Scope 1, 2, and 3 emissions: What are they, and what is their purpose?

The Greenhouse Gas Protocol – the world’s most widely used greenhouse gas accounting standard – categorises GHG emissions into three Scopes: 1, 2, and 3.

These three categories are used to classify greenhouse gas (GHG) emissions associated with a company’s activities, within both its own operations and its wider value chain.

By incorporating Scope 1, 2, and 3 emissions in their full emissions inventory, companies are able to achieve a more comprehensive understanding of their full value chain emissions. This enables them to better focus their efforts towards the greatest reduction opportunities.

Definitions of Scope 1, 2, and 3 emissions

In essence, Scope 1 emissions are direct emissions owned and controlled by the company, whereas Scopes 2 and 3 are indirect emissions from sources that are not owned or controlled by the company. Whilst the company does not own or control the sources of Scope 2 and 3 emissions, these emissions still occur as a result of the company’s activities.

Scope 1, 2, and 3 emissions are categorised as follows:

‍

Scope 1 emissions

Scope 1 emissions are direct greenhouse gas emissions which occur from sources that are directly owned or controlled by the company. These include emissions from sources such as fuel combustion, company vehicles, and fugitive emissions.

Example: Scope 1 emissions occur from burning fuel in the company’s fleet of vehicles (provided these vehicles are not electrically powered).

Scope 2 emissions

Scope 2 emissions are indirect emissions which occur as a result of the generation of electricity, heat, or steam that a company purchases or consumes. Scope 2 emissions occur at the facility where the energy is generated, but are still associated with the company’s activities.

Example: Scope 2 emissions are caused by the generation of the electricity used in the company’s buildings.

Scope 3 emissions

Scope 3 emissions are indirect emissions which occur as a result of the company’s activities, but from sources that are not owned or controlled by the company. These include investments, purchased goods and services, business travel, employee commuting, waste disposal.

Scope 3 emissions include all emissions not covered in Scope 1 or 2, and which are created by the company’s value chain.

Example: Scope 3 emissions occur when the company buys, uses, and disposes of products from suppliers.

‍

The role of Scope 1, 2, and 3 emissions in corporate sustainability

Understanding Scope 1, 2, and 3 is crucial for companies aiming to reduce their environmental impact and comply with global sustainability standards.

By understanding emissions across all Scopes, companies are able to comprehensively assess their environmental impact. This knowledge enables them to identify the most significant sources of emissions and develop targeted reduction strategies tailored to their specific operations and value chains. 

This is particularly important for companies aiming to achieve net-zero emissions. There are several reasons for this, which go beyond simply aligning with broader global sustainability goals.

These include:

• Accounting for all emissions: Net zero means balancing the amount of GHG emissions released into the atmosphere with an equivalent amount of emissions removed or offset. To achieve this, companies must account for all emissions within their value chain. This can be achieved through carbon accounting, which is used to accurately estimate all three scopes and serves as the foundation for crafting an impactful reduction and removal strategy. Find a carbon accounting partner here.
• Developing comprehensive reduction strategies: Reduction is essential on the road to net zero. Understanding emissions helps companies develop comprehensive reduction strategies that address both direct (Scope 1) and indirect (Scope 2 and 3) emissions.
• Minimising residual emissions: Understanding Scope 1, 2, and 3 emissions helps companies identify residual emissions that are challenging to eliminate entirely, but may be minimised through the right reduction and offsetting measures.
• Enhancing transparency and credibility: Transparent reporting of emissions data demonstrates the company’s willingness to be accountable for all emissions associated with its operations and activities. This enhances the credibility of the company’s net-zero commitment, helping to build trust with stakeholders and investors.

‍

You might also be interested in: What is GHG accounting, and how does it work?

Scope 3 emissions: How companies can make an impact

For many companies, Scope 3 emissions account for more than 70% of their carbon footprint. For example, the extraction and processing of raw materials often cause significant Scope 3 emissions for manufacturing companies.

Scope 3 emissions are typically more challenging to control, as many suppliers have considerable influence on how emissions are reduced through their own purchasing decisions. However, committing to tackling Scope 3 emissions is crucial for companies looking to achieve net zero emissions.

Addressing Scope 3 emissions can make a significant difference in advancing a company’s journey towards decarbonisation and corporate sustainability.

Getting started with carbon removal

Understanding emissions across all Scopes enables companies to comprehensively assess their environmental impact, identify the most significant sources of emissions, and develop targeted reduction strategies tailored to their specific operations and value chains.

When it comes to achieving net zero, reducing your emissions is an important and necessary step in the right direction. However, there is growing consensus that reduction is longer enough to stay within the goals set forward in The Paris Agreement. For your company to reach net zero, you must neutralise your residual GHG emissions with an equivalent amount of carbon removal.

At Klimate.co, we provide access to high-quality, innovative, and verifiable carbon removal solutions. We strategically finance projects based on environmental responsibility as well as social and economic development – and we only work with companies that are taking action to reduce their emissions.

Your Net Zero commitment, guaranteed

A Carbon Purchase Agreement (CPA) is a contract entered between a carbon removal supplier or broker (in this case Klimate) and a client, that guarantees future access to Carbon Dioxide Removal (CDR) credits.

The purpose is to guarantee that the Purchaser has access to carbon removal in the future - at a given price, volume and type - while ensuring the quality, credibility and additionality of the CDR credits.

How a Carbon Purchase Agreement works

Planning

Ambitious companies with Net Zero commitments sign on to CPAs to aggregate demand. By signing CPAs, companies secure their access to high-quality CDR projects that will not be available in the future. By grouping together projects, companies can create sufficient demand to ensure development at a cost-efficient scale and guarantee additionality.

‍

Execution

Project suppliers use the CPA to build new CDR facilities. With demand secured, Klimate collaborates with suppliers to secure working capital and deploy CDR facilities. We use our robust and proprietary analytical framework to ensure that only the highest quality projects are supported.

Delivery

CDR credits with true additionality. As the CDR projects begin delivery, purchasers pay for credits, registered on the public records of Klimate. The cost is fixed, as opposed to the market price, expected to increase significantly in the coming years due to supply shortages.

Why CPAs are critical to delivering Net Zero commitments

The science is clear—all viable climate models show that carbon removal will be necessary to achieve the targets set by the Paris Agreement and reach global Net Zero by 2050. Companies need to reduce their emissions as much as possible, but unavoidable emissions must still be addressed through CDR. A Carbon Purchase Agreement can help your business meet future decarbonisation targets

Securing access, affordability and additionality through CPAs

• There is already a significant shortage of supply for high-quality carbon removal. The cost of CDR is also expected to accelerate as demand rapidly outpaces supply. By committing early, you fix the future cost, while paying the full amount only at the successful delivery of the CDR credits.
• Additionality is the holy grail of offsetting emissions. By co-initiating new carbon removal projects, CPAs become unquestionably additional.
• CPAs also help accelerate the overall development of the carbon removal market, by sending a market signal that prompts other companies to invest as well. In the long run
• Leading companies like Meta, Google, Stripe and McKinsey are already pre-committing to purchase CDR towards 2030.

Key terms

1. Method - There are many ways to remove CO₂, each CPA specifies which method will be used.
2. Volume CO₂ / Year - Each CPA holds a certain amount of CO₂ that can be produced per year.
3. Cost / Ton - The cost for each CDR credit, typically 1 ton CO₂.
4. Delivery schedule - The time period and volumes in which the CDR credits will be delivered. For example 2025 to 2030.
5. Pre-commitment - The share of the total amount which needs to be committed at the start of the contract.

A Carbon Purchase Agreement for your company

Curious about how a Carbon Purchase Agreement might fit into your overall sustainability strategy? Speak to a carbon removal strategist to learn more about how you can achieve climate impact while making sound business decisions.

How to calculate company emissions

When aiming to calculate your emissions, the first step is deciding whether you want to do the work in-house, or rely on an external partner.

Using existing frameworks in-house

Calculating emissions requires a lot of time, work and specialist knowledge, but it is possible to carry out in-house. If your company or organisation has someone with the expertise needed, there are tools available to support you in calculating your emissions.

For instance, the GHG Protocol offers a free cross-sector Excel-based calculation tool with detailed instructions for use. There are numerous other tools available—we’ve put together a selection here.

Climate consultants

As almost all companies will need to report on carbon emissions sooner or later, there are a growing number of consultants specialised in doing so, whether you need a carbon footprint analysis or LCA.

Climate consultants tend to prefer an activity-based approach, which you can learn more about below, as this leads to more accurate calculation. Most consultants also offer strategic consulting on ways to reduce your emissions. This comes at a cost, but if you need high fidelity, it might be worth it.

Carbon accounting platforms

In recent years, there has been a flurry of activity in the carbon accounting space, and startups creating software solutions have sprung up around the world.

These platforms offer an impressive amount of automation, allowing them to calculate emissions faster and at lower cost. Many can also integrate directly into services your company uses, like your electricity meter, heating system, flight booking system, etc.

However, these platforms generally use a spend-based approach, which can lack accuracy.

What is the cost of calculating company emissions?

Now that we have a basic understanding of calculating emissions, you might anticipate the answer: It depends. In our experience, costs can range from €1,000 to more than €60,000. Below are some of the key factors that influence the cost of accounting:

‍

‍

Having these numbers handy before seeking help with calculating your emissions will help you get comparable quotes.

In general, you get what you pay for. The more expensive the solution you opt for, the higher the accuracy will be, and the better the calculations will stand up to scrutiny. It is very important to consider what you will use the calculations for, and where you are in your sustainability journey.

If you are a small company looking to get a basic understanding of your emissions and how to start reducing them, it makes sense to go with a cheaper, faster solution and get started. If you are a large company, intending to reach carbon neutrality, you need to have very thorough calculations from a reputable source.

What type of calculation do you need?

In these times of regulatory uncertainty, it makes good business sense for your company to keep updated with the latest developments. Here we outline two of the main approaches for calculating your climate impact: carbon footprint analysis and life cycle assessment (LCA).

Carbon Footprint Analysis: Emissions of your entire company

Nothing in life is free, and similarly, everything has a carbon footprint. A carbon footprint analysis evaluates the greenhouse gas (GHG) emissions caused by a product, a manufacturing plant or an entire company. A range of GHG emissions are assessed and then converted into carbon dioxide equivalents (CO₂e) to allow for comparisons.

The Greenhouse Gas (GHG) Protocol provides the most widely used standard (called the Corporate Value Chain Standard and the Corporate Accounting and Reporting Standard) for measuring and reporting emissions. These are divided into Scope 1, 2, and 3 emissions, ensuring a true and fair representation of your company’s climate impact. The International Organization for Standardization (ISO) also offers a standard (ISO 14064) to quantify, monitor, report, and verify your direct and indirect GHG emissions.

Scope 1

Scope 1 emissions relate to emissions that come directly from your company’s owned or controlled operations, e.g., fuel consumed in company vehicles. These are the emissions you have the most control over, and can quickly target to start your journey to net zero.

Scope 2

Scope 2 emissions represent indirect emissions from sources purchased or acquired for use in your company, e.g., electricity, heating, cooling. Hotspots caused by Scope 2 emissions are most efficiently targeted by switching to renewable energy sources.

Scope 3

Scope 3 emissions are the trickiest. They are all other indirect emissions occurring in the value chain of your company, both upstream and downstream, e.g., employee commuting, waste, business travel, investments, and the list goes on! There are two main methods for calculating Scope 3 emissions: spend-based and activity-based.

Spend vs. Activity-Based Data

Spend-based data is obtained by multiplying the financial value of a purchased good or service by an emission factor. Emission factors are derived from an industry average of emissions levels, and so spend-based data only represents a rough estimate of actual emissions.

A more precise by time, labor, and cost intensive approach is to use activity-based data. This involves collecting detailed data, both internally and externally from all suppliers, and multiplying that data by activity-specific emission factors. A more granular overview of supply chain emissions is provided from this approach which allows for targeted GHG reductions.

Life Cycle Analysis: Understanding a specific product or service

Alternatively, a LCA can be carried out on a specific product, process or service within a defined set of boundaries (cradle-to-gate, cradle-to-grave). Notably, it encompasses multiple environmental and economic impacts beyond just GHG emissions, such as:

• Natural resource depletion
• Ecosystem degradation
• Human health
• Social fairness
• Pollution
• Water quality

Obtaining and processing raw materials, manufacturing, dissemination, usage, maintenance, repairs, selling/reusing, and disposal can all be contained within this as well.

Cradle-to-Gate vs. Cradle-to-Grave vs. Cradle-to-Cradle

Cradle-to-gate refers to the environmental and economic impact of a product, process, or service from the point of raw material extraction through the manufacturing process, up until the point of use. Alternatively, the impacts of the entire process (from raw material extraction to disposal) can be accounted for in an LCA. This is often referred to as cradle-to-grave.

Some companies or organisations may opt for a cradle-to-gate approach if they have designed a product or service that is easily reusable. However, a lot of products and services amass most of their carbon footprint after purchase, which is when the cradle-to-grave approach is most insightful.

Another more holistic school of thought is cradle-to-cradle. This design philosophy was inspired by nature, where the waste products of one process serve as the fuel for another process. In short, no materials are simply discarded at the end of their useful life; instead they are reused indefinitely in other products of greater or equal value.

‍

Why we don’t calculate emissions for you

At Klimate, we offer access to portfolios of thoroughly vetted high-quality carbon removal to help companies compensate for their unavoidable emissions.

A lot of companies out there are offering to calculate your emissions as well as help you offset them. However, we are going about this differently.

01

We want to ensure trust and integrity

It seems logical to have one partner to take care of everything when it comes to going carbon neutral. However, there is a good reason why your accountant and auditor are not the same person.

Most companies that sell offsets, including ours, charge a commission for each credit. This means that the larger the emissions, the larger the commission. This creates a conflict of interest when making the calculation.

02

We believe everyone should do one thing and do it well

Sourcing and analysing the best carbon removal solutions is a big undertaking, and we want to focus all our efforts on this.

At the same time, calculating emissions is equally complex, and we see a growing number of companies specialising in industry-specific calculations like real estate, food, e-commerce, and even furniture!

We are under no illusion that we can be as good as them, therefore we choose to collaborate instead.

Need support with calculating your emissions?

We have a strong network of partners specialised in different industries and types of calculations. You can go through our partner directory here

What are SBTi and BVCM?

SBTi: The Science Based Targets initiative is a body that defines and promotes best practice in science-based net-zero target setting followed closely by thousands of companies. It is a convergence of groups including non-for-profit Carbon Disclosure Project, UN Global Compact, World Resources Institute and World Wide Fund for Nature.

BVCM: Beyond Value Chain Mitigation, mitigation action or investments that fall outside a company’s value chain, including activities that avoid or reduce GHG emissions, or remove and store GHGs from the atmosphere. It is a strategy described by SBTi (and others, such as Gold Standard) that calls for more urgent climate action in order to reach our common climate goals.

Why should companies invest in BVCM?

According to the IPCC, there is no longer a realistic pathway to reach our climate goal of limiting warming of 1.5 or even 2 degrees C without carbon removal. But, the current rate of scaling CDR is not yet at the trajectory needed in the coming decades to bridge the gap of emissions.

This is where BVCM comes in, encouraging climate action for short-term, immediate mitigation, to funnel investment to scaling the necessary solutions.

An introduction to the new BVCM guidance

Releasing a report and accompanying research paper titled “Above and Beyond” and “Raising the Bar,” this updated guidance from SBTi includes support on the design and implementation of BVCM, as well as incentives and opportunities for accelerating widespread corporate adoption.

The main goals of these publications are twofold:

1. To catalyse immediate mitigation outcomes
2. To promote the scale-up of emerging climate solutions

What emerging climate solutions should be considered within a BVCM pledge? “Above and Beyond” offers four initial categories, or portfolio principles, that should be followed in the implementation steps below. These include maximising mitigation outcomes, focus on under-financed opportunities, support for sustainable development goals (SDGs), and climate justice.

How to implement BVCM alongside your net zero strategy

Implementing a BVCM strategy alongside your net zero target allows your company to take immediate action to further mitigate the impact on climate change that comes from your ongoing emissions. It involves three specific steps:

• Pledge: determine strategic direction and define a time period, recommended 5 years or greater.
• Act: design a portfolio of activities and investments, ensure you meet minimum standards (Like IVCVM Core Carbon Principles), pay and publicly disclose.
• Report: establish annual cycle, verified by a third party, and comply with local existing standards (such as CSRD).

‍

What does SBTi say about carbon dioxide removal?

SBTi’s inclusion of carbon removal investment within the BVCM framework is expansive compared to the previously defined role of CDR–a final stage action to neutralise unavoidable emissions. Now, it could open the door for more companies to get involved in carbon markets today, rather than waiting until all possible reductions have taken place.

SBTi builds the business case for carbon removal:

CDR reduces costs in damages of climate change, reflecting the CSRD approach of double materiality.

It helps companies secure and maintain investment, talent, and brand trust.

To build a future-proof brand, you must get involved in the necessary process to scale and develop the market, specifically of durable solutions, to meet future demands.

The above framing of CDR is critical for the development of carbon markets as it lays out a credible path for companies to invest in carbon removal while they work on their short and long-term net zero target. Beyond this, it reflects the needs and aims of the carbon removal market today–this being the investment to scale and develop removal solutions to meet future demand.

But, this guidance is non-prescriptive, meaning sustainability leaders must to choose their own path for BVCM, depending on what is right for their company, and accomplish strategic goals rather than numeric targets. This puts the onus on companies to develop this in addition to their short-term and long-term net zero targets and general reduction efforts.

By leaving relatively open pathways of adoption and choices for investment, it could lead decision makers away from financing the ‘most necessary solutions’ deemed by the IPCC and SBTi and instead go for lowest-possible price point avoidance or renewables. Or, the lack of decisiveness could cause a sort of choice-paralysis, leading to a further stall in investment. Helping companies define BVCM targets and implementation plans can help avoid these pitfalls.

How do SBTi’s Key Principles line up with Klimate’s Approach?

The guiding principles for BVCM are highly aligned with our own approach, where activities must meet minimum standards of integrity and quality including ensuring additionality, permanence, and avoidance of leakage and be verified by a third party. And, any adverse social and environmental effects must be safeguarded against.

Support for projects through BVCM can help scale carbon removal projects - both nature-based and engineered approaches - and provide much needed support in the early years. This helps increase the likelihood of reaching the necessary capacity needed for near-term and long-term net zero targets. It also detaches the investment from specific accounting exercises, which increases the flexibility for companies to engage in these type of projects. This also opens up for larger and broader types of investments from more companies, while reducing the risks of greenwashing coming from unsubstantiated carbon neutral claims tied to specific scopes.

Simon Bager, Phd and CIO of Klimate

The updated BVCM toolbox will likely accelerate corporate adoption and implementation of this approach, meaning forward-thinking companies will need to update and align this guidance with their current sustainability aims. As this is still voluntary, it means that companies must be able to see the value in going “above and beyond” the required investments. The coming months and years will show whether the new guidance provide enough incentive to encourage this.

Nonetheless, the new BVCM guidance is a huge step in the right direction, as it provides companies with tangible guidelines for how to invest in projects that remove carbon from the atmosphere, while simultaneously working on their reduction efforts. All in all, this should lead to less carbon in the atmosphere, which is the ultimate goal.

What is the CSRD?

This directive aims to enhance transparency and accountability by imposing stricter Environmental, Social, and Governance (ESG) reporting requirements on large European companies with annual turnovers exceeding €150 million. With a direct impact on 50,000 companies, the CSRD's influence will have knock-on effects through their value chains, emphasising the importance of transparency.

What is double materiality?

Double materiality builds on the corporate finance concept of materiality, that gauges the relevance of information or events for decision-making.

A double materiality assessment recognises the material significance of environmental and social impacts alongside financial considerations.

Viewing climate change through the lens of CSRD compels companies to act for several reasons:

• Companies impact climate change through an environmental means, including their CO2 emissions and activities to mitigate climate change
• Policies and targets that prepare for a societal net zero future, including a carbon tax or other incentivising measures–as suggested by the CSRD–are an important mechanism to driving change.
• Climate change presents a financial and social risk, including material loss and repetitional risk, and these disclosures provide a platform to show that you are being proactive.

What does the CSRD have to do with carbon dioxide removal?

Carbon removals and storage are part of the climate metrics and targets that must be reported within the framework, alongside any financial investment in removals & storage, net zero targets, or neutrality claims.

The heightened focus on CDR also means that close attention must be paid to the type, storage, and transportation of greenhouse gasses. This also includes managing non-permanence risks, including monitoring for leakage reversal events–a potentially difficult undertaking for companies that are new actors in the carbon market.

Companies pursuing net-zero goals or Science-Based Targets must invest in carbon removal to address their emissions. Consequently, it's crucial for all such companies to report their investments in the CSRD framework, making it critical.

An Opportunity to Future-Proof Your Business

Beyond setting regulatory standards for disclosures, the CSRD framework enhances transparency and presents an opportunity to stay ahead of regulatory requirements. Becoming more future-proof in the eyes of regulators and stakeholders is essential in this sustainability-driven era. Highlighting your climate strategy and carbon removal efforts not only boosts your brand reputation but also positions you attractively as an employer and strengthens relationships with suppliers and clients.

Three Key Benefits of the CSRD

Getting started on double materiality analyses and CSRD may seem challenging. However, this process can also kick-start necessary planning, cross-collaboration, and change-making within an organisation.

To fully capitalise on the benefits of the CSRD's transparency era, it's more than just publishing a report.

1. Asks companies to continually align their goals and actions with that of the Paris Agreement.
2. Heightens quality and accountability in climate action–especially offsetting as it accounts for removals, but not avoidance.
3. Transparency and clarity are two key values in CSRD. These translate into effective sustainability communication to stakeholders and boosts reputation.

Make a real climate impact

The CSRD is a transformative force driving transparency and accountability in the European corporate landscape. It mandates stringent ESG reporting, with a focus on climate-related metrics and targets. Embracing the CSRD is not only a regulatory obligation but also an opportunity to future-proof your business, enhance your reputation, and contribute to a sustainable future.

Join us and learn more about how you can employ a sound carbon removal strategy–that takes into account the double materiality assessments of CSRD–to minimise risk and make a real climate impact.

What is the difference between short-term and long-term carbon storage?

The concept of permanence, or durability, is central to effective carbon removal. Durability denotes the longevity of carbon sequestration within a carbon sink. Yet, this is influenced by the risk of reversal—the potential for disruption and subsequent release of carbon dioxide into the atmosphere.

For instance, carbon stored in mineral form within rock is durable with minimal risk of reversal, unlike carbon dioxide pumped into rock as a gas that could be disturbed. Trees are fairly durable, storing carbon for decades to hundreds of years, but are at a higher risk of reversal in the event of something like a forest fire.

Different carbon removal methods have different levels of durability (how long the carbon is expected to be stored for) and different levels of reversal risk (how likely is the carbon to slowly or abruptly leak back to the atmosphere).

‍

‍

Combining methods is necessary to combat climate change

Engineered CDR solutions hold enormous potential to reach our global climate targets by amplifying long-term geological reservoirs. However, these solutions require a long-term outlook. The technologies behind them are still nascent and require significant research and investment to reach gigaton scale, which will take decades.

Nature-based carbon storage acts as a very effective buffer in the meantime. Forests already store vast amounts of CO2 and forestation has the capacity to be scaled massively, although land is a finite resource, so it is important to consider where and how to reforest. In addition, forestry is a well-established carbon removal method with proven results and a high degree of knowledge about risk factors and limitations. But, it requires large amounts of land, a major constraint to scale–especially in the face of climate change.

The case for scaling nature-based carbon removals

It is possible to link nature-based solutions and tech-driven CDR solutions in sequence to maximise overall climate impact and socio-environmental benefits. This mix-methods approach can also diversify risk and balance cost.

This strategy, termed 'horizontal stacking', helps account for the delay in permanent carbon credit availability, while making sure investment still reaches tech-driven carbon removal projects.

By the time carbon stored in less permanent sinks like forests is about to be re-released, the more energy-intensive engineered solutions will be sufficiently scaled to be able to absorb this CO2 once again.

There is evidence to show that nature-based removals has the potential to reduce peak warming in the shorter term, as long as they are employed alongside strong emissions reduction efforts [1].

Taking the long view: Investing in carbon removals for maximum climate impact

It’s important to strike the right balance between climate impact and important co-benefits in every portfolio. After all, sequestering carbon is important but carbon tunnel vision—i.e., ignoring all other factors—is not feasible, as carbon removal does not occur in a closed system. You can simultaneously invest in long-term removal, supporting the development of the future market, while deploying methods that are readily available at present.

Scaling and diversifying the market through increased investment and commitment from governments and companies are crucial steps toward achieving global net zero, but they aren’t the whole picture. Upholding our common climate goals of the Paris Agreement demands a comprehensive approach that extends beyond carbon removal to tackle the underlying causes of climate change.