Recently there is much to do about scope 1, 2 and especially 3 of the Greenhouse Gas Protocol (GHGP). However, there is little talk about scope 4, avoided emissions. What is scope 4? Do we really need scope 4? And how does this impact our company governance? Four questions about the GHGP scopes answered.
What are the scopes in the GHGP?
Following the Corporate Sustainability Reporting Directive (CSRD) organizations have to report on their greenhouse gas emissions. This is called carbon accounting. To make sure you compare apples with apples instead of oranges there is a framework developed the Greenhouse Gas Protocol (GHGP). This is like a balance sheet for your carbon footprint.
With this protocol, companies can classify their carbon footprint in three scopes. Scope 1 emissions are direct emissions from company-owned and controlled resources. Which can be divided in four categories: stationary emissions, mobile emissions, fugitive emissions and process emissions. In short, all emissions that are made during the ‘make’ process and are owned and/or controlled by the organization. Scope 2 emissions are indirect emissions from the consumption of purchased electricity, steam, heat, and cooling.
Scope 3 is all about emissions in the supply chain, as well as upstream as downstream. The whole environmental impact of the supply chain must be calculated. Companies in the EU are expected to make this insightful for investors due to regulations regarding CSRD. Scope 3 is the hardest to calculate and, unfortunately, also the main portion of your total carbon footprint. This is also the reason scope 3 is considered the holy grail as to carbon accounting.
Not visualized in the model, and not yet widely used, is scope 4. Scope 4 are emissions that are prevented through R&D innovations. For example, if product A produces 2 tons CO2 in an (average) lifetime and R&D develops product B which produces 0,5 tons per (average) lifetime, then a company can report that it has avoided 1,5 tons CO2 per product per (average) lifetime.
Why was scope 4 developed?
The Greenhouse Gas Protocol (GHGP) asked themselves how we can ensure that innovation will not stall following the reduction goals of companies. Therefore, GHGP came up with scope 4 to inspire innovation and disputations regarding CO2 and supply chain, because they are likely to initially cost CO2 instead of reducing it. In short you are investing to reduce someone’s carbon footprint instead of preventing it.
A good example is Tesla. Building a Tesla (especially the batteries) initially cost more CO2 than it prevents. The CO2 that will be prevented is not visible in the GHGP and if you do not take this in account Tesla only injected more CO2 instead of reducing the CO2. This example is obvious, but this can also be the situation regarding a toaster, radio, or television. Instead of just calculating the CO2 it can be important to report avoided CO2.
Furthermore, is it for companies harder to ‘cheat’ on their emissions. If they choose low assumptions the first time (to display how little emissions they use) it will be harder to improve this the second time. So, when they use high assumptions the first time, it will be easy the second time, but the third time will be extremely hard. And in the latter example people will see that this company is way more polluting than other companies. Via social pressure companies will be encouraged to display a realistic calculation regarding emissions.
Additionally, scope 4 is not widely used, and we do not know if this is going to happen any time soon, but there is going to be some sort of scope 4 with avoided emissions to gain insights.
So what is the problem with scope 4?
The fact that companies themselves can calculate how much their product has ‘avoided’ makes critics worried. If scope 4 is introduced, they say, we have to community benchmark for every product, and organizations must communicate their emissions against the market average.
This is also the reason climate organizations and government bodies are reluctant to talk about this scope because there is no standard calculation developed and this can cause greenwashing, something everybody agrees is not desirable.
To make it confusing, some people also refer to scope 4 as employee emissions. But that is not a definition of scope 4 in the GHGP.
What is the impact on my company?
Emissions calculation is, for the time being, still voluntarily. But as they say, to measure is to know. The key first step in reducing carbon emissions, is to calculate and monitor them. Making sure your data is accurate, your calculations are right, and your accountant is aware of the latest legislation regarding carbon accounting, which will be in effect in fiscal year 2024. Remember, the question is not if but when is your company obligated to calculate emissions.