Scope 1, 2 and 3 carbon emissions
Scope 1, 2 and 3 carbon emissions are categories used to classify different sources of greenhouse gas emissions associated with a company’s operations. Scope 1 represents what the company emits itself; Scope 2, what it draws from the energy grid; and Scope 3, the company’s value chain emissions.
Scope 1, 2 and 3 carbon emissions are three greenhouse gas (GHG) categories that are used to measure how much GHG emissions organizations are emitting into the atmosphere.
Every Canadian company that emits the equivalent of 10,000 tonnes or more of GHGs is required to report all emissions that fall under the first two scopes. The third scope is optional, though many businesses include it in their sustainability plan.
Measuring your carbon emissions is often seen as a key step to developing and implementing mitigation strategies to reduce those emissions.
Emissions reporting makes for good financial accountability
Categorizing and calculating GHG emissions can also help your company become more financially conscious.
No matter your industry, Isabelle Bouchard, Senior Advisor, Sustainability & Social Impact, says categorizing your emissions can help your company become more aware of how it’s spending money and where opportunities lie.
There’s a maxim from the late management expert Peter Druker that says you can’t manage what you can’t measure. Bouchard says you can apply that to calculating your carbon footprint. “It’s not until you do that kind of work that you see how much energy you’re using and where your resources are going. In many cases, you will reduce costs and save money by understanding where you can improve.”
What are Scope 1, 2 and 3 carbon emissions?
The Scope 1, 2 and 3 emission categorization scheme was established by the GHG Protocol, an organization the provides standards, guidance and tools to measure and manage emissions. The GHG Protocol is also the world’s most widely used GHG accounting standard.
In this system, GHG emissions are divided into scopes, each one representing a different source of emission associated with a company’s operations.
The scopes break down into three categories:
Scope 1
Direct emissions from sources controlled or owned by your company, such as vehicles, furnaces, boilers and equipment.
Scope 2
Indirect emissions from energy bought by your company, such as electricity, heat and cooling.
Scope 3
All other indirect emissions, such as material used and waste generated, staff commutes with vehicles not owned or controlled by your company, and business travel.
According to a December 2023 BDC study, of the Canadian SMEs that calculated their GHG emissions over the previous five years:
- 55% measured Scope 1 emissions
- 57% measured Scope 2 emissions
- 24% measured Scope 3 emissions
Only 9% of SMEs that have calculated their GHG emissions measured all three scopes.
What are Scope 1 carbon emissions?
Scope 1 carbon emissions are direct GHG emissions from sources controlled or owned by your company. This would include vehicles used to deliver goods, as well as your building’s furnace and on-site equipment.
“Of the three scopes, it’s the only one that relates directly to activities of the business,” says Bouchard.
What are Scope 2 carbon emissions?
Scope 2 carbon emissions are indirect GHG emissions associated with the purchase of electricity, steam, heat or cooling.
These are emissions that physically occur at another facility, such as a power plant, where they are generated. However, because they are used by your company as energy, they become part of your GHG inventory.
Bouchard explains the distinction. “Scope 2 is any electricity or power that you purchase. It comes from outside and into your facility. Let’s say you buy natural gas but use a boiler—since the boiler generates energy, it falls into Scope 1. Everything that’s owned by the company becomes Scope 1.”
What are Scope 3 carbon emissions?
Scope 3 carbon emissions account for all other indirect emissions.
This would include
- all materials your company uses
- waste that your business generates
- your staff’s business travel
- staff commutes (in non-company vehicles)
Scope 3 takes into account all upstream emissions—emissions released to produce your product or service—and all downstream emissions—all emissions linked to bringing your product or service to market.
“Once it leaves your facility, what does your product emit and what does it generate? For example, if it needs to be transported by a third-party truck to different stores, that’s your downstream transportation,” Bouchard says. “What the consumer does with the product—the waste that it will eventually generate—that’s also downstream.”
Greenhouse gas emissions across the value chain of a company
Scope 1
Direct GH emissions from sources the company controls or owns, such as:
- boilers
- furnaces
- vehicles
Scope 2
Indirect GHG emissions from sources the company does not control or own, such as utilities that provide:
- Electricity
- steam power
- heating
- cooling
Scope 3
Upstream and downstream GHG emissions from processes the company does not
control or carry out, such as:
Upstream activities
- Business travel
- Employee commuting
- Waste generated in operations
- Transportation of goods to and from the company
- Purchased goods and services
- Capital goods
- Fuel and energy-related activities
Downstream activities
- Employee commuting
- Processing of sold products
- Use of sold products
- End-of-life treatment of sold products
- Leased assets
- Franchise
- Investments
What is carbon accounting?
Carbon accounting, also known as greenhouse gas accounting, quantifies the amount of GHG gases produced directly and indirectly by a business. It’s the overall accounting of your Scope 1, 2 and 3 emissions.
Carbon accounting helps you understand your company’s climate impact so that you can set goals to reduce your emissions.
What is the difference between a carbon footprint and Scope 1, 2 and 3 emissions?
A carbon footprint is a broad term that represents the total amount of GHGs emitted, encompassing all sources of emissions, including direct and indirect emissions.
Scope 1, 2 and 3 emissions, on the other hand, are specific categories within the carbon footprint and provide a detailed breakdown of where emissions originate.
Companies and organizations often report their emissions in terms of Scope 1, 2 and 3 to comply with standards or regulations.
Why is measuring your business’ carbon footprint important?
Bouchard says, for some businesses, especially those in polluting industries, measuring your carbon footprint is part of regulatory compliance, but she says the exercise also offers advantages to the average SME
- It helps with your risk management
“This kind of exercise allows you to map out where you emit a lot. It shows you where you have risk and how you can mitigate it.” - It helps in planning
“You can start thinking about the kind of solutions you can implement over the next couple of years.” - It makes good business sense to the banks
“If you go to your financial institution for a loan to renovate your building, you can show them these calculations and how you’re going to save money.”
How to calculate your business’s carbon emissions
Your company’s carbon emissions are measured in tonnes of carbon dioxide equivalent (CO2e). Calculating greenhouse gases is about converting your business’ energy usage into that CO2e.
The amount of CO2 equivalence will depend on factors such as the carbon intensity of the local electricity grid, types of energy used and modes of transportation. To help you simplify this process, BDC offers a free tool where you simply enter your energy figures and it will convert it into the correct CO2-equivalent figure.
How to calculate the carbon emissions of a product
If you want to calculate your product’s carbon footprint, you will need to look at what’s called the life cycle assessment.
The cradle-to-grave analysis helps you figure out the ecological cost of a product. This can take in many variables.
“How many people were involved in the manufacturing and how much material and energy was used to produce that single product? There is also its distribution to retailers and the waste it generated. Once you apply all these steps you are then able to come up with the emissions for that specific product,” Bouchard says.
How to calculate carbon emissions in the supply chain
A large percentage of your emissions can be found in your supply chain. The suppliers whose products are used to create your products or whose services form a vital part of your business need to be factored into your overall GHG inventory.
The calculation of those supply-chain carbon emissions falls under the upstream section of Scope 3 emissions.
But tracking them is difficult.
“Scope 3 is a beast,” Bouchard says, adding that contacting suppliers to know how much of their emissions are used for your product is easier said than done. “The challenge is to engage with all the suppliers that you have and to have a framework that will allow them to provide you with the data that you need to calculate.”
While many corporations have software and surveys to make the job easier, it can be a lot harder to complete these calculations for smaller businesses.
BDC offers additional information on how to build a sustainable supply chain.