Understanding Scope 3 Emissions: A Focus on Category 3 – Fuel and Energy-Related Activities

As organizations increasingly embrace sustainability, measuring greenhouse gas (GHG) emissions throughout their value chain becomes critical. The GHG Protocol, a widely accepted international standard, categorizes emissions into three scopes. While Scope 1 and 2 deal with direct emissions from owned or controlled sources and indirect emissions from purchased electricity, respectively, Scope 3 extends beyond these, covering all other indirect emissions. Within Scope 3, there are 15 categories, and today, we focus on Category 3: Fuel- and Energy-Related Activities (Not Included in Scope 1 or 2).

Notably, these emissions are distinct from the combustion of fuels and consumption of energy, which are already included in Scope 1 and 2 emissions.

What Is Category 3?

Category 3 covers the upstream emissions from fuel and energy that an organization purchases but does not directly control or consume, which means the emissions associated with the production, extraction, and transportation of these fuels and energy sources. These activities happen before the organization uses the fuel or energy in its operations, making them indirect emissions. The actual consumption of these fuels and energy sources falls under Scope 1 and 2.

To put it simply, Category 3 emissions represent everything that happens before your organization flips the switch or pumps the gas.

Key Components of Category 3

1. Upstream Emissions of Purchased Fuels: This includes the emissions from extracting, refining, and transporting fuels such as gasoline, coal, or biofuels before they reach your organization.
2. Upstream Emissions of Purchased Electricity: Similar to fuels, these emissions cover the extraction, production, and transport of fuels (e.g., coal, natural gas) that are used to generate the electricity, steam, or cooling that your organization consumes.
3. Transmission and Distribution (T&D) Losses: Emissions that occur due to energy loss while electricity, steam, heating, or cooling is transmitted and distributed to your organization.
4. Generation of Purchased Electricity Sold to End Users: This is particularly relevant for utility organizations that buy electricity wholesale from independent power producers to sell to end users.

Why Is Category 3 Important?

Category 3 is crucial because it highlights the hidden emissions in your supply chain that aren't immediately visible but have a substantial impact. For example, if your company purchases electricity, the direct emissions from that electricity consumption are reported under Scope 2, but what about the emissions from the mining of the coal that generated that electricity? Category 3 ensures that these upstream activities are accounted for, providing a more comprehensive view of your organization’s carbon footprint.

Real-World Examples

Let’s bring this concept to life with a few examples:

• A Transportation Provider: A logistics company purchases gasoline for its fleet. The emissions from extracting, refining, and transporting that gasoline would be reported under Category 3 as upstream emissions of purchased fuel.
• A Pharmaceutical Organization: A manufacturing facility powered by purchased electricity would report the upstream emissions from the extraction and production of the fuels used to generate that electricity in Category 3.
• A Furniture Retailer: A retailer operating a warehouse might experience energy loss during transmission and distribution. These losses, and their associated emissions, would be reported in Category 3.
• A Utility Provider: Utility companies purchasing wholesale energy for resale would report the emissions from generating the purchased electricity in Category 3.

Calculating Category 3 Emissions

While there are four different upstream fuel and energy-related activities captured in category 3, the two calculation methods may be used for all four activities. The activity data and emission factors will vary based on the activity being calculated.?The calculation method an organization selects depends on two considerations:

1. Is the activity significant to scope 3 emissions or is the activity relevant to any of the organization’s goals?
2. What sources of data are available to the organization? Primary or secondary?

Primary data?may be provided?directly from suppliers or other value chain partners and include specific activity-related data or actual emissions. Examples for category 3 include:

• Data provided directly from the fuel and energy suppliers
• Purchase records obtained directly from the organization’s IT systems

Secondary data?is general data that’s available, such as industry-average data. This type of data is used to estimate scope 3 emissions when primary data is unavailable.

Examples for category 3 include:

• Average emission factors for fuel and energy consumption
• Average transmission and distribution losses for region

CALCUATION METHODS

Organizations have two main methods for calculating these emissions, as outlined in the GHG Protocol:

1. Supplier-Specific Method: This method relies on obtaining primary data from suppliers regarding the specific activities that generated the fuel or energy consumed by your organization. For example, if a hotel receives detailed data from its electricity provider, it can calculate the upstream emissions based on that primary data.

What data is needed?

To use the supplier-specific method, organizations need the following data:

·?????? Total quantities of electricity, steam, heating, and cooling purchased and consumed per unit of consumption broken down by supplier, grid region, or country.

·?????? Utility-specific emission factors for extraction, production and transportation of fuels consumed of electricity, steam, heating, or cooling generated (Note: emissions factors from combustion of fuels or purchased electricity are accounted for in scope 1 or 2).

·?????? For transmission and distribution losses, utility-specific loss rate (percent), specific to the grid where energy is generated and consumed.

2. Average-Data Method: If supplier-specific data is unavailable, organizations can use industry-average emissions factors. This method is useful when data is limited, but it provides less accuracy compared to the supplier-specific method. For example, a cement manufacturer might use average emission factors from the Intergovernmental Panel on Climate Change (IPCC) database to calculate emissions from its coal consumption.

To use the average-data method, organizations need the following data:

• Quantities and types of fuel consumed (the amount of energy purchased will typically be included in monthly invoices received from the suppliers).
• Average emission factors for upstream emissions per unit of consumption.
• For transmission and distribution losses, country, regional average, or global average T&D loss rate (percent).

Steps to Calculate Emissions Using These Methods

The process of calculating Category 3 emissions generally follows three key steps:

1. Gather Activity Data: Identify the quantities and types of fuel or energy consumed by the organization. This data can come from invoices, purchase records, or supplier reports.
2. Obtain Emission Factors: Depending on the method chosen, organizations will either use supplier-specific emission factors (for the supplier-specific method) or industry averages (for the average-data method).
3. Calculate Emissions: Multiply the activity data by the relevant emission factors to calculate total emissions. For transmission and distribution losses, multiply the energy consumed by the T&D loss rate and the emission factor.

Example Calculations: Let’s look at a hypothetical scenario:

• ABC Co. purchases 250,000 kWh of electricity. The emission factor for upstream electricity is 10.25 kg CO2e per kWh, and the transmission and distribution loss rate is 5%. By using the supplier-specific method, City Ballet can calculate its Category 3 emissions as follows : Upstream Purchase of Electricity: 250,000 kWh × 10.25 kg CO2e/kWh = 2,562,500 kg CO2e Transmission and Distribution Losses: (250,000 kWh × 5%) × 10.25 kg CO2e/kWh = 128,125 kg CO2eTotal Category 3 Emissions: 2,690,625 kg CO2e

Deciding Which Method to Use

The choice between the supplier-specific method and the average-data method depends on the availability of data and the significance of the activity. If detailed supplier data is available, it is advisable to use the supplier-specific method for more accurate results. However, when data is limited, the average-data method provides a practical alternative.

Understanding and calculating Scope 3 emissions, especially Category 3, is essential for any organization committed to reducing its environmental impact. These emissions, though indirect, represent a significant portion of an organization’s carbon footprint. By accurately accounting for them, organizations can make more informed decisions, set meaningful reduction targets, and contribute to a sustainable future.

Has your organization started measuring its Scope 3 emissions? If not, now is the time to consider the full impact of your operations. #Sustainability #ESG #Scope3Emissions #GHGProtocol #EnergyEfficiency #ClimateAction

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