Scope 3 Emissions: The Why and the How for Energy Companies

Scope 3 emissions are outside of a company’s direct control. Should they really care about them? Yes. With climate-related natural disasters taking the world by storm, energy companies must set and meet ambitious decarbonization targets in line with the Science-Based Targets Initiative and the Paris Agreement. Although companies are making an effort to reduce emissions from their own operations and electricity and heating procurement, emissions from their value chain are not reducing at the same pace. These value chain emissions often account for most of a company’s greenhouse gas (GHG) emissions—up to 88%--largely because their biggest earning products (petroleum and natural gas) release lots of carbon emissions into the atmosphere. 

Why the Slow Progress on Scope 3 Emissions?

Logistical challenges in accurately reporting indirect emissions and engaging with large supplier and consumer bases make scope 3 emissions a lot trickier to handle than scope 1 or 2 emissions. 

Figure 1: Overview of Greenhouse Gas Protocol Scopes and Emissions across the Value Chain

(Source: Greenhouse Gas Protocol)

Emissions from purchased goods and services and the use of sold products are the main contributors to scope 3 emissions. It is common for energy companies to have tens of thousands of suppliers across geographies. TotalEnergies, for example, has more than 100,000 suppliers globally. Similarly, their customer base includes millions across the globe. An accurate estimation of these emissions would require a full inventory analysis of all their value chain partners. Often, companies lack access to primary data and need to rely on secondary data and underlying assumptions, which often lead to inaccuracies. Furthermore, collecting this data requires considerable time and monetary investments. Such reservations are valid, and a ballpark estimate from secondary data is much better than ignoring it due to inaccuracies and difficulties.

How Can Companies Overcome These Challenges?

The use of sold products make up most of the scope 3 emissions for energy companies; therefore, the most impactful way to overcome scope 3 challenges is to sell less oil and natural gas and replace them with cleaner alternatives such as biofuels. TotalEnergies will reduce its sale of petroleum products by 30% between 2020 and 2030 and replace them with cleaner alternatives.

Streamlining the collection of emissions data from the value chain using digital platforms would make collecting and reporting value chain emissions less timely and monetarily intensive. Guidehouse has an enterprise-ready, cloud-based digital sustainability management platform called Guidehouse Papaya that offers:

• Complete scope 1, 2, and 3 footprinting and progress tracking, including 30k+ standard physical and financial emissions factors, REC and offset tracking, and CDP-aligned reporting
• Seamless expansion in multiple dimensions, including number and types of users, data sources, software integrations, GHG data types, and non-GHG data types, as well as number and types of organizational assets
• Customizable portals accessible to all stakeholders across the value chain, including suppliers and customers

By adopting this platform and forcing key suppliers and corporate customers to report the required emissions data on this platform regularly, energy companies can achieve greater transparency with their supply chain, which would help them make more informed decisions during supplier procurement. As more energy companies start to adopt this tool, opportunities for collaboration on developing an industry standard for the reporting of scope 3 emissions will also arise. 

As reporting standards improve, so will engagement with suppliers via carbon insetting. Energy companies can leverage Guidehouse’s 30+ years of experience in the sustainability sector to help them identify opportunities to help key suppliers and corporate customers decarbonize their operations. For example, steel is one of the main raw materials that energy companies purchase for their operations and was responsible for 8% of global CO2 emissions in 2018. Energy companies can help set up carbon capture and storage facilities at steel plants to lower their emissions.

Although scope 3 emissions are a pain point for most companies, they must be dealt with for us to be anywhere near achieving the 2050 net-zero target set out by the Paris Agreement. There are potential partnership opportunities between Guidehouse and energy companies to help this sector achieve its net-zero targets.