Climate Change Scopes
Discussions to do with climate change usually include reference to ‘Scopes’. The concept of Scopes is both useful and important. Unfortunately, it has turned out to be complex and somewhat controversial for reasons that we will discuss in future posts. In this post we will discuss the basic concept of Scopes.
The Greenhouse Gas Protocol
The Greenhouse Gas Protocol is an organization that was jointly convened in 1998 by World Business Council for Sustainable Development (WBCSD) and World Resources Institute (WRI). At its web site it the organization states that,
. . . it supplies the world's most widely used greenhouse gas accounting standards, and that more than 9 out of 10 Fortune 500 companies reporting to CDP use GHG Protocol.
(CDP stands for a the non-profit ‘Climate Disclosure Project’. As we can already see, the response to climate change involves a veritable alphabet soup of organizations.)
The Greenhouse Gas Protocol has developed a wide range of standards on topics such as Products, Agriculture and Cities. It also provides checklists and calculation sheets to assist businesses to assess the impact that they are having on the climate. However, it is best known for its advocacy for the use of Scopes, which are a way of categorizing greenhouse gas emissions.
Scope 1 consists of those emissions for which the organization is directly responsible. Scope 2 covers purchased electricity and other utilities. Scope 3 emissions are “indirect”, i.e., the emissions from suppliers and customers. An organization has influence over Scope 3 emissions but cannot control them directly. Most of the difficulties, disagreements and controversy to do with Scopes are to do with Scope 3.
The TCFD (Task Force on Climate-related Financial Disclosures — yet another acronym) uses the following sketch to illustrate the different types of Scope, and how they relate to one another.
Scope 1 — Direct Emissions
Scope 1 covers greenhouse gases emissions generated directly by the organization. In most cases, carbon dioxide (CO2) is the most significant of these gases. It is commonly generated by the burning of oil or natural gas for heating or cooling, or the use of fired heaters used in manufacturing processes such as the smelting of steel.
Methane (CH4) is another important greenhouse gas, particularly in the oil and gas industry. Leaks of HVAC fluids from air-conditioning units also fall under Scope 1. Emissions associated with business travel may fall either into Scope 1 or Scope 3.
The importance of Scope 1 is that these emissions are directly under the control of the organization that emits them.
Scope 2 — Indirect Emissions
Scope 2 emissions are indirect. They are usually to do with the purchase of utilities from an outside company. For example, if a company purchases electricity from a national grid, then that company is responsible for the associated emissions from the utility, even though the company has no direct control over those emissions. These indirect emissions can be calculated using Lookup Tables provided by the Environmental Protection Agency.
Scope 3 — Corporate Value Chain Standard
Scope 3 reporting covers emissions to do with the supply chain and other activities that are a part of a company’s activities, but over which it has no direct control. Scope 3 applies both upstream (suppliers and vendors) and downstream (customers) activities. Investments, franchises and leased assets may also fall into the Scope 3 category.
The United States Environmental Protection Agency (EPA) defines Scope 3 emissions as follows,
Scope 3 emissions are the result of activities from assets not owned or controlled by the reporting organization, but that the organization indirectly impacts in its value chain. Scope 3 emissions, also referred to as value chain emissions, often represent the majority of an organization’s total GHG emissions.
Items in this category generally include the emissions associated with employee commuting, business travel, purchased goods and services, the manner in which the company’s products are used, and waste management.
Scope 3 emissions are often the most significant part of a company’s overall emission reporting. For example, page 356 of the proposed rule from the Securities and Exchange Commission (SEC) Climate-disclosure rule says,
. . . according to Morgan Stanley Capital International (MSCI), the Scope 3 emissions of the integrated oil and gas industry are more than six times the level of its Scope 1 and 2 emissions.
For an oil company Scope 3 emissions can be a very large part of their overall total because products such as liquefied natural gas, diesel and jet fuel are burned and turned directly into CO2 emissions.
Many of the concerns to do with climate change reporting are to do with understanding and implementing Scope 3 requirements. After all, all Scope 3 emissions are someone else’s Scope 1 or 2 emissions. These concerns will be discussed
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