Decrypting Direct and Indirect Emissions
GHG Protocol corporate standards classify a company's greenhouse gas emissions into three scopes. While the first two scopes are mandatory to report, the third is voluntary, as it's the most difficult to monitor. Yet, companies reporting all three will undoubtedly have a competitive advantage in sustainability.
Scope 1: Direct Emissions
These are emissions from company-owned and controlled resources, including stationary combustion from fuels, mobile combustion from traditional vehicles, fugitive emissions such as refrigerant gas leaks, and process emissions from on-site manufacturing.
Scope 2: Indirect Emissions - Owned
These are indirect emissions from purchased steam, cooling, heating, and electricity consumption. Using all-electric vehicles, PHEVs fall under this category as these have no tailpipe emissions. Nonetheless, electrical power sources like power plants generate emissions that must be checked.
Scope 3: Indirect Emissions - Not Owned
Scope 3 emissions are those indirect emissions not included in scope 2. They are scattered across the company's value chain. For example, activities such as air travel for business, waste generated and sent to landfills, transportation, and distribution, emissions from the company's franchises, etc., are all part of scope three emissions. While most businesses have primarily targeted their efforts in measuring and reducing emissions from their electricity consumption and operations, scope 3 emissions are the most significant across the industry.
The Scope 3 Standard offers a systematic approach to assessing and managing emissions from all sources and can help companies calculate their carbon footprint more accurately. Even the Greenhouse Gas (GHG) Protocol is developing guidelines on how organizations can account for greenhouse gas emissions and carbon removals from bioenergy, land use, etc. They offer GHG accounting standards, learning material for these standards to create general awareness, and tools to help companies develop reliable inventories of their GHG emissions.
Is Managing Carbon Footprint Optional
Apparently not. The Energy Innovation and Carbon Dividend Act of 2021 has laid out explicit mandates for the manufacturing industry that will help reduce the US's carbon pollution by 50% by as early as 2030 and reach net zero by 2050. Moreover, the International Monetary Fund (IMF) has proposed to set up an international carbon price floor to help limit global warming and help transition towards low carbon growth over this decade.
Every manufacturing company must develop or adopt a solution that reduces its carbon footprint and sets it on a path to becoming genuinely sustainable. For that purpose, they must gather all the relevant data and determine the source of their footprint. Only when the first two steps are complete can they take actions to reduce the emissions and offset them across their entire infrastructure and become carbon-neutral.
Corporations are under immense pressure from their stakeholders to meet the new environmental, social, and governance (ESG) standards, and meeting the various regulations has become increasingly challenging. As a result, carbon taxes are now being implemented worldwide in different countries to compensate for the excess GHG emissions. There are 27 such countries globally, of which Denmark’s corporate carbon tax is the highest in Europe. It is on the path to cutting GHG emissions by 70% from 1990 levels by 2030.
In the USA, the Energy Innovation and Carbon Dividend Act has imposed a carbon fee, too, that starts at $15 per metric ton of C02 equivalent emissions. Moreover, the America Wins Act of May 18, 2021, imposes an excise on the CO2 content in fossil fuels sold by an importer, producer, or manufacturer. Even the IMF has proposed to set up an international carbon price floor with prices ranging between $25-75 per ton of carbon emissions for low- and high-income countries, respectively.