A Brief Overview

Overview

The Greenhouse Gas Protocol (GHG Protocol) provides standardized guidelines for an organization or company to create an inventory of their greenhouse gas emissions (this is also known as a carbon footprint).

Under the GHG Protocol and PCAF (Partnership for Carbon Accounting Financials), emissions are broken down into three scopes—based on the emission source.

• ‍Scope 1: Refers to the direct emissions from an organization’s owned operations, including company-owned vehicles and buildings.‍
• Scope 2: Refers to indirect emissions from purchased electricity, steam, heating, and cooling.‍
• Scope 3: Refers to all other indirect emissions generated throughout an organization’s value chain, including those generated by suppliers, employees, and customers.

Breaking emissions down into different scopes helps organizations see where they're generating emissions to understand their total impact.

Terms to Know

Before we get started, there are some terms you should be familiar with.

• Footprint Activity (emission source): This is an activity that results in the emission of GHGs. In the US, the largest sources of GHG emissions are from burning fossil fuels for electricity, heat, and transportation.
• Value Chain: This refers to the full range of activities and processes involved in creating, using, and disposing of a product or performing a service. A value chain can consist of multiple stages of a product or service’s lifecycle — from conception to disposal, and everything in between — such as procuring raw materials, manufacturing, and marketing activities. It also covers the impacts associated with corporate activity, such as business travel, employee commuting, and the impacts from waste at operated facilities.

Different stages within the value chain are further categorized as upstream or downstream.

• Upstream Emissions: These are emissions generated by the company's suppliers, whether they’re supplying directly for the product, such as cotton to produce a t-shirt, or to support company operations, such as waste management; and those generated by the company’s employees for work-related activities including commuting, business travel, and remote work.
• Downstream Emissions: These are emissions generated by the company’s customers through the use and disposal of products and services. For example, when a customer pays to ship a t-shirt, emissions attributed to the shipping are considered downstream. Downstream emissions would also be attributed to the impact of that t-shirt in a landfill.

Upstream or Downstream?

Sometimes it's difficult to determine if an emission source is upstream or downstream.

Asking the following questions may help you decide:

Direct vs. Indirect Emissions

Before we dig into scopes 1, 2, and 3, it's important to understand the difference between direct and indirect emissions.

• Direct Emissions: Direct emissions are emissions from sources that are owned or controlled by the reporting company. These are also known as scope 1 emissions.
• Indirect Emissions: Indirect emissions are produced as a result of the reporting company's activities, but occur at sources owned or controlled by another entity.

Once you have a clear understanding of the emissions source (i.e. where they come from), and whether you directly or indirectly control that source, you can better manage and mitigate those emissions and reduce your overall carbon footprint, reducing your climate-related risks and differentiating your company.

Putting it all together

Let’s check an example of how these things work together.

Denim Den, a clothing manufacturer, owns and controls several factories. Direct emissions would come from stationary combustion at the Denim Den factories that make the clothes. In this scenario, Denim Den has ownership and control of the factories and is able to influence the emissions produced by the factories. For example, they could reduce their direct emissions by using more efficient equipment.

If Denim Den decided to outsource the production of their clothes to a vendor, the emissions produced by manufacturing clothing at the vendor’s factories would now be considered indirect emissions for Denim Den. In this scenario, Denim Den would not have direct control of the emissions produced by the vendor’s factories and could only indirectly influence the supplier to manage their emissions.