Upstream and Downstream Emissions

Upstream Activities

Upstream activities include all emissions from an organization’s supplier and employee activities. These include emissions generated to create and deliver their goods and services to customers as well as those resulting from day-to-day operations.

The following scope 3 categories are considered upstream activities:

1. Purchased goods and services

Category 1 covers emissions from the production of all purchased or acquired products and services not covered in categories 2 to 8. Since it can encompass many purchases, organizations can group them further by use: production-related (e.g. parts for their product) and non-production-related (e.g. HR software), often referred to as direct (product-related) and indirect (non-product-related).

2. Capital goods

Category 2 includes emissions from the production of purchased or acquired capital goods. The GHGP defines capital goods as final products with extended life that are used to:

• Provide a service
• Deliver, sell , or store merchandise
• Product a product

Since organizations may categorize assets differently, the GHGP lets reporters determine what goods fall under category 1 and category 2. But, organizations should not double-count.

The GHGP also requires organizations to account for the cradle-to-gate emissions in the year they've acquired capital assets, similar to how they'd account for category 1 emissions. This may differ from how organizations normally amortize, depreciate, or discount capital goods over time in financial accounting.

3. Fuel- and energy-related activities

Category 3 covers emissions from fuel- and energy-related activities that aren't covered in scopes 1 and 2. This category covers the following activities:

• Upstream emissions of purchased fuels: The transportation, creation, and extraction of fuels consumed by the reporting company.
• Upstream emissions of purchased energy: Extraction, production, and transportation of fuels consumed in the generation of electricity, steam, heating, and cooling that is consumed by the reporting company.
• Transmission and distribution (T&D) losses: Generation (upstream activities and combustion) of electricity, steam, heating, and cooling that is consumed (e.g. lost) in a T&D system.
• Generation of purchased electricity sold to end-users: The generation(upstream activities and combustion) of energy purchased by the reporting organization and sold to end-users and reported by the utility company or energy retailer.

4. Upstream transportation and distribution

Category 3 looks at emissions generated from third-party transportation and distribution services and the emissions generated to transport and distribute products. This can include the emissions generated to transport supplies between warehouses and the ones generated by the contracted logistics companies who transport those supplies. As denoted by the upstream terminology, this includes all shipments of purchased and sold products where shipping is paid for by the reporting company. It is important to note that this category includes both transportation or shipping of goods and distribution services such as storing of goods.

5. Waste generated in operations

Category 5 looks at emissions created by the third-party treatment and disposal of waste from a company's controlled or owned operations. This covers all future emissions from waste and includes both wastewater and solid waste. Emissions from category 5 can optionally include the transportation of waste.

6. Business travel

Category 6 covers emissions generated from employee transportation for business-related activities in third-party owned or operated vehicles. Organizations also have the option to include emissions from hotels.

This category does not cover the following emissions:

• Travel in vehicles owned or controlled by the organization (covered in scope 1)
• Employee commuting (covered in scope 3, category 7)
• Travel in leased vehicles (covered in scope 3, category 8)

7. Employee commuting

Category 7 covers emissions from employee commutes between their workplace and home. Organizations can also include emissions generated from remote work.

8. Leased assets

Category 8 looks at emissions from the operation of assets the reporting organization leases that do not fit within its selected organizational boundary.

Leased assets may be included in a company's scope 1 or scope 2 inventory depending on the type of lease and the consolidation approach the company uses to define its organizational boundaries.

Most often, leased assets within scope 3 covers a small subset of leased facilities considered outside of the company's organizational boundary.

‍

Next, we'll take a look at the scope 3 categories the GHG Protocol defines as downstream.

Downstream Activities

Downstream activities encompass emissions generated after goods and services leave an organization’s facilities. This includes all emissions created when these goods and services are distributed, sold, and taken home with the end-user — if those activities are not paid for by the reporting company.

The following scope 3 categories are considered downstream activities:

9. Downstream transportation & distribution

Category 9 focuses on emissions generated from transporting and distributing sold products when the customer or end-user pays for the service. It is important to note that this category includes both transportation or shipping of goods and distribution services such as storing of goods.

10. Processing of sold intermediate products

Category 10 is relevant only for companies (e.g. fabric for clothes, integrated circuits for computers) and covers the emissions generated by the final producer to incorporate the intermediate product into a final product for sale.

11. Use of sold products

Category 11 focuses on emissions created from services and goods sold by the reporting organization. it encompasses all emissions across the expected lifetime for all relevant products or services sold within the reporting year.

12. End-of-life treatment of sold products

Cateogry 12 looks at emissions from disposal and subsequent waste treatment of sold products at the end of their lifecycle. It cover the end-of-life emissions associated with all products sold during the reporting year, regardless of anticipated expectancy.

For sold intermediate products, organizations should account for the emissions from disposal at the end of that product's life rather than the end of the final product it helped create.

Calculating these emissions often requires assumptions about consumer' end-of-life treatment since it's difficult to know how consumers will dispose of products. Organizations should report on these assumptions and methods used to calculate these emissions.

13. Downstream leased assets

Category 3 covers emissions generated from the operation of owned assets leased to other entities that aren't included in scopes 1 or 2.

For example, if your company owns or leases an office space and subleases part of that space to another company, the subleased space would fit into this category of emissions.

14. Franchises

Category 14 encompasses emissions from franchise operations. This is applicable for franchisors and includes scope 1 and 2 emissions from franchises scope 3 emissions if they are not included in other scope 3 categories and anticipated to be significant.

Franchises should report emissions from operations under their control under this category if they're not already included in their scope 1 and 2 emissions.

15. Investments

Category 15 emissions are also called financed emissions and cover emissions associated with investments. This category is mainly for financial institutions, but is relevant for all organizations with substantial investments.

Emissions should be allocated based on the organization's share of investment in the investee. Since portfolios can change over time, organizations can either choose a fixed point in time or use a representative average from the reporting year to allocate emissions.

The Partnership for Carbon Accounting Financials (PCAF) developed a standard that builds on and supplements scope 3, category 15. It provides additional guidance to institutions who wish to disclose their financed emissions.

‍

So you might be thinking... “Do I really need to measure scope 3?”

‍

Going truly net-zero includes scope 3 emissions, even though these are generally voluntary to report. It’s difficult to develop a meaningful climate change strategy without scope 3. Because these emissions make up the vast majority of most companies' emissions, reducing these emissions can make the biggest impact, especially since it may also require reductions for other organizations.

Measuring all three scopes

Totaling the emissions from scopes 1, 2, and 3 will account for an organization’s entire carbon footprint.

Organizations that measure and understand their scopes 1, 2, and 3 emissions will benefit by improving transparency and stakeholder engagement, getting ahead of upcoming regulations, and identifying areas for improvement to address climate risk across their operations and value chain.