Within carbon accounting and sustainability reporting, emissions are divided into distinct categories based on the level of direct control an organization has over their production. The Greenhouse Gas (GHG) Protocol classifies emissions as either Scope 1, Scope 2, or Scope 3, and this has become the standard global framework for recognizing emissions.
Each scope comes with different methods for calculation and is subject to specific legislative requirements. In this article, we’ll cover:
- An overview of the GHG Protocol
- The differences between Scope 1, 2, and 3 emissions
- The legislative requirements each scope is subject to
- How to calculate emissions within each scope
The Greenhouse Gas Protocol
The classification of greenhouse gas emissions into three distinct scopes comes from the Greenhouse Gas Protocol.
Launched in 1998, the GHG Protocol is the result of a partnership between numerous stakeholders including governments, NGOs, and businesses, with the aim of developing an internationally accepted set of standards for corporate accounting and reporting on greenhouse gas emissions. It has become the most widely used framework for measuring and managing greenhouse gas emissions, and it’s often referred to as the “gold standard” for carbon accounting.
While not a legally mandatory framework in itself, the GHG Protocol is set up to help organizations work toward any of the relevant regulatory requirements they may be subject to. Following the GHG Protocol is usually the baseline for achieving compliance across the board, even if specific regulations may vary by region or industry.
According to guidance from the GHG Protocol, all greenhouse gas emissions are to be categorized into one of three different scopes, based on how directly or indirectly an organization controls their production.
Scope 1, 2, and 3 emissions
Understanding the difference between Scope 1, 2, and 3 emissions is essential for all GHG accounting and reporting. Organizations must classify their emissions according to the correct scope, track and calculate their emissions appropriately within each scope, and then report on their emissions in accordance with the applicable regulations for each scope.
Scope 1 emissions
Scope 1 is for the most direct emissions that the organization produces itself and has complete control over. All emissions in Scope 1 come from sources that the organization owns or directly controls.
For example, the emissions from a business’s fleet of gasoline- or diesel-powered vehicles that they own or lease would be classified as Scope 1 because where, when, and how the vehicles are used is directly under the business’s control. This stands in contrast to the emissions from vehicles that may be found in the organization’s supply chain, but are not used directly by the organization itself. (Those would be Scope 3 emissions, which we’ll circle back to.)
Another common example would be the production of electricity or heating via on-site fuel combustion, like gas generators or furnaces that run on natural gas or coal. Because the company owns them and directly controls their use, their emissions are classified as Scope 1.
Similarly, businesses involved in manufacturing would classify all emissions from their manufacturing processes as Scope 1 emissions. This includes things like the production of chemicals, metal, cement, and any other manufacturing processes that create emissions.
Finally, fugitive emissions are also classified as Scope 1. These are the unintentional releases of gases or vapors from things like refrigerant or methane leaks, emissions from fire suppression systems, or the purchase and release of industrial gases.
Scope 2 emissions
Scope 2 is for indirect emissions. The organization influences their production through purchases made, but they don’t directly control them. Specifically, the GHG Protocol lists four types of purchases that need to be tracked under Scope 2:
- Cooling
- Electricity
- Heating
- Steam
Because the organization doesn’t own or directly control the equipment that creates these emissions, they aren’t as responsible for them as they are for Scope 1 emissions. However, the organization does have control over how much of these things they purchase. And in some cases, they may also have control over which providers they purchase from or what types of energy they purchase.
For example, organizations may opt to participate in green power markets, procure Renewable Energy Credits (RECs) or Energy Attribute Certificates (EACs), and participate in utility voluntary renewable programs. They can also reduce their dependence on outside energy providers by installing on-site renewables.
Tracking and managing Scope 2 emissions can be challenging for organizations, especially when they have a large portfolio that may include hundreds or thousands of different utility providers, each with their own formats for billing and varying data quality. Many companies use a software solution like Tango Energy & Sustainability by WatchWire, which intakes all utility bills, checks the data for errors, and standardizes it for consistent reporting.
Scope 3 emissions
Scope 3 is a classification for indirect emissions that are further removed from an organization’s control but still come from their supply or value chain, including both upstream and downstream. This covers a wide range of potential emissions-creating activities. Here are the 15 categories that the GHG Protocol specifies:
- Purchased goods and services
- Capital goods
- Fuel- and energy-related activities
- Upstream transportation and distribution
- Waste generated in operations
- Business travel
- Employee commuting
- Upstream leased assets
- Downstream transportation and distribution
- Processing of sold products
- Use of sold products
- End-of-life treatment of sold products
- Downstream leased assets
- Franchises
- Investments
As an example, consider the production and use of bottled beverages. The plastic bottles and beverage ingredients must first be manufactured and transported before they reach bottling plants. Once bottled, the products are distributed to retailers, where refrigeration and storage add to the emissions footprint. And after use, the bottles must be disposed of—ideally through recycling but often in landfills. All of these stages contribute additional Scope 3 emissions.
Scope 3 emissions are by far the most challenging to report on, as organizations typically don’t have access to the requisite data, and it isn’t always possible to obtain from suppliers and other partners.
Legislative requirements for reporting on Scope 1, 2, and 3 emissions
Specific legislative requirements for GHG accounting and reporting vary based on where an organization does business. We’ll take a look at a few of the most significant examples, and consider which emissions scopes are included in each.
The SEC Climate Disclosure Rule
The U.S. Securities and Exchange Commission (SEC) has approved final rules that require most publicly traded companies to disclose their Scope 1 and 2 greenhouse gas emissions. Smaller reporting companies (SCRs), emerging growth companies (EGCs), and foreign private issuers are exempt from these disclosure requirements. Although an earlier proposed version of these rules had included Scope 3 reporting for large companies, those requirements were removed for the final version.
California’s Climate Corporate Data Accountability Act
California Senate Bill No. 253, the “Climate Corporate Data Accountability Act,” requires companies earning more than $1 billion in annual revenue to publicly report on their Scope 1 and 2 emissions (beginning in 2026) and their Scope 3 emissions (beginning in 2027). Although it is a California rule, it applies to “companies benefiting from doing business in the state,” regardless of where their headquarters may be located.
The Corporate Sustainability Reporting Directive
The Corporate Sustainability Reporting Directive (CSRD) is a European Union sustainability regulation that supersedes the previous Non-Financial Reporting Directive (NFRD). It applies not only to EU-based companies, but to other large companies operating in the EU. Companies subject to the CSRD must report their GHG emissions in accordance with the European Sustainability Reporting Standards (ESRS), which require the disclosure of Scope 1, 2, and 3 emissions.
IFRS S2 Climate-related Disclosures
Published by the International Sustainability Standards Board (ISSB), the IFRS S2 Climate-related Disclosures, require companies to report on their absolute gross GHG emissions generated, following the GHG Protocol. It includes all GHG emissions under Scopes 1, 2, and 3. Although it’s up to individual jurisdictions to adopt these ISSB standards, more than 20 jurisdictions are currently in the process of doing so, including Australia, Bolivia, Brazil, Canada, China, Costa Rica, Hong Kong, Japan, Kenya, Malaysia, Nigeria, Singapore, South Korea, and the UK.
How to calculate emissions for each scope
Each scope requires a different approach to emissions calculation, based on the level of control an organization has over its sources.
Calculating Scope 1 emissions
Calculating Scope 1 emissions is fairly straightforward, as these emissions come from sources directly controlled by the organization. Businesses can measure and track their own emission-generating activities, such as fuel consumption and on-site energy production.
Once the necessary activity data is collected, it can be converted into carbon dioxide equivalents (CO2e) using a greenhouse gas equivalency calculator. Sustainability management software like Tango Energy & Sustainability can help streamline this process and ensure accurate reporting.
Calculating Scope 2 emissions
Organizations calculate their Scope 2 emissions based on measurable factors, like the amount of electricity they consume. The GHG Protocol outlines two methods for doing this: the location-based method and the market-based method. Both methods should be reported separately.
- Location-based method: Also known as the grid-based method, this approach calculates emissions using the average emissions intensity of the local electrical grid. Organizations determine their CO2e by multiplying their energy consumption by the grid’s average emissions factor for their location.
- Market-based method: This method accounts for an organization’s energy procurement choices, allowing businesses to reflect their renewable energy purchases in their emissions reporting. Companies use energy attribute certificates (EACs) to verify the environmental benefits of renewable energy sources.
Because many organizations purchase energy from multiple suppliers, Scope 2 emissions calculations require careful data tracking. If an energy purchase isn’t covered by an EAC, companies must instead apply residual mix factors, which estimate emissions based on non-renewable energy sources rather than the general grid average.
To determine total CO2e for Scope 2 emissions, businesses multiply their energy consumption from each supplier by the supplier’s corresponding emissions factor or residual mix factor.
Calculating Scope 3 emissions
Scope 3 emissions are the hardest to calculate because they come from third-party sources outside of an organization’s direct control. To estimate these emissions, businesses can use several different methods, each with its own advantages and challenges.
- Supplier-specific method: This approach relies on emissions data reported directly by suppliers. Each supplier tracks and reports its own Scope 1, 2, and 3 emissions, which the organization then aggregates. While this method provides the most accurate data, it’s time-consuming for suppliers, and they aren’t always willing or able to share detailed emissions data.
- Spend-based method: This method estimates emissions based on the value of purchased goods and services. Organizations multiply the amount spent by an emissions factor to calculate their impact. While relatively easy to implement, this method is less precise than others.
- Activity-based method: Also called the average-data method, this approach measures specific activities—such as fuel consumption, distance traveled, waste generated, or electricity used—and applies emissions factors accordingly. This method allows for more detailed, accurate calculations, but it requires extensive data collection, making it more complex and time-intensive.
- Hybrid method: The GHG Protocol recommends a hybrid approach as a balance between the spend-based and activity-based methods. Organizations use activity-based data where available and fill in the gaps with spend-based estimates.
Since Scope 3 emissions cover a wide range of indirect activities across an organization’s supply and value chain, many companies use a mix of these methods to get the most comprehensive and accurate results.
Simplify your emissions tracking with Tango
Measuring and reporting on Scope 1, 2, and 3 emissions requires careful data collection and calculations, but it doesn’t have to be overwhelming. Tango Energy & Sustainability automates emissions tracking, ensuring accurate calculations and reliable data—so you can stay compliant and make informed sustainability decisions.
With Tango, you get a centralized, cloud-based platform to track emissions across all three scopes, standardize data from multiple sources, and monitor your energy use in real time. Easily measure the impact of efficiency projects, track renewable energy, and benchmark performance against industry standards—all in one place.
Want to see what Tango can do for you?