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All About Scope 1, 2, and 3 Emissions

See the key differences between Scope 1, 2, and 3 emissions and learn how to manage your company's carbon footprint effectively with Arbor's expert guide.
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Updated on
May 29, 2025
All About Scope 1, 2, and 3 Emissions: A 2025 Guide for Businesses
Table of Contents
Quick Summary

Understanding Scope 1, 2, and 3 emissions is essential in managing your company's carbon footprint. Terms like "Scope 1, 2, and 3 emissions" frequently arise in discussions about sustainability, but what do they actually mean, and why should businesses care?

This comprehensive guide will help you navigate these concepts and provide actionable steps to reduce your company's environmental impact.

What are carbon emissions?

Before diving into the specifics of Scope 1, 2, and 3 emissions, let's briefly recap what carbon emissions are. Carbon emissions refer to the release of greenhouse gases (GHGs) like carbon dioxide (CO₂) and methane (CH4) into the atmosphere. These gases trap heat, contributing to global warming and climate change. Businesses contribute to carbon emissions in various ways, from direct activities like burning fossil fuels to indirect activities like purchasing electricity. By understanding the sources and impact of these emissions, businesses can take effective measures to reduce their carbon footprint.

Scope 1 Emissions

Direct Emissions

Scope 1 emissions are the direct emissions from sources that are owned or controlled by the company. This includes emissions from combustion in boilers, furnaces, vehicles, and chemical production from owned or controlled process equipment.

Scope 1 Examples:

  • On-site Fuel Combustion: Emissions from burning natural gas in heating systems.
  • Company Vehicles: Emissions from fuel used in company-owned vehicles.
  • Industrial Processes: Emissions from chemical reactions during manufacturing processes.

Scope 2 Emissions

Indirect Emissions From Purchased Energy

Scope 2 emissions are the indirect emissions from the generation of purchased energy, such as electricity, steam, heating, and cooling consumed by the reporting company. While these emissions occur at the energy producer’s facility, they are accounted for in the company’s GHG inventory because they result from its energy use.

Scope 2 Examples:

  • Purchased Electricity: Emissions generated by power plants that produce the company's electricity.
  • Purchased Heating and Cooling: Emissions from external facilities that provide heating or cooling services.

Scope 3 Emissions

Scope 3 emissions are all other indirect emissions that occur in the value chain of the reporting company, both upstream and downstream. These emissions often represent the largest portion of a company’s total GHG emissions.

Upstream Emissions

Category 1. Purchased Goods and Services

Emissions from producing goods and services the company buys cover all upstream emissions.

Category 2. Capital Goods

Emissions from producing long-lasting goods like machinery and buildings used by the company.

Emissions related to the production of fuel and energy consumed by the company not included in Scope 1 or 2.

Category 4. Transportation and Distribution

Emissions from transporting goods to the company using third-party vehicles and facilities.

Category 5. Waste Generated in Operations

Emissions from the disposal and treatment of waste generated by the company.

Category 6. Business Travel

Emissions from employee travel for business purposes in third-party vehicles.

Category 7. Employee Commuting

Emissions from employees traveling between their homes and worksites.

Category 8. Leased Assets

Emissions from operating leased assets not included in Scope 1 or 2.

Downstream Emissions

Category 9. Transportation and Distribution

Emissions from transporting and distributing sold products to the end consumer using third-party vehicles and facilities.

Category 10. Processing of Sold Products

Emissions from processing intermediate products sold by the company to third parties.

Category 11. Use of Sold Products

Emissions from the use of goods and services sold by the company.

Category 12. End-of-Life Treatment of Sold Products

Emissions from disposing and treating products sold by the company at the end of their life cycle.

Category 13. Leased Assets

Emissions from operating assets owned by the company and leased to others.

Category 14. Franchises

Emissions from operating franchises under the company's brand not included in Scope 1 or 2.

Category 15. Investments

Emissions associated with the company's financial investments.

By understanding each category of Scope 3 emissions, businesses can comprehensively assess their carbon footprint and identify key areas for targeted reduction efforts. Arbor’s carbon accounting platform is designed to help companies accurately measure product carbon footprints, a major part of your company’s Scope 3 emissions under the Purchased Goods and Services category. We also provide actionable insights to reduce data-backed accuracy.

Request a demo to measure your Scope 1, 2, and 3 emissions in half the time with Arbor.

Scope 1, 2, and 3 Emissions Overview

GHG Inventory of Scope 1, 2, and 3 Emissions

This graphic visually represents the Scope 1, 2, and 3 greenhouse gas emissions inventory by illustrating the upstream, downstream, and direct activities within a company's carbon footprint.

Scope 1, 2, and 3 Emissions GHG Inventory

  • Scope 1 (Direct): The central arrows highlight company facilities and company vehicles, which are direct emission sources under the company’s control.
  • Scope 2 (Indirect): The image shows energy use (purchased electricity, steam, heating, and cooling) that contributes to indirect emissions from energy production.
  • Scope 3 (Indirect): Surrounding Scope 1 and 2, the circular pathway illustrates both upstream (e.g., purchased goods, capital goods, transportation, business travel) and downstream (e.g., use of sold products, end-of-life treatment, investments) activities. This captures the emissions outside the company’s immediate operations but connected through the supply chain and product life cycle.

The diagram also shows various greenhouse gases (CO₂, CH₄, N₂O, HFCs, PFCs, SF₆) that contribute to climate change, further emphasizing the wide-reaching impact of Scope 1, 2, and 3 emissions on the environment.

Scope 1, 2, and 3 Emissions Categories

This image breaks down the different categories of greenhouse gas (GHG) emissions based on the Scope 1, 2, and 3 Emissions classifications.

Scope 1, 2, and 3 Emissions Categories

  • Scope 1 includes direct emissions from company-owned or controlled sources such as company facilities and company vehicles. These emissions are categorized as upstream, meaning they occur early in the company's operations.
  • Scope 2 accounts for indirect emissions from the generation of purchased energy, specifically purchased electricity, steam, heating, and cooling for the company’s own use. These are upstream as well.
  • Scope 3 includes both upstream and downstream indirect emissions. Upstream activities, such as the production of purchased goods and services, capital goods, and employee commuting, are related to what the company buys or the services it uses. Downstream activities focus on emissions generated after products leave the company, including transportation and distribution, the use of sold products, and end-of-life treatment for those products. Scope 3 is the broadest and most indirect type of emission, often involving the supply chain and product lifecycle.

Why Is Measuring Scope 1, 2, and 3 Emissions Important?

Regulatory Compliance

Governments are increasingly imposing regulations that require businesses to report and reduce carbon emissions. Complying with these regulations is essential to avoid penalties and operate legally.

Corporate Responsibility

Consumers and investors are becoming more eco-conscious and demanding transparency and action on climate change. Measuring and reducing emissions can enhance a company’s reputation and customer loyalty.

Operational Efficiency

Identifying and reducing emissions often lead to cost savings and improved operational efficiency. Energy-efficient practices and renewable energy investments can lower operating costs in the long run.

Competitive Advantage

Companies that proactively manage their emissions can differentiate themselves from competitors and attract eco-conscious customers and investors.

Measuring, Reporting & Reducing Scope 1, 2, and 3 Emissions

Step 1: Scope & Methodology

The first step in managing emissions is to scope out and define the boundaries for what will be included in the GHG inventory and choose an appropriate method of calculation.

Identification of GHG Emissions Sources

Identify all sources of greenhouse gas emissions within company operations, including direct emissions from fuel combustion and industrial processes, indirect emissions from purchased electricity, and value chain activities.

Select a Calculation Approach

  • Direct Measurement: Involves real-time monitoring of GHG emissions. This method is precise but costly and technically demanding.
  • Emission Factors: Most commonly used approach, where standardized emission factors are applied to calculate emissions accurately.

Step 2: Collecting Data

Gathering accurate primary data is key. This involves collecting data on fuel use, energy consumption, and emissions from all relevant sources. Engage with stakeholders and suppliers to ensure the accuracy of this data.

Step 3: Measuring Emissions

Using the collected data, apply standardized methods to calculate emissions. Tools like carbon accounting software can aid in measuring emissions with high accuracy.

  • Scope 1 Emissions: Direct measurement or calculation based on activity data and emission factors.
    • Formula Example: CO₂ Emissions = Fuel Consumption × Emission Factor
  • Scope 2 Emissions: Calculation based on energy consumed and the emission factors associated with energy production.
    • Formula Example: CO₂ Emissions = Electricity Consumption × Grid Emission Factor
  • Scope 3 Emissions: Use primary data from suppliers or secondary data from industry averages.
    • Formula Example: CO₂ Emissions = ∑ (Amount of Purchased Good × Emission Factor of the Good)

Step 4: Reporting to Stakeholders

Transparent reporting builds trust and demonstrates a commitment to reducing emissions. Communicate emissions data through sustainability reports, regulatory filings, and direct communication with stakeholders.

  • Sustainability Reports: Regularly publish detailed reports that outline emissions, methodologies, and progress towards reduction targets.
  • Regulatory Filings: Submit required emission data to authorities to comply with regulations.
  • Stakeholder Engagement: Maintain open communication with investors, customers, employees, and the community.

Step 5: Reducing Emissions

Implement strategies to reduce emissions across all scopes. Here are some actionable methods:

Energy Efficiency and Renewable Energy

  • Implement Energy-Saving Measures: Upgrade to energy-efficient equipment and improve building insulation.
  • Transition to Renewable Energy: Invest in solar, wind, or hydropower.

Supplier Engagement

  • Enhance Supplier Sustainability: Work with suppliers to reduce their emissions and adopt low-carbon materials and technologies.

Product Design and Durability

  • Sustainable Design Practices: Design products to last longer and use sustainable materials.
  • Electrify Equipment: Replace gas-powered equipment with electric alternatives.

Innovation and Technology

  • Invest in Carbon Capture: Utilize carbon capture and storage technologies.
  • Adopt Electric Vehicles: Transition to an electric fleet to reduce transportation emissions.

The Impact of Regulators

Regulatory bodies globally are tightening their focus on emissions reporting and reduction. In the United States, the SEC’s new Climate Disclosure Rules mandate detailed reporting of greenhouse gas emissions (Scope 1, 2, and sometimes Scope 3) for publicly traded companies. Similar regulations are being implemented in the EU under the Corporate Sustainability Reporting Directive (CSRD).

Future-Proofing Your Climate Strategy

To stay ahead of regulatory changes and stakeholder expectations, continuously evolve your climate strategies. Set ambitious emission reduction targets and invest in innovative technologies to track and reduce emissions.

Summary

Understanding and managing Scope 1, 2, and 3 emissions is vital for any business committed to sustainability. Here are the key takeaways:

  • Scope 1 Emissions: Direct emissions from sources owned or controlled by the company.
  • Scope 2 Emissions: Indirect emissions from the generation of purchased energy.
  • Scope 3 Emissions: Other indirect emissions across the value chain.

Effective management involves collecting accurate data, measuring emissions with standardized frameworks, transparently reporting findings, and implementing reduction strategies. Between 1995 and 2015, global emissions dramatically increased, with Scope 1 emissions growing by 47%, Scope 2 by 78%, and Scope 3 by 84%. By future-proofing your climate strategy, your business can remain compliant and competitive in a rapidly changing regulatory landscape.

Ready to take the next step in managing your emissions? Request a demo today with Arbor and start your journey towards a more sustainable future.

For more insights and updates on carbon accounting, follow Arbor on LinkedIn.

Arbor's platform

Measure your carbon emissions with Arbor

Simple, easy carbon accounting.

Arbor Platform: app.arbor.eco
Arbor's platform

Measure your carbon emissions with Arbor

Simple, easy carbon accounting.

Arbor Platform: app.arbor.eco

FAQ about Scope 1, 2, and 3 Emissions

What are scope 1, scope 2, and scope 3 emissions?

What is scope 2 emission by definition?

What is a scope 3 emission?

How to calculate scope 1 and scope 2 emissions?

Is electricity a scope 1 or 2?

Is purchased gas scope 1 or 2?

Is heating scope 2?

How to reduce scope 1 and 2 emissions?

Is it mandatory to report scope 1 and 2 emissions?

Is business travel scope 1 or 3?

Does net zero include scope 3?

Is water consumption scope 3?

Are leased cars in scope 1 or 3?

Is waste scope 1 or 2?

What are scope 1 emissions examples?

What are scope 4 emissions?

Who needs to report scope 1 and 2 emissions?

How to reduce scope 1, 2, and 3 emissions?

Thanks for reading!
All About Scope 1, 2, and 3 Emissions

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