Counting What Counts
The Greenhouse Gas Protocol released the much anticipated Corporate Value Chain (Scope 3) Standard this past October. The standard provides guidance that will, for the first time, allow companies to develop a truly complete greenhouse gas (GHG) emissions inventory—one that includes emissions from all of the processes and activities in their value chains.
This standard provides usable, specific guidance and it will certainly contribute to an even greater number of businesses measuring, reporting, and acting on the GHG emissions across their value chains. Companies are now able to move forward, confident in the knowledge that a well vetted and internationally recognized measurement standard is in place to help guide the entire GHG inventory process.
There are a number of important takeaways from the new Value Chain Standard each deserving attention and we will use this series to explore these in greater detail. As a starting point we will review three basic concepts that together form the foundation of the standard:
- GHG emissions inventories
- Scope 3 emissions
- The value chain
GHG Emissions Inventory
As is often the case, what gets measured gets managed, and this certainly holds true for greenhouse gases. The emissions inventory is the tool that allows us to measure, understand, and help manage the GHG emissions of an organization. An organization wouldn’t attempt to manage its finances without financial statements and it shouldn’t try to manage its GHG impacts without an emissions inventory.
How do companies create emissions inventories? It’s an accounting process. An emissions inventory is the outcome of following the process and guidance presented in the GHG Protocol standard.
Upon completion of the scope 3 inventory process, a company will have measured and understood the GHG emissions across its entire value chain. This is important as scope 3 emissions often account for 75-90% of all the emissions associated with the manufacture, distribution, and use of a company’s products or services. The GHG emissions inventory is an extremely valuable management tool, full of business intelligence and actionable information that can guide and support organizational decision making.
Scope 3 Emissions
The GHG Protocol released its first standard, the Corporate Standard, in 2001 (revised in 2004), which divided GHG emissions into three scopes. Figure 1.1 is a graphical representation of the three scopes and where each scope occurs within the value chain.
Scope 1: Direct emissions from a company’s operations (owned or controlled) such as those resulting from the burning of fuels in company owned facilities
Scope 2: Indirect emissions resulting from the generation of purchased electricity, steam, heating, or cooling by the reporting company
Scope 3: All other indirect emissions that occur within the reporting company’s value chain (not already included in scope 2)
While the measurement of scope 3 emissions within the Corporate Standard was optional the Value Chain Standard lays out the process whereby a company is able to account for and report on its scope 3 emissions.
In practice, “value chain” can have different meanings and boundaries depending on an organization’s definition or use of the term. Therefore, it is important to have a clear picture of what is meant by value chain as it is used in the GHG Protocol Value Chain Standard.
Within the context of this standard a value chain includes upstream and downstream activities associated with the reporting company’s operations. Upstream activities include not only inbound logistics, but also business travel, waste generated in operations, and purchased goods and services, to name a few. Downstream activities include the customer use phase of products and end-of-life treatment of sold products, among others.
By defining the value chain in this way, a company is able to measure the GHG emissions across the entire range of activities associated with its goods or services. Armed with this information an organization is able to take action where it makes the most sense in terms of cost effective GHG reductions.
Next Up—What Drives the Creation of GHG Emissions Inventories?
We will continue our series on scope 3 emissions in the coming weeks by looking in greater detail at why organizations are measuring the emissions across their value chains.
Written by: David Tomasula and Karina Hilton Spiegel