What is Carbon Accounting? Scope 1, 2 & 3 Emissions with examples.

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ESG, decarbonisation, net zero, carbon accounting, green, eco-friendly, scope 1 emissions. The world is focused on securing our planet's future, and the terms mentioned here are being thrown around left, right, and centre.

For many of us, these are quite foreign terms with blurred meanings, especially when they are used in ways which dilute their definitions (greenwashing).

This article is going to focus on carbon accounting. Normally when we think about accounting, we think about money. But in this instance, we are talking about measuring, counting and reporting the amount of carbon a company emits during typical operations.

Centropi provides services that accelerate a company's facilities to net zero, from investment-grade LED lighting to AI-powered water management. Regardless of what your company needs, we are here to provide easily understood, unbiased information to help you better understand your journey to net zero.

So, let's dive in!

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What is carbon accounting?

Carbon accounting (or greenhouse gas accounting) is a way to measure and track how much greenhouse gas (GHG) an organisation emits. Like traditional accounting, these methods are used by businesses, countries, cities and other groups. However, in this instance, it is there to help limit climate change - planetary health - instead of financial health.

Normally, an emissions baseline will be set through an energy audit to understand how much you are spending. After this, targets for reducing emissions are set, and the progress towards them will then be tracked (much like financial accounting)

What is the Greenhouse Gas Protocol?

Like with traditional monetary accounting, it was necessary to set up a set of carbon accounting rules for everyone to work to. Imagine the mess the financial world would be in if everyone decided on their own rules to report by!

Enter The Greenhouse Gas Protocol (GHG Protocol).

The GHG Protocol is a set of accounting/reporting standards developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). It provides a carbon accounting framework for anyone looking to measure, manage, and report greenhouse gas (GHG) emissions.

The WRI and WBCSD published the first version of the Greenhouse Gas Protocol in September 2001.

There are three sections to the protocol:

  1. Corporate Standard: This standard is designed for companies and businesses to measure and report their greenhouse gas emissions from their operations. It covers direct emissions (Scope 1), indirect emissions from energy consumption (Scope 2), and indirect emissions from activities such as business travel and supply chain (Scope 3)
  2. Value Chain (Scope 3) Standard: This standard supplements the Corporate Standard and guides accounting for and reporting of greenhouse gas emissions throughout the value chain, including both upstream and downstream activities.
  3. Product Life Cycle Standard: This standard offers guidance on accounting for the greenhouse gas emissions associated with the entire life cycle of a product, from raw material extraction to end-of-life disposal.

Specifically, we are going to focus on #1 the corporate standard.

As mentioned above the corporate standard is broken down into three scopes. You can consider these as a company's carbon "expenses".

The infographic below sets these scopes out nicely.

Source - Scope 1, 2 & emissions explained

To further aid understanding, let's put this into real-life terms and set out some examples of each scope.

Scope 1, 2 & 3 Examples

Scope 1: Direct Emissions

  • In Industrial Buildings: Do you have a furnace on site for a part of your manufacturing process? The emissions from this on-site combustion of fossil fuels are considered scope 1 emissions.
  • In Logistics Buildings: Moving goods around your facilities and to other facilities in company-owned vehicles such as trucks and forklifts generates scope 1 emissions.
  • In Office Buildings: Emissions from on-site combustion of fossil fuels in heating systems or backup generators.
  • In Medical Buildings: Some medical facilities will have incinerators to dispose of certain waste material safely. The emissions from this on-site process will generate scope 1 emissions.
  • In Hospitality Buildings: A lot of gas is used in preparing and cooking food in hospitality properties. Gas specifically will create emissions which fall under scope 1.

Scope 2: Indirect Emissions

  • In Industrial Buildings: Emissions from electricity purchased for lighting, equipment, and other operations.
  • In Logistics Buildings: Emissions from electricity purchased for lighting, office equipment, and other operations in logistics facilities.
  • In Office Buildings: Emissions from purchased electricity used for lighting, heating, cooling, and office equipment.
  • In Medical Buildings: Emissions from electricity purchased for lighting, medical equipment, and other operations in medical facilities.
  • In Hospitality Buildings: Emissions from purchased electricity used for lighting, heating, cooling, kitchen equipment, and other operations in hospitality buildings.

Scope 3: Indirect Emissions

These are all other indirect emissions that occur in the value chain of the organisation, including both upstream and downstream emissions.

  • Industrial Example: Emissions from the extraction, production, and transportation of raw materials used in industrial processes. Do you make something from metal? Well, scope 3 emissions are those associated with making the metal before you use it.
  • Logistics Example: Emissions from transporting goods and services used in logistics operations, including the entire supply chain. You may not own any of your vehicles, but you store the products of other manufacturers. In this instance, scope three emissions are those produced by other vehicles delivering items for storage at your facility.
  • Office Example: Does your team travel by plane for business meetings? The emissions from whichever transport they use are considered scope three emissions.
  • Medical Example: Hospitals use a myriad of products. The hospital does not manufacture these products. So, the emissions from the production and transportation of medical supplies are considered scope 3 emissions.
  • Hospitality Example: A lot of food and drink is consumed in the hospitality industry. Although the food may be prepared in-house, the raw produce is produced and transported to your property, and these are scope 3 emissions.

Centropi has years of experience helping companies reduce their scope 1 and 2 emissions. Reach out to Ivan for more information.

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