Scope 1, 2 and 3 Emissions and What It Means for Your Company
Updated: May 18
As the world becomes more aware of the impact humans are having on the planet, sustainability has become a key concern for businesses. Consumers and investors are pressuring companies to reduce their carbon footprint, find new ways to produce energy, and identify ways to be more sustainable moving forward.
There are three main types of emissions that companies need to keep track of. Each one is assigned a “scope” level - an accounting term that refers to whether an asset or expense is directly connected to a particular segment of operation. Understanding which emissions fall under each category will help you identify areas where your company can cut greenhouse gas (GHGs) and how each segment contributes to your company’s total emissions.
Read on to find out the three categories of emissions and how they may affect your business.
Why Are the Three Scopes of Emission?
Emissions are broken down into three categories by the Greenhouse Gas Protocol to better understand the source. It is crucial for companies to understand and measure their emissions to strategise actions toward reducing them. The three ‘scopes’ classify the distinct types of emissions that a company produces in its own operations and throughout its value chain, which includes a company’s suppliers and clients. Developing a comprehensive greenhouse gas emissions inventory – including emissions from Scope 1, Scope 2, as well as Scope 3 allows companies to gain a complete understanding of their full value chain emission and focus their efforts on reducing their carbon emissions to the greatest extent.
Scope 1, 2 and 3 Emissions – Explained
Scope 1, 2 and 3 emissions. Credit: Progressture Solar based on GHG protocol
Scope 1 – Direct Emissions
Scope 1 emissions are direct greenhouse gas emissions that come from company-owned and controlled resources which involve on-site fuel-fired equipment. These emissions are often produced by using fossil fuels in the generation of electricity, heating facilities, or industrial processes. In other words, it is from using sources of energy such as coal, natural gas, fuel oil, or propane, and from the use of natural gas and other non-renewable fuels utilised in transportation. Scope 1 emissions may include fuel combustion from vehicles, boilers, steamers, furnaces, and other types of fossil-fuel-powered equipment.
Scope 2 – Indirect Emissions (owned)
Scope 2 emissions are emissions that result from the purchase of electricity, heat, or steam by a company. The electricity, heat, or steam is generated from sources that are not owned or controlled by the business, such as the electricity grid or a heat supplier. Scope 2 emissions are often expressed in terms of the business's carbon footprint. For many businesses, this is the largest source of emissions. However, businesses can take steps in reducing their Scope 2 emission by investing in renewable energy or by offsetting their emissions.
Scope 3 – Indirect Emissions (not owned)
Scope 3 emissions include all indirect emissions (not included in Scope 2) that occur in the value chain of a company. This includes emissions from suppliers, partners, customers and employees. For instance, purchased goods and services, business travels, employee commuting, transportation of raw materials, packaging, and the delivery of finished products to customers. Each of these activities have an impact on the amount of CO₂ released into the atmosphere. While these emissions are technically Scope 3 emissions, they are often referred to as “supply chain” emissions.
Why Are These Measurements Important?
The different scopes of greenhouse gas emissions are important because they allow businesses to accurately measure their carbon footprint. This can help them identify where they can make the most impact when it comes to reducing their emissions. Consequently, measuring scopes of emissions can help companies comply with regulations and make business decisions based on data and science, not speculation. Scopes of emissions can also help businesses understand the carbon impact of their supply chain, which will allow them to identify and reduce the emissions from sourcing materials while producing less waste.
How Do These Emissions Affect a Company’s Bottom Line?
Emissions are expensive. It is estimated that by 2050, the cost of climate change will be $2.2 trillion dollars every year. This is due in part to the cost of reducing emissions. In fact, a report by the Carbon Trust found that efforts in reducing emissions result in 36% of businesses’ total costs. This means that businesses need to spend more money on projects like reducing energy consumption, implementing sustainable technology, and adopting environmentally friendly practices.
This is not just a one-time cost, either. The cost of reducing emissions is ongoing. It will affect businesses’ bottom line each year and even affect different companies in diverse ways. The cost of reducing emissions vary between companies and industries. However, companies can use different methods to reduce emissions and save money in the long run.
On the upside, businesses that reduce their Scope 1, 2 and 3 GHG emissions can see their bottom line benefit. By reducing the scope of emissions, companies can enjoy direct financial benefits as they reduce their direct operating expenses, which in turn increases net profit and revenue stream. For instance, DuPont, a diversified science company, generated $2 billion in annual revenue from products that reduce greenhouse gases and an additional $11.8 billion in revenue from nondepletable resources.
Businesses that manufacture and sell renewable energy products can reduce their emissions, thereby improving their sustainability efforts and limiting their impacts on the environment. For investors and banks, companies that adopt these sustainable efforts will be viewed as more “bankable.” Essentially, demonstrating a commitment to sustainability can help companies attract investors that are key to their long-term growth.
How Can Companies Reduce Scopes 1, 2 And 3 Emissions?
Companies can reduce their Scope 1, 2 and 3 emissions in several ways. Scope 1 emissions can be reduced by increasing energy efficiency, which can be achieved through investment in energy-efficient equipment and appliances. For example, by replacing a heating, ventilation and air conditioning (HVAC) system with a more energy-efficient alternative; or by switching to motion-sensor lights that help conserve energy in the building. Since less electricity is consumed, these direct solutions reduce emissions and lower energy bills at the same time.
Meanwhile, the fastest and easiest ways to reduce Scope 2 emission is by switching to renewable energy sources. This can be done by investing in solar panels, wind turbines or other renewable energy technologies. With the adoption of renewable sources, companies will be able to reduce their reliance on fossil-fuel-powered electricity, minimise their Scope 2 emissions and ultimately reduce their total carbon footprint.
Finally, companies can reduce their emissions by investing in carbon offset projects. This can be done by planting trees, investing in clean energy projects, or supporting other carbon-reducing initiatives. By taking these steps, companies can significantly reduce their carbon footprint and make a positive contribution to the fight against climate change and accelerate their net-zero emissions target.
Sustainability should be a critical aspect of any operation, and it starts with knowing exactly how much your company is emitting. By knowing your Scope 1, 2 and 3 emissions, you will be able to identify areas where you can cut GHGs emissions. It is crucial to be aware of which scope of emissions is the biggest contributor to your company’s carbon footprint. This data is important for businesses to plan and make changes in reducing emissions. By calculating the different scopes of emissions, businesses can also understand where they can make the most impact and take necessary actions.
Progressture Solar is an experienced Clean Energy provider and a Net-Zero partner that provides turnkey Renewable Energy solutions ranging from solar PV systems, Battery Energy Storage Systems (BESS), Electric Vehicle (EV) charging and green data centre facilities. With our green solutions, we help businesses transition to clean energy and reduce their Scope 1 and Scope 2 emissions.
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