Fundamentals: Scope 1, 2, 3

In my last article I wrote on carbon accounting for facilitated emissions https://nidhinikum.wixsite.com/double-materiality/news/capital-markets-and-facilitated-emissions%3A-where-are-you-with-the-carbon-accounting-standards%3F.some of you asked and wanted to understand the background and basics of in Scope emissions. Let me take few steps back and give a brief outline on Scope 1 to 3 fundamentals (this is agnostic of any particular sector, so should be useful to any industry) and how this connects with carbon accounting. 

Basic 10 steps you need: Each of the steps below has a range and detail (not covered here), trying to keep this simple

1. Establish your boundaries of the organisation infrastructure. And this is very vital from the start because your firm's operational control fundamentally creates this very well defined three boxes for you when it comes to scope 1,2,3!

ie what real estate you own and/operate out of ie your core facility. GHG emissions from this Core facility is Scope 1. the energy you buy (and not generate on your own) to run the business is scope 2 

2. The emissions outside your physical boundaries but coming from your products, facilities, etc. that create business value and used upstream or downstream in operations is scope 3 i.e. indirect value chain emissions away from your facility (e.g. from suppliers of raw materials that your business uses, direct purchase of goods, your employee's travel for business, etc.). this is where majority of your time, resources and challenges lie - in sourcing Scope 3 data.

3. Build your perspective: All emissions that are scope 3 for your firm are scope 1 for another firm/business/entity that produces it. So your providers and suppliers sharing quality information with you is crucial for measurement and management of your firm's scope 3 (and, I am assuming that your house is in order to measure and demonstrate your very own Scope 1 & 2).

4. Like credit conversion factor (yeah I am from risk background! can't escape it) when it comes to accounting information data points must be broken down into 

units that are interpretable in terms of a common factor. so an EF (Emission factor) is used for conversion e.g. a litre of a non-renewable fuel burns to produce green house gas emissions measured in cardon di oxide emissions.

All such gas emissions (there are 6 other than CO2) are converted to equivalent amount of CO2 emissions to quantify the impact in same units of measurement. I think its called global warming potential and is measured over a 100 year scale.

Its baselined at 1 for CO2 and every other GHG is measured in its term, a bit like a log base in math. 

IPCC’s assessment reports provides a generally accepted benchmark - methane is given a GWP of 28 and nitrous oxide a GWP of 265. so put things in perspective Methane stays in atmosphere for 12 years (much less than CO2), yet it is 25 times more effective in heat trapping than CO2. 

5. A given quantity of GHG emissions can therefore be reported as CO2emissions by multiplying it by its GWP. 

For example, if an oil and gas company can reduce leakage of methane by 15 tonnes per year, this could be expressed as 420 tonnes in annual CO2e (i.e. 15 tonnes CH4 x 28).

6. Now you should think, what is the equivalent of all this in terms of 'Carbon foot print' that everyone talks and quotes every where, so MTCO2 emissions is metric tons of CO2 equivalent emissions for each GHG that helps us measure carbon foot print.

So when you hear carbon foot print and someone complains why do they only call it carbon foot print and where is the foot print for other gases playing havoc to our climate......then please look for the MTCO2E. Simple.
Don't let climate deniers misguide others.

7. Carbon footprint is also called GHG inventory since we are so in love with different rems that mean the same. dear all "Don't get lost in alphabet soup".

8. The reporting aspect of all this carbon foot print data is that you will need it to do accounting, hence you will need controls in place such as Equity control, Financial control and Operational control to own and report emissions that you are directly and indirectly accountable for.

And this is important to get the house in order - from a strong governance point.

9. Scope 3 has challenges such as lack of traceability in data, lack of quality of data, often to work with estimates, however, not measuring scope 3 is increasing risk of the unknown.

10. Do not double count your emissions, go back to point 1 and 8 for recollection of what I said.

Finally, Yes this is complex and vast and time consuming exercise but we are used to creating and dealing with complexities since the industrial revolution.

You are doing this not to crunch numbers but to measure so that you can utilize your resources to action on things that are significant enough to achieve 'do no harm' to the planet by reducing GHG emissions, transform business by creating Net zero strategy, adopt new technology/material/supplier/distributer that work with Nature instead of against it and STOP the risk of breaching safe temperature range for the planet and life on it.

Support your organization navigate the sustainability journey.