Carbon accounting is a foundational exercise in any sustainability journey, but it can take some time to understand how the process works. Most companies measuring their corporate emissions will need to focus on two types of emissions — operational and supply chain — which are further broken down into the categories of Scope 1, 2, and 3 emissions.

Here, we explain the key differences between operational and supply chain emissions, and explain how to categorize your emissions into the three key Scopes.

What are operational emissions?

The Greenhouse Gas (GHG) Protocol of 2001 first defined operational emissions and remains the benchmark standard. Crafted by multiple stakeholders including the World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD), the protocol is best known for defining Scope 1, 2, and 3 GHG emissions categories.

The GHG Protocol evolves as new information and insights come to light. Between November 2022 and March 2023, the public was invited to provide feedback on the current suite of corporate standards and guidance and provide suggestions for either maintaining current practices or developing updates and new additional guidance.

Scope 1: Direct emissions

Scope 1 emissions are owned or controlled by a company. Examples include chemical reactions in manufacturing, leakage of refrigerants, and emissions from company-owned vehicles. These are emissions that the company directly owns and controls.

Scope 2: Indirect, purchased energy emissions

Scope 2 emissions are consumed by a company. Scope 2 emissions can include expenses such as a company’s lighting, heating, air conditioning, and computing power. These emissions occur at the facility where the energy is produced, but they are attributed to the company that uses the energy.

Why are Scope 1 and 2 emissions considered ‘operational emissions’?

Scope 1 and Scope 2 emissions fall under operations — and are categorized as ‘operational emissions’ — because both are under a company’s control. This guide focuses on the diversity of emissions and their sources, from those produced directly to those within an organization’s influence.

What are supply chain emissions?

A third category of emissions, Scope 3 emissions, sits outside of a company’s core operational emissions.

Scope 3: Indirect emissions

Scope 3 emissions are not under a company’s operational control, but these emissions are within their influence. Scope 3 emissions cover a broad range of activities not directly controlled by the company but that occur within its value chain, such as emissions produced during the manufacturing of purchased goods and services. 

Scope 3 is a critical part of a company’s overall carbon footprint. Though it’s outside the scope of direct operational emissions, it’s still an important part of operational emissions as a whole. Reporting in this area has its challenges, however, there is opportunity to leverage supplier and customer relationships to influence business decisions and create demand for improved environmental business practices. 

Corporate carbon footprinting is a nuanced undertaking

A critical component to keep in mind when accounting for Scope 1 and Scope 2 emissions is that it’s essential to clearly distinguish between what your company owns and what it leases, as this will impact how emissions are reported and managed.

For example, if a company owns and controls an on-site boiler that generates facility heating, the energy generated is a Scope 1 emission. If the company leases a building and purchases that boiler’s heat, it’s a Scope 2 emission. 

Similar logic applies to other types of equipment, including fugitive emissions leaking from equipment such as refrigerators or HVAC units. If the company owns the equipment, leakage is a Scope 1 emission within its operations. If the equipment is leased, the leakage is categorized as Scope 2.

Accurate categorization ensures that your carbon footprint reflects the true scope of your operational activities, laying a solid foundation for effective carbon management.

‍

Conclusion

Virtually every company that embarks on a carbon accounting journey will need to categorize its carbon emissions into Scopes 1, 2, and 3. While Scope 1 and 2 emissions are directly controllable, Scope 3 emissions, though challenging to manage, offer significant opportunities for influence and improvement throughout the value chain.

Accurate reporting and categorization of your carbon emissions ensures that you capture the true extent of your company’s climate impact and not only reflect the true extent of a company’s environmental impact. It also lays the groundwork for your sustainability journey, helping highlight carbon hotspots and opportunities for strategic decarbonization.

By getting a handle on the various types of carbon emissions, companies can better align their practices with climate targets and regulatory requirements, taking a big step forward in their sustainability journeys.

Coral gives companies clarity

Coral’s straightforward carbon accounting platform makes it easy for an entity to track its emissions. All you need to do is upload your data (such as invoices and utility bills), and our platform calculates the emissions associated with those activities. With Coral, users can reduce the time and effort investment involved in this process by about 90%.

With AI-assisted technology dedicated to operational carbon accounting, Coral makes it easier for companies to practice smart carbon management — which is the first step to taking credible action. If you need help implementing carbon accounting best practices in your organization and want to learn more about our end-to-end environmental performance management solutions, contact Coral today.