8.3 Reductions in Indirect Emissions | DART – Deloitte Accounting Research Tool

In contrast to Scope 1 emissions, which are direct GHG emissions (i.e., GHG emissions from what the Corporate Standard’s glossary describes as “sources that are owned or controlled by the reporting company”), Scope 2 and Scope 3 emissions are indirect GHG emissions (i.e., GHG emissions that, as described in the Corporate Standard’s glossary, “are a consequence of the operations of the reporting company, but occur at sources owned or controlled by another company”). Therefore, reductions in Scope 2 and Scope 3 emissions are more difficult to calculate accurately than reductions in Scope 1 emissions. Because indirect GHG emissions often incorporate many factors, any reductions in these emissions are not necessarily a direct result of the reporting company. That is, it may be difficult to correlate reductions in Scope 2 or Scope 3 emissions with projects or initiatives the reporting company executed. As discussed in Section 6.3, both activity data and emission factors are used to calculate GHG emissions resulting from Scope 3 activities. Since emission factors increase or decrease over time depending on a number of factors unrelated to the reporting company, it can be challenging for the reporting company to accurately present GHG emission reductions resulting from its own activities.

For example, Scope 3, Category 4 (upstream transportation and distribution), includes GHG emissions from transportation and distribution activities such as air transport, rail transport, road transport, and marine transport. As discussed in Section 6.3, the Scope 3 Standard divides Scope 3 emissions into upstream GHG emissions (i.e., indirect emissions related to purchased goods or services) and downstream GHG emissions (i.e., indirect emissions related to sold goods or services). Specifically, Category 4 includes both inbound and outbound transportation services provided by third parties if paid for by the reporting company. There are multiple methods for calculating these emissions (i.e., fuel-based, distance-based, or spend-based). Under the fuel-based method, the reporting company would apply an appropriate emission factor for the type of fuel used as determined and regulated by the EPA, which is based on numerous factors not directly attributable to the reporting company. Therefore, when changes in GHG emissions over time relative to a base year result in reductions, the reductions may not be solely attributable to the reporting company’s activities.

Companies are encouraged to keep the following in mind when reporting reductions in indirect GHG emissions:

Corporate Standard, Chapter 8, “Accounting for GHG Reductions,” Pages 59–60

Generally, as long as the accounting of indirect emissions over time recognizes activities that in aggregate change global emissions, any such concerns over accuracy should not inhibit companies from reporting their indirect emissions. In cases where accuracy is more important, it may be appropriate to undertake a more detailed assessment of the actual reduction using a project quantification methodology.

The excerpt above indicates that when accuracy is more important to stakeholders, it is advisable for reporting companies to consider whether calculations performed under project accounting would more appropriately reflect the reductions. Improvements to accuracy could include obtaining more accurate sources of data or using more specific methods of calculating GHG reductions. For example, a reporting company may rely on secondary data (i.e., industry averages) when calculating reductions. However, the need to obtain primary data (i.e., data obtained directly from suppliers or other value chain partners) warrants consideration when accuracy is more important to the reporting company’s reporting and disclosures.