Under the GHG Protocol, a company's greenhouse gas emissions are divided into three scopes: Scope 1 covers direct emissions from sources the company owns or controls; Scope 2 covers indirect emissions from purchased electricity, steam and heat; Scope 3 covers all other indirect emissions in the value chain, from purchased materials to products after they are sold.
Key takeaways
- Scopes 1 and 2 are under direct control and are the starting point of every inventory.
- Scope 3 has 15 categories and often accounts for the majority of total emissions in many sectors.
- A customer's Scope 3 is its suppliers' Scope 1 and 2 — which is why Vietnamese businesses are being asked for data.
Telling them apart with examples
| Scope | Examples at a factory |
|---|---|
| Scope 1 | Burning coal or oil in boilers; diesel forklifts; refrigerant leaks from air conditioning |
| Scope 2 | Grid electricity purchased to run machinery and lighting |
| Scope 3 | Production of purchased materials, outsourced transport, business travel, waste treatment, use of sold products |
The 15 Scope 3 categories
The GHG Protocol divides Scope 3 into 8 upstream categories (purchased goods and services, capital goods, fuel- and energy-related activities, upstream transportation, waste, business travel, employee commuting, leased assets) and 7 downstream categories (downstream transportation, processing of sold products, use of sold products, end-of-life treatment, leased assets, franchises, investments).
You do not need to calculate all 15 categories at once
Businesses should screen to identify the material categories (usually purchased goods and transport), calculate those first and gradually improve data quality.
The basic calculation
The general formula: Emissions = Activity data × Emission factor. For example, a factory uses 1,000,000 kWh of grid electricity in a year; multiplying this by the national grid emission factor published by the competent authority gives its Scope 2 emissions. For Scope 3, a spend-based method (purchase value × sector factor) can be used where supplier data is not yet available.
Why Scope 3 is becoming a supply chain "filter"
Multinational corporations with climate targets must reduce their Scope 3, so they require suppliers to conduct inventories, set targets and cut emissions. Suppliers that fail to meet these requirements risk being replaced when contracts come up for review. Starting with a Scope 1 and 2 greenhouse gas inventory is the safest first step.
Frequently asked questions
What is the difference between location-based and market-based Scope 2?
The location-based method uses the average emission factor of the grid; the market-based method reflects the electricity sources a company chooses to buy, such as renewable electricity through contracts or renewable energy certificates.
Are businesses required to report Scope 3?
Domestic regulations currently focus on facility-level inventories; Scope 3 is mainly a requirement of customers, investors and standards such as IFRS S2.
Which scope does rooftop solar reduce?
Electricity generated and consumed on site reduces the amount purchased from the grid, and therefore reduces Scope 2 emissions.
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