Scope 3 in Energy: Illuminating the Hidden Carbon Path

Recently, our blog discussed how the energy industry can create a more sustainable future by adopting TCFD reporting. Still, Scope 3 emissions are on the agenda.

Scope 3 emissions are indirect emissions in a company’s value chain that occur outside the organization, often far removed from the company’s immediate sphere of control. These emissions, often overshadowing a company’s direct emissions (Scope 1 and 2), are increasingly the focus of sustainability initiatives, particularly in the energy sector. Tracking and mitigating Scope 3 emissions can pose significant challenges due to the complexity of supply chains, yet they represent a pivotal aspect of an organization’s carbon footprint.


The Challenge of Scope 3 Emissions in the Energy Sector

In the energy sector, Scope 3 emissions can come from various sources: the extraction and production of purchased materials, fuel transportation, or the emissions from the use of sold products like gasoline by consumers. These emissions are often several times higher than the direct emissions of the company’s operations. According to the Greenhouse Gas Protocol, Scope 3 emissions can account for up to 90% of total corporate emissions, signifying the magnitude of the challenge.

Source: Greenhouse Gas Protocol

The difficulty in tracking Scope 3 emissions lies in the complexity of modern supply chains and the geographical distance between different parts of the chain. Acquiring accurate data can be troublesome and sometimes nearly impossible due to the many stakeholders involved and the need for standardized emission reporting. This data opacity often leads to underestimated emissions, impeding the progress towards global decarbonization goals.

The GHG Protocol Carbon Trust Team and World Resources Institute Contributors designed technical guidance in response to this challenge. They crafted this under the Greenhouse Gas Protocol to calculate Scope 3 emissions. This valuable tool aids companies by offering practical advice for determining their Scope 3. It sheds light on all categories of indirect emissions that can pop up.

The guidance neatly lays out 15 categories (upstream and downstream) within Scope 3. These categories equip companies with a systematic framework. As a result, companies can more effectively measure, manage, and curb emissions across their value chains. To ensure accuracy, the GHG team describes each category to the full extent and mutually exclusive. Thus, companies can steer clear of double counting emissions across different categories.

Collaborative Solutions to Overcome the Scope 3 Challenge

Addressing the challenge of Scope 3 emissions is a task energy companies need help tackling. Collaboration with stakeholders along the supply chain, from suppliers to end users, is paramount.

Supplier Engagement

Energy companies can engage with their suppliers to encourage them to report and reduce their emissions. By leveraging their purchasing power, they can create demand for low-carbon products and services, driving change up the supply chain. Initiatives like the Science Based Targets initiative (SBTi) provide frameworks for setting ambitious emissions reduction targets, including Scope 3 targets.

Stakeholder Collaboration

Collaboration should extend beyond the supply chain. Energy companies can work with governments, NGOs, and industry bodies to develop standardized reporting mechanisms and robust verification systems. Global initiatives such as the Task Force on Climate-related Financial Disclosures (TCFD) provide guidelines for more consistent and effective climate-related financial risk disclosures, including Scope 3 emissions.

Carbon Capture, Utilisation and Storage

CCUS is a process that captures CO2. This often happens at extensive facilities like power plants or industrial sites, where fossil fuels or biomass serve as fuel. Once captured, if the CO2 isn’t utilized on-site, it undergoes compression. Then, it travels via pipeline, ship, rail, or truck for various applications. Alternatively, it’s stored underground in emptied oil and gas reservoirs or saline aquifers.

Direct Air Capture

Unlike traditional carbon capture methods that occur at specific emission points, like a steel plant, Direct Air Capture (DAC) technologies operate differently. They pull CO2 directly from the atmosphere and can function anywhere. Once captured, we can store this CO2 in deep geological formations for permanent sequestration. Alternatively, it can serve a range of applications.

End User Engagement

Engaging with end users to encourage more sustainable consumption patterns can also help reduce Scope 3 emissions. Energy companies can invest in renewable energy products, promoting their adoption and leading to significant emissions reductions downstream.

Internal Policies

Finally, energy companies can develop and implement internal policies for more sustainable procurement and operational practices, creating a culture of responsibility and awareness towards Scope 3 emissions. Employee training and incentivizing suppliers to adopt sustainable practices can go a long way in managing these emissions.

With the rising concern of global warming, Scope 3 emissions are increasingly under the spotlight. Though the challenges in managing these emissions are significant, they also present opportunities for innovation, collaboration, and creating a more sustainable energy sector. Energy companies must address their entire carbon footprint, including Scope 3 emissions. Doing so will benefit the environment, their brand value, and stakeholder relationships, paving the way for a sustainable, low-carbon future.