Scope 1, 2, 3 Emissions Explained
The Greenhouse Gas Protocol divides emissions into three scopes. Understanding these categories is essential for carbon accounting, ASRS compliance, and setting meaningful climate targets.
For most companies, Scope 3 represents 70-90% of total emissions but receives the least attention. Getting emissions measurement right is the foundation for credible climate action.
The Three Scopes at a Glance
Each scope captures different emission sources across your operations and value chain
Sources you own or control
Emissions from sources that are owned or controlled by your company. These are the emissions you have the most direct control over.
Purchased electricity, heat, steam
Emissions from the generation of purchased electricity, steam, heating, and cooling that you consume. These occur at the power plant, not at your facility.
Everything else in your value chain
All other indirect emissions that occur in a company's value chain. These are often the largest but hardest to measure and control.
Scope 1: Direct Emissions
Emissions from sources your company owns or controls directly
- Company-owned vehicles (cars, trucks, forklifts)
- On-site fuel combustion (natural gas, diesel generators)
- Manufacturing process emissions
- Fugitive emissions (refrigerant leaks, gas leaks)
- On-site waste treatment
- Switch to electric or hybrid vehicle fleets
- Replace gas heating with electric heat pumps
- Improve manufacturing process efficiency
- Regular maintenance to prevent leaks
- Transition to low-GWP refrigerants
Scope 2: Indirect Energy Emissions
Emissions from purchased electricity, steam, heating, and cooling
- Purchased electricity for offices and facilities
- Purchased heating and cooling
- Purchased steam for industrial processes
- Data centre electricity consumption
- Retail store and warehouse power
- Purchase renewable energy certificates (RECs)
- Sign power purchase agreements (PPAs)
- Install on-site solar panels
- Improve energy efficiency (LED lighting, HVAC)
- Shift to green electricity tariffs
Location-Based vs Market-Based Accounting
Location-based: Uses average grid emissions for your region. Reflects physical energy flows.
Market-based: Reflects your contractual choices like renewable energy certificates (RECs) or PPAs.
Under ASRS, companies should report both methods. Market-based accounting demonstrates the impact of your renewable energy investments.
Scope 3: Value Chain Emissions
The largest but most challenging category, covering your entire value chain
- Purchased goods and services (supply chain)
- Business travel (flights, hotels, taxis)
- Employee commuting
- Upstream and downstream transportation
- Use and end-of-life of sold products
- Engage suppliers on emissions reduction
- Include carbon criteria in procurement
- Enable remote work and video conferencing
- Design products for lower lifetime emissions
- Optimise logistics and freight routes
The 15 Scope 3 Categories
The GHG Protocol defines 15 categories of Scope 3 emissions. Not all will be material to your business, focus on those most significant to your operations.
Purchased goods and services
Capital goods
Fuel and energy-related activities
Upstream transportation and distribution
Waste generated in operations
Business travel
Employee commuting
Upstream leased assets
Downstream transportation and distribution
Processing of sold products
Use of sold products
End-of-life treatment of sold products
Downstream leased assets
Franchises
Investments
Why Scope 3 Matters Most
of total emissions for most companies
requires material Scope 3 disclosure
targets require Scope 3 reduction
customers are requesting data
Common Emissions Accounting Mistakes
Ignoring Scope 3 entirely
Missing 70-90% of your footprint makes any climate target meaningless
Double counting with suppliers
Your Scope 3 is someone else's Scope 1 or 2, ensure clear boundaries
Using outdated emissions factors
Grid emissions change yearly, use current Australian factors
Inconsistent boundaries year-on-year
Makes trend analysis impossible and raises red flags with auditors
How ESG Strategy Can Help
We help mid-market Australian businesses establish robust emissions measurement and reporting systems that meet ASRS requirements.
Emissions Baseline Measurement
Comprehensive Scope 1, 2, and material Scope 3 quantification
Reduction Strategy Development
Prioritised decarbonisation roadmaps aligned with science-based targets
Supplier Engagement Programs
Frameworks for Scope 3 data collection and supplier collaboration
We work inside your business as a Fractional Chief Sustainability Officer, building internal capability rather than just delivering reports.
Need Help With Emissions Measurement?
Book a free 30-minute consultation to discuss your emissions measurement requirements and ASRS compliance roadmap.
Frequently Asked Questions
What are Scope 1, 2, and 3 emissions?
Scope 1 emissions are direct emissions from sources you own or control (company vehicles, on-site fuel combustion). Scope 2 emissions are indirect emissions from purchased electricity, heat, or steam. Scope 3 emissions are all other indirect emissions across your value chain, including suppliers, business travel, employee commuting, and product end-of-life.
Which scope has the largest emissions for most companies?
For most companies, Scope 3 emissions represent 70-90% of their total carbon footprint. This is because Scope 3 captures the entire value chain, from raw material extraction through to product disposal. Manufacturing, retail, and service companies often find their supply chain (upstream Scope 3) is their largest emissions source.
Is Scope 3 reporting mandatory in Australia?
Under the Australian Sustainability Reporting Standards (ASRS), companies must report material Scope 3 emissions. Starting with Group 1 entities (January 2025) and expanding to Groups 2 and 3 by 2027. While not all 15 Scope 3 categories may be material, companies must assess and disclose those that are significant to their operations.
How do I measure Scope 3 emissions?
Scope 3 measurement typically uses a spend-based approach (applying emissions factors to procurement spend), supplier-specific data (requesting emissions data from key suppliers), or activity-based calculations (tracking specific activities like flights, freight, and waste). Most companies start with spend-based estimates and progress to more accurate methods over time.
What's the difference between location-based and market-based Scope 2?
Location-based Scope 2 uses average grid emissions factors for your region. Market-based Scope 2 reflects your actual electricity purchasing choices, including renewable energy certificates (RECs) or power purchase agreements (PPAs). Companies should report both, but market-based accounting allows you to demonstrate the impact of renewable energy procurement.
Can I reduce Scope 3 emissions without controlling my suppliers?
Yes. While you can't directly control supplier emissions, you can influence them through supplier engagement programs, procurement criteria, collaboration on efficiency improvements, and choosing lower-carbon alternatives. Many companies set science-based targets that require suppliers to adopt emissions reduction goals.
About the Author
Lee Stewart
Founder & Principal Consultant, ESG Strategy
Lee Stewart is an Amazon #1 bestselling author with 20+ years' experience leading sustainability strategy for major multinationals including Fonterra and Fujitsu. He is the author of How to Build Sustainability into Your Business Strategy and advises organisations across Australia and New Zealand on ESG governance, compliance, and value-led transition planning.
Speaking: COP28 delegate, Climate Reality Mentor, regular contributor to CFO and governance publications.
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