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Climate Reporting

What are scope 3 and 4 emissions and why are they so important?

Confused about what scope 3 and 4 are, and where to get started measuring them? Let's get you up to speed.

Sustainability has always been awash with vaguely-defined buzzwords. Offsetting, carbon-neutral, organic, biodiversity, even sustainability itself. We hear them constantly, but it’s often hard to pin down what they actually mean. From an organisational perspective this can create headaches. There’s nothing worse than your boss hearing a new buzzword in a conference, then bursting into your office on a caffeine high and frantically shouting “what’s our (insert jargon) policy!!?”

Recently a spate of new regulations pushed by major governmental bodies like the EU have brought some new terms to the forefront of sustainability planning - SCOPES. While Scope 1 and 2 reporting has been a part and parcel of many corporations’ sustainability policies for a while now, we’re now starting to realise that a more comprehensive picture of an organisation’s climate impact is required.

Enter Scopes 3 and 4. So for anyone who has just been asked to present their company’s plan for Scope 3 or 4 emissions at the next monthly meeting, let’s dive into what these terms mean, and why they’re crucial to ensure sustainable business practice.

First things first - Scope 1-4 emissions reporting is most useful if you’re an organisation, so if you’re an individual who’s worried about their scope 4 emissions, relax. It’s also worth stating that here we’ll be focusing on these scopes as defined by The Greenhouse Gas Protocol, which is at this point the most widely used accounting standard for measuring an organisation’s greenhouse gas emissions.

Scope 1 and 2

Naturally Scope 3 and 4 are sequels, so let’s have a look at their foundation first. Let’s say you’re working at a manufacturing company. You have a central factory with an adjoined national distribution centre, plus a few offices that you rent in town where management, HR and your finance team operate.

Your scope 1 emissions are pretty straightforward. The emissions from the fuel use of any machinery or buildings you own that contribute directly to the manufacturing of your company’s products falls under scope 1. Any greenhouse gases that said machinery churns out are included in scope 1. The emissions from the fuel that your trucks belch out when they deliver your goods to retailers, that comes under scope 1 as well. 

Note however, that this is just emissions related to the direct use of said machinery and vehicles. It does NOT include the electricity required to power the machinery, nor does it include the CO2 from the production of the machinery itself. Also, it only applies to equipment you own - if you’re leasing the trucks you’re using to distribute your goods, then those emissions don’t come under your scope 1 emissions.

Click here for a more technical description of Scope 1

Scope 2 is very similar, BUT it includes some indirect emissions as well - any electricity (actually any utilities at all) used to power your manufacturing and distribution centres. Not just the machinery though, it includes lighting, heating and other appliances. Note that I’m saying it’s ONLY the manufacturing and distribution centres - you’re leasing those offices in town, which means that the company you’re leasing from has to put that electricity on their scope 2 reports.

Click here for a more technical description of Scope 2

Scope 3

This is where things start to expand. Relatively speaking, Scope 1 isn’t too hard to calculate - basically you just add up all the fuel your company burns - and then to get to Scope 2 you can essentially just whack an electricity bill over the top of it. With a good data analyst at your company, some time spent on research and a decent internal reporting system, you may be able to compute Scope 1 and 2 emissions yourself.

Scope 1 and 2 are not always particularly useful though. As you may have picked up on by now, a company could simply lease out a bunch of its operations and end up reducing its Scope 1 and/or 2 emissions significantly. These two Scopes don’t exactly engender corporate responsibility (speaking of buzzwords), which is where Scope 3 comes in.

Scope 3 brings in a whole lot more indirect emissions. Basically anything else related to doing business within your company gets counted. That’s the travel to the office every morning or to conferences your people attend, the waste generated in your production line, the production costs for goods your company buys (everything from new manufacturing equipment to a new printer). The processing, packaging, disposal of goods. Even the food you buy for company events.

Those leased offices, and any leased vehicles? They might be owned by another company, but you are using them and driving the demand for them, so under Scope 3 they are attributed to you. If I had to sum up the difference between Scope 2 and 3 with a single sentence, it’s this; ask not what you directly produce, but what you are responsible for. Scope 3 on average accounts for around 75% of an organisation’s footprint - so this is the stuff that actually makes a difference!

Click here for a more technical description of Scope 3

Scope 3 is obviously harder to calculate. You need a complete overview of everything you’ve produced, and inputs to produce it. You need CO2e multipliers. You need extensive data from your upstream suppliers and your clients as well, on the products THEY’VE produced. You need Life-Cycle Assessment results. You need an external company basically. But when all that work is done, surely you’ve got an all-encompassing overview of your company’s CO2e emissions?

Well, yes. For now. That’s the problem though. Emissions reporting isn’t about what’s happening now, not really. It’s about how to reduce that number and plan for the future. That’s where Scope 4 is essential.

Scope 4

You’ve sorted out Scope 3. You’ve got your current numbers, and you’ve figured out where the biggest reductions are. You’ve laid out plans for those reductions - you’re switching 70% of work meetings to virtual, and switching to a no-beef lunch list at events. But you’re also electrifying your vehicle fleet and buying newer, MUCH more energy-efficient manufacturing equipment. You’re also using new technology to make some of your products more energy efficient for use - the fridges you produce use around 200 less kilowatt hours per year than your old ones. 

Banner - Scope 3  4 Reporting Article (1)

Problem with those last two - they require enormous initial costs. Not only monetarily, but the production costs of the new equipment for electric vehicles and new equipment are spectacularly heavy emissions-wise (obviously this is not always the case, but play along). Sure,  fuel used by your vehicle fleet will decrease, which brings down even your Scope 1 emissions, but not enough to make up for the manufacturing emissions of the cars themselves that year. You’ve tried all other options, but it really looks like despite all the measures you’re taking, the new approach will increase your Scope 3 emissions short-term. This doesn’t exactly incentivise change.

Enter Scope 4. Bear in mind that this scope is VERY vague at the moment, and is still not mandatory to report. The phrase perhaps most commonly associated with it is avoided emissions. There are two main types of avoided emissions, which we’ll split into internal and external avoided emissions. 

Let’s start with the internal emissions. The greenhouse gases you will avoid producing with that new equipment and those electric vehicles could immediately be included in your Scope 4 reporting for the year as avoided emissions. That means that even if the initial outlay outweighs what you save that year, the future savings from the purchasing of that equipment will be noted*. Yet from our standpoint, this isn’t the big drawcard of using Scope 4.

As you may have guessed, the big drawcard is external avoided emissions. For some companies, Scope 4 could end up including a whole lot more avoided emissions than just what takes place on your factory floor. If you’re producing more energy-efficient products, let’s say a high-efficiency fridge or an electric car, then the emissions that the consumer saves by using your products as opposed to less efficient equipment could also end up on your Scope 4 reporting. So if 3000 customers buy your fridges, your scope 4 will show that you’ve avoided the use of 600 000 kWh. That energy efficient machinery you use could therefore also turn up on your supplier’s Scope 4 external emissions.

One last example. At Ducky, we run Challenges which encourage people to save CO2e by performing as many sustainable activities as possible, like walking to work instead of driving. You compete against other teams to see who saves the most. The companies participating see reduced emissions on their scope 3 reports, and since our products are being used to achieve this change, the saved emissions go on our scope 4 reports.

The idea behind this scope is that if we penalise companies that temporarily increase emissions to develop high-efficiency products, there’s less incentive for progress. It encourages long-term thinking with short-term rewards. Using Scope 4 incentivises organisations to develop more environmentally-friendly products.

There is an added layer of difficulty here though. It stems largely from calculating your assumption for what normal behaviour is. After all, you can’t deduce which emissions you’ve avoided unless you know what sort of behaviour it is you’re avoiding. So you need to have a very good understanding of what your baseline was when you started making sustainable changes. We’ve said that your fridge uses 200 kWh less than your old fridge every year, but is that your baseline? What if your fridges are still less efficient than those of the competition? How do you define “the average fridge”? How often should that average be re-evaluated? 

As mentioned earlier, it’s not helped by the fact that there isn’t really any standardised framework defining exactly how Scope 4 emissions should be measured yet. There are a lot of processes that need to be nailed down, and of course Scope 4 is not mandatory to report yet. We’ll stay on top of this, and have new information when there’s a more concrete definition of the term.

Hopefully now you have a good idea of how these various frameworks apply to your business, and why they’re so important in ensuring a sustainable future for humanity. If you’d like to get stuck into more technical definitions, you can check out the links above, or get in touch with us at Ducky.


*We should note that they’ll also turn up in your Scope 2 emissions, since you’re using less electricity and emitting less greenhouse gas.

About Sam Perrin

Dr. Sam Perrin is a freshwater ecologist who completed his PhD at the Norwegian University of Science and Technology and is currently working as a climate data analyst at Ducky AS. You can learn more about his research, read his articles at Ecology for the Masses, or follow him on Twitter at the links below.