In today's world, where sustainability and the fight against climate change are becoming more critical than ever, businesses are under increasing pressure to reduce their carbon emissions. Governments, investors, customers, and supply chain partners expect companies to take concrete steps toward reducing their carbon footprint. To help businesses categorize and manage their emissions effectively, Scope 1, 2, and 3 emissions (as defined by the Greenhouse Gas (GHG) Protocol) have been established. These classifications help companies track both their direct and indirect emissions. But what exactly do these categories mean, why are they so important, and how can they be measured?

GHG Protocol Corporate Standard

The GHG Protocol Corporate Standard is an internationally recognized framework that guides companies in measuring, reporting, and managing their greenhouse gas (GHG) emissions. This standard defines Scope 1, 2, and 3 emissions and provides methodologies for accurate emissions reporting.

The Key Objectives of the GHG Protocol:

• Standardization: Ensuring companies report emissions in a consistent and comparable manner.
• Accuracy & Reliability: Providing reliable emissions data for corporate sustainability reporting.
• Transparency: Encouraging open and transparent disclosure of carbon emissions.
• Effective Management: Helping businesses develop efficient strategies to monitor and reduce emissions.

The GHG Protocol is one of the most widely used carbon accounting frameworks worldwide, supporting businesses in understanding, managing, and reducing their carbon footprint.

What Are Scope 1, 2, and 3 Emissions?

GHG emissions generated by companies are classified into three categories based on their source and control level:

Scope 1 Emissions (Direct Emissions)

These emissions originate from sources owned or controlled by the company. Examples include:

• Fuel combustion from company-owned vehicles,
• Emissions from manufacturing plants and production processes,
• Greenhouse gases released from boilers and generators used in operations.

How Are Scope 1 Emissions Calculated?

• Determine the type and amount of fuel consumed.
• Use the appropriate emission factor (GHG emitted per unit of fuel).
• Multiply fuel consumption by the emission factor.

• Formula: Emission Amount = Fuel Amount x Emission Factor

Scope 2 Emissions (Indirect Energy Emissions)

Scope 2 emissions result from purchased electricity, heating, cooling, and steam that a company consumes but does not produce directly. Examples include:

• Electricity used for office buildings and production facilities,
• Energy consumption from heating and cooling systems,
• Power used in lighting, IT equipment, and manufacturing operations.

How Are Scope 2 Emissions Calculated?

• Identify the total electricity, steam, or heating energy consumed.
• Apply the GHG emission factor provided by the energy supplier.
• Multiply energy usage by the emission factor.
• Formula: Total Emissions=Energy Consumption×Emission Factor

Scope 3 Emissions (Value Chain Emissions)

Scope 3 emissions are indirect emissions that occur throughout a company’s value chain. These emissions typically account for 80–90% of a company’s total carbon footprint. Examples include:

• Supply chain emissions from suppliers’ manufacturing processes,
• Business travel and employee commuting,
• Emissions from the use and disposal of sold products.

How Are Scope 3 Emissions Calculated?

• Collect data on value chain activities, including supply chain, transportation, and product lifecycle.
• Use industry-specific GHG calculation methodologies such as the GHG Protocol Scope 3 Standard.
• Estimate emissions based on purchased goods, fuel consumption, or travel distances.
• Example Calculation (Business Travel):
• Determine the total distance traveled by employees.
• Select the appropriate transportation-specific emission factor (car, plane, train, etc.).
• Multiply the distance traveled by the emission factor.
• Formula: Total Emissions=Distance Traveled×Emission Factor

Assessing these three scopes separately allows businesses to analyze their direct and indirect emissions and develop an effective emission reduction strategy.

Source: WRI/WBCSD Corporate Value Chain (Scope 3) Accounting and Reporting Standard (PDF), page 5.

Why Are There Three Different Emission Scopes?

The main reason why there are three different emission scopes (Scopes 1, 2 and 3) is to enable companies to better understand the sources and responsibilities of their greenhouse gas emissions. These scopes are categorized according to where emissions occur and the level of control companies have over these emissions. In this way:

• Identifying Responsibilities: It helps to understand the difference between emissions that companies can directly control and those that they can indirectly influence.
• Transparency and Accountability: Ensures that companies transparently report all emission sources and are accountable for reducing these emissions.
• Risk Management: Helps companies better understand and manage risks (physical risks, transition risks) arising from climate change.
• Mitigation Strategy Development: Enables companies to develop more effective and focused strategies to reduce their emissions.

Why is it Important to Manage Scope 1, 2 and 3 Emissions?

Understanding and managing Scope 1, 2 and 3 emissions is important for companies in many ways:

• Managing Climate Risks: By measuring and reducing their emissions, companies can better understand and manage physical risks (e.g., extreme weather events, floods, droughts) and transition risks (e.g., policy changes, technological advances, shifts in consumer behavior) from climate change.
• Legal Compliance: Many countries and regions have introduced regulations requiring companies to report and reduce their greenhouse gas emissions. Companies that track their emissions can comply with legal requirements and avoid penalties.
• Meeting Stakeholder Expectations: Investors, customers, employees, and society are increasingly paying attention to companies' sustainability performance. Companies that reduce their emissions can meet stakeholder expectations and strengthen their brand reputation.
• Gaining Competitive Advantage: Sustainability has become an important competitive factor for companies. Companies that reduce their emissions and report transparently can stand out in the market and seize new business opportunities.
• Achieving Cost Savings: Emission reduction efforts can help companies improve energy efficiency, optimize resource use, and reduce waste generation. Such improvements increase operational efficiency and lead to cost savings.

How Can Companies Manage Their Emissions?

Companies can use a variety of strategies and tools to manage their Scope 1, 2 and 3 emissions:

• Emissions Measurement and Reporting: Accurately measuring and reporting companies' emissions is the foundation of the emissions management process. Companies can calculate and report their emissions using international standards such as the GHG Protocol.
• Target Setting: Companies can focus their emissions management efforts by setting emission reduction targets. The Science Based Targets Initiative (SBTi) provides a framework to help companies set emission reduction targets in line with the goals of the Paris Agreement.
• Emission Reduction Strategies: Companies can implement a variety of strategies to reduce their emissions. These strategies may vary depending on the company's sector, size and activities.
• For Scope 1 and 2 Emissions: Improving energy efficiency, switching to renewable energy sources, optimizing production processes, and using low-emission technologies.
• For Scope 3 Emissions: Collaborating with the supply chain, asking suppliers to reduce their emissions, reducing employee business travel, extending the life cycle of products, and improving waste management.
• Technological Solutions: Companies can use a variety of technological tools and platforms to collect, analyze and report emissions data. These tools can help companies manage and reduce their emissions more effectively.
• Collaborations: Companies can collaborate with their suppliers, customers, industry organizations and other stakeholders to reduce their emissions. Value chain collaborations can help companies manage their Scope 3 emissions.

Who is Obligated to Report Carbon Emissions?

Reporting of carbon emissions may vary depending on the sector in which the business operates, its size and legal regulations. The sectors that are obligated to report carbon emissions are generally as follows:

• Energy Production Sector: Facilities that generate electricity and heat with fossil fuels are subject to strict regulations as they cause energy-intensive emissions.
• Industry and Production Sector: Companies operating in heavy industries such as cement, steel, chemicals and automotive have large amounts of direct and indirect emissions.
• Logistics and Transportation: Airline, maritime and land transportation companies cause a large amount of Scope 1 and Scope 3 emissions due to fuel consumption.
• Agriculture and Food Production: Food production, livestock and agriculture sectors are significant sources of potent greenhouse gases such as methane (CH₄) and nitrous oxide (N₂O).
• Textile and Fashion Industry: Raw material production, transportation and manufacturing processes in the supply chain have large carbon footprints.
• Finance and Banking: Banks, investment funds and insurance companies are obligated to track the carbon footprint of the companies in their portfolios.

Companies that fail to report and reduce carbon emissions can face serious risks, including carbon taxes, regulatory sanctions and reputational damage.

Frequently Asked Questions (FAQ)

• What is the main difference between Scopes 1, 2 and 3 emissions?

Scope 1 refers to emissions from sources that the company directly controls, Scope 2 refers to indirect emissions from purchased energy use, and Scope 3 refers to all other indirect emissions in the company's value chain.

• What is the GHG Protocol and why is it important? 

The GHG Protocol is an internationally recognized framework for companies to calculate, report and manage their greenhouse gas emissions and ensures that companies report their emissions in a consistent, accurate and transparent manner.

• Which sectors are obligated to report carbon emissions?

Sectors such as energy production sector, industry and manufacturing sector, logistics and transportation, agriculture and food production, finance and banking are obligated to report their carbon emissions.

• What should be considered when setting emission reduction targets? 

When setting emission reduction targets, targets should be set in accordance with international standards such as the Science Based Targets Initiative (SBTi) and targets should be set in line with the company's sector, size and activities.

• What risks do companies that do not report their carbon emissions face? 

Companies that do not report their carbon emissions face risks such as carbon taxes, regulatory sanctions and reputational damage.

Conclusion

Scope 1, 2 and 3 carbon emissions represent an important responsibility that companies must assume in the fight against climate change. Understanding, measuring and reducing emissions is critical for companies to achieve their sustainability goals, manage climate risks and gain competitive advantage.