Chapter 3 — Setting Operational Boundaries

3.2 Overview of Direct and Indirect Emissions

The Corporate Standard uses three categories, or scopes, to classify direct and indirect emissions. Direct emissions (Scope 1) are from sources owned or controlled by the reporting company. Indirect emissions (Scope 2 and Scope 3) are the consequences of the reporting company’s activities but occur at sources owned or controlled by another company.

Corporate Standard, Chapter 4, “Setting Operational Boundaries,” Page 25

Introducing the Concept of “Scope”

To help delineate direct and indirect emission sources, improve transparency, and provide utility for different types of organizations and different types of climate policies and business goals, three “scopes” (scope 1, scope 2, and scope 3) are defined for GHG accounting and reporting purposes. . . .

Companies shall separately account for and report on scopes 1 and 2 at a minimum.

GHG emissions are categorized and defined in the table below.

Table 3-1 Description of Scope 1, Scope 2, and Scope 3 Emission

Scope 1 emissions	Direct GHG emissions from operations that are owned or controlled by the reporting company
Scope 2 emissions	Indirect GHG emissions from the generation of purchased or acquired electricity, steam, heat, or cooling that is consumed by operations owned or controlled by the reporting company
Scope 3 emissions	Indirect GHG emissions not otherwise included in the reporting company’s Scope 2 emissions, which occur in the upstream and downstream activities of the reporting company’s value chain

At a minimum, as noted in the Corporate Standard, “[c]ompanies shall separately account for and report on Scope 1 and Scope 2 GHG emissions.” Since Scope 1 emissions are direct GHG emissions (i.e., directly controlled by the reporting company) and Scope 2 emissions are indirect GHG emissions (i.e., controlled by a provider but resulting from the generation of energy consumed by the reporting company), they are reported separately from each other.

The calculation of Scope 3 emissions is more complex than that of Scope 1 and Scope 2 emissions and depends on data provided by many entities. Consequently, the reporting of Scope 3 emissions is optional under the Corporate Standard. Companies also have the option to further disaggregate emissions within each scope (e.g., by facility, country, or activity type).

Figure I of the Scope 3 Technical Guidance, which is reproduced below, illustrates a reporting company’s value chain and the classification of GHG emissions into Scopes 1, 2, and 3.

Scope 3 Technical Guidance, “Introduction,” Page 6

Figure I Overview of GHG Protocol Scopes and Emissions Across the Value Chain

A company’s facilities and operations, including company-owned vehicles, are sources of Scope 1 emissions. Scope 2 emissions are indirect GHG emissions from upstream activities related to purchased or acquired electricity, steam, heating, and cooling for the company’s facilities. Any other indirect upstream or downstream activities in the company’s value chain that are sources of GHG emissions are classified within Scope 3. Activities related to purchased goods and services, waste generated from operations, and business travel are examples of Scope 3 upstream activities, while the use of sold products, end-of-life treatment of sold products, and investments are examples of Scope 3 downstream activities.

3.2.1 Scope 1 Emissions

A company would report GHG emissions as Scope 1 if it owns or controls the source of the emissions. For a manufacturing company, examples of Scope 1 emissions include (1) emissions from the generation of electricity, heat, or steam in the production process of a company-owned factory; (2) emissions from physical or chemical processing; (3) fugitive emissions;1 and (4) emissions from the transportation of materials, products, and waste (which are emissions from company-owned vehicles). Scope 1 emissions must be included in a company’s GHG inventory. GHG emissions outside the scope of the UNFCCC/Kyoto Protocol, such as chlorofluorocarbons (CFCs) and nitrogen oxides (NOx), would not be included in Scope 1 but may be reported separately. See Section 4.3 for more information.

GHG emissions from electricity generation facilities owned by a reporting company must be included in the company’s Scope 1 emissions regardless of whether the company uses the electricity internally or sells it to third parties. If a company sells electricity that it has generated on its own, emissions associated with the sale cannot offset the company’s Scope 1 emissions. Similarly, emissions associated with the production of scrap sold by a manufacturing company are not deducted from the manufacturer’s Scope 1 emissions.

3.2.2 Scope 2 Emissions

Indirect GHG emissions from purchased electricity, steam, heat, and cooling are emissions that are a consequence of the activities of the reporting company but occur at sources owned or controlled by another company. Such emissions are classified within Scope 2 in accordance with the Corporate Standard.

For companies in service industries, Scope 2 emissions are more prevalent than GHG emissions classified within Scope 1. Although such companies do not manufacture products, they do control their use of electricity (e.g., by turning their lights on and off and controlling the temperature of their office buildings). In fact, most companies will have Scope 2 emissions since they consume electricity or heat at their facilities. Companies are required to include Scope 2 emissions in their GHG inventories.

Example 3-1

A utility company purchases electricity from an independent power generator and resells the electricity to end consumers by using a transmission and distribution (T&D) system. The utility company reports GHG emissions from the purchased electricity that is used during T&D as Scope 2 emissions. Its Scope 2 reporting also includes emissions associated with line loss (i.e., electricity lost during T&D).

End customers would not report Scope 2 emissions related to the transmission or distribution of electricity. Rather, their Scope 2 emissions would be the GHG emissions related to the electricity they purchased and consumed.

See Chapter 5 for guidance on calculating Scope 2 emissions.

3.2.3 Scope 3 Emissions

All indirect GHG emissions not classified within Scope 2 are Scope 3 emissions. Scope 3 emissions come from activities that (1) are not owned or controlled by the reporting company and (2) are a direct result of activities related to the company’s value chain. Examples of Scope 3 emission activities include transportation of purchased materials or goods, employee business travel, transportation of sold products, and waste disposal. In general, emissions related to upstream and downstream purchases are classified as Scope 3. GHG emissions from leased assets may also be classified as Scope 3 if the selected consolidation approach for determining the reporting company’s organizational boundary does not apply to them. See Chapter 7 for more information about accounting for GHG emissions from leased assets.

Connecting the Dots

Under the Corporate Standard, reporting Scope 3 emissions is optional. However, if a company chooses to report under the Scope 3 Standard, it is required to report Scope 3 emissions for all material categories. See Chapter 6 for more information about Scope 3 emissions.

Footnotes

The Corporate Standard’s glossary defines fugitive emissions as “[e]missions that are not physically controlled but result from the intentional or unintentional releases of GHGs. They commonly arise from the production, processing transmission storage and use of fuels and other chemicals, often through joints, seals, packing, gaskets, etc.”