Scope 1, Scope 2, and Scope 3 Emissions Explained

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By: ClimateSeal Editorial

Reading time: 10 minutes

When a company begins carbon accounting, one of the first questions is: What is the difference between Scope 1, Scope 2, and Scope 3 emissions?

The three scopes are a way to organize a company's greenhouse gas emissions by where they come from and how much control the company has over them. Scope 1 covers direct emissions from sources the company owns or controls. Scope 2 covers indirect emissions from purchased energy. Scope 3 covers other indirect emissions across the company's value chain.

This framework is widely used in corporate greenhouse gas inventories and is associated with the GHG Protocol Corporate Standard. Understanding the scopes helps sustainability, finance, procurement, and operations teams build a complete emissions inventory and decide where reduction work should begin.

Short answer: Scope 1 is what your company emits directly. Scope 2 is emissions from the energy your company buys. Scope 3 is the wider value chain, including suppliers, customers, business travel, waste, and investments.

Why Are Emissions Divided Into Three Scopes?

Companies produce emissions in many different ways. A factory may burn natural gas on site, purchase electricity from the grid, buy steel from suppliers, ship finished products to customers, and send employees on business trips. These emissions are connected to the company's activities, but they do not all occur inside company-owned facilities.

The three-scope structure creates a common language for sorting those sources. It also reduces the risk of focusing only on the emissions that are easiest to measure. For many companies, Scope 3 is larger than Scope 1 and Scope 2 combined, even though it is further away from the company's direct operations.

The scopes are not a ranking system. Scope 3 is not automatically less important than Scope 1, and Scope 1 is not automatically the best place to start. The right priority depends on the company's material sources, reduction opportunities, customer requirements, and reporting obligations.

Scope 1 Emissions: Direct Emissions

Scope 1 emissions are direct greenhouse gas emissions from sources that a company owns or controls. The emissions happen at facilities, vehicles, equipment, or other sources within the company's operational boundary.

Common Scope 1 sources

Natural gas, coal, oil, or other fuels burned in boilers, furnaces, ovens, generators, and industrial equipment.
Fuel burned in company-owned or company-controlled vehicles.
Refrigerant and other fugitive emissions from cooling, air-conditioning, and fire-suppression equipment.
Process emissions from chemical reactions, cement production, metal processing, or other industrial activities.
On-site waste treatment or wastewater treatment where the company controls the process.

For example, if a manufacturer burns natural gas in an on-site furnace, the resulting emissions are Scope 1. If the company owns delivery trucks and those trucks burn diesel, the vehicle emissions are also Scope 1.

What is not Scope 1?

Electricity purchased from the grid is not Scope 1. It is Scope 2 because the emissions occur at the power generator, even though the company consumes the electricity. Emissions from a supplier's factory are generally Scope 3 for the purchasing company, not Scope 1.

The ownership and control question matters. A leased asset may be Scope 1 or Scope 3 depending on the company's consolidation approach and whether it controls the asset's operation. The accounting policy should be documented rather than decided separately for each data point.

How are Scope 1 emissions calculated?

Most Scope 1 calculations use activity data multiplied by an appropriate emission factor:

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Activity data x emission factor = greenhouse gas emissions

Examples of activity data include litres of diesel, cubic metres of natural gas, tonnes of process material, or kilograms of refrigerant lost. The result is usually converted into tonnes of carbon dioxide equivalent (tCO2e), which includes carbon dioxide and other greenhouse gases such as methane and nitrous oxide.

Scope 2 Emissions: Purchased Energy

Scope 2 emissions are indirect emissions from the generation of purchased or acquired energy consumed by the company. The most common source is purchased electricity, but Scope 2 can also include purchased steam, heating, and cooling.

The emissions occur at the utility or energy generator, not inside the company's facility. They are included in the company's inventory because the company purchases and uses the energy.

Examples of Scope 2 sources

Electricity purchased from a utility or grid supplier.
Purchased steam used in a manufacturing process.
District heating purchased for buildings.
District cooling purchased for offices or facilities.

If a company buys electricity to run its office computers or production line, the associated generation emissions are Scope 2. The company's own diesel generator, however, creates Scope 1 emissions when it burns fuel on site.

Location-based and market-based Scope 2

Many companies report Scope 2 using two methods:

Location-based Scope 2 reflects the average emissions intensity of the electricity grid where consumption takes place. It answers: What emissions are associated with the local grid serving this facility?

Market-based Scope 2 reflects contractual instruments or supplier-specific information, such as renewable electricity contracts, green tariffs, or energy attribute certificates, where those instruments meet the applicable reporting rules. It answers: What emissions are associated with the electricity products the company has chosen to purchase?

The two methods are not competing calculations. They provide different information. A company should document which method it uses, what instruments support the market-based result, and whether the instruments are valid for the relevant period and geography.

Scope 3 Emissions: The Value Chain

Scope 3 emissions are all other indirect emissions that occur in a company's value chain, outside Scope 1 and Scope 2. They can occur upstream, before products or services reach the company, and downstream, after the company sells or delivers them.

Scope 3 is divided into 15 categories under the GHG Protocol. Not every category applies to every company, but companies should assess relevance rather than assume that an inconvenient category is out of scope.

The 15 Scope 3 categories

Upstream categories

1. Purchased goods and services — emissions from goods and services the company buys, such as raw materials, components, packaging, software, consulting, and professional services.

2. Capital goods — emissions from assets the company purchases, such as buildings, machinery, vehicles, and production equipment.

3. Fuel- and energy-related activities — upstream emissions from purchased fuels and energy that are not included in Scope 1 or Scope 2, including extraction, production, and transport.

4. Upstream transportation and distribution — transportation and storage services purchased by the company, including inbound logistics and warehousing.

5. Waste generated in operations — third-party treatment and disposal of waste from the company's operations.

6. Business travel — employee travel by air, rail, taxi, rental car, hotel, and other commercial travel services.

7. Employee commuting — travel between employees' homes and workplaces.

8. Upstream leased assets — emissions from leased assets that are not already included in the company's Scope 1 and Scope 2 inventory.

Downstream categories

9. Downstream transportation and distribution — transportation, distribution, and storage of sold products when the company does not pay for or control the service.

10. Processing of sold products — emissions from customers or other companies processing the company's intermediate products.

11. Use of sold products — emissions that occur when customers use products sold by the company, such as electricity consumed by appliances or fuel burned by vehicles.

12. End-of-life treatment of sold products — recycling, disposal, or other treatment of products and packaging after customers discard them.

13. Downstream leased assets — emissions from assets the company owns and leases to other entities when those emissions are not included in Scope 1 and Scope 2.

14. Franchises — emissions from franchise operations that are not included in the company's Scope 1 and Scope 2 inventory.

15. Investments — emissions associated with investments, loans, project finance, or other financial activities, where applicable.

Why is Scope 3 difficult to calculate?

Scope 3 usually depends on data from other organizations. A company may need supplier-specific product footprints, freight distances, employee travel records, customer use assumptions, or end-of-life scenarios. The company often has less control over the data and the underlying emissions than it does for its own fuel and electricity.

That does not mean Scope 3 should be ignored. It means the inventory needs a transparent data-quality approach. Companies can begin with spend-based or average-data estimates, then improve priority categories with supplier-specific or activity-based data over time.

Scope 1 vs Scope 2 vs Scope 3 at a Glance

| --- | --- | --- | --- |

| Scope 1 | Direct emissions from owned or controlled sources | On-site fuel, company vehicles, refrigerants, process emissions | Fuel use, refrigerant losses, production quantities |

Do Scope 1, Scope 2, and Scope 3 Emissions Overlap?

The scopes are designed to organize an inventory without double counting emissions within the same company's reported boundary. The same physical emissions may appear in different companies' inventories because they are part of different organizations' value chains.

For example, fuel burned by a logistics provider's truck may be Scope 1 for the logistics provider. For a manufacturer that purchases the transport service, the same activity may be Scope 3, usually in upstream or downstream transportation and distribution. That is not necessarily an error; it reflects different inventory perspectives.

Within one company's inventory, however, a source should not be counted as Scope 1 and Scope 2 at the same time. Purchased electricity is Scope 2 for the electricity consumer, while fuel burned at the utility may be Scope 1 for the utility company.

How Should a Company Calculate Its Scopes?

A reliable inventory is built from clear boundaries, consistent data, and documented assumptions. A practical process is:

1. Set the organizational boundary. Decide which legal entities, facilities, subsidiaries, leases, and operations are included.

2. Set the reporting period. Use a defined period, usually a calendar or financial year, and record any gaps.

3. Map emission sources. List facilities, vehicles, equipment, energy purchases, suppliers, logistics, travel, waste, products, and investments.

4. Assign each source to a scope. Use the source's relationship to the company and the chosen consolidation approach.

5. Collect activity data. Gather utility bills, fuel records, invoices, travel reports, supplier data, production records, and waste documents.

6. Select emission factors. Record the source, geography, year, unit, version, and global warming potential basis.

7. Calculate and review. Check units, conversions, duplicates, missing periods, unusual changes, and boundary consistency.

8. Document the result. Keep calculation files, source evidence, assumptions, approvals, and changes in an audit-ready record.

Common Scope 1, 2, and 3 Reporting Mistakes

Treating all company-related emissions as Scope 1.
Reporting purchased electricity as Scope 1 instead of Scope 2.
Reporting only Scope 1 and Scope 2 while describing the inventory as complete.
Choosing Scope 3 categories based only on data availability rather than relevance.
Comparing Scope 2 results without checking whether they are location-based or market-based.
Mixing financial years, geographies, activity units, or emission-factor versions.
Using spend-based estimates without explaining inflation, currency, or supplier assumptions.
Counting the same activity twice inside one company's inventory.
Publishing a total without showing boundaries, exclusions, data quality, or uncertainty.

Where Should a Company Start?

Most companies should start by building a complete source map, not by trying to perfect every number immediately. Scope 1 and Scope 2 are often the easiest place to establish controls because facility, fuel, and utility records are usually available internally.

At the same time, perform a high-level Scope 3 screening. This helps identify whether purchased goods and services, transportation, product use, or another category is likely to be the largest source. A rough but transparent Scope 3 estimate is more useful than waiting years for perfect supplier data.

Once hotspots are clear, improve the most material categories first. Request primary data from strategic suppliers, replace generic spend factors with activity data, and create repeatable data requests for procurement and operations teams.

The goal is not only to produce a total emissions number. A useful inventory should help the company answer:

Which activities create the most emissions?
Which data is reliable and which is estimated?
Which suppliers or facilities need attention?
Which reduction actions are realistic?
Can the result be reproduced and reviewed next year?

Frequently Asked Questions

What are Scope 1 emissions?

Scope 1 emissions are direct greenhouse gas emissions from sources a company owns or controls, such as on-site fuel combustion, company vehicles, refrigerant leaks, and industrial process emissions.

What are Scope 2 emissions?

Scope 2 emissions are indirect emissions from purchased or acquired electricity, steam, heating, and cooling consumed by a company.

What are Scope 3 emissions?

Scope 3 emissions are all other indirect value-chain emissions outside Scope 1 and Scope 2. They include purchased goods, transportation, business travel, waste, product use, end of life, franchises, and investments.

Is Scope 3 always the largest scope?

No. It depends on the company's sector, business model, products, energy sources, and value chain. For many manufacturers, retailers, and service companies, Scope 3 is the largest source, but that is not universal.

Are Scope 1, Scope 2, and Scope 3 mandatory?

The answer depends on the jurisdiction, reporting framework, company size, sector, and customer requirements. Even where disclosure is not legally required, many companies calculate the scopes to meet procurement requests, target-setting expectations, investor questions, or internal reduction goals.

What is the difference between Scope 2 location-based and market-based emissions?

Location-based Scope 2 uses average grid emissions for the place where electricity is consumed. Market-based Scope 2 uses eligible supplier-specific or contractual information about the electricity purchased.

Conclusion

Scope 1, Scope 2, and Scope 3 provide a practical structure for understanding corporate greenhouse gas emissions:

Scope 1: emissions directly produced by owned or controlled sources.
Scope 2: emissions associated with purchased energy.
Scope 3: other indirect emissions across the value chain.

A strong inventory makes the boundary, data sources, emission factors, assumptions, and exclusions visible. Companies can then improve data quality over time and focus reduction efforts where they will have the greatest impact.