Scope 2 emissions are a scope that businesses can take clear, immediate action upon to ultimately reduce their overall carbon footprint. Therefore, understanding where Scope 2 emissions originate and how Scope 2 emissions can be reduced is fundamental to accelerating the decarbonisation journey.
What are emissions ‘scopes’?
Before we dive into Scope 2 emissions, it is crucial to gain a clear understanding of what we mean by ‘scopes’. The Greenhouse Gas Protocol (GHG Protocol) categorises business greenhouse gas emissions as Scope 1, Scope 2, and Scope 3 emissions, which define where within the wider supply chain certain emissions occur. This framework for carbon accounting helps businesses organise the activities that produce greenhouse gases emissions (GHG) into manageable categories across their corporate value chain. Furthermore, such guidelines were created to give businesses a framework to accurately measure, track, and reduce their emissions. Accordingly, the graph below explains the various three scopes and their emissions sources:
What are Scope 2 emissions?
Scope 2 emissions are owned, indirect emissions that arise from the generation of purchased energy from a utility provider. In other words, Scope 2 contains all GHG emissions released in the atmosphere from the consumption of purchased electricity, steam, heat and cooling. Scope 2 emissions are categorised under the Greenhouse Gas Protocol, which is widely recognised as the leading framework for carbon accounting.
How does Scope 2 vary from business to business?
Electricity will be the unique source of Scope 2 emissions for most businesses. Put simply, the energy consumed falls into two scopes. Scope 2 covers the electricity consumed by the end-user; while Scope 3 covers the energy used by the utilities during transmission and distribution, also known as ‘T&D losses’. Meanwhile, the production and distribution of electricity purchased from the utility or supplier impacts a businesses Scope 2 emissions. If a business's electricity mix is heavily-reliant on fossil fuels, their Scope 2 emissions will ultimately be higher than electricity produced by renewable electricity, biomass, or natural gases.
The GHG Protocol provides extensive Scope 2 guidance - highlighting that categorising Scope 2 emissions from purchased energy can be ambiguous for organisations using leased spaces. Accordingly, businesses must ensure they are aware of the type of lease they are operating under, and ensure they take a control approach to carbon accounting that is aligned with the GHG Protocol’s guidance on leased assets. For example, any purchased electricity, steam, heat, and cooling falls under Scope 2 on a capital lease, regardless of whether it’s by the building owner or manager.
How do Scope 2 differ from Scope 1 and Scope 3 emissions?
- Scope 2 emissions are owned, indirect emissions. Scope 2 emissions are generated from purchased energy - from a utility provider. In other words, all GHG emissions released in the atmosphere, from the consumption of purchased electricity, steam, heat and cooling.
- Scope 1 emissions are direct emissions from company-owned and controlled resources across four categories - stationary combustion, mobile combustion, fugitive emissions and process emissions,
- Scope 3 emissions are not owned, indirect emissions that are not included in Scope 2. These emissions occur in the value chain of the reporting company and include both upstream and downstream emissions. In other words, emissions are linked to the company's operations. According to GHG protocol, Scope 3 emissions are separated into 15 categories.
Plan A's sustainability experts have crafted comprehensive guides to Scope 1 & Scope 3 emissions:
Why should businesses measure and reduce scope 2 emissions?
If your business or organisation purchases electricity, district heating or cooling, or steam for industrial processes - Scope 2 emissions will inevitably be created, which must be accounted for in the business’ GHG inventory. However, businesses must not let this intimidate them as there are clear financial and non-financial advantages to measuring and reducing their Scope 2 emissions. Businesses who collect data, track, measure and reduce their emissions will ultimately be able to reduce inefficiencies, ensure compliance with sustainability rules and regulations, avoid carbon taxes, and boost their value to internal and external stakeholders.
Specifically, businesses that measure and reduce their Scope 2 emissions will ultimately be able to leverage the following opportunities:
- Increased energy efficiency: Businesses that prioritise sustainability through tracking and measuring their Scope 2 emissions will be able to identify areas with excessive energy usage and waste. The identification of such bottlenecks via technology such as sustainability software allows businesses to implement actions, such as switching electricity providers, to drastically reduce their energy consumption, water usage and waste; thus significantly reducing their internal costs.
- Improved employee satisfaction, retention, and engagement: As employees increasingly place value upon sustainability, ensuring that businesses tracking and reducing emissions is a strategic focus is critical to reaping the benefits of improved employee attraction, satisfaction, retention and engagement. Businesses that implemented a comprehensive sustainability strategy were found by Verizon to achieve up to a 13% increase in employee productivity.
- Increased stakeholder trust: Measuring Scope 1, 2 and 3 emissions is the backbone of any comprehensive sustainability strategy. Meanwhile, Harvard Business Review found that for a 15-year period, sustainability programs on average have increased shareholder value by $1.28 billion. As such, developing and implementing a comprehensive sustainability strategy is a fundamental step for any business looking to leverage the strategic opportunity of increased trust among internal and external stakeholders.
Nevertheless, businesses that measure and reduce their Scope 2 emissions will ultimately be able to mitigate an array of risks, including:
- Increased external costs due to carbon taxes: Carbon taxes pose a significant financial risk to carbon-emitting businesses - with carbon prices rising from $10.53 per metric ton in 2018 to more than $95 in February 2022. Therefore, businesses who wish to mitigate the risk of external carbon costs must monitor their emissions data and implement practices to reduce their emissions across all three scopes via actions such as switching energy providers to increase energy efficiency, or reduce fossil fuel dependence.
- Fines and administrative costs due to non-compliance with ESG regulations: Businesses that do not prioritise the measurement, reduction and reporting of all three emissions scopes expose themselves to immense non-compliance risk. The financial consequences of non-compliance with sustainability and ESG regulations can be severe, with OECD findings stating that fines and penalties, on average, cost $2 million. As such, businesses must ensure they are up-to-date with the latest ESG, sustainability and reporting requirements to mitigate the harmful risks of non-compliance.
- Decreased revenue due to a loss of sales: Consumers are increasingly prioritising sustainability when making purchasing decisions. Nielsen studies show that 72% of consumers stated they were actively buying more environmentally friendly products than they did five years ago, while 81% stated they expected to buy even more over the next five years. As such, businesses that do not prioritise Scope 1, 2 & 3 emission reduction expose themselves to the risk of misalignment with consumer values, and therefore a decrease in sales revenue.
Reporting on scope 2 emissions
Reporting on Scope 2 emissions is a fundamental step within the sustainability journey of any business wishing to ensure compliance with sustainability regulations, or reap the long-term strategic opportunities associated with sustainability. Businesses that report on Scope 2 are able to assess their indirect carbon footprint associated with energy consumption and thereby make efforts to reduce their impact. Reporting on these emissions is a crucial component of many forthcoming corporate sustainability regulations, and is fundamental to enabling companies to measure and manage their environmental impact related to energy use.
Businesses must ensure that they report on Scope 2 in line with the GHG Protocol’s Scope 2 Guidance; a recent amendment to the GHG Protocol’s Corporate Accounting and Reporting Standard. Sustainability experts such as Plan A are GHG Protocol compliant; and are therefore able to provide much needed clarity on how corporations measure emissions from electricity and other types of energy purchases. This heightened level of transparency plays a crucial role in the corporate sustainability journey.
Best options to reduce Scope 2 emissions
Nearly 40% of global greenhouse gas emissions can be traced to energy generation, and half of that energy is used by industrial or commercial entities. Subsequently, Scope 2 emissions reduction is a critical step within the inevitable sustainable transformation of the global economy.
The first step for businesses looking to take climate action is to collect data and measure emissions. Once businesses start calculating their carbon emissions, they can set decarbonisation targets and reduce their Scope 2 emissions. To reduce these emissions reach reduction targets, businesses can implement reduction actions such as:
- Conserving energy (e.g. implementing energy conservation policies within the office).
- Energy-efficiency upgrades (e.g.switching to LEDs and better insulation)
- Switching to a low-carbon electricity provider (e.g via on-site installations or through changing the energy products purchased (suppliers/contracts)).
- Engaging with stakeholders (e.g. communicating the benefits of renewable energy to the building owner)
Use a software to manage your scope 2 emissions
A SAP Insights survey found that under one-third of mid-market executives are completely satisfied with the quality of data at their disposal to drive sustainable transformation. Simultaneously, the survey reported that 86% of organisations still use spreadsheets to measure emissions data. While businesses are caught-up using such inefficient processes, an increasing number of businesses are leveraging the power of carbon accounting software to maximise the accuracy and reliability of data, along with the overall efficiency of carbon accounting and sustainability strategy management.
Plan A is the industry leading provider of corporate carbon accounting, decarbonisation, and ESG reporting software. The green-tech pioneer hosts a data-driven SaaS platform that combines cutting-edge technologies and the latest scientific standards and methodologies (certified by TÜV Rheinland and GHG Protocol compliant) that allows businesses to efficiently and effectively collect data, measure emissions, and reduce their Scope 1, 2 & 3 emissions (and thus, their overall carbon footprint).
Plan A’s leading platform automates CO2 emissions calculation, carbon reduction planning, as well as regulation and audit-proof ESG reporting. The award-winning solution provides end-to-end carbon analysis that allows businesses to efficiently measure, and reduce Scope 1, 2, and 3 emissions, decarbonise operations and value chains, comply with ESG regulations, and communicate performance to internal and external stakeholders. Additionally, Plan A boasts an in-house team of experts in sustainability, carbon accounting, decarbonisation, policy, and customer success, ensuring the sustainability journey of their clients is seamless.
If your business is ready to measure, track, and reduce across your supply chain, reach out to Plan A to book a demo today.