tons of CO₂ equivalent (CO₂e). 

Challenges of Scope 1 emissions

Despite having direct control over Scope 1 emissions, companies can face several challenges:

• Data collection and accuracy: Tracking fuel use, industrial process emissions, and refrigerant leaks accurately requires consistent data collection. Some companies may struggle with incomplete records, especially if they operate multiple facilities or use a diverse fleet.
• Monitoring fugitive emissions: Leaks from refrigeration and air conditioning systems can be hard to detect and quantify. These emissions are often overlooked, yet they can have a high impact due to the global warming potential of refrigerants.
• Measurement complexity in industrial processes: For industries like manufacturing, chemical production, or mining, emissions from processes can vary based on production cycles, material inputs, and operational efficiency. This complexity can make emissions measurement challenging.
• Regulatory compliance and reporting: Different regions have various reporting standards, and staying compliant can require additional effort and specialized knowledge. Navigating these requirements and adapting to updates can be difficult for companies operating internationally.
• Cost of emission-reduction alternatives: Implementing cleaner alternatives—such as upgrading to electric vehicles or installing low-emission industrial equipment—often involves significant upfront costs. Balancing these costs with sustainability goals is a challenge for many companies.
• Inconsistent emission factors: Emission factors, used to convert fuel or material usage into emissions, can vary by source, fuel type, and even region. Companies need to ensure they use appropriate and up-to-date factors to calculate their emissions accurately, which can be a complex task.

Ways to reduce Scope 1 emissions

• Switch to electric vehicles (EVs): If a company has a fleet of vehicles, transitioning to electric vehicles is one of the most impactful ways to reduce Scope 1 emissions. Companies can also explore electric forklifts, delivery vans, and other equipment.
• Energy-efficient equipment: Upgrading to energy-efficient machinery and equipment can significantly reduce emissions from industrial processes. Regularly servicing machinery, vehicles, and other equipment also helps ensure that they operate efficiently. In addition, replacing fossil fuels like coal, oil, or natural gas with cleaner alternatives—such as biofuels, hydrogen, or renewable natural gas—can cut emissions.
• Improve process efficiency: In manufacturing or industrial operations, emissions are often a byproduct of production processes. Companies can reduce Scope 1 emissions by optimizing production methods to minimize waste and energy use. For example, improving the efficiency of chemical processes or upgrading to low-emission technologies can reduce the carbon footprint of operations.
• Carbon capture and storage: For industries with high process carbon emissions, like cement or steel manufacturing, carbon capture and storage (CCS) technologies can capture CO₂ emissions at the source and store them underground or use them in other processes.

What are Scope 2 emissions?

Scope 2 emissions are the indirect greenhouse gases created from the energy a company buys and uses. While the company doesn’t directly produce these emissions on-site, they result from generating the power it consumes. Think of it like this: when a business uses electricity to run lights, computers, and machinery, the emissions from generating that electricity—typically at a power plant—count as Scope 2 emissions.

Since a company relies on this purchased energy, even though the emissions don’t come directly from its operations, tracking Scope 2 emissions helps it understand and manage its total carbon footprint better, especially as more companies aim to reduce their environmental impact.

What are examples of Scope 2 emissions?

The most common example of a Scope 2 emission is electricity. While a company may not burn fuel to power its lights or computers, the power plant that generates the electricity does, releasing emissions in the process. The company is responsible for the emissions generated from the electricity it uses.

These emissions go beyond just electricity. They can also come from any externally supplied heating, cooling, or steam the company buys. For example, if a business buys steam for heating, the emissions created to produce that steam are Scope 2.

How Scope 2 emissions are calculated 

Step 1: Collect data on energy use

First, the company gathers data on how much electricity, heating, cooling, or steam it buys. This information often comes from utility bills, which show energy usage in kilowatt-hours (kWh) for electricity, or other units for heating and cooling.

Step 2: Apply emissions factors

Next, the company applies an emissions factor, which is a standard number that tells you how much CO₂ is produced per unit of energy. Different regions and energy sources (like coal, gas, or renewable energy) have different emission factors because some types of energy are cleaner than others.

Step 3: Calculate the emissions

The company multiplies its total energy use by the emission factor. This gives a final number in terms of CO₂ emissions. It is the same formula used for Scope 1 emissions:

Emissions = activity data (totally energy use) x emissions factor

For example, if a company uses 10,000 kWh of electricity and the emission factor is 0.5 kg CO₂ per kWh, the Scope 2 emissions would be 5,000 kg of CO₂. This simple calculation allows companies to see how much their energy use impacts the environment.

Challenges of Scope 2 emissions

Calculating and managing Scope 2 emissions can present several challenges for companies, including:

• Accurate data collection: Companies need precise data on how much energy they use. This information typically comes from utility bills, but discrepancies or irregularities in billing can make tracking difficult, especially if a company operates in multiple locations or has complex energy needs.
• Varying emission factors: Emission factors—the standard rates used to calculate emissions—can vary by region, energy source, and even the method used to generate power. For example, the emissions from coal-generated electricity are higher than those from wind or solar. Companies may need to ensure they’re using the correct emission factor for their specific energy mix, which can be complex if they source energy from multiple providers or locations.
• Grid mix: The emission factor for electricity can change depending on the energy grid in a particular region. If a company operates in an area with a mix of renewable and non-renewable energy sources, estimating the exact emissions can be tricky without detailed knowledge of the local grid’s energy mix.
• Renewable energy purchases: Many companies are increasingly purchasing renewable energy, such as solar or wind power, to reduce Scope 2 emissions. However, it can be challenging to track how much of the energy purchased is truly "green" or renewable, especially when using green energy credits or certificates, which may vary in their environmental impact.
• Third-party reporting: For companies that buy energy from multiple suppliers, each supplier may provide different data or use different standards for reporting. This can create inconsistencies in how emissions are calculated and reported across different parts of the business.
• Cost and financial reporting: Companies may face challenges balancing the cost of renewable energy or energy efficiency upgrades with their sustainability goals. Transitioning to cleaner energy sources often requires significant investment, and navigating this financial trade-off can be difficult for many businesses.
  

Ways to reduce Scope 2 emissions

• Switch to renewable energy: One of the most direct ways to reduce Scope 2 emissions is by purchasing energy from renewable sources like wind, solar, or hydropower. Many utility companies now offer green energy plans, where the power they supply comes from renewable sources. If a company has the resources, it can even install its own renewable energy systems on-site.
• Increase energy efficiency: Reducing the amount of energy a company uses is another effective way to cut Scope 2 emissions. Companies can: upgrade to energy-efficient lighting (like LEDs) install smart thermostats and energy management systems; use energy-efficient appliances and equipment, or improve insulation to reduce heating and cooling needs.
• Offset emissions: For companies that can’t fully transition to renewable energy immediately, purchasing renewable energy certificates (RECs) or carbon offsets can be a way to compensate for emissions. RECs represent the environmental benefits of renewable energy, and purchasing them helps fund more green energy projects.

What are Scope 3 emissions?

The definition of Scope 3 emissions includes the indirect greenhouse gases associated with everything a company does but doesn’t directly control. Unlike Scope 1 and Scope 2, which come from a company’s own energy use, Scope 3 covers emissions across the entire supply chain. They are sometimes referred to as value chain emissions.

Scope 3 is often the largest part of a company’s carbon footprint because it covers upstream emissions – the emissions associated with its suppliers – and downstream emissions – the emissions from what happens after a company sells its product, including how customers use and dispose of it.

On average, Scope 3 emissions make up 75% of a company’s carbon footprint. Addressing Scope 3 emissions allows companies to take meaningful action on climate change, drive industry-wide improvements, meet consumer expectations, and demonstrate true environmental responsibility. 

What are examples of Scope 3 emissions?

According to the Greenhouse Gas (GHG) Protocol, examples of Scope 3 emissions can include the following:

Upstream Scope 3 sources:

• Purchased goods and services
• Capital goods
• Fuel- and energy-related activities not included in Scope 1 or 2
• Upstream transportation and distribution
• Waste generated in operations
• Business travel
• Employee commuting
• Upstream leased assets

Downstream Scope 3 sources:

• Transportation and distribution of sold products
• Processing of sold products
• Use of sold products
• End-of-life treatment of sold products
• Downstream leased assets
• Franchises
• Investments

How Scope 3 emissions are calculated 

Calculating Scope 3 emissions is complex because it involves tracking emissions across the entire value chain, from suppliers to customers. However, it follows the same process as Scope 1 and Scope 2. Here’s a general overview of how companies typically calculate Scope 3 emissions:

Step 1: Identify relevant categories

First, companies assess which of the Scope 3 emissions categories are relevant to their operations, as not all categories apply to every business. For example, a manufacturing company might focus on purchased goods and services and Upstream transportation, while a software company may prioritize business travel and employee commuting.

Step 2: Collect data

For each relevant category, companies gather data from various sources. This might include the amount of goods purchased, travel distances, fuel consumption for logistics, or electricity used by customers. Companies can collect primary data directly from suppliers or use estimates based on industry averages if precise data isn’t available.

Step 3: Apply emissions factors

Emissions factors are used across all three scopes. For each type of activity (like miles traveled, tons of materials bought, or electricity consumed), companies apply an emission factor, a standardized number that converts units of activity (such as kilograms, miles, or kilowatt-hours) into greenhouse gas emissions.

Step 4: Calculate the emissions

The same formula applies across all three scopes:

emissions = activity data x emissions factor

Because Scope 3 covers such a wide range of activities and data sources, calculations may rely on a mix of actual and estimated data. Using standardized methods and emission factors, such as those from the Greenhouse Gas Protocol, helps companies ensure that their calculations are as accurate and consistent as possible.

Challenges of Scope 3 emissions

Scope 3 emissions are challenging for companies to manage because they involve indirect emissions from activities outside their direct control, like what suppliers produce and how customers use their products.

Calculating these emissions is complicated since it requires data from many different sources, like suppliers’ production methods, customer usage patterns, and transportation emissions. Often, companies don’t have access to detailed information from suppliers or reliable estimates for customer behaviors, making accurate tracking difficult.

Additionally, with so many varied sources, even knowing where to start can feel overwhelming, especially for companies with complex supply chains. Despite these hurdles, understanding Scope 3 is essential because it often makes up the largest part of a company’s carbon footprint.

Ways to reduce Scope 3 emissions 

Reducing Scope 3 emissions can be tricky because a company can’t always control what their suppliers do or how their customers use their products. But there are some practical steps a company can take to lower these emissions:

• Choose greener suppliers who use more sustainable practices, like producing goods with renewable energy or using recycled materials.
• Design sustainable products that last longer, use less energy, or are easier to recycle.
• Work with logistics providers who offer lower-emission shipping options, like using electric vehicles or choosing more efficient routes.
• Promote responsible product use by educating customers on energy-efficient ways to use products or offering tips on proper recycling.
• Companies can invest in projects that capture or reduce carbon, like reforestation or renewable energy projects, to offset emissions they can’t directly reduce.

Reporting Scope 1, 2, and 3 emissions

Once Scope 1, 2, and 3 emissions are calculated, they should be reported following industry standards and local regulations. Reporting helps companies monitor their emissions over time, set reduction targets, and communicate their progress to stakeholders. Many companies also implement continuous monitoring systems to help track emissions more accurately and in real time.

The landscape for reporting Scope 1, 2, and 3 emissions has evolved quickly as more companies are expected to disclose their environmental impact. Today, reporting emissions is often part of corporate sustainability, and it helps show transparency and commitment to reducing climate impact.

Is reporting Scope 1, 2, and 3 emissions mandatory?

Scope 3 reporting is not mandatory everywhere, but it is increasingly expected, especially for large companies and in certain regions.

In the European Union, for example, regulations like the Corporate Sustainability Reporting Directive (CSRD) require large companies to report on Scope 3 emissions if they are material to their overall footprint.

In other places, like the US, Scope 3 reporting remains largely voluntary, but investor pressure and sustainability standards like those from the CDP (Carbon Disclosure Project) and the Task Force on Climate-related Financial Disclosures (TCFD) are encouraging more companies to include it. In 2024, the U.S. Securities and Exchange Commission (SEC) adopted the first rules for climate-related disclosures.